Public infrastructure investment and structural economic change: The spatial dynamics of public works in the United States

This research document focuses on the role of government as public works provider. The main argument, developed in terms of historical institutionalism, is that the evolution of public investment in the United States has been deeply affected by structural economic changes occurring at the regional level of analysis. The secular downturn of public investment during the 1970s and early 1980s is examined in the context of the history of public investment in the United States. It is found that this most recent down cycle was heavily concentrated in the Nation's two largest population centers, New York and California, and, more generally, in the manufacturing belt states. It is argued that the downturn of public investment during this period was, in part, determined by the secular decline of the Nation's manufacturing sector. It is argued that the historical process of development tends to produce “winners” and “losers”, and this process often has corresponding geographic dimensions. Thus, economic development policy should have two aspects, one promotional the other compensatory. The promotional aspect should promote economic growth, for example by concentrating investments in geographic regions and industries deemed to have high growth potential. Whereas the compensatory aspect should address unmet human needs in underdeveloped areas and should ease the transition of distressed regions experiencing the ill effects of structural economic adjustments. I argue that investment in public goods should be used as a means to reduce structural unemployment. Additionally, I maintain that higher levels of government should fund and deploy geographically targeted public works programs. Finally, it is argued that, in the face of adverse structural economic changes, public investment decision-makers face a high degree of uncertainty in their decision-making processes. A fast pace of structural change makes rational planning more or less impossible. In that case, decision-makers have to adopt practical methods of reaching decisions, because “optimizing” may not be possible. Moreover, in the absence of financial assistance from higher levels of government, local governments faced with adverse structural economic change are poorly positioned to be able to institute employment policies. Quite to the contrary, adverse structural economic change tends to result in declining public works outlays in the face of rising unemployment. In this context, “underinvestment” in public goods may be regarded as part and parcel of the failure at higher levels of government to deploy public works as a means to combat structural unemployment.