“Now this is not the end. It is not even the beginning of the end. But it is, perhaps, the end of the beginning.” Winston Churchill, Mansion House, 1942
Winston Churchill made those remarks three years into World War II, after Britain’s first significant win at El Alamein, in an attempt to help the British people see that the war was not a single battle won, but a series of battles that would require extraordinary effort long into the future. Just so for us, at the very beginning of a complex economic struggle – nowhere near the end of the beginning. I wonder at the difficulty we have in putting the immediate and extraordinarily serious battle for Covid recovery into the longer term context of winning what is going to be a drawn-out digital struggle with China. These battles are going to be won on Main Street rather than Wall Street, and so – in the words of a Midwestern entrepreneur – we are ‘patching rather than building,’ and we better start building!
“They Wanted to Kill Me.” The not yet notorious Dr. Doom, Nouriel Roubini, said to me as we passed at a Citibank conference in 2007. He had given them bad news, spoiled their party, and I was up next. Nobody likes bad news. This week a number of dots connected that reminded me of that moment: The Associated General Contractors (AGC), the 27,000 firm contractors association, released a study highlighting shocking pessimism in an industry known for optimism, viewing 2021 in the same light as the End of Days year 2008; this week unemployment claims showed their biggest increase (nearly 1,000,000) since March; and – cheerful as always – Nouriel Roubini published his own assessment of the ‘fragile recovery,’ seeing problems for Main Street everywhere, from the debt overhang, to vast vaccine underperformance (50%, rather than the 95% advertised), to immediate short-term problems stemming from the coming era of industrial disruption.
Washington and Wall Street see recovery: the Fed projects a robust GDP recovery this coming year, with growth in the 4.2% range; Larry Fink sees a great second half of the year, marveling at his good fortune in managing $8.7 trillion, while JP Morgan’s profits increased 42% in 2020. Main Street, on the other hand, doesn’t see the beginning of the end, nor do they see the end of the beginning – large company CEO’s, especially infrastructure-related CEO’s, see the beginning of a turbulent decade, one that Washington and New York are about as prepared for as they were for the pandemic.
This failure to understand the magnitude of the challenge we face in our bifurcated struggle with China is confounding – one thing is certain, unless we get moving it will be traumatic for Main Street, and so doubly traumatic for the country. Again, Roubini: “As the race to control the industries of the future intensifies, there will be even more decoupling [from China] of data, information, and financial flows, currencies, payment platforms, and trade in goods and services that rely on 5G, AI/ML, big data, the Internet of Things, computer chips, operating systems, and other frontier technologies.” And there will be worker displacement on a scale that we have not seen since the Great Depression. Here the AGC member’s pessimism on manufacturing (-17%) is concerning, because those are the supply chain jobs that we thought we were bringing home, and that we have to bring back home.
Thinking Long – Building the Roads for Henry Ford’s Automobiles. Entrepreneurs around the country are responding aggressively to the opportunity presented by the 5G ecosystem, but their response cannot be effective if the infrastructure for those new companies and their inventions – mobility as a service, autonomous trucks, seamless machine to machine logistics – aren’t created, innovated, supported and quickly put in place. Unless we do that the technology freight train barreling our way will have a Chinese conductor at the wheel.
A more positive message: with the right infrastructure investment we could create over 1 million infrastructure jobs within 6 months, and set the stage – in terms of a pipeline of projects, trained workers, deep-pockets firms, and long-term vision – to drive a Main Street recovery for the next 30-40 years. The ability of our public sector to invest is greatly diminished, but – more good news – virtually all of the investment required, and all of the electric and green investment, is driven from the private sector (including, of course, pension and institutional funds).
The Vehicles for our Infrastructure Long Game – Great Companies. The decline in Main Street infrastructure investment has created a significant asymmetry between the U.S. and China in the size, reach and risk-taking ability of the companies that organize critical infrastructure projects. Make no mistake, this is a real problem that must be recognized – and rectified. The investment decline, and hence the room for our companies to succeed, has been intensified by Covid: the AGC’s report goes on to highlight that “Fifty-nine percent of firms report they had projects scheduled to start in 2020 but postponed until 2021. In addition, 44 percent of firms report they had projects canceled in 2020 and not rescheduled. Eighteen percent of firms also report that owners have already postponed projects scheduled to start between January and June of 2021.”
The largest construction companies in the world are all Chinese, and by any measure they are massive – the largest may have as many as 2.2 million employees! These companies dwarf the firms that we would rely on to build our world-class infrastructure – and that of our market democracy partners. Adding to the reality of the challenge, these companies – along with the Spanish giant ACS – have a recent track record of extraordinary success, having built great projects for a decade or more, while we struggle to build a single high speed rail project, a single MagLev project, or even the critical Gateway tunnel.
One of the priorities of the coming Biden infrastructure initiative, thinking long-term, will be to partner with, and create, great U.S. infrastructure firms. The largest U.S. construction companies – I have left out Aecom because they are no longer in construction – is between one seventh and 1/20th the size of the largest Chinese construction firms, and only about 1/4 of Spain’s largest firm. Somehow this reminds me of the tiny size – 174,000 in total numbers – of the U.S. military before World War II.
Main Street – The Key to the Infrastructure Renaissance. Three points. First, infrastructure is no longer the second or third-level issue that politicians see in their mind’s eye – no longer the physical underpinning of our economy, it is fast becoming the digital backbone, and increasingly the brain, driving productivity, entrepreneurial opportunity and labor demand.
Second, we have become horrible at executing on the blocking and tackling of building projects, and we have to reverse that immediately. If a MagLev project is going to remove 2 million tons of greenhouse gases from the automobile pollution ledger each year, then why not fast track the approval process? Let’s get back to basics: empower the states and state infrastructure banks; reenergize national laboratories to lead the way on basic research; mobilize pension funds and private capital to invest in visionary projects; and transform bureaucratic inertia into support for innovation and the creation of visionary projects from wind and solar, to high voltage transmission, to cleaner water and more efficient means of moving people and goods. Again in the words of the Midwestern entrepreneur, “the public sector needs to impose itself.”
Ron Klain, President-elect Biden’s chief of staff, said it well in a recent interview: “My work on the Recovery Act… was a great learning experience in how to coordinate among federal agencies, how to increase the pace at which government responds, how to break down bureaucratic conflict in the agencies and how to deliver results for the American people.” We need a group of people like that, in the White House, identifying projects and driving our infrastructure build.
Third, and most important of all, we need a vision that is long-term, generous, uplifting, inspiring – because that is how we will come together, get through the battle against Covid, and successfully engage in the many infrastructure battles to come as we build our economy over the next decade.
Note: These are ideas that have been developed in my forthcoming book: Vision – Our Strategic Roadmap Forward, by Norman F. Anderson (with Seth Kaufman)
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