McKinsey: World needs $57 trillion in infrastructure by 2030. Yes, trillion with a ‘t’

January 17, 2013

High up on the list of stuff that President Obama wants and Congress won't provide is more funding for infrastructure programs. His American Jobs Act proposal from 2011 includes $50 billion in spending to improve railroads, airports and roads, and another $10 billion to inaugurate an infrastructure bank to fund other programs going forward. During the fiscal cliff negotiations, he reportedly wanted $50 billion to $75 billion in infrastructure spending in exchange for cuts.

That spending is just meant to repair our existing infrastructure, which is in a fairly abysmal state. The most recent "report card" from the American Society of Civil Engineers gives the U.S.'s infrastructure a "D" overall and estimates that we need to spend $2.2 trillion over the next five years to get it up to snuff. But that number is going to keep growing. As the population and economy grows, and more and more people need utilities and clean water, more and more goods have to be transported, and more and more waste needs to be disposed of, our roads, electrical grids, sanitation systems and more will need upgrading.

How much upgrading? That's what a new report from the McKinsey Global Institute — the consulting firm's in-house think tank — tries to figure out, not just for the United States, but for the rest of the world too. They find that, depending on the projection method you use, the world will need to spend $57 trillion to $67 trillion between today and 2030. That's not even counting the costs needed to get networks to where we need them now, or costs associated with climate change that are hard to project. Building and repairing roads and power grids are the two areas with the greatest need for new investment, followed by water provision and telecom networks:

Developing countries are on track to bear most of this burden, unsurprisingly. But the paper also makes clear that in some important respects, U.S. infrastructure bears a closer resemblance to middle-income countries like South Africa and China than it does to other developed countries like Japan and Germany. Particularly when it comes to transportation, our peers run laps around us:

So we have a ways to go. But the report does offer one ray of hope. Just as the world's infrastructure problems are growing more dire, our ability to combat them is improving. McKinsey highlights a number of systems that have allowed countries to improve their infrastructure at a considerable discounts.

For example, Chile has adopted a set of standardized cost-benefit analysis procedures that have both made the approval process for infrastructure projects more predictable and increased the average effectiveness of approved programs. The Australian state of New South Wales adopted a permitting process that reduced time-to-approval by 11 percent in one year. Massachusetts embraced new ultra-fast manufacturing techniques that enabled it to build 14 bridges in only 10 weekends, which is both good in its own right and prevented the high costs associated with long-term, oft-delayed projects (like, say, Boston's own Big Dig).

The report estimates that the adoption of techniques like these could reduce the amount the world needs to spend on infrastructure going forward from $2.7 trillion a year to $1.7 trillion a year —for a savings of $1 trillion. It's always good to take forecasts like these with a rather large grain of salt, especially when they come from companies that make a lot of money doing consulting work for governments engaged in projects like these. But the core point of the report is hard to dispute. We don't just need to build more infrastructure. We need to build it smarter.

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Neil Irwin · January 17, 2013