U.S. Is a Rich Country With Symptoms of a Developing Nation
(Bloomberg Opinion) -- The other day I was late to dinner, but it wasn’t my fault. Traffic was backed up throughout the city of San Francisco, because chunks of concrete had started falling from the upper deck of the Richmond-San Rafael Bridge. Unfortunately, this wasn't a particularly unusual occurrence -- in 2016, the Bay Bridge was shut after concrete chunks began to fall from the walls of a tunnel. Nor are such issues limited to bridges -- the $2.2 billion Transbay Transit Center was closed in late 2018 when cracks were discovered in the beams.
These little examples are the kind of incidents that one might expect to see in a developing country where things are built cheaply or badly. But California has ruinously high construction costs; Governor Gavin Newsom recently canceled most of the state’s high-speed rail plan after the price tag ballooned from $45 billion to $75 billion. And these problems aren’t limited to California; across the country, construction costs for both the public and private sectors have swelled as productivity has stagnated or fallen. It costs much more to build each mile of train in the U.S. than in heavily unionized France. No one seems to be able to put their finger on the reason -- instead, the U.S. simply seems riddled with corruption, inefficient bidding, high land-acquisition costs, overstaffing, regulatory barriers, poor maintenance, excessive reliance on consultants and other problems. These seemingly minor inefficiencies add up to a country that has forgotten how to build. Unsurprisingly, much of the country’s infrastructure remains in a state of disrepair.
All of this raises a disturbing question: Is it possible for a rich, industrialized country to fall back into the middle ranks? The United Nations classifies countries as developed, developing and a middle category called “in transition.” But it’s generally assumed that the economies in transition are on their way up, not down.
The U.S. is still a very rich nation -- richer than countries such as Germany, Sweden, Japan, Canada or Denmark. But that wealth masks a number of glaring areas where the U.S. looks more dysfunctional than its peers. Construction costs are one of these. Another is health care -- the U.S.’s hybrid public-private system ends up costing much more than other countries’ government-dominated systems:
And this number is rising steadily. But for all this lavish spending, the U.S. tends to get worse health outcomes on many measures. Some alarming recent trends highlight just how much the system is failing. Five years ago, life expectancy, which is still rising in most other countries, began to fall in the U.S.:
Most countries have also seen declines in maternal mortality. But in the U.S., the rate has risen in recent years.
And thanks in part to high construction costs and in part to restrictions on housing development, the country is facing a housing-affordability crisis:
It also has a tragic opioid epidemic. Suicide rates have risen substantially. Whole cities have had their drinking water contaminated with lead. Measures of corruption are rising. The list goes on. Other dysfunctions are more long-standing. The U.S. has an incredibly large prison population, and a violent crime rate much higher than other developed nations. It also has more poverty and hunger.
Some have suggested that the U.S. is actually two countries in one -- a developed nation for the rich and a developing one for the poor. But recent trends like the fall in construction productivity and the rise in health costs suggest that inequality isn't the whole story here. The U.S. is simply becoming less efficient along a broad spectrum of measures.
How long can this loss of efficiency go on without hurting the country’s overall wealth? Nobody knows, but if the U.S. does eventually backslide in terms of gross domestic product, it wouldn’t be the first rich country to have done so in recent years. Italy has already traveled that path:
Italy has been politically dysfunctional and divided for a long time. For almost a decade, a corrupt, divisive, populist president, Silvio Berlusconi, made the situation worse. The comparison with the U.S. certainly doesn’t look encouraging.
The U.S. shouldn’t wait and see if current trends persist. Instead, there needs to be a national focus on reducing excessive costs in key industries, improving the population’s health, increasing density in the country’s sprawling cities, upgrading public transit, and reducing corruption and waste in both the public and private sectors. If the U.S. wants to remain a developed country, it should try to look and act more like one.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Noah Smith is a Bloomberg Opinion columnist. He was an assistant professor of finance at Stony Brook University, and he blogs at Noahpinion.
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