Infrastructure ROI

Encouraging investments in manufacturing may yield better ecomonic returns than spending on highways and wind mills. 


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We couldn’t live without them. Roads, bridges, transit systems, power lines, telecom networks, waterworks and even sewers are important. Collectively, they represent the infrastructure that makes today’s society function. Much of this infrastructure is publicly owned. Other parts are operated as natural monopolies that are highly regulated by the government in the public interest. So, investing taxpayer money to renew this infrastructure makes sense. In fact, greatly increased spending on infrastructure is being proposed as an economic stimulus. The benefits of a strong and modern infrastructure are broadly shared, and this kind of spending is likely to get taxpayer support.

A country’s manufacturing base is important, too. From the companies that extract raw materials to those that produce finished goods for consumers, this base represents a country’s ability to generate real wealth. It is society’s major source of income. With its network of equipment suppliers, job shops and production plants to channel products from one transformational process to another, this manufacturing base can be seen as a kind of infrastructure—a manufacturing infrastructure that makes life in society more comfortable and prosperous. We couldn’t thrive without it.

Hence, investments in this "manufacturing infrastructure" can stimulate an economy in a powerful way. For this reason, debates about the current economic stimulus package have raised issues about investments in America’s manufacturing infrastructure. Investment in this manufacturing infrastructure would complement increased spending in the roads-and-bridges infrastructure. After all, the two are mutually dependent.

However, there are key differences between the physical/technical infrastructure and the manufacturing infrastructure. Unlike roads and bridges, the manufacturing infrastructure is, for the most part, privately owned. Moreover, this infrastructure operates in a competitive, free-market environment that extends well beyond our borders. This competition is critical because it promotes greater efficiency and creates a strong incentive to continuously improve productivity. Also, it is significant that the manufacturing infrastructure involves the participation of foreign-owned companies as sources of essential technology.

These differences matter. They must be taken into account when considering the best way for investments in the manufacturing infrastructure to occur. This makes the debate murky, especially for a public that rarely pays attention to manufacturing and and its importance.

So far, the best proposals focus on policies that encourage greater private investment in the manufacturing infrastructure, such as more generous tax allowances for expensing capital purchases. Capital equipment, such as machine tools and other kinds of production machinery, is the basic building block of our manufacturing infrastructure. Promoting investments in these goods would do much to boost the manufacturing economy—and the general economy, as well.