A final area in which public agencies carry an especially significant burden is in the provision of the physical infrastructure necessary to support highly productive economic activities. Here, too, the performance of federal, state, and local governments in recent years has been poor. Data on trends in U.S. investment in infrastructure show declining rates of investment during the 1970s and 1980s, relative to past decades. Not only has the rate of growth in the value of capital stock declined, particularly in the nonmilitary sector, but recent assessments show a reduced federal role in investments in infrastructure. From 1960 to 1987, federal support for capital investments, operations, and maintenance in infrastructure fell from 31 to 24 percent of total federal government expenditures.46 During the same period, the proportion of all government spending in the United States (federal, state, and local) allocated to public works projects in infrastructure fell from 12 to 7 percent.

Evidence for a relationship between investment in infrastructure and economic development is both intuitive and analytical. Moreover, the relationship is an interactive one—slower productivity growth implies slower growth in national income and reduced rates of growth in public revenues to support these expenditures. It seems evident that the growth of industry sectors such as automobiles and air transportation rested in large part on massive public investments in highways, airports, and air safety. Conversely, crumbling roads, collapsed bridges, and congested airports today seem to threaten afflicted regions with economic disruption. The panel supports efforts to increase levels of investment in the physical infrastructure of the U.S. economy.


The poor U.S. performance in improving measured productivity growth rates is a central cause for concern. This is particularly true when considering the economic environment for technology development in the United States. As we have seen, investment in physical capital and civilian research and development are important components of strong productivity growth rates. These are areas to which we must devote greater attention in the future. In addition, we have found that the innovative capacity of the United States through the development stage has remained strong relative to the nation's performance over the past several decades. There are many indications of continuing U.S. strengths as they relate to innovation and technology development, including a strong university system and basic research enterprise, U.S. dominance in generating technologies with potential commercial value, and strong real rates of growth in output of the manufacturing sector.

Nonetheless, the economic and technological challenge posed by our

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