This Christmas, as we have three times before, my wife and I journeyed to Panama, where we study Spanish, enjoy new friendships, do a little fishing (including for peacock bass in Lake Gatun, in the middle of the Panama Canal), and note how Panama has managed to thrive during the doldrums that have restrained the growth of so many other economies in the world.
Among the reasons for the latter, we have learned from leaders in the local community, is the business-welcoming attitude of the Panamanian government (under President Ricardo Martinelli, a supermarket magnate); and the country's biggest infrastructure project: a new lane at each end of the Panama Canal. And it is there that we discovered a consequence for California that has received too-little attention back home.
One hundred years after the opening of the Panama Canal, shipping through a new lane will start next year, for much larger ships than can fit in the current canal. The consequences will be significant for America, and for California, but possibly in opposite directions.
More capacity in the Panama Canal means cheaper imports to, and exports from, countries that rely on the canal – and no country relies on it more than the United States. Gulf ports and East Coast ports will handle more cargo. The truckers and rail lines connected to those ports, in turn, will benefit. Midwest farmers will be able to export more cheaply to world markets, where much of America's grain is sold. Goods made in China will arrive on the East Coast faster, and thus, at lower cost.
Each of these benefits, however, excludes California, which benefits from the old canal's limits. The restraints of the 1914-era locks sends ships to Long Beach and San Pedro instead, there to be off-loaded, with imports trucked out to the Inland Empire for consolidation and forwarding by truck to the rest of the U.S. A huge amount of Southern California's economy is based on that trans-shipment function.
The new canal will be a major competitor to that commerce. By late next year, or early 2015, Chinese exporters to America will be able to reach the Midwest, South and East Coast via a new route, instead of through Long Beach and Ontario.
Further, this trend might not stop in Panama. China, through Hong Kong business concerns, has secured a concession from Nicaragua for exclusive rights to study and build a canal through Lake Nicaragua and its tributary rivers. The Nicaraguan canal will be longer than Panama's, a few hundred miles to the southeast, but much closer to the U.S., with net travel times comparable to those of Panama.
The Chinese are already estimating that the new Panama Canal lanes will reach capacity almost the moment they open. A new canal in Nicaragua will benefit trade between China, Japan, Korea and the rest of Asia, on the one hand, and the American East Coast, South, and Midwest on the other. The attractiveness of shipping through California, once again, will decline as alternatives develop.
California can respond to these challenges. Our port facilities can be the subject of investment just as much as can Nicaragua and Panama. Deeper draughts, wider channels, more efficient connection by dedicated trucking lanes to the Inland Empire's consolidation locations are all possible infrastructure responses.
Further, the United States holds one major comparative advantage, even if the cost and efficiency of all other aspects of infrastructure were equal. In the view of private investors, partnering with public works in California has to present an attractive alternative to sinking funds into nonmoveable structures built in Daniel Ortega's Nicaragua, whose Sandinista-inspired government lacks a commitment to private markets and capitalist economic systems. Our state and federal governments have not been the most supportive of business investment, but outright seizure of privately financed infrastructure is not a real threat. It is in Nicaragua.
An infrastructure improvement plan in California, inviting private finance to partner with government, can compete. There will be business enough for both California and Panama, in the transportation of goods between Asia and the United States. Panama saw this six years ago when it began digging the new lanes. It's time we did, too.
Tom Campbell is the dean of the Fowler School of Law at Chapman University. These views are his own.