Kublai Khan decrees new stately pleasure domes, on time and under budget by mattsteinglass
November 10, 2008, 9:40 am
Filed under: China, Economics, United States

In the US it looks like the Democrats are gearing up for a minor stimulus package before the end of the year and a major one after Obama takes office, with support from such laissez-faire Republican luminaries as Martin Feldstein and center-right sages like Fareed Zakaria. The big question: will it focus on government investment in infrastructure? In East Asia, meanwhile, governments are heeding the call of various economists to bump up consumption with government-driven infrastructure investments, with the new big announcement being China’s commitment to spend a staggering $586 billion dollars, mainly on new infrastructure.

The announced sum of four trillion yuan represents about 16% of China’s economic output last year, and is roughly equal to the total of all central and local government spending in 2006. New spending of even half that amount would be substantial next to China’s six trillion yuan annual budget for this year.

The plan includes spending in housing, infrastructure, agriculture, health care and social welfare, and features a tax deduction for capital spending by companies. China’s economy won’t be able to absorb so much spending immediately: Economists expect one or two more quarters of slowing growth at a minimum before a rebound could take hold.

Note that final sentence: one to two quarters. The objection to using infrastructure spending as stimulus in the US has classically been that new infrastructure spending takes too long to get underway, by which time the recession is over. When we say “too long”, we’re talking about five to ten years or more from the time a proposed new road, bridge, port, train, power plant, or what have you is mooted, to the time the concrete starts pouring.

In China when they say the spending can’t take effect immediately, they mean it may take three to six months. I remember an article someone pointed out to me about 4 years ago which makes this phenomenon clear. It was about a Chinese highway construction project that had to traject a large river. “We’re not sure whether we’re going to build a bridge or a tunnel,” the lead engineer on the project said, “but whichever we choose, it will be done in six months.”

Obviously some of the difference is that in China they don’t do environmental review. They don’t do smart growth (not that the US does, mostly, either). They don’t have adequate procedures for input and objections by citizens and other stakeholders. They have brutal and autocratic methods for eminent domain, and pay inadequate compensation. Nevertheless, something has gone out of whack in the US. It takes us too long to do major infrastructure projects. If the legacy of this worldwide recession is that China emerges with spectacular 21st-century infrastructure and the US emerges with a dying bailed-out auto industry and big unemployment programs, then we’re going to have trouble in the coming decades.


Leave a Comment so far
Leave a comment

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: