How About Investing in Human Infrastructure?

 
 
As long as we’re talking about a trillion-dollar government-industry initiative on infrastructure, why not invest in humans as well as bridges? asks James Heskett. What do YOU think?
 
 
by James Heskett
SUMMING UP: Investment in Human Infrastructure: Not Whether But How?

Few dispute the notion that a significant US investment in human infrastructure is warranted and timely, although there were significant differences of opinion about how it might be achieved. In particular, the degree of government involvement was an issue. Regardless of the vehicle for achieving it, there was little optimism that we would be seeing a significant incremental effort soon. As I read your responses, a question crossed my mind: In light of the findings and conclusions by Ganesh Sitaraman that increasing opportunities for human development are key to regenerating a middle class on which the US Constitution depends, I was surprised that there wasn’t a greater sense of urgency in many of the comments.

Alan Levy led the enthusiasts with the comment, “Just an excellent idea… Something worth lobbying for!” Ed Hare said, “Should we do better in investing in people? They’re an asset … of course we should!”

Guy Higgins and Lewisman agreed, with conditions: “… (as with the GI Bill) make the offer to men and women who have some life experience and emotional maturity … (and ensure) education in the kinds of knowledge and skills that the American economy needs.” (Higgins) “… provided it is spent on the areas where there is the greatest performance gap…” (Lewisman). Samuel Reich added that, “… it should (be) limited (to) schools where standard tests indicate the bulk of the students are learning what they are expected to.”

Other models that might be followed were suggested. ReshoreNow pointed out that, “The Germans and Swiss have excellent apprenticeship training models.”

Several respondents alluded to institutional shortcomings in delivering the kinds of training needed. As Paul Clarke put it, “Educational institutions seem to get far behind because they identify a need, then take a lot of time to develop curricula, find teachers, etc.” Aim was even more blunt, saying, “By the end of the year most probably skills acquired will be obsolete.” Another kind of institutional obstacle was identified by Tom when he said, “Let’s see what real disruption looks like, reminding us that, “A noted surgeon said his students, though very smart, often had rotten hand eye skills and made terrible surgeons. He said he could train a dexterous high school gamer to be a better surgeon.”

Edward Dodson would place his bet on industry’s ability to close the human development gap through investment tax credits. As he put it, “What if companies were given a tax credit for each non-executive level full-time employee based in the United States?

Citing political obstacles, ProfPaul commented, “The idea is a no-brainer and clearly should be implemented. But it won’t… while the merits of human capital investment are substantial, the political realities of our grotesquely divided nation today would appear to me to be a hurdle too high to surmount.” The irony in this comment is that efforts to shore up the “human infrastructure” might, by rebuilding the middle class, help heal the very divide in the nation today that represents the obstacle that ProfPaul cites.

So that leaves us with the basic question concerning investment in human infrastructure: Not whether, but how? What do you think?

Reference: Ganesh Sitaraman, The Crisis of the Middle-Class Constitution: Why Economic Inequality Threatens Our Republic (New York: Alfred A. Knopf, 2017)

ORIGINAL COLUMN:  There is increasing talk about stimulating $1 trillion in spending on the aging United States infrastructure over the next 10 years. Proposals being thrown around range from the federal government borrowing and investing that money directly to instead providing incentives such as tax credits to encourage private industry to participate.

The method and the final amount will be debated. But as long as we’re talking about a trillion-dollar government-industry initiative, why not include in the program an investment in humans as well as bridges?

If there is a topic more frequently discussed than infrastructure decay in the US, it’s inequality. Both are important sources of lost productivity and economic growth. The largest investment in human infrastructure in the nation’s history, called the GI Bill, had one of the highest rates of return to the economy that the government has ever realized. The GI Bill enabled me to complete graduate studies. In addition, just six months of Army classroom training during a term of service as a draftee left me with skills that have had lifetime benefits. And it contributed to significant growth of the American middle class. These experiences prompt the following speculation.

"The largest investment in human infrastructure in the nation’s history, called the GI Bill, had one of the highest rates of return to the economy that the government has ever realized"

What if the proposed investment in infrastructure were split into two major programs, one for physical repair and construction and one for human development? Let’s assume optimistically that this gives us $500 billion (not all from public funding) to work with over 10 years.

That’s enough to design a six-month $10,000 retraining program (focusing on skills defined by unfilled jobs) plus a $10 per hour wage funded by the government followed by six months of on-the-job training during which the participating employer provides the training and splits the wages with the government. For one worker for a year, the cost would be $25,000 to the government, $5,000 plus on-the-job training costs to the employer, after which the employer would hire the worker full-time.

Assume that the retraining raises the annual revenue-producing capacity of the worker from $60,000 (a rough figure for the hospitality industry) to $110,000 (a similarly rough figure for “health care and social assistance”). A $30,000 investment in human infrastructure, based on these assumptions, would foster an increase in revenue-producing capability of $500,000 over just the first 10 years of the remaining working life of the trainee. I suspect there are few infrastructure investments that could produce as good a return as fast as this one.

How much impact could $500 billion of funding have? At $30,000 per person in retraining costs ($25,000 of which would be provided by the government), a joint public-private partnership of the type described above could retrain 16.7 million workers, or an average of 1.67 million per year. At the end of the 10-year period, they would collectively be adding about $835 billion per year to the economy. More importantly, the investment could add significantly to the depleted middle class, which Ganesh Sitaraman in his new book The Crisis of the Middle-Class Constitution has labeled the foundation of the US republic.

What could go wrong? Of course, coming up with the money is always an issue, particularly in a government facing a future of deficits. Paul Krugman has suggested that the infrastructure program would likely be a “giveaway to cronies with little new investment.”

There is always the possibility for educational scams. But we know how to do this. Organizations like FocusHope in Detroit are taking people from unemployment to good jobs (in the case of FocusHope, in partnership with the auto industry). The US community college network, by instituting the kind of co-op program with industry similar to the kind Northeastern University has been providing with great success for many years, could play a key role in the effort. With cooperation and some oversight by private industry, it might have a decent chance of success.

So how about investing in human infrastructure? What do you think?

References

Brad Reed, A giant ripoff’: Paul Krugman explains why Trump’s infrastructure plan is already DOA (rawstory.com, March 28, 2017)

Ganesh Sitaraman, The Crisis of the Middle-Class Constitution: Why Economic Inequality Threatens Our Republic (New York: Alfred A. Knopf, 2017)

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