“The difficulty lies, not in the new ideas, but in escaping from the old ones, which ramify, for those brought up as most of us have been, into every corner of our minds.” J.M. Keynes
The decade of the 2020’s must be, and promises to be, a time of radical transformation for ownership and operation of our country’s infrastructure. We know two things: (1) To maintain existing infrastructure and build the new infrastructure required to meet the needs of the 21st century, investment demand will grow inevitably to $1.5 trillion per year by 2030 and (2) There is no way that the “usual sources” – taxes and payments by users—can generate that kind of revenue, particularly in a country with $30 trillion in debt.
Fortunately, just as with tough problems of the past, technology offers the answer, arguably at a 10x ratio. First, technology is creating huge efficiencies, and new services, and – crucially – tremendously valuable pools of data that infrastructure projects and networks can capture and monetize. Second, as investment transitions from public to private (right now 84% of the infrastructure market is ring-fenced from private investment) startlingly new and creative companies will drive the business of infrastructure. Third, the public sector is about to go through its own transformation, from the slow and steady guardian of our nation’s $34 trillion in public assets to a swift and strategic overseer of dynamic private investment.
Let me explain. The focus of investors, and infrastructure strategists, needs to be on the data generated by the digitization of our country’s infrastructure. A focus on physical infrastructure is necessary but not sufficient. By 2030 the market value of data from our transit networks, water networks and electricity grid could be as much as ten times our annual investment requirements. Total data revenue could exceed $15 trillion per year. That means that the digitization of our infrastructure – brownfield projects, greenfield projects and visionary projects – is not only a no brainer priority, but that the $10 created for every dollar invested will not only turn us into world leaders, but leave funds for education, health care and other areas of desperately needed, long ignored, investment.
Private Technology Investment
Eighty percent or more of new investment in infrastructure will come from private investors. This is a dramatic transition – think about the level of disruption, and the massive opportunities that open up, as we move from public ownership to private investment. As Bryn Fosburgh of Trimble highlighted to me in a recent conversation: “the digitization of infrastructure will produce whole new services and capabilities, and new revenue sources that can be used in turn to fund infrastructure.”
Does a data tax replace the gasoline tax, should it? Or does something more revolutionary appear, like the creation of a new governance model, focusing on swift decision-making and strategic guidance (like a board of directors) rather than the current model, taking on average 7-10 years for a single project to be approved?
In a recent analysis my firm estimated that not only will the infrastructure sector be transformed by the switch from public to private investment, but that over 80% of investment going forward will focus on the digitalization of our infrastructure. The current focus on highways, bridges and tunnels will be shown to wildly miss the point – the gold rush for deep data pools, the organization of that data, and its commercialization, will drive progress. Your grandfather’s slow and steady infrastructure business will become one of the most dynamic businesses on earth.
Look at three core infrastructure sectors critical to our economic performance, where the investment requirements are huge, and we fall further behind year after year:
Water & Wastewater ($400 billion)
The giant ticking time bomb here and around the world – the grenade with the pin pulled – is old water pipes and valves, and smart water will drive this market. According to Bluefield Research the digitization of the water sector is growing by 54% annually. This is a client facing business – imagine a ‘smart tap’ where every household’s water quality was measured throughout the day. Xylem is the leading smart water company. Savings will be in the 30% range, but revenue in the sector could dwarf Facebook FB +0.3%’s annual $80 billion advertising revenue.
Public Transit ($360 billion)
Transit is an urgent post Covid opportunity, but saving our public transit system is all about technology, at every step – from entering a station, to payment, to ensuring that rolling stock is safe. Technology is bringing its own investment to the transit sector, driving the velocity of change, and dramatically increasing the volume of data available – for sale. Our transportation networks have been on the ropes for decades, data is going to save that system, pumping as much as $70 billion per year into the sector. There are no strong U.S. players, although Siemens, Hitachi and Bombardier manufacture rolling stock in the U.S.
Note: In both water and public transit the data systems will have to exist on a decentralized blockchain structure, where users will control – and even monetize – their data. User privacy and control will be crucial. The company to watch here is Blockchains, Jeff Berns’ firm at Innovation Park in Reno, NV. They are creating the first holistic, integrated, blockchain solution for a smart city.
The Visionary Sectors. Turning to the visionary sectors that are just being created, the opportunity to develop entire industries fueled by data revenue are extraordinary. The autonomous vehicle business will generate nearly $400 billion in annual revenue from data by 2030; while smart cities will generate nearly $500 billion. The latter is particularly interesting, because the creation of a public platform to monetize data – pioneered by by the Lattice Industries project in California – will allow resource deprived municipalities the opportunity to control a robust and dynamic new revenue source.
Technology disruption is banging on every infrastructure door, promising to bring critical funding to a marketplace that has underinvested for decades. Everything is set, except for one weak link, the public sector. A revolution in the role of government is on the horizon, but who will lead that effort? Over the last 100 years the baton of leadership in infrastructure has regularly changed hands, from the engineering/construction community, to Wall Street, to the technology community — might it be time to once again attract the best and the brightest from these disciplines to government service? This is where the action is going to be, technology, Covid and the drive for economic recovery guarantee it.
We are about to embark on a tremendous adventure, and there is a certain joy in taking big risks for the greater good. As President Grant said in another context: “No man ought to win a victory who is not willing to run the risk of defeat.” That’s the right way to think about it, so let’s get on with it.