America’s Competitiveness: Infrastructure

A time for renewal

America’s infrastructure is in a dire state, stimulating a search for creative solutions

Floreat Florida
RAHM EMANUEL, THE mayor of Chicago, Illinois, lifts up a decayed wooden tube and waves it for emphasis. Many of the city’s water pipes are over 100 years old, he says. Some, it turned out when the Water Department got round to replacing them, are made of wood. No wonder the network sprang 3,800 leaks in 2011 alone. Yet at the pace of investment that prevailed until last year it would have taken the local water company until 2059 to refurbish all the mains, the mayor points out.

Everywhere Mr Emanuel looks, he sees the need for new or improved infrastructure: pockmarked roads; century-old stations on the “L”, Chicago’s elevated-train network; grand but draughty municipal buildings; a congested airport; clapped-out schools and community colleges. Over the next three years alone he plans to spend over $7 billion to start fixing all this. But finding the money has required some creativity.

Cities like Chicago, with meagre investment budgets, generally rely on grants from the state and federal governments, along with municipal bonds, to pay for such improvements. However, the federal government’s fiscal woes and the political impasse in Washington have been putting the squeeze on infrastructure funding. Take the highway fund, which Congress created to pay for its share (usually about a third) of improvements to roads and public transport around the country. It is supposed to be fed by receipts from the gas (petrol) tax of 18.4 cents per gallon, but this is not linked to inflation and has not been raised since 1993. Moreover, Americans are driving less, in more efficient cars, or in ones that run on something other than petrol, all of which leaves the transportation kitty increasingly bare. At the same time the cost of building roads has risen faster than prices in general, further sapping the fund’s value.

Fingers in the dyke

Politics has compounded the problem. The act under which Congress doles out money from the highway fund expired in 2009. Unable to agree on how much to spend, or how to top up the shrinking fund, lawmakers passed nine short extensions of the old act before finally approving a new, two-year bill last year. But this does nothing to strengthen the fraying funding mechanism. Instead, Congress has frozen spending at the current level and cobbled together a few one-off revenue-raisers to pay for it. The Congressional Budget Office now expects the highway fund to run dry in 2014, and the gap between receipts and the present level of spending to reach $109 billion over the next eight years.

Worse, the current level of investment, even if Congress finds a way to maintain it, is utterly inadequate. More than five years after the collapse of a bridge in Minnesota that claimed 13 lives and prompted pledges to speed up repairs, almost 70,000 other bridges, or roughly 11% of the total, are still rated as “structurally deficient” by the Federal Highway Administration. The American Society of Civil Engineers (ASCE) estimated in 2009 that Americans lost $78 billion a year to traffic delays, in the form of wasted time and petrol. A further $67 billion goes on repairing the damage to cars caused by the shoddy condition of many roads. Crashes, a good number of which are also attributable to this neglect, cost a further $230 billion. The ASCE reckoned that for the period from 2005 to 2020 the country was spending only 54% of what was needed to prevent further deterioration, and just 29% of what it would take to set America’s roads to rights.

Falling to bits

Nor are the problems confined to roads. The ASCE thought that America’s water and sewage systems, inland waterways and levees were equally dilapidated, and that its schools, dams, airports, public transport and hazardous-waste disposal were in only slightly better shape. It blamed “delayed maintenance and chronic underfunding” and argued that the country needed to double its spending on infrastructure over five years, from a projected $1.1 trillion to $2.2 trillion. And that was at a time when infrastructure spending was being boosted by a one-off contribution from Mr Obama’s stimulus.

Civil engineers, naturally, are keen on civil-engineering projects. But the Centre for American Progress, a think-tank, reached much the same conclusion in a report that looked only at the federal share of spending on essential projects. Congress, it concluded, was coughing up barely half of the $262 billion a year that was needed.

Such big sums are daunting in austere times, but the potential benefits outweigh the spending. In the short run, infrastructure investments provide a boost to a feeble recovery. The CBO estimated in 2011 that for every dollar the federal government spent on infrastructure through Mr Obama’s stimulus, the value of economic activity increased by between $1 and $2.50—one of the biggest multipliers of the main components of the programme. And a study by the University of Massachusetts-Amherst in 2009 found that every $1 billion spent on infrastructure creates 18,000 jobs, almost 30% more than if the same amount were used to cut personal income taxes.

Every $1 billion spent on infrastructure creates 18,000 jobs, almost 30% more than if the same amount were used to cut personal income taxes.

In the long run, investment in infrastructure boosts productivity by enabling people and goods to get to places faster, communicate more easily, spend less time and money on repairs and so on. One recent study found that the construction of a road typically led to an increase in economic activity between three and eight times bigger than the initial outlay within eight years after its completion. (The impact subsequently fades, presumably because congestion returns.) And since the government’s borrowing costs are currently low and the construction industry is still in the doldrums, investment in infrastructure is cheaper now than it will be when the economy is humming again.

Mr Emanuel is convinced of all this. Unfortunately for Chicagoans, the politicians in Springfield, the state capital, are even less help than those in Washington. The state and local authorities have accumulated debts of about $10,000 per resident, which puts them among the top quintile in the country. The pension plan for state workers has assets to cover only 39% of its projected liabilities. In 2009 the legislature approved a series of tax increases on things like sweets and alcohol, as well as an expansion of gambling, with the proceeds earmarked for infrastructure improvements. But so far these measures have fallen well short of producing the hoped-for $1 billion a year. All this has left Illinois with the worst credit rating of all 50 American states—and little money to spare for an overhaul of Chicago’s infrastructure.

The city has not always been a model of fiscal rectitude. The previous administration papered over deficits with one-off measures, prompting a downgrade in its credit rating the year before Mr Emanuel took office. Although for the most part he has since cut costs enough to match the city’s means, the state’s failure to amend the pension system, in which Chicago participates, raises yet another threat to its finances.

With the city, state and federal governments all strapped for cash, Mr Emmanuel has had to turn to other sources of revenue. One obvious step is to increase the charges to users of the city’s infrastructure. At his urging, the city council raised water rates by 25% last year; by 2015 they will almost double. That has allowed the city to start replacing leaking water mains at two-and-a-half times the previous rate. Similarly, fares on the L are rising, which should help cover the costs of refurbishing decrepit stations. Mr Emanuel also wants to encourage more private investment in the city’s infrastructure, but its left-leaning voters are touchy about anything that smacks of privatisation. They noted that a consortium to which his predecessor sold a 75-year lease on the city’s parking meters immediately quadrupled the fees.

Mr Emanuel’s solution is called the Chicago Infrastructure Trust (CIT). This will help pair investors with projects that will generate a revenue stream to be hypothecated to cover the cost of the original investment, plus a return. First on its list are some $100m-worth of energy-saving measures in city buildings.

Lightbulb moment

At Newton Bateman Elementary School the principal asks a teacher how she likes the new lighting in her classroom. She seems not to have noticed any difference. That is the idea. Workmen have recently halved the number of lights above her head, installed more efficient bulbs and added automatic switches. Over the next ten months the city wants to overhaul the lighting in another 241 schools. It estimates that these retrofits will cost $14m and yield savings of $3m a year. In January it put out a request for “financial partners” to stump up the cash, to be repaid from the savings in the schools’ operating budgets.

From the mayor’s point of view this scheme has several advantages. It enables him to raise money from investors such as foreigners, charities and pension funds who are not interested in tax-exempt municipal bonds because they have little tax liability in the first place. It means that projects with clear benefits but low priority can go ahead sooner, helping to stimulate the local economy. All the assets involved remain not just the property of the city but under its management, so political attacks on “privatisation” can easily be rebutted. The mayor’s supporters in the unions are enthusiastic because the scheme will create new jobs. And although initially Mr Emanuel expects the CIT to get involved in only around $200m of the $7 billion-worth of infrastructure investments he is looking for, he clearly hopes to expand its role if the early projects prove successful.

Mr Emanuel is not the only local leader coming up with inventive ways to pay for infrastructure improvements despite the fiscal squeeze. The number of “public-private partnership” (PPP) projects under way around the country, although still low by European standards, has jumped in recent years. They include a tunnel under construction in Florida, a commuter rail scheme in Colorado and road improvements in Texas and Virginia. The Centre for American Progress, not normally a cheerleader for red-blooded capitalism, reckons it should be possible to mobilise at least $60 billion a year in private infrastructure investment. That would be a huge step up from the paltry total of $10 billion raised through such schemes between 1990 and 2006.

In Indiana a PPP is being used to boost public investment. In 2006 Mitch Daniels, a former governor, championed a 75-year lease of a busy toll road in the state in order to create an investment fund for future roadbuilding projects. The consortium that now runs the highway paid $3.8 billion for the privilege (just before the recession caused asset prices to plummet), as well as promising to invest $600m in upkeep over the first nine years of the lease. Indiana has used the proceeds to increase its roadbuilding budget by a third, to $1 billion a year.

Bob McDonnell, the governor of Virginia, is confronting the gradual decline in revenue raised by the state’s gas tax, which is levied on top of the federal one and suffers from the same problems. He recently persuaded the state legislature to abolish it altogether and instead raise the state’s sales tax from 5% to 5.3%. Along with some other increases, this should provide a steadier revenue stream.

Antonio Villaraigosa, the mayor of Los Angeles, helped secure a 30-year increase in the local sales tax in 2008 to fund transport projects. He then used the projected revenue as security for loans that will allow the city to build the original 30-year roster of projects in just ten years. The idea is to stimulate the local economy and take advantage of low construction costs, just as economists have been urging Congress to do.

Congress, however, is being unhelpful as usual, and not just by scrimping on its own capital budget. Last year, for the first time, it gave states free rein to charge tolls on new highways built with federal help, or on new lanes added to existing ones. But it still bars them from levying tolls on the unimproved portions of existing roads. It has also allowed a law to lapse that encouraged private investment in infrastructure by offering a tax break on bonds that finance it.

Meanwhile, the repeated brief extensions of the highway bill make it difficult to plan for the long term or to embark confidently on projects that might take many years to complete. Mr Obama has long called for a federal infrastructure bank which could invest more strategically and attract private capital relatively cheaply by subsidising or guaranteeing commercial loans. But Congress wants nothing to do with it.

There are plenty of ways for Congress to boost investment in infrastructure without massively inflating the public debt, but America’s governors and mayors are not holding their breath. As Mr Emanuel, a former congressman and White House chief of staff, says, “We can’t allow dysfunction, whether in Washington or Springfield, to delay our economic development.”

Mar 16th 2013 |From the print edition.

America’s Competitiveness: Education

Value-added remodelling

America’s schools are getting their biggest overhaul in living memory

Counting their Mandarin blessings

“THIS BUSINESS”, SAYS John Demby, the principal (headmaster) of Sussex Tech, a high school in Delaware, “has changed dramatically in a very short period.” This year, like all principals in the state, he is evaluating teachers under a new system for the first time. The state is also adopting a new curriculum for English and maths, the “common core”. That will require changes to the state’s regular computerised tests for students, themselves only three years old. On top of all that, Sussex Tech is launching a scheme to allow students to start accumulating college credits while still in high school. And it is overhauling the vocational training it offers in order to serve local businesses better and to provide students with more useful qualifications.

It is not just Sussex Tech; all Delaware’s schools are undergoing a similar upheaval, thanks to a series of reforms championed by Jack Markell, Delaware’s governor. He has made education reform a centrepiece of his tenure because he sees it as critical to the state’s competitiveness. (It is the states that regulate education in America, although the federal government often tries to bribe them to adopt its pet policies.)

Mr Markell is especially proud of the 100 children at the McIlvaine Early Childhood Centre, a kindergarten in the hamlet of Magnolia, who are being taught exclusively in Mandarin for half of each day. Beneath gaudy paper dragons the five-year-olds adopt poses that mimic the Chinese characters for the numbers one to ten. Barely three months into the school year all of them were able to count to 100 in both English and Chinese, way ahead of curriculum requirements, says the principal.

Mr Markell plans to expand immersion classes like these from 340 to 1,000 students next year and hopes to reach 10,000 in a decade. But he is also enthusiastic about more workaday schemes, including one which aims to increase the quality of pre-schools that take in poor children on state subsidies, so that they will be up to speed when they start school.

On your marks

Since he took office in 2009, Mr Markell has campaigned to overhaul most aspects of education in the state, paying particular attention to raising standards for both children and teachers, especially in the worst schools. Those also happen to be the main targets of Mr Obama’s biggest initiative in education, Race to the Top (RTT), which awards grants on a competitive basis to states and school districts that present the best plans for such improvements. Delaware was the first state, along with Tennessee, to win a Race to the Top grant, in 2010.

Nineteen states have now received RTT grants, and all but four have applied for them. Along the way they have undertaken, among other things, to conduct more rigorous evaluations of both students and teachers, to make better use of the resulting data and to foster charter schools, meaning state-funded schools that operate independently of local school districts. The federal government is also encouraging the adoption of the common core, developed by a group of state governments to deal with inconsistencies and lax standards in their individual curriculums.

All this comes on the heels of the previous federal education reform, No Child Left Behind, which required schools to show big improvements in students’ test scores. In fact the targets were so demanding that 34 states have had to ask the Obama administration to waive them. It has done so, but only on condition that they follow RTT-like policies.

The result has been a dramatic acceleration of reforms in America’s public schools, at least on paper. All but five of the 50 states have adopted the common core. All but eight now allow charter schools (see chart 4). Thanks to No Child Left Behind, they all now track and publish the performance of individual schools and intervene at the feeblest ones. Most states also have some sort of evaluation system for teachers.

Many states have gone beyond the changes demanded by the federal government. Seventeen now offer vouchers for use in private schools to some students or give tax breaks to people who donate to scholarship funds. Thirty-eight are experimenting with new pay structures for teachers or principals, often with a performance-related element. Thirty-seven had applied for RTT-like grants to boost attendance at and quality of pre-schools, even before Mr Obama announced a push to improve and expand early-childhood education last month. From nurseries to technical colleges, in short, America is subjecting its schools to a vigorous shake-up.

How effective all these changes will be is not yet clear. In Delaware Mr Markell points to last year’s double-digit increases in the proportion of students rated “proficient” in reading and maths in statewide tests. But only nationwide tests, due to be conducted later this year, will provide a comparative measure of the state’s progress.

The proof of the pudding

Equally, it is far too early to tell whether all the tumult in education policy will lift America up in the international rankings. But its supposedly dire performance in these comparative tests needs qualifying anyway. The results of the two most widely cited ones, PISA and TIMSS, are inconsistent. TIMSS, which is put together by an international consortium of research institutes, puts America in or near the top ten in maths and science, with Russia among the countries that consistently beats it. PISA, compiled by the OECD, puts America much lower down but still well ahead of Russia. Neither has been around for very long (12 years for PISA, 18 for TIMMS), and although America has never been rated especially highly, by and large its scores are improving. Moreover, certain states, most notably Massachusetts, perform far better than the national average.

Most academic research suggests that the education reforms of recent years have produced only small, if any, improvements in students’ test scores. So far the effects of introducing charter schools, vouchers and tougher standards for schools, teachers and students have been underwhelming, says Bill Evers, a former assistant secretary of education. It does not help that teachers’ unions dislike charter schools and vouchers and are suspicious of RTT’s enthusiasm for “value-added modelling”, which involves predicting a student’s future test scores from his past results and then measuring a teacher’s effectiveness by the divergence between prediction and actual performance. Naturally enough, teachers are all the more reluctant if their pay is to be tied to the assessments.

Such misgivings can be alleviated, however. Delaware has painstakingly developed teacher-evaluation systems for everything from art to repairing cars, and spent most of its RTT grant on training teachers to cope with all the upheaval. Mr Demby, the Sussex Tech principal, has been provided with no fewer than three different coaches: to teach him how to conduct the new evaluations, to use a new data system tracking student achievement and (no wonder) to manage his time efficiently. Mr Markell, in his “State of the state” address this year, proposed raising teachers’ starting salaries and paying bonuses to “teacher leaders”. The federal Department of Education gave Delaware’s RTT application extra marks because it had the support of the local teachers’ unions.

Vicki Phillips of the Bill & Melinda Gates Foundation, a charity that spends hundreds of millions of dollars a year trying to improve education in America, points out that the broad principles of reform are now largely accepted. The drive for more rigorous and consistent teacher evaluation has come from a Democratic administration, despite the party’s ties with the trade unions. The unions themselves generally do not dispute the need for higher standards and greater accountability, but quibble with the speed and detail of the measures.

A similar consensus has emerged on the reforms to improve vocational training. In spite of the high unemployment rate, many businesses complain that they cannot find enough qualified candidates to fill their vacancies. A survey conducted last year by McKinsey, a consultancy, found that 87% of educational institutions thought they had prepared their students well for employment, but only 49% of employers agreed that their new employees had the training they needed. A similar survey of American manufacturing firms in 2011 by Deloitte, another consultancy, found that 67% had trouble finding the right people, and that 5% of their jobs remained unfilled for lack of suitable applicants. BCG, yet another consultancy, downplays the current “skills gap” but nonetheless estimates that by 2020 America will be short of some 875,000 machinists, welders, industrial mechanics and the like.

Mr Obama pledged, as part of his re-election campaign, to put an extra 2m people through community colleges, which offer two-year associate’s degrees and technical qualifications rather than bachelor’s degrees, which typically take four years. To make sure they learn the right skills, he has advocated close partnerships between these colleges and local businesses and suggested steering more money to colleges or teachers whose students find work. Last year he included a request for $8 billion to pay for all this in his proposed budget, but Congress demurred. Even without its help, however, community colleges around the country are embarking on these sorts of reforms. Last year 24 states adopted laws intended to increase access to technical education or align it better to the needs of local businesses.

Cheryl Hyman, the boss of Chicago’s network of community colleges, is only too aware of the pitfalls of poor training. In the 1980s she spent three months studying for an IT qualification that cost her $3,500 in tuition fees and turned out to be useless. To ensure that none of the 120,000 students in Chicago’s city colleges suffers a similar fate, she is working with Mr Emanuel, the mayor, on a programme called College to Careers.

First, the city consulted local companies and economists to find out what qualifications were in demand now or would be in the future. It then enlisted businesses—84 so far—both to help shape the curriculum in those fields and to give students opportunities for work experience. This arrangement is good for both parties, says Larry Goodman, the CEO of Rush University Medical Centre, a local hospital. Employers can be sure of a steady stream of qualified job candidates and can see them at work before making any hiring decisions. Students, for their part, gain practical experience and can be sure that they are learning marketable skills.

Ms Hyman is also trying to make sure that the training the city colleges offer is “stackable”, allowing students to gain qualifications without wasting time and money going over the same ground twice. For example, local universities have agreed that they will accept a sequence of increasingly advanced nursing certificates earned at the college to replace the first two years of a four-year nursing degree.

Pile them high, get them cheap

All this allows students to rack up qualifications faster and more cheaply. That, in turn, makes them less likely to drop out and helps them pay for further studies. Many places, including Chicago and Delaware, are encouraging (and paying for) dual enrolment in high school and community colleges or universities, in order to shift more people into this virtual cycle earlier in life. Kansas is going even further, paying a “bounty” to high schools for each student who earns a technical qualification.

At Sussex Tech students will soon be able to earn enough credits for half a bachelor’s degree from a local university, at no extra cost, saving them tens of thousands of dollars in tuition fees. As it is, they can get a certification in dental radiology as juniors, for example, and then qualify as dental assistants as seniors—and this is just one of 15 technical subjects in which the schools offers qualifications. In a mock dentist’s practice a mop-haired teenager leans over a classmate’s open jaw, muttering something about “adjusting the rheostat”. A poster behind him gives details of orthodontists’ pay scales. Mr Demby looks on with pride. “As schools,” he says, “we have to create a smarter product to be competitive.”

Mar 16th 2013 |From the print edition

USA alternatives: Hitting a wall

Maize-ethanol manufacturers are reaping meagre rewards. This year may be only slightly better.

Ethanol manufacturing consumes two-fifths of the US maize harvest. This has made the industry unpopular with those who worry about food security and blame it for pushing up food prices by limiting supply. Recently, many makers of the fuel—which, at the federal government’s behest, is mixed with petrol (gasoline)—have been suffering adversity as well as unpopularity.

Among the major types of ethanol, in the US the variety made from maize reigns supreme. It is the source of the vast majority of US ethanol production, in part due to a law stipulating that 40% of the maize harvest must be used to make ethanol. Despite this, maize-ethanol producers are having a rough ride. To turn a decent profit, they need a wide spread between prices for maize and those for ethanol. But last year saw the worst drought in the US for over 50 years, sapping crop yields and driving up maize prices in the third quarter (see chart). As the price of maize exceeded that of ethanol, it wiped out many maize-ethanol makers’ profits. (Prices eventually fell in the latter part of the year, causing an overall year-on-year rise of 2%, according to the US Department of Agriculture (USDA).)

Regulatory uncertainty

Ethanol makers’ difficulties are now being compounded by mounting regulatory uncertainty. This in part relates to a dispute over the decision by the Environmental Protection Agency (EPA) in 2011 to raise the limit on the proportion of marketed petrol that can be derived from ethanol from 10% to 15% for cars made after 2001. Yet, despite the EPA’s move, the 10% “blend wall” remains highly relevant: the “E15” mix remains scarce, partly due to oil-industry opposition.

A related source of current controversy is the Renewable Fuels Standard (RFS). Under this mechanism the EPA sets annual quotas for the total volume of ethanol that refiners must blend into petrol. Last year, it mandated mixing in 13.2bn gallons of ethanol, or about 10% of the 133bn gallons of gasoline guzzled. But this year it proposes targeting 13.8bn gallons, which will be difficult to achieve for two principal reasons.

First, petrol consumption in the US has been falling in recent years, as Americans drive less and vehicles become more fuel efficient. Thus, demand for petrol—hence also for ethanol—may not live up to expectations. Second, oil prices have been falling in the US as oil output has risen. Petrol refiners have therefore favoured using more (relatively cheap) oil over ethanol, instead fulfilling their RFS obligations by buying Renewable Identification Number (RIN) credits (one RIN is equal to roughly a gallon of renewable fuel). Against this backdrop, only an uncharacteristic spike in petrol demand, combined with a sharp rise in oil prices, would make the EPA’s 2013 ethanol target attainable.

Criticism from food and oil groups hostile to ethanol may also need to be overcome. They argue that many cars are not made to use higher concentrations of the liquid, although more uptake of E15 may be necessary to meet this year’s target. Ethanol’s detractors want the EPA to keep down its 2013 target, which could be confirmed in April. A coalition of interests in February petitioned the US Supreme Court to overturn a lower court’s support of the EPA’s 2011 decision. Amid the maize-price pressures, doubt over future regulations and falling petrol prices, ethanol production has slowed. By mid-February, 25 of the 211 US ethanol plants reportedly sat idle.

Green shoots?

This year may see a modest upturn in the fortunes of those making maize ethanol by old-fashioned methods, whose margins have recovered greatly, according to data provided by the US Energy Information Administration (EIA). More sophisticated and profitable plants capable of recovering other products, like maize oil, have been better insulated against high crop prices, the government agency points out.

The Economist Intelligence Unit expects the coming crop year, due to begin when planting is carried out later in the spring, to bring a much larger yield than was seen in the preceding period. We forecast that maize prices will drop by just under 1% in 2013—from US$305/tonne in the first quarter of 2013 to US$290/tonne in the fourth quarter—as stocks will remain tight despite higher output. On top of this, Brazil’s efforts to use more of its (sugar-cane) ethanol at home, meaning it will export less to the US, also count in maize-ethanol makers’ favour.

Should maize-ethanol production fail to rebound, makers of other forms of ethanol could benefit, especially if the EPA’s E15 rule is allowed to stand. Cellulosic ethanol (made from wood chips, crop waste and so forth) is in theory one alternative source, although it has so far failed to live up to its billing. Like maize ethanol, the cellulosic type faces animosity from some members of Congress. Only 22,000 gallons of the fuel were produced last year, despite a supposedly binding EPA blending target of 8.65m gallons. Following a complaint from the American Petroleum Institute (API), a trade association, a Washington DC court found against the target, reasoning that US refiners were in “no position to ensure, or even contribute to, growth in the cellulosic biofuel industry”. Attempts by the EPA to enforce an even higher target in 2013, of 14m gallons, could prompt further legal challenges.

Nonetheless, on the back of federal support, cellulosic-ethanol production is expected to grow almost 20-fold this year (albeit falling far short of the EPA’s aspirations) as a new generation of bigger refineries come online. Other ethanol-manufacturing processes, such as substituting other sources for maize—wheat, for instance—are now attracting interest. None of these competing methods has yet proven itself viable on a large scale, but maize-ethanol manufacturers have little cause for optimism. Weak petrol demand and regulatory confusion leave them praying for a wholly different blend of government policy.

America’s Competitiveness: Immigration

Own goal

America’s immigration rules are the opposite of what it needs

Getting ready to pay for Medicare, Medicaid and the rest
IN JANUARY, WITH less than a day’s notice, the mayor of Miami-Dade ordered the closure of the westbound lanes of Bear Cut Bridge, creating a disastrous bottleneck on the only route between downtown Miami and the posh island suburb of Key Biscayne. Engineers from Florida’s Department of Transportation (FDOT) had inspected the bridge last June and deemed it in need of repair but sound enough to remain in use for the time being. But by the time of the next inspection, in December, the corrosion of the steel girders supporting the bridge had accelerated alarmingly, rendering it unsafe. Local drivers now face a year of delays and taxpayers an unexpected repair bill.

In a damp, salty place like Florida, explains Andrea Sanchez, steel and concrete can decay extremely quickly. She should know: while pursuing a doctorate in civil engineering at the University of South Florida she is working on a project funded by FDOT to model the lifespan of reinforced concrete in bridges exposed to sea air. With luck, her work will keep Florida’s drivers safer and more punctual and the state’s coffers fuller. But she will probably not be around to see the results.

Ms Sanchez is Venezuelan, living in America on a student visa. She would like to stay on after she completes her doctorate next year, but will have to leave unless she can find a firm that is willing to put up with the hassle and expense of obtaining a new visa for her. So far, she has found that difficult. At job fairs, as soon as she explains that she is not a citizen or permanent resident, most companies lose interest.

That is understandable. To employ a foreigner, even on a temporary basis, a firm must file paperwork with the Department of Labour certifying that no American workers are being displaced and that a market wage will be paid (to avoid depressing Americans’ earnings). Once that is approved, the prospective employer must submit evidence of the applicant’s qualifications to the Department of Homeland Security, along with $1,575-5,550 in fees, depending on the size of the company and the urgency of the application. Everything is then passed on to the State Department, which interviews the applicant and checks the other bureaucrats’ handiwork.

Even for companies willing to jump through all these hoops, visas may not be available, as Congress has put a limit on the number that can be issued each year. All 85,000 short-term visas for skilled foreign workers (H-1Bs, in bureaucratese) on offer this year were snapped up within ten weeks. That was a lot better than in April 2007, when the limit was reached in less than a day. Even in the depths of the downturn the quota was always fully used. Indeed, demand has exceeded supply every year since 2003, when Congress slashed the number of visas on offer by two-thirds.

Like gold dust

Workers seeking a residence permit, or “green card”, which allows an indefinite stay and opens up the prospect of eventual citizenship, have an even tougher time. Over 1m green cards are issued each year, but the bulk of them—65% in 2011—go to relatives of existing citizens and residents. Refugees and asylum-seekers receive another 16%. The number of green cards tied to employment and investment is limited to 140,000 a year, or roughly 13% of the current total. The quota has remained the same since 1990, even as America’s population has grown by 60m or so. Moreover, it includes visas for members of the beneficiaries’ families, who normally use up about half the slots on offer. So in 2011 America admitted only 65,668 new permanent residents for hard-nosed economic reasons, a mere 6% of all the green cards handed out.

Not content with merely rationing employment-based green cards, the government also makes them expensive and onerous to obtain. As with other work visas, employers must first show that they have tried and failed to find a suitable American for the post. The Department of Labour has strict rules about how, and for how long, this should be done. It demands two advertisements in the Sunday print edition of the largest local newspaper, for example (online advertisements will not do), along with various other recruitment efforts spread out over a month. Next, the employer has to convince the Department of Homeland Security that it has the wherewithal to pay the applicant indefinitely. A second, overlapping set of quotas which applies only to immigrants from countries that account for a high proportion of visas, including India, China and the Philippines, further complicates matters and can lead to years of delays. Lots of audits and inspections of all this add another layer of frustration and expense. A firm can easily spend $10,000 on immigration consultants and lawyers for a single application, along with around $1,500 in fees. Any mistake carries a risk of big penalties.

Worse, it is almost impossible for people like Ms Sanchez, with no formal job offer but with valuable skills, to obtain a visa, temporary or permanent. (Much the same goes for entrepreneurs, even if they already employ people in America, unless they are ready to invest at least $500,000.) This makes no sense to Ms Sanchez. She has already proved through her work for FDOT that her skills are in demand. If she does have to leave, she will put them to work in some other economy instead of America’s. “I pay my taxes. All my paperwork is in order. I’m bringing something to the community. I don’t see why it should be so hard,” she says.

Fred Young, the boss of Forest City Gear, agrees. His firm, which makes gears for NASA’s Mars rovers, among other whizz-bang devices, needs more staff, but struggles to find enough qualified Americans. Workers with an advanced degree in science, technology, engineering or mathematics (STEM) are much in demand. Only 3% of them are unemployed, compared with 7.9% of workers in general. Among some STEM professionals, such as nuclear engineers, computer-network architects and petroleum engineers, there is virtually no unemployment. According to a projection from Georgetown University’s Centre on Education and the Workforce, between 2008 and 2018 America will create 779,000 jobs requiring a graduate degree in a STEM field. Yet on current trends only 550,000 native-born Americans will be earning such degrees over that period, leaving firms no choice but to turn to immigrants.

That would be no bad thing. A 2011 study conducted on behalf of the Partnership for a New American Economy, which favours looser immigration rules, found that employment among native-born Americans increased by 262 jobs for every 100 foreign-born workers admitted with advanced STEM degrees from American universities. For every 100 H-1B visas, 183 Americans found jobs. Employing foreigners with any sort of advanced degree had a similar, albeit smaller, effect. And such foreigners on average paid about ten times more in taxes than they received in government benefits.

On the whole, though, immigrants are not STEM whizzes. In fact, they are four times less likely to have finished high school than the average person born in America. But immigrants of all sorts still bolster the economy. They are more likely to be working than the native-born, accounting for just 13% of the population but 16% of the workforce. They are also more likely to apply for a patent or to start a company. One study found that 18% of America’s biggest companies were founded by immigrants and a further 23% by the children of immigrants.

Most immigrants are not, over the course of their lives, a burden on the state. They are much less likely than the native-born to go to jail. In 2007 a CBO study reckoned that regularising the status of America’s millions of illegal immigrants—the least skilled of all—would bring in an extra $48 billion in revenue over ten years and increase government spending by only $23 billion. Most studies suggest that more immigration would increase aggregate incomes of those already in the country, although they differ on the effect on low-skilled workers.

Immigrants are also saving America from demographic decline, and thus putting off the day when Medicare and Social Security become entirely unaffordable. Jeffrey Passel and D’Vera Cohn of the Pew Research Centre, a research institute, have calculated that immigrants will account for 82% of all population growth between 2005 and 2050, and for all the growth in the working-age population over the same period.

An 11m-strong queue

The arguments are beginning to sink in even in Washington. Of all the items on Mr Obama’s legislative agenda, immigration reform seems the most likely candidate for a bipartisan compromise. The president has proposed handing out green cards to foreign STEM graduates at American universities and offering a “pathway to citizenship” to the 11m-odd illegal immigrants. Various proposals in Congress support these goals, along with a simpler system for admitting temporary workers.

The hitch is that many Republicans consider any measure that might allow illegal immigrants to become citizens as tantamount to an amnesty that rewards unrepentant criminals, no matter how long the wait or stringent the conditions. Moreover, they argue, such a reform would simply encourage more hopefuls to attempt illegal crossings. Many Democrats, meanwhile, seem to view an increase in visas for skilled workers as a bargaining chip for a reprieve for illegal immigrants, rather than as an end in itself.

As it happens, change is already afoot, even without Congress’s blessing. Illegal crossings from Mexico to the United States have slowed to a trickle and more people are leaving than coming in because of the weak economy. At the same time immigrants are becoming increasingly well-educated. Back in 1980, 40% of immigrants of working age had not completed high school; in 2010 the share of dropouts had fallen to 28%. In 1980 only 19% of those immigrants had a university degree; in 2009, 30% did, and 2% had doctorates, compared with just over 1% of native-born Americans.

Immigrants’ greater educational attainment is due in part to the efforts of successive administrations to make it easier for people like Ms Sanchez to negotiate the visa system. Foreign university students with an offer of employment in a related field have long been allowed to stay and work for a year after completing their degree, under a programme called “Optional Practical Training”. In 2008, under Mr Bush’s watch, the government extended the permissible stay for STEM graduates to two-and-a-half years. Last year, under Mr Obama’s, the rules were loosened yet further.Mr Obama also temporarily allowed otherwise law-abiding illegal immigrants brought to America as children to stay and work in the country. That will let some 1.7m people live much more productive lives for now—although only Congress can make their reprieve permanent.

Likewise, Congress needs to take action to procure a systematic improvement in America’s infrastructure. But until it gets round to it, creative officials up and down the country are finding ways of making up for its neglect.

Mar 16th 2013 |From the print edition.