The Story Construction Tells About America’s Economy Is Disturbing

"Here’s something odd: We’re getting worse at construction. Think of the technology we have today that we didn’t in the 1970s. The new generations of power tools and computer modeling and teleconferencing and advanced machinery and prefab materials and global shipping. You’d think we could build much more, much faster, for less money, than in the past. But we can’t. Or, at least, we don’t.

Throughout the 1950s and 1960s, productivity in the construction sector — how much more could be done given the same number of workers and machines and land — grew faster than productivity in the rest of the economy. Then, around 1970, it began to fall, even as economywide productivity kept rising. Today, the divergence is truly wild. A construction worker in 2020 produced less than a construction worker in 1970, at least according to the official statistics. Contrast that with the economy overall, where labor productivity rose by 290 percent between 1950 and 2020, or to the manufacturing sector, which saw a stunning ninefold increase in productivity.

In the piquantly titled “The Strange and Awful Path of Productivity in the U.S. Construction Sector,” Austan Goolsbee, the newly appointed chairman of the Chicago Federal Reserve and the former chairman of the Council of Economic Advisers under President Barack Obama, and Chad Syverson, an economist at the University of Chicago’s Booth School of Business, set out to uncover whether this is all just a trick of statistics, and if not, what has gone wrong.

Their paper works by process of elimination. First, they look at whether there has been less capital investment in construction than elsewhere in the economy. Nope.

Then they examine whether we’re mismeasuring construction — which would mean that sometime starting in the 1970s we began overestimating the labor or materials the construction industry used or underestimating how much it built with them, or both. They test this a few different ways, but the most interesting is to look at how many houses were built per worker, adjusted for square footage. There, the trend looks more flat than negative, and maybe slightly positive for single-family homes, but it’s far from bringing construction productivity anywhere near level with the rest of the economy.

Adding weight to the idea that this isn’t a quirk of American record keeping is that the slowdown is international. The Organization for Economic Cooperation and Development tracked construction productivity in 29 countries between 1996 and 2019. In 40 percent of them, productivity fell during that time. Syverson sent me the underlying data, and the only countries in which productivity rose at more than two percentage points per year were the Slovak Republic, Latvia, Estonia and Lithuania — poorer countries rebuilding after the crackup of the Soviet Union and the Soviet bloc.

So if it’s not underinvestment and it’s not a statistical illusion, what is it? Here, Goolsbee and Syverson seem stumped. The Wharton School of Business, for example, tracks building regulations across cities, and Goolsbee and Syverson tested regulatory burden against construction productivity. There was a slight relationship, but nothing impressive. They looked at which states saw the highest and lowest rates of productivity increases. The worst performers, Syverson said, were Alaska, Idaho, Wyoming, Delaware and Michigan. The relative stars were Georgia, North Carolina, South Carolina, Virginia and Colorado. That doesn’t lend itself to a clean story of red states and blue states, or urban states and rural states.

Syverson, for one, is skeptical that there’s any single answer. “I don’t know how you get 50 years of decline without having multiple problems,” he told me. “Everyone has their pet theory. But everyone has a different pet.”

But Goolsbee and Syverson are economists. Maybe the cause is obvious to industry insiders. I called Ed Zarenski, who worked in construction, largely as an estimator, for more than 40 years and now runs the market analysis firm Construction Analytics. Zarenski, who tracks constructions costs and business volume closely, agrees that there has been a slowdown. And he agrees that there is no single cause for it. But when he thinks back on what the construction industry looked like when he began his career, and what it looks like now, the anecdotes tumble out.

“When I first started back in the ’70s, you did one estimate on a project,” he told me. “You put it in, you got your bid, and if you won, you began construction. By the time I left in 2014, you did three estimates for every job before you even put the bid in. That becomes part of the cost of the job.”

Or take the job site, he said. “The safety features on jobs when I started in the industry were not even noticeable. Safety on a job today is incredibly different. You don’t walk across a beam, you walk around on a pathway marked for you to stay safe so you don’t fall off the side of the building. By the time I retired, one thing that took place every day, on every job site, was a mandatory 15 minutes of calisthenics before you start your workday. That’s totally nonproductive, but it led to fewer work site injuries during the day.”

And behind all that is paperwork, and paperwork, and more paperwork. “The work we do today takes hundreds more people in the office to track and bring to completion,” he told me. “The level of reporting that you have to send to the government, to the insurance companies, to the owner, to show you’re meeting all the requirements on the job site, all of that has increased. And so the number of people you need to produce that has increased.”

Zarenski’s point isn’t that any of this is bad. If 15 minutes of daily calisthenics helps prevent a lifetime of back problems, it’s well worth it. The problem is that there’s more work at every level of the process, from the analyses done in the back office to the rules followed on-site.

Talking to Syverson and Zarenski left me thinking about Mancur Olson’s famous 1982 book, “The Rise and Decline of Nations.” Olson’s book begins with its own productivity mystery: After World War II, Germany and Japan’s cities were bombed out, their people dispirited, their economies wrecked. The question of the age, Olson writes, was “whether these abjectly defeated societies would be able to provide themselves with even the rudiments of survival.” Instead, West Germany and Japan thrived, growing far faster in that era than Britain, which had emerged victorious from the war.

Olson, an economist, was known for seminal work on the conditions under which groups would, and would not, cooperate. Here, he turned it into a theory for why nations often stagnate amid affluence and thrive in the aftermath of chaos.

His key insight is that it’s not easy for groups capable of collective action to emerge. But once they do emerge, they tend to stick around. And so, Olson suggests, “if organizations and collusions for collective action usually emerge only in favorable circumstances and develop strength over time, a stable society will see more organization for collective action as time passes.”

The more organized groups you have, Olson thinks, the more fights over distribution you’ll have, the more lobbying and complex regulation you’ll have, the more intergroup bargaining and negotiation you’ll have, the more complexity you’ll have. Or as he puts it, “special-interest organizations and collusions reduce efficiency and aggregate income in the societies in which they operate and make political life more divisive.”

“The Rise and Decline of Nations” is a classic economics text, but that’s not to say it’s correct. Japan, for instance, has gone from economic poster child to growth laggard. Olson’s argument would seem to imply that the United States, with its geographic protection against invasion and its long history of continuity, would be far more sclerotic than Germany, but that’s not the case. And Olson has no real answer for why so few countries that fall into crisis subsequently grow into affluence.

But Olson’s biggest miss, in my view, is his assumption that groups organize around redistribution. Olson almost completely missed the post-materialist turn in the politics of affluent countries. Some groups organize to get more of the pie, but many others organize to protect the environment, or to increase safety standards, or to preserve the feel of their communities, or to express their values. And much of this is good. It’s a gift of affluence, not a disease of affluence.

But Olson, who died in 1998, is right when he tells us that this gift comes with costs. And those costs concentrate in the areas of the economy in which the number of groups that have to be consulted mount. From this perspective, the productivity woes in the construction industry don’t seem so puzzling. It’s relatively easy to build things that exist only in computer code. It’s harder, but manageable, to manipulate matter within the four walls of a factory. When you construct a new building or subway tunnel or highway, you have to navigate neighbors and communities and existing roads and emergency access vehicles and politicians and beloved views of the park and the possibility of earthquakes and on and on. Construction may well be the industry with the most exposure to Olson’s thesis. And since Olson’s thesis is about affluent countries generally, it fits the international data, too.

I ran this argument by Zarenski. As I finished, he told me that I couldn’t see it over the phone, but he was nodding his head up and down enthusiastically. “There are so many people who want to have some say over a project,” he said. “You have to meet so many parking spaces, per unit. It needs to be this far back from the sight lines. You have to use this much reclaimed water. You didn’t have 30 people sitting in a hearing room for the approval of a permit 40 years ago.”

Some of this is expressed through regulation. Anyone who has tracked housing construction in high-income and low-income areas knows that power operates informally, too. There’s a reason so much recent construction in Washington, D.C., has happened in the city’s Southwest, rather than in Georgetown.

When richer residents want something stopped, they know how to organize — and they often already have the organizations, to say nothing of the lobbyists and access, needed to stop it.

This, Syverson said, was closest to his view on the construction slowdown, though he didn’t know how to test it against the data. “There are a million veto points,” he said. “There are a lot of mouths at the trough that need to be fed to get anything started or done. So many people can gum up the works.”

This also helps explain the curious finding that ends Syverson and Goolsbee’s paper. After looking at the states with the highest construction productivity, they note that the more productive states don’t seem to gain market share in the construction industry. That doesn’t make much sense if you assume that the difficulties of construction are primarily the organization of manpower and materials. It makes more sense if you assume that the frictions are in navigating local regulations, community considerations, neighbors’ qualms and politicians’ interests.

In the cities where I’ve covered politics closely, developers are fixtures in the local political scene. They have to be.

“My feeling is the guys that know the system have a much easier time getting through the system,” Zarenski said. “They know ahead of time what they have to come into the party with and how to speak to those people and how to satisfy them, and so it goes a lot smoother for them.” But a thorough knowledge of one city or state, and establishing relationships with its key stakeholders and decision makers, won’t necessarily translate to success in another.

How do we get construction productivity rising again? I have no idea. Construction should become safer, more respectful of community concerns, and more environmentally sustainable as countries become richer and less desperate for growth. But it’s also true that many of the problems America faces — from decarbonization to affordable housing — would be a lot easier to solve if we were getting better at building, rather than worse."

Pasaulinis mokesčių susitarimas nustato taisykles JAV įmonėms

  „VAŠINGTONAS – JAV paskatino kitas dideles šalis sutikti su suderintu pasauliniu pelno mokesčio didinimu. Dabar tarptautiniai pareigūnai imasi mokesčių didinimo, tuo pačiu suteikdami JAV įmonėms laikiną pertrauką nuo kai kurių mokesčių didinimo, tikėdamiesi paskatinti JAV  įgyvendinti susitarimą.

 

     Ekonominio bendradarbiavimo ir plėtros organizacija (EBPO) ketvirtadienį išdėstė, kaip JAV mokesčių sistema sąveikaus su kitose šalyse įgyvendinamais minimaliais mokesčiais. Taisyklės numato dalinį atidėjimą JAV įmonėms iki 2025 m. Vis dėlto tikėtina, kad JAV įmonės susidurs su didesniais mokesčiais užsienyje.

 

     2021 metais JAV gavo tarptautinę paramą pasauliniam minimaliam mokesčių tarifui. Tačiau Bideno administracija negalėjo įgyvendinti plano Kongrese, kuris nepriėmė teisės aktų, užtikrinančių, kad JAV bendrovės mokėtų bent 15% tarifą kiekvienoje šalyje, kurioje jos veikia.

 

     EBPO teigė, kad planuoja iš naujo įvertinti situaciją iki 2025 m. pabaigos. JAV įstatymų leidėjai tikisi priimti svarbius mokesčių teisės aktus tais metais, kai baigsis pagrindinių mokesčių įstatymų galiojimas, tačiau jie mano, kad iki to įvyks mažai kas.

 

     „Tai tikriausiai atspindi realybę, kad kitos šalys bus tokios tolerantiškos mūsų atidėtam įgyvendinimui“, – sakė Rebecca Kysar, Fordhamo universiteto teisės profesorė, padėjusi derėtis dėl susitarimo, kai ji buvo Iždo departamento pareigūnė.

 

     Pagal tarptautinį susitarimą, dėl kurio susiderėjo iždo sekretorė Janet Yellen, šalys sutiko priimti 15% minimalų mokestį savo buveinės šalies įmonėms, taikomą kiekvienoje jurisdikcijoje, kurioje šios bendrovės veikia.

 

     Sistema buvo sukurta su įmontuotais atbuliniais stabdžiais, kurie veiktų, kai kritinė tautų masė pajudės į priekį. Jei šalis neapmokestintų 15% mokesčio savo įmonėms, kitos šalys galėtų apmokestinti tas įmones. EBPO taisyklės suteikia JAV įmonėms tam tikrą dalį šių apsaugos priemonių, bet ne visas.

 

     JAV taiko du minimalius pelno mokesčius, tačiau dabartinė JAV mokesčių tvarka nedera su koordinuota sistema, kurią diegia kitos šalys. Tai padidina tikimybę, kad JAV įmonės susidurs su didesniais mokesčiais, nei jų užsienio konkurentai, o pinigai atiteks užsienio vyriausybėms.

 

     Anne Gordon iš Nacionalinės užsienio prekybos tarybos, atstovaujančios didelėms JAV įmonėms, teigė, kad net ir po EBPO rekomendacijų įmonės išlieka susirūpinusios.

 

     Ponia Yellen ir administracijos pareigūnai stūmė Kongresą priimti 15% minimalų tarptautinį mokestį, kai demokratai kontroliavo Atstovų Rūmus ir Senatą. Tačiau tos pastangos žlugo, respublikonai nepalaikė ir senatorius Joe Manchinas (D., W.Va.) nepritarė.

 

     Vienas iš J. Manchino rūpesčių buvo tai, kad JAV padidins mokesčius, o kitos šalys – ne. Kurį laiką susitarimas ES buvo įstrigęs. Tačiau dabar daugelis didelių valstybių žengia į priekį, kad įgyvendintų naują mokesčių režimą.

 

     Naujosiose EBPO taisyklėse paaiškinama, kaip esamas 10,5% minimalus JAV įmonių užsienio pajamų mokestis, žinomas, kaip pasaulinių nematerialių mažų apmokestinamų pajamų mokestis (GILTI), sąveikauja su kitų šalių naujais mokesčiais.

 

     Kuo daugiau JAV įmonės galės įskaityti GILTI mokesčius į savo mokesčius kitose šalyse, tuo mažiau jos bus skolingos kitoms šalims.

 

     Ketvirtadienio taisyklės siūlo gana dosnią, bet laikiną tų skaičiavimų versiją, sakė ponia Kysar." [1]

 

1.  U.S. News: Global Tax Deal Sets Rules for U.S. Companies
Rubin, Richard.  Wall Street Journal, Eastern edition; New York, N.Y. [New York, N.Y]. 03 Feb 2023: A.2.

Global Tax Deal Sets Rules for U.S. Companies

"WASHINGTON -- The U.S. prodded other major countries to agree to a coordinated global corporate tax increase. Now, international officials are moving ahead with their tax increases while giving U.S. companies a temporary break from some tax hikes in hopes of prompting the U.S. to implement the deal.

The Organization for Economic Cooperation and Development (OECD) on Thursday spelled out how the U.S. tax system will interact with the minimum taxes being implemented in other countries. The rules offer a partial reprieve for U.S. companies through 2025. Still, U.S. companies are likely to face higher taxes abroad.

The U.S. in 2021 won international backing for the global minimum tax rate. But the Biden administration couldn't push the plan through Congress, which hasn't passed legislation ensuring that U.S. companies will pay the rate of at least 15% in each of the nations in which they operate.

The OECD said it plans to reassess the situation before the end of 2025. U.S. lawmakers expect to take up significant tax legislation that year, when key pieces of tax law are set to expire, but they expect little to happen before that.

"This likely reflects the reality that other countries are only going to be so tolerant of our delayed implementation," said Rebecca Kysar, a law professor at Fordham University who helped negotiate the deal when she was a Treasury Department official.

Under the international agreement negotiated by Treasury Secretary Janet Yellen, nations agreed to adopt the 15% minimum tax on their home-country companies, applied in each jurisdiction where those companies operate.

The system was designed with built-in backstops that would work once a critical mass of nations moved ahead. If a country didn't impose the 15% tax on its own companies, other countries would be able to tax those companies. The OECD rules offer U.S. companies some cushion on part of those backstops but not all of them.

The U.S. has two corporate minimum taxes, but the current U.S. tax regime doesn't fit neatly with the coordinated system other countries are implementing. It raises the prospect U.S. companies will face higher taxes than their foreign competitors -- and that the money would go to foreign governments.

Anne Gordon of the National Foreign Trade Council, which represents large U.S. companies, said some concerns remain for companies even after the OECD guidance.

Ms. Yellen and administration officials pushed Congress to pass the 15% minimum international tax when Democrats controlled the House and Senate. But that effort fell short, with no support from Republicans and opposition from Sen. Joe Manchin (D., W.Va.).

One of Mr. Manchin's concerns was that the U.S. would raise its taxes and other countries wouldn't. For a while, the agreement was stalled in the EU. But now, many large nations are moving ahead to implement the new tax regime.

The new OECD rules spell out how an existing 10.5% minimum tax on U.S. companies' foreign income, known as the levy on Global Intangible Low Taxed Income  (GILTI), interacts with other countries' new taxes.

The more that U.S. companies can count GILTI payments toward their taxes in other countries, the less they will owe to other countries.

Thursday's rules offer a relatively generous, but temporary, version of those calculations, Ms. Kysar said.” [1]

1.  U.S. News: Global Tax Deal Sets Rules for U.S. Companies
Rubin, Richard.  Wall Street Journal, Eastern edition; New York, N.Y. [New York, N.Y]. 03 Feb 2023: A.2.