President Donald Trump has proposed a $1 trillion infrastructure investment program. Leading Democrats, including House Minority Leader Nancy Pelosi, Senate Minority Leader Charles Schumer, and New York Governor Andrew Cuomo are reportedly excited to cooperate. Schumer would like to use the money to build a $24 billion rail tunnel between New York and New Jersey, and Cuomo would like to invest $10 billion into JFK Airport. Both Trump and supportive Democrats believe that such an infrastructure package could rebuild America. Congressional Republicans, meanwhile, seem likely to go along as long as most of the money comes from private sources. Indeed, the coming fight over infrastructure is likely to be about how much of it to privatize.
Yet wherever the money comes from, the evidence strongly suggests that a trillion dollars simply won’t go very far in the U.S. Comparing rail tunnel costs shows how expensive American infrastructure is: There have been multiple independent analyses of the costs of rail tunnels around the world, including one by myself and an unpublished paper by Yale Law professor David Schleicher and Urban Institute senior fellow Tracy Gordon. Both found that tunneling in the U.S. is several times as expensive as anywhere else in the world. New York’s new Second Avenue Subway cost $2.6 billion per mile; most comparable subway extensions elsewhere in the world are in the $150-500 million per mile range. An ongoing light rail extension in Boston is so expensive that it was misclassified as a subway in a Spanish analysis and still ranked among the priciest urban rail lines in the world.
While the detailed analysis is restricted to rail projects, this appears to hold for roads as well. Boston’s Big Dig was many times as expensive per mile as recent freeway tunnels in Madrid and Paris.
The most common explanation for high American infrastructure costs are the high wages associated with being a developed country, often in comparison with developing countries like China. But as shown by Schleicher and Gordon, construction costs only weakly depend on wages outside the U.S. Chinese costs are very close to the European average nowadays. Some of the cheapest infrastructure in the world is in developed countries, such as Spain and South Korea. Other high-wage countries seem quite capable of building cost-efficiently. Why can’t the United States?
Some analysts blame America’s NIMBY laws, but that doesn’t seem like the primary cost driver either. American law empowers the state to take private land for infrastructure to a greater extent than many peer first-world legal systems. In Japan, the process is especially cumbersome, and land costs are higher. Indeed, urban subways in Japan are on the expensive side for a civil law country, while high-speed rail tunnels outside built-up areas are cheaper than in Europe. In the U.S., everything is expensive.
Instead, what seems more consequential is the legal system for contracting and procurement. In both my analysis and that of Schleicher and Gordon, tunneling costs in common-law countries are higher, including not just the United States but also Britain and former British colonies such as Singapore, Bangladesh, and Australia. In those countries, agreements between public authorities and contractors are enforced by lawsuits, whereas in civil law jurisdictions such as France, Germany, and Japan, they are enforced by government regulations. This difference was highlighted by Manuel Melis Maynar, the former CEO of Madrid Metro, in an address to the Irish parliament:
Dublin can build its metro in 40 months for about €1 billion. It will depend. The people of Dublin have to live it, for without them it will not be done. It will be absolutely impossible, for the Irish common-law system is very complex. Ours, based on Roman law, is much simpler.
But even within the common-law world, there is substantial variation. At the lower end, Vancouver has built subway tunnels at average Continental European (civil law) costs, and after many delays, Dublin is likely to do the same. American cities, led by New York, are at the upper end. This has to do with more local legal problems. A Metropolitan Transportation Authority report from 2010 acknowledges that construction costs in New York are 3 to 6 times as high as in Europe, and mentions that the perceived litigation risk in New York is higher.
The legal situation in New York specifically is not just about common law and the threat of lawsuits, but also procurement rules. The specifications for major public works contracts are overexacting—supposedly to prevent dishonest contractors from stiffing the agency. But this creates more difficulty for contractors, who have less flexibility in their designs, and who have to contend with more red tape. Many choose not to bid on public projects at all and work only for the private sector. One of New York’s two recent subway extensions, the 7 extension to Hudson Yards, had just one bidder. The fewer bidders there are, the less competition there is, raising prices.
But even if procurement laws gave contractors more flexibility, in one way they remain constrained: Union work rules. While U.S. labor costs are not unusually high, labor productivity is unusually low in public-sector construction. This is especially bad in older cities with entrenched union interests; by contrast, costs in cities with newer subway systems, including Los Angeles and Seattle, are higher than the European average by only 50 to 100 percent, not by a factor of 5 to 10 as in New York. MTA Capital Construction head Michael Horodniceanu has observed that a certain task that in Madrid is done with nine workers requires twenty-four in New York due to union rules; I have been told by an anonymous source that New York consistently uses 2 to 3 times as many workers as major European cities. Megaprojects, a textbook by the American Council of Engineering Companies, states:
As a result of existing union agreements covering the eastern seaboard area of the United States, underground construction employs approximately four times the number of personnel as in similar jobs in Asia, Australia, or Europe.
The main problem in the United States, then, is not corruption or anything particularly evil. Nor is it stupidity. The rules are artifacts of the Progressive Era. They were passed in order to improve procurement over previous practices, requiring competitive bids with clear guidelines. Chief road builder Thomas MacDonald championed such measures beginning in the 1910s, when he built a road network in Iowa on a low budget.
However, what worked for the economic conditions of the 1910s is inappropriate today. Infrastructure projects have grown in complexity, and overexacting specifications are a liability rather than an asset. This does not mean the poorly-regulated environment of the Gilded Age is the solution. Rather, what is needed is smarter, leaner regulations. Melis Maynar provides some suggestions:
Public authorities should oversee construction with small in-house teams rather than outsource it to consultants.
Construction should be quick; slower projects are more expensive rather than cheaper.
Public authorities should award contracts by a combination of a technical score, speed, and cost, and not exclusively by cost.
Design-build is bad, because the designer of an infrastructure work is personally invested in the original plan and is more reluctant to make small changes as necessary based on geological surprises.
Contracts should specify unit costs, so that if change orders are required, they will already be priced in, without further haggling.
It also goes without saying that staffing levels should follow the modern best practices, and not the much higher levels common in the U.S. It is unclear how much smart reforms could bring construction costs down. However, substantial savings are likely. After adjusting for inflation, Madrid’s subway construction in the late 1990s and early 2000s averaged about $100 million per mile, a fraction of the European average and a far cry from the $2.6 billion for the Second Avenue Subway.
The more the U.S. intends to spend on infrastructure, the more important it is that it take care to do it right. This means building the right projects for the right price. High construction costs in the cities with the worst infrastructure capacity crunches ensure that this is not possible under the current legal and regulatory environment. However, such high costs are not ordained: They come from a decision to pass or maintain certain rules, and those can be changed. In an environment where American rail tunnels cost as little as they do in most other developed countries, vast construction programs would be cost-effective. Under the current regulatory regime, a $1 trillion infrastructure plan is simply unlikely to deliver much bang for its (sticker shock) buck.