How State Capacity Can Help America Build: A new paper shows underinvesting in government comes at a staggering cost.

David Dayen, August 17, 2023 [The American Prospect]

Zachary Liscow, a professor at the Yale Law School who until recently was the chief economist in Biden’s Office of Management and Budget, co-authored the paper with William Nober of Columbia University and Cailin Slattery of UC Berkeley. It finds significant cost drivers to building in an unheralded place: the procurement process, which accounts for one-quarter of all U.S. government expenditures.

Through an elegant study that isolates procurement processes, Liscow and his co-authors demonstrate that increases in government capacity, which can invite more bidders into a project and foment competition, translate into substantial cost reductions, which subsequently leads to faster and more robust projects. While one shouldn’t translate the study into an overarching monocausal theory for how to accelerate building, it’s a piece of the puzzle that is woefully understudied and should enter the conversation.

THE PAPER LOOKS AT STATE ROAD RESURFACING PROJECTS, which is a good way to reduce the variables on cost overruns. In general, citizens don’t clamor to stop projects that fill potholes, and permitting is usually straightforward. It’s also where the money goes in much of our infrastructure spending: $187 billion was spent on highways in 2018, and little of that on new highways. Yet there is substantial variation in cost. The authors point to the neighboring states of Georgia and South Carolina; Georgia spends about $189,000/mile to resurface on average, while South Carolina spends almost twice as much ($376,000/mile)….

Perhaps the biggest lesson is that the Reagan Revolution degraded government capacity, and the neoliberal turn in the 1990s, combined with the Great Recession’s savagery to government head counts, kept government permanently hobbled. Even in areas as routine as road repaving, the effect is substantial.

The logic of neoliberalism was that reducing the scope of government would reduce spending. What the paper makes clear is that the result was the exact opposite: increased spending for the things we need government to do. The investment in building capacity pays off in the long term, and as we re-enlist in industrial policy, that will likely become more pronounced.