Investing in Infrastructure Means Investing in Innovation - Katherine ...

I wanted to understand how the U.S.'s failing infrastructure is affecting our economy, so I called Eric Spiegel. He's president and CEO of Siemens Corporation, the U.S. arm of the global technology, energy, healthcare, and infrastructure company. He also has 25 years of experience consulting to the energy, manufacturing, and utility industries. Here are his thoughts on what the U.S. needs to do to address our infrastructure issues, in an edited excerpt of our conversation:

We know the U.S.'s infrastructure is in bad shape. How bad is it?

We're now ranked 23rd in the world in terms of infrastructure. The American Society of Civil Engineers recently gave the U.S. a D on its report card for infrastructure. Among the most developed countries in the world, we've fallen way behind. The age of our country's coal plants averages in the 40-year range, with a number of plants at the 50-60 year mark. And our electric grid is behind other countries. We have trouble figuring out where we have an outage and connecting renewables.

Take a look at the transportation network. Siemens developed a train in 1903 that would go 150 miles per hour; now we're manufacturing trains that go 230 miles an hour. But in the U.S., trains rarely get above 100 miles an hour because the tracks and control systems are so old. In Germany, they run light rail, medium-speed rail, high-speed rail, and freight rail all on the same tracks, using sophisticated control technology to move trains on and off the tracks. We're way behind.

Then there's the aging water infrastructure. When a pipe burst in Vermont, the mayor said, "That pipe's been here since the war." Senator Bernie Sanders who was visiting the small town asked, "What war?" The mayor said, "The Civil War." We just did a green cities index for 22 cities in the US and five in Canada, and one of the criteria we looked at was water management. Some cities were very good, but others were equivalent to cities in developing countries.

Those are just three big examples of how we're running behind. And it has had a big impact on the competitiveness of the country.

What's the connection between infrastructure and competitiveness?

There are two big advantages of having a modern infrastructure. It makes commerce a lot more efficient; you can move goods around the country and export them easily. The president wants to double exports by 2015; you can't do that without a modern infrastructure. Investing in infrastructure also drives innovation, creating the kinds of jobs we want in this country around new technologies like smart grid, renewables and high-speed rail.

Why does infrastructure spur innovation?

Infrastructure projects are huge investments, and they're usually very scalable assets and technologies. They are areas where we've had massive productivity improvements over time. And so they naturally attract a lot of research and development and innovation because there are areas where you can make a huge impact.

For example, the utility market is the single biggest sector in the U.S. And so there's a lot of money spent trying to create new technologies and innovation to generate electricity, and also to move it more quickly and efficiently over longer distances and make the grid smarter. Just think about that whole value chain from generation all the way down through distribution and consumption of electricity. It's a huge industry, right? So there's a lot of money spent on it and a lot of innovation done around it ? think high-efficiency gas turbines, long-distance HVDC transmission lines and smart building technologies.

How has the U.S.'s aging infrastructure affected your business?

We just built the largest gas turbine plant in the U.S. in Charlotte, North Carolina. It's going to build the world's most energy-efficient gas turbines. When we built the plant, we said, we want to be able to export out of here, and that's going to be an important criterion for determining where to put the plant. There was a rail spur near that plant that joined a main line to the port in Norfolk. It turned out that rail spur had been retired years ago, and we had to go in and rehabilitate it. This might have been a good place for the government to step in and say hey, that's important infrastructure, and it will allow for the creation of the kind of jobs we want in this country ? higher paying, higher technology jobs ? we'll fund that.

So why did you choose Charlotte over other locations for the gas turbine plant?

The market was here so it always starts with demand. We also already have an existing facility in Charlotte that houses our steam turbine and generator manufacturing site. By locating the gas turbine manufacturing site here as well, we now house our entire fossil technology fleet in one integrated site. This is why we call it the Charlotte Energy Hub, only one of three in the world.

Along with the physical infrastructure, we were able to partner with community colleges to access a skilled workforce, which should be seen as a major piece of the infrastructure equation. If we invest in upgrading the electric grid, the transportation network, our water systems, schools and hospitals and ports and airports, we're going to create demand and then companies like Siemens will bring the world's most modern, sophisticated technology here, build manufacturing, and put R&D here to build out the infrastructure.

How should we approach infrastructure investment to get it right?

An important thing to remember as we think about spending infrastructure dollars is not to spread it across the country like peanut butter. People often just focus on needing to improve the roads. OK, yeah, there are too many potholes in the roads, but that's not the big idea here. The roads in this country aren't the worst in the world. We need to focus on bigger technologies that are really going to create jobs and make this country competitive over the next 20 to 25 years.

One way to make that happen is public/private partnerships. Let me give you an example. We have hundreds of military bases in the U.S., and they are in disrepair. The buildings are old and their energy efficiency is poor. They're looking at putting smart micro grids in to handle their own power generation. Micro grids could be solar, could be gas, and could be different things. When you take a look at the numbers, these things are basically self-funding. In other words, the government doesn't have to make the investment. It can get private money from companies like Siemens who will do what we call performance contracting. We'll pay to modernize the military's grid and share the savings with the federal government. We can do the same thing with rail systems, highways, universities, data centers. We can use a lot of private money to drive this. The rest of the world is doing this in a big, big way. We need to make it easier to do here.

This post is part of the HBR Insight Center on American Competitiveness.

Source: http://blogs.hbr.org/cs/2012/03/we_know_the_uss_infrastructure.html

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