Banking for 21st Century American Infrastructure

Banking for 21st Century American Infrastructure

I do Pilates every day and go to a Pilate’s class 3 times a week not because I like it – but because I know it’s essential to maintaining strong bones and muscles (the human infrastructure) over a life time.

I choke down two HUGE calcium pills each morning for the same reason.

Not bragging – but comparatively – my infrastructure’s in a lot better shape than America’s.

Just as the human body hangs on a strong skeletal muscular core – the USA’s economy hangs on a strong infrastructure.

That’s a problem.

Infrastructure Drives Productivity

Every hour each individual worker wastes commuting on overcrowded highways reduce our economic productivity decreases and pollution increases in our atmosphere.

An antiquated passenger and freight railway system delivers products to market too slowly at too high a price and serves too few passengers in a small number of commuter corridors.

Our international airports are the first impression we make on foreign tourists and foreign business people – seeking to do business in the United States. Too often – even in Washington, New York and Los Angeles – our airports look less like the gateway to the world’s largest economy and more like the bus station in the 1969 movie Midnight Cowboy.

When portions of our electric grid fail, commerce stops. The national economy shrinks.

Drought and floods both result in costly economic dislocation.

Infrastructure is a Big Capital Expense

We know that our electrical grid, water storage and transport systems are at risk of attack from saboteurs and/or hackers.

There is no effective urban evacuation plan in earthquake prone California. Our road system is inadequate, at risk of failing in a major earthquake and not a reliable corridor of escape.

Baton Rouge flooded for lack of a by-pass canal.

But no one is doing anything to solve the problem

Why? It costs money.

America Needs an Infrastructure Bank

It is time to charter a USA Infrastructure Bank with sufficient capital to meet the estimated demand.

The bank would use its capital to make loans to Federal Highway System, states, localities, airports, Amtrak, and publicly owned utility providers to fund infrastructure refurbishment and upgrades.

The loans would be repaid from taxes, bonds issued by government entities and service fees paid by users.

Hillary Clinton has proposed such a bank as part of her Presidential campaign. Three bills were introduced in Congress in 2015 but never made it out of committee.

These proposals would charter the bank as a WHOLLY OWNED GOVERNMENT CORPORATION.

The problem is we already have one and know the consequences.

The US Post Office is a wholly owned government corporation!

An Economic Shot-in-the-Arm

Rebuilding, modernizing and securing our infrastructure would give the US economy a huge boost.

The American Association of Civil Engineers estimates that needed infrastructure upgrades could add up to $3 trillion by 2020:

  • Create millions of new “skilled jobs” with good wages.
  • Boost productivity by speeding people and goods to market at a lower costs
  • Encourage innovation, creativity and entrepreneurship – leading to new industries and new global opportunities
  • Increase our national security and protect the homeland.

Who is going to pay for it without adding to the National Debt?

Let’s Make a Deal with Big Business

The Treasury estimates that US multi-national corporations are holding approximately $2.3 trillion in profits off-shore to avoid the world’s highest business tax rate.

Repatriating these profits could generate as much as $8 trillion in U.S. domestic economic activity.

This economic elixir is going to remain off-shore as long as the US Treasury demands 35 percent tax-off-the-top.

Why not offer these tax payers a deal they can’t refuse — one-time tax of 15 percent on only half of their off-shore profits in return for lending the other half to the newly chartered USA Infrastructure Bank for a fixed period of time?

To protect their “investments” the corporations (for example Apple, Google, Facebook, Merck, etc.) would be granted the majority of seats on the new bank’s Board of Directors — in ratio to their contribution.

  • The corporations would receive interest on their “investment” in the bank.
  • The corporations could use the money exactly as they do today – collateral for bank borrowing to finance operations.
  • “Investment” would be returned to the corporations after a specified period of time.

Don’t Upgrade — Innovate

Instead of replacing 20th century structures and systems with more “modern” facilities, a Board dominated by the most innovative business leaders in the world would move to capitalize opportunities currently in the design and development stage: Innovative thinkers will anticipate the future — asking questions that lead to a merger of 21st and 22nd century infrastructure.

  • How will driverless cars change the way we drive and build roads?
  • Should we invest in building high speed railways or jump to Hyperloop connections between major cities?
  • Can we turn oceans into environmental friendly sources of water and electricity versus building more reservoirs?

This kind of thinking increases the chances of making major technological breakthroughs exponentially. Innovation can create new global commercial opportunities for American entrepreneurs!

A partnership between business and government can demonstrate to politicians and bureaucrats the value of thinking strategically rather than tactically — the first step toward the 21st century American citizens want and deserve.

What does the USA have to lose?

Mexico

We Can Fix the Mess NAFTA Created for US/Mexico Trade

The Canada and USA Bi-lateral Free Trade Agreement was implemented in 1990.

At that time I was the Program Manager for a global logistics re-engineering effort at Unisys. This was a first-of-its kind Logistics System (people, process and enabling technology) seamlessly integrating manufacturing plants and distribution centers located in five countries – including the United States and Canada – on three continents.

The system tied every component (by “country of origin”) plus all labor added at every level of the manufacturing process directly to the unique (serial numbered) computer peripheral finished product.

The granular ability to track parts and tie them, across the global supply chain, to the individual worker who had handled them led to an agreement with the US Customs Service to provide entry documents electronically to the US Customs Service for pre- approval.

The team quickly created electronic entry documents to satisfy the new Canadian customs requirements – making Unisys an early beneficiary of the agreement.

After some initial hesitance by the Canadian people – who feared becoming a defacto 51st state – free trade between the USA and Canada has worked very well — accelerating negotiations for a tri-lateral North American Free Trade Agreement (NAFTA) — signed into law by Bill Clinton in 1993.

Why the Assumptions of NAFTA Failed at our Southern Border

NAFTA has not worked as well with Mexico. During negotiations, many acknowledged the challenges of integrating two “developed” economies with a third that was still “developing”. But negotiators underestimated those challenges.

The US government expected that free trade would expand economic opportunity in Mexico. Expanded opportunity, they argued, would reduce the flow of illegal immigrants seeking employment in the United States.

The hopes for a broader improvement in the economic lives of “average” Mexicans have not been realized.

NAFTA and US Jobs

Trade between the United States and Mexico grew exponentially under NAFTA. But as more raw materials moved south to be returned as manufactured goods — the historic USA trade surplus became a persistent 25% trade deficit. https://www.census.gov/foreign-trade/statistics/highlights/topcurmon.html

The deficit will continue to grow as Mexico aggressively imports American manufacturing jobs. http://www.reimagineamerica.org/saving-us-economy-starts-now-keep-oreo-cookies-in-chicago/

But not all job-shifting by US manufacturers to Mexico is negative for American workers.

The “cross border supply chain” has the potential to strengthen employment across North America.

The Ford Solution

Made-in-America is central to Ford Motor’s brand strategy.

When they announced the development of a 2018 manufacturing line in Mexico to build low margin Ford Focus hybrids – they simultaneously announced the existing Michigan plant will be upgraded to produce high priced SUVs and trucks.

The $8/hr jobs go to Mexico to preserve and increase $60/hr jobs in Michigan.

Bombardier – the Canadian airplane manufacturer makes a similar argument — its Mexican fuselage plant results in increased employment in the United States and Canada. http://www.economist.com/news/briefing/21592631-two-decades-ago-north-american-free-trade-agreement-got-flying-start-then-it

US/Canadian Free Trade Suggests a Template

Auto manufacturing on both sides of our northern border increased as a result of liberalized Direct Foreign Investment (FDI) regulations in Canada.

It created a flourishing cross border consumer economy with Canadian “day trippers” flocking to US shopping centers to buy attractively priced merchandise.

The US market for Canadian energy products and precious metals increased as a result of lower costs and ease of transport.

Hollywood studios have taken advantage of the lower production costs in Canada to develop significant satellite operations without fear of intellectual piracy.

USA/Canadian imports and exports tend to balance each other out – resulting in real GDP growth in both countries.

Canada is, also, our most reliable ally. https://www.washingtonpost.com/news/checkpoint/wp/2015/03/11/canadas-highway-of-heroes-the-patriotic-tradition-lives-on-after-afghanistan/

Building a Beneficial US/Mexico Relationship

A mutually beneficial trade relationship with Mexico is entirely possible – a relationship that looks more like our Canadian trading relationship.

More manufacturing jobs are an opportunity to expand the Mexican middle class but not all of those jobs have to come at the expense of American workers.

Rising factory wages in China create an opportunity for Mexico to compete globally to manufacture products destined for North American consumers.

To capitalize on this opportunity, Mexico must rapidly improve public education. The US can help through the Peace Corps, Teach America and other non-governmental organizations.

Build a more Efficient Cross Border Supply Chain

Further, strengthening the North American supply chain so that raw materials, sub-assemblies, and finished goods can move smoothly, safely, rapidly and legally across our southern border will require better highway and rail transport from the Mexican interior.

Joint investment in developing infrastructure – through the Inter-American Development Bank and cross border investment (http://www.marketwatch.com/story/warren-buffett-and-bill-gates-like-railroads-and-you-should-too-2015-09-17) — will create skilled and unskilled labor jobs in Mexico – drawing more economic migrants back to Mexico from the US while growing GDP on both sides of the border.

Renegotiate NAFTA

Growing trilateral GDP was the impetus behind NAFTA. It remains the objective, but the agreement has to be renegotiated with assumptions based on reality.

What is important is to grow the middle class throughout North America. This is not a zero sum game!

The United States and Canada can help accelerate Mexico’s economic development but Mexico must take the first step by cleansing itself of rampant internal corruption.

In addition to demands for better schools, the emerging middle Mexican middle class will demand effective public safety and better social services. NAFTA negotiators must support these demands.

Further, they must link renegotiation to forceful actions by the Mexican government to deal with international drug smuggling and human trafficking.

Nothing undermines NAFTA more than the volatile southern border that has existed since General Pershing chased Poncho Villa back across Rio Grande in 1916!