In 1956, the US embarked on a 10-year mission to connect its major cities via the Interstate Highway System. When the project was completed in 1992 (a little over 10 years, for those of you doing the math) China began a similar journey to transform its own infrastructure.
As Congress debates the largest infrastructure spending package in 60 years, it's fair to ask what the impact of America's last investment was? Are there aspects of China's approach to infrastructure the United States can borrow to do this round better?
To answer this question, I invited Nathaniel Baum-Snow, Professor of Economic Analysis and Policy at the University of Toronto's Rotman School of Management, to discuss. Baum-Snow focuses on the impact transportation systems had on cities in the United States and China and is co-editor of the Journal of Urban Economics.
Baum-Snow's work shows that the construction of highways both in China and the United States led to growth in suburbs outside the city center at the expense of population growth and businesses. Highways opened up access to previously unavailable, cheaper tracts of land, meaning industries that required more space, such as manufacturing and warehousing, moved outside the city centers while knowledge-based businesses, such as law, finance, and tech, remained.
This also opened up access to cheaper housing, leading many to leave the city centers for more space and less congestion.
While the result in China was a reduction in the rate of growth in city centers, America's cities saw a decline. Baum-Snow's work shows each new highway passing through a central city reduced its population by 18%.
The migration of businesses from city centers in the United States left many in the city without jobs and without the means to get to them. While some were able to eventually move to the suburbs to find employment, racist housing laws left many minorities stranded in America's urban centers. Studies show a corresponding rise and fall in the rate of violent crime in America's urban cores as this economic realignment played out, fair housing laws were passed, and people began to relocate closer to their jobs.
If America suffered from restricting access to the suburbs, China suffered from offering too much. The past 30 years of construction in China have resulted in the overbuilding of infrastructure and housing, with vacant apartment buildings being demolished and ghost cities popping up in China's exurbs. Construction currently makes up 29% of China's GDP, and an oncoming liquidity crunch could have serious impacts on growth for years to come.
Despite everything above, Baum-Snow's work shows highways have a net-positive economic impact when done in moderation. As America looks to make the most serious investment in infrastructure since 1956, the one aspect of China's boom we could borrow would be more centralization.
Baum-Snow sees reason to look at whether centralizing procurement and building in the United States via a smaller number of large contractors would allow infrastructure to be built quicker at lower costs than the current method of distributing aid to state governments to be spent among a hodgepodge of smaller companies.
Additional ResourcesI referenced these two papers in preparation for this episode:
- Baum-Snow, Roads, Railroads, and Decentralization of Chinese Cities: https://direct.mit.edu/rest/article-abstract/99/3/435/58455/Roads-Railroads-and-Decentralization-of-Chinese?redirectedFrom=fulltext
- Baum-Snow, Did Highways Cause Suburbanization?: https://www.jstor.org/stable/25098858