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Minhaz Merchant

Minhaz Merchant is the biographer of Rajiv Gandhi and Aditya Birla and author of The New Clash of Civilizations (Rupa, 2014). He is founder of Sterling Newspapers Pvt. Ltd. which was acquired by the Indian Express group

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BW Businessworld

Donald Trump: US Infra 'Third World'

Between 1992 and 2013, the US spent an annual average of 2.5 per cent of GDP on infrastructure while China spent an average of 8.6 per cent of GDP every year

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A recurring complaint by United States Republican party presumptive presidential nominee Donald Trump is that US infrastructure is increasingly “third world”.

Anyone who has boarded flights out of John F. Kennedy, LaGuardia or Newark airports will agree. Asian airport infrastructure, from Singapore to Dubai, is far superior.

US roads and bridges are also in a state of disrepair. The American railway network, Amtrak, is a shambles. Bullet trains in the world’s largest economy are unheard of. The New York subway is shambolic as well.

Now the McKinsey Global Institute (MGI) has shed light on the reasons for this sorry state of affairs. According to the firm’s report published recently, “China spends more on economic infrastructure annually than North America and Western Europe combined.”

Infrastructure spending is, in fact, falling across the industrialised world: the US, Britain, Australia and Italy. The exceptions are Japan, Germany and China.

Let’s mine the data. In the 21-year period between 1992 and 2013 China spent an average of 8.6 per cent of GDP every year on infrastructure. India did relatively well with an average annual expenditure on infrastructure of 4.9 per cent of GDP.

This was during the post-1991 economic reforms period when liberalisation encouraged foreign direct investment (FDI) in infrastructure. Public private partnerships (PPP) also took off, especially in highways and other civic projects.

In contrast, the US spent an annual average of 2.5 per cent of GDP on infrastructure during this 21-year period – less than a third of China’s average spend. (America’s larger economy though obviously made absolute expenditure in the US higher.) Western Europe and Latin America too spent just 2.5 per cent and 2.4 per cent of GDP respectively on average every year on infrastructure.

The downside of China’s infra splurge is the phalanx of overbuilt infrastructure – empty buildings, closed malls and entire ghost towns. With the Chinese economy in trouble, a banking and real estate crisis looms. Infra spending is likely to slow as demand catches up only gradually with supply.

The McKinsey report suggests greater private investment in infra-deficit countries like India. That is exactly what Transport Minister Nitin Gadkari is doing. His ministry is currently building 27 km of roads and highways a day. The target is 30-35 km a day by 2017.

India’s new FDI liberalisation norms in the aviation sector will boost both brownfield and greenfield airports. Private investment in airports in Mumbai, New Delhi and Hyderabad over the past few years has transformed travellers’ experiences and boosted tourism.

Trump is right to bemoan JFK airport’s crumbling terminals. America needs to play catch-up with Asia across a swathe of infra sectors. De-industrialisation has hit America hard. Cities like Detroit, once the nerve centre of the American automobile industry, have lost over half their population during the last two decades. Jobs in industry are shrinking. Downtown areas in many US cities present a picture of desolation and crime.

It is this angst among America’s middle-class that Trump is tapping into. It could impact the forthcoming US presidential election in unpredictable ways.

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us infrastructure china donald trump