Part 1: The infrastructure bill and America’s heft in the global supply chain

Editor’s note: This is Part 1 of a three-part look at infrastructure in the U.S. by Geoffrey Garrett, Dean of the USC Marshall School of Business, and Nick Vyas, Academic Director of MS in Global Supply Chain Management and an Associate Professor of Data Science and Operations at the Marshall School of Business.

Click here to read Part 2.

Click here to read Part 3.

Let’s give credit where credit’s due, with kudos to President Biden and his team for shepherding the trillion-dollar infrastructure bill through the Senate and to the members of the Senate who reached across the political divide to support the bill. Bipartisan infrastructure indeed is an historical deal – one that is essential to rebuilding America’s aging infrastructure.

The past few years have been tumultuous. Our democratic beliefs and ways of thinking, living, and doing business have been threatened. Social media’s amplification of loud, polarizing noises has often drowned out saner voices. The pandemic has unleashed and the gut-wrenching deaths and devastation.

Against the backdrop, the infrastructure bill is remarkable and sorely needed.

What we did and didn’t get
Let’s take a quick look at what it will cost to “build back better.” Roads, highways and bridges get the most significant infusion of funds, $121 billion from the more than $500 billion of genuinely new funding. But this is one-third less than what was initially proposed. Much remains to be done, given that merely the backlog for repairs of the nation’s roads and bridges is $786 billion, per the recent estimates of the American Society of Civil Engineers (ASCE). The $11 billion to be spent on road safety is half of what was initially proposed.

The more optimistic news is that the other modes of transport and transit that connect our supply chains – railways, ports, waterways and airports – will together receive a good chunk of the new spending. With $66 billion set aside for passenger and freight traffic, Amtrak is slated to get its biggest ever budgetary allocation - an anniversary present for America’s railroad that turned 50 this year.

It is also good to see that upgrading the nation’s power grid has been given the second biggest allocation, after roads and bridges, of $73 billion.

But now is not the time to declare victory, as there are critical areas left out in the bipartisan Senate. These include the housing, education, child care, research and development, clean energy tax credits and climate research that we expect the Democrats to take up through budget reconciliation later this year.

Another crucial area that has received disappointingly lesser attention from the media and the Congressmen is America’s digital/soft infrastructure.

The nose of the ox
The key thing about the soft infrastructure composed of digital technologies is that it is borderless. Digital platforms will replace antiquated, siloed supply chains with new-age digital infrastructure. It will be underpinned by the use of Artificial Intelligence, Machine Learning and Blockchain, integrated with IoT’s and advanced data analytics. The battle for our economic future will increasingly be fought over complex soft infrastructure rather than the hard, physical infrastructure of the past.

China, the world’s most populous and fastest-growing value-add economy, is keenly aware of this. “The first-mover advantage will go to whoever holds the ‘nose of the ox’ of science and technology innovation,” China’s President Xi Jinping said at a CCP conference in 2014. China has since directed significant investments and resources into critical digital technology domains: fintech, big data, artificial intelligence, e-commerce, cloud computing and ICT exports. Therefore, it is no surprise that China has taken significant strides in all major technology sectors. Perhaps its most significant and biggest lead of all is in 5G technology, which is set to transform the world of connected devices over the next decade. Two out of the world’s top five 5G infrastructure equipment leaders – Ericsson, Huawei, Nokia, Samsung and ZTE – are Chinese companies.

The time is now for America to make much bigger investments in its digital infrastructure. The bipartisan bill has set up only about 11 percent ($65 billion) to extend access to internet broadband throughout the country. Digital must be given a much bigger slice of the pie, if not equal to that provided for the physical infrastructure, if we wish to retain global technological leadership in the coming decades.

The new New Deal and trade
While investments in infrastructure seem quintessentially domestic, it is important to understand how they can help us navigate and succeed in the global economy of the 21st century. Here, American history gives us a powerful lesson.

After the massive COVID-stimulus, now the infrastructure bill and with a much bigger Democrats-led program in the wings, pundits will likely again draw comparisons between the Biden agenda and FDR’s New Deal following the Great Depression.

The Roosevelt administration’s transformative New Deal of the 1930s was a milestone government intervention that helped people get past the economic devastation and human suffering wrought by the Great Depression. Biden wants to do the same for today’s America. But amid the hope about local roads and bridges being repaired and rebuilt by working Americans in good jobs, it is essential to remember that Roosevelt’s strategy was a one-two punch. Like Biden, his first move was purely domestic. But FDR then immediately began opening up the American economy to freer trade.

Roosevelt started rolling out infrastructure programs at home in 1933. One year later, in 1934, he signed the Reciprocal Trade Agreements Act. The RTAA not only reversed the damaging Smoot-Hawley tariffs of 1930. It also paved the way for more than a decade of trade liberalization for the United States – 32 free trade agreements with 27 countries culminating in creating the post-WWII open international economic at Bretton Woods in 1944.

Today, Biden needs to show the same appetite to follow the international dimension to FDR’s transformation of America. He needs to make efforts to unwind Trump’s tariffs and trade wars and consider more radical moves like trying to re-enter the ill-fated Trans-Pacific Partnership or creating a new American-led alternative to it. Now is the time for Biden to start laying the foundation for Globalization 2.0. Think de-coupling without deglobalization, which help promotes customer-centric regional nodes using near-shoring and on-shoring while continuing to participate of global economy.

In part two of this three-part series, we will discuss the “Decoupling of the Supply Chains without Deglobalizing.”  It will illustrate how the existing structure of a “single-node/long string” supply chains network is highly vulnerable to disruptions and why the areas that have been left out of the current bipartisan deal – particularly R&D and advanced manufacturing – could cost us dearly in the arena of the global supply chain.

About the authors:
Geoffrey Garrett, Ph.D. is Dean, Robert R. Dockson Dean’s Chair in Business Administration, and Professor of Management and Organization at the USC Marshall School of Business. He became Dean of the Marshall School in 2020, having previously served as Dean of the Wharton School of the University of Pennsylvania for six years

Nick Vyas, Ed.D. is a Randall R. Kendrick Global Supply Chain Institute’s founding Executive Director, Academic Director of MS in Global Supply Chain Management and an Associate Professor of Data Science and Operations at the Marshall School of Business. He is a fellow at the American Society of Quality (ASQ) and serves as a Chair-Elect for Lean Division for ASQ.

Click here to read more on global supply chain management from Nick Vyas.

And, click here to listen to Nick Vyas on The Rebound Podcast, hosted by SCMR Editorial Director Bob Trebilcock and ASCM CEO Abe Eshkenazi.