The Great Paving How the Interstate Highway System helped create the modern economy--and reshaped the FORTUNE 500.
(FORTUNE Magazine) – When histories of the interstate highway system are written, they usually begin with the Futurama exhibit at the 1939 World's Fair in New York City. The exhibit, sponsored by General Motors and given dazzling miniaturized form by set designer Norman Bel Geddes, provided a nation emerging from its darkest decade since the Civil War a mesmerizing glimpse of the future--a future that involved lots and lots of roads. Big roads. Fourteen-lane superhighways on which cars would travel at 100 mph. Roads on which, a recorded narrator promised, Americans would eventually be able to cross the nation in a day.
As they left, Futurama visitors were handed buttons reading I HAVE SEEN THE FUTURE. They'd definitely seen part of it: America does now boast 14-lane superhighways. I drove on one of them, the New Jersey Turnpike, the Sunday after Christmas. But I certainly wasn't doing 100; in spots, the top speed attainable was about five miles per hour. With a lunch break and traffic-jam-avoiding detours onto two-lane state roads in New Jersey and Delaware, the 250-mile trip down Interstate 95 from New York to suburban Washington, D.C., took more than eight hours.
So Bel Geddes (yes, that was his daughter Barbara who played Miss Ellie on Dallas) got a few things wrong. But he wasn't alone. For two decades, countless smart, influential, and resourceful Americans dreamed of a nation liberated and enriched by superhighways. On June 29, 1956, their dreaming and scheming finally bore fruit: President Dwight D. Eisenhower, lying in a hospital bed recovering from surgery, signed the bill for a $25 billion National System of Interstate and Defense Highways.
It was heralded as the greatest public works project ever. That it was. And it did, as promised, lead to an America that is more mobile, less plagued by regional differences, and vastly wealthier than before.
But in the process of laying 42,793 miles of limited-access pavement, the Interstate builders changed America in ways few could have imagined in 1939 or even 1956. The Interstate system was sold as a savior for both rural America and declining urban cores; instead it speeded the trend toward suburbanization at the expense of both city and country. It was heralded as an antidote to traffic jams; instead it brought ever more congestion. It was seen as a shining example of progress and good government; by the 1970s it had helped sour Americans on the very idea of progress and good government. And who would have thought that better highways would help make us all so fat?
For American businesses, the Interstates literally and figuratively transformed the landscape in which they operated. Some of the changes were foreseeable: No one should have been surprised that construction-equipment maker Caterpillar did spectacularly well during the big years of building in the 1960s, or that railroads struggled. And in the 1950s America was already becoming a nation of chain restaurants, chain hotels, chain stores, chain everything--although the Interstates certainly accelerated that transformation.
But other changes in which the Interstates played a role came out of the blue. The FORTUNE 500 has become the standard measure of corporate power. In 1955, when we first published the list, it included only industrial companies and was dominated by a few massive ones, with General Motors far and away the biggest and most profitable. The size and seemingly insurmountable market positions of GM and its co-behemoths--rounding out the top five were Standard Oil of New Jersey, U.S. Steel, General Electric, and Swift--led some observers to suggest that we'd progressed from a capitalist system to a sort of corporate socialism. Or as GM chairman Charlie Wilson put it during his 1953 confirmation hearing to become Eisenhower's Defense Secretary, "For years I thought what was good for our country was good for General Motors and vice versa. The difference did not exist. Our company is too big."
The Interstate Highway System--together with another 1956 innovation, the shipping container--helped change that. Thanks to the new road network and containers that could easily be moved from ship to train to truck, overseas manufacturers and domestic upstarts were able to get their products to market in the U.S. more quickly than ever before. New distribution networks arose that were vastly more efficient and flexible than the old. They made it possible for Toyota to order parts for its plants in Kentucky, Indiana, and California just as they are needed, for Dell to build personal computers to order, and for Wal-Mart to replace products on its shelves as quickly as shoppers take them off.
That was good for America. It wasn't always good for General Motors, which went from undisputed industrial colossus of the planet to just another big but embattled manufacturer. GM is still around, of course, and still near the top of the 500 (No. 2 on last year's list). It's still sponsoring swell exhibits too. But the company is now an also-ran as far as profits go (No. 46 last year) and even lower in market capitalization (No. 85). And the GM-sponsored "America on the Move" exhibit that opened at the Smithsonian's Museum of American History in November is far from the unambiguous celebration of automotive progress that Futurama was.
Alongside a display about a Queens, N.Y., couple who traveled to 49 states in their 1967 Pontiac Grand Prix are accounts of anti-Interstate protests and endless traffic jams. The exhibit's mascot is Bud, the bull terrier who rode along on the first transcontinental automobile journey in 1903, but its show-stoppers are immaculately restored locomotives and streetcars of the pre-Interstate era.
That anybody would ever romanticize the days when America moved on rails would have stunned the highway boosters of the first half of the 20th century. In those days, highways meant progress, pure and simple. Railroads and streetcars did not. Both had been built with private capital, and the railroads in particular embodied capitalism at its most rapacious. To the Progressives who came to political power at the turn of the century, highways were the Main Street alternative to Wall Street--dominated rail. And for people who lived in rural areas, paved roads weren't just an alternative; they were an escape from mud-imposed isolation during the rainy months.
Federal funding of roads began in 1916, but the clamor for a national network of bigger, better, faster roads--limited-access highways free of stoplights and crossings--dates from the mid-1930s. Adolf Hitler's autobahn was an inspiration, as were the parkways Robert Moses was building on Long Island. President Franklin D. Roosevelt, who saw highway-building as the kind of job-creating public works project that could lift the nation from its Depression doldrums, was an important backer.
The only problem was the price: In 1939 the federal Bureau of Public Roads estimated that it would cost $6 billion ($80 billion in today's dollars) to build a 29,300-mile national superhighway network. The great pro-highway coalition of carmakers, truckers, bus operators, oil companies, tiremakers, auto clubs, farmers, and politicians could agree on a lot but not on who would fork over that kind of money. While Congress dithered (and focused on more pressing matters, like World War II), wealthier states began building their own long-distance superhighways, starting with the Pennsylvania Turnpike, the first 160-mile stretch of which was completed in 1940. The New York State Thruway and New Jersey Turnpike followed, and California began building its freeways in the 1940s as well.
The congressional deadlock finally broke in 1956. Eisenhower gets much of the credit, but the massive bond issue he proposed actually didn't fly with fiscal conservatives on Capitol Hill. Congressional backers of the Interstate Highway System, most prominent among them Senator Al Gore Sr. of Tennessee, finally persuaded the roads crowd that if they wanted an Interstate system, they'd have to pay for it--with higher fuel taxes. The legislation Eisenhower signed in 1956 steered those new taxes into a Highway Trust Fund that would pay for 90% of Interstate highway construction (with the states covering the rest). The initial estimate was that building the Interstate network would cost the feds $25 billion over 12 years; in fact, it cost $114 billion over 35 years--although the bulk of the work and spending were finished by the mid-1970s.
So was the $114 billion worth it? Probably. John Fernald, a senior economist at the Federal Reserve Bank of Chicago, has studied the performance of "vehicle dependent" industries like construction, trade, and services during the Interstate-building boom and found that they made huge productivity gains. "Building an Interstate system that tied the economy together turned out to be extraordinarily productive," he says. "Highways complemented the flexibility of the internal combustion engine, so that firms found it much easier to do business away from train lines or natural ports." But as far as Fernald can figure, the productivity boost was a one-time event. Once most of the highway network was complete, more road spending didn't generate similar productivity gains.
Whatever its overall impact on economic growth, the $114 billion clearly steered that growth in new directions. Before the 1956 Interstate Act, states footed most of the bill for highway construction. That meant poor states in the South and Southwest couldn't build superhighways. The wealthy states of the Northeast and industrial Midwest could, but the spectacular cost of building new limited-access highways through already built-up urban areas meant that they usually went about it cautiously.
The Interstate program changed that equation. For the South, which never had much of a transportation network--one of the reasons it lost the Civil War--that amounted to a huge windfall. With the building of the Interstates, the region's transportation disadvantage disappeared and it began to attract heavy manufacturers and spawn retailing (Wal-Mart, Home Depot) and shipping (FedEx) giants. In Al Gore Sr.'s home state of Tennessee, per capita income rose from 70% of the U.S. average in 1956 to almost 90% in 2002.
In and around America's big cities, the legacy of the Interstates is more complicated. When talk of an Interstate system first began in the 1930s, urban areas weren't really part of the equation. The point was to link cities, not repave them. By the 1950s, though, big-city mayors and merchants were becoming alarmed by the car-enabled outflow of people and commerce to the suburbs. The solution, as they saw it, was to make it easier to get into, out of, and around cities by car. Highway planners listened and redrew their Interstate maps to wrap every big city with superhighways, high cost be damned.
The backlash came remarkably quickly. It's easy enough to trace in the pages of FORTUNE: Through 1956 the magazine depicted urban superhighways in a positive light. But in 1957 and 1958, as the bulldozers came out in force, a series of articles on "The Exploding Metropolis" called the automobile's urban role into question, wondering at one point whether the highways needed to get cars downtown might "carve so much space out of the city that little worthwhile will remain."
The notion that big highways and big cities don't mix spread. In 1959, San Franciscans staged the "freeway revolt" that halted the building of the Embarcadero Freeway along the city's waterfront. In the 1960s, successful anti-freeway protests followed in Washington, D.C., New Orleans, New York, Boston, and other cities.
In 1973 this resistance led Congress to break into the Highway Trust Fund for the first time to aid urban mass transit. Over the years the share of federal transportation dollars going to mass transit has only grown--a development which, coupled with the anti-tax sentiment of the past two decades, has meant that it's extremely tough to get a new superhighway built anymore. In fact, the biggest Interstate-related building project in years has been Boston's Big Dig, in which downtown-splitting Interstate 93 is being shoved underground.
Still, the protests didn't stop the Interstate system--apart from a few urban stretches--from being built. The first cross-country link, Interstate 80, was completed in 1986, and the system was more or less finished in 1991. The boom cities of the second half of the century--Los Angeles, Atlanta, Dallas, San Jose, Denver, Phoenix, Las Vegas--did their growing along lines determined by Interstate planners. And the new growth that occurred in older metropolitan areas like Washington, D.C., Philadelphia, and New York took place mostly along Interstate highways outside the core cities.
Meanwhile, the mass entrance of married women into the workforce in the 1970s and 1980s meant that more Americans had to get to work than ever before. The jobs to which they commuted were increasingly not in old downtowns but in new office centers built next to Interstate exits. And the houses they went home to at the end of the day were in increasingly auto-centric developments located ever farther away from center cities.
Was all that really the doing of the Interstates? Or was it simply a case of Americans freely and consciously choosing a lifestyle oriented toward the car? It was both. Government policies were skewed against rail transit for much of the century, but they aren't anymore. And the decline in bus ridership over the years would indicate that increasing auto use was more a product of affluence and choice than of government subsidies. But the auto enthusiasts of the first half of the 20th century had promised something that the Interstate Age was unable to deliver: freedom of movement. Sure, you can now drive from Fargo, N.D., to Atlanta at the spur of the moment. But you can't get from one northern Atlanta suburb to another quickly at rush hour.
The problem is something called "induced traffic." Build a freeway, or at least a freeway anywhere near a big city, and cars will come. Too many cars. Building more highways or adding lanes only induces more traffic (it is physically possible to build enough highway lanes to outpace the traffic, but not politically possible). Economists love differential pricing--charging people to travel on busy highways at busy times--but that has caught on in only a few cities.
Then there's mass transit. Since the 1970s, new subway and streetcar networks have been built in cities across the country--Houston is the latest. But after 50 years of building houses and offices to be convenient for cars, these new systems are of only limited use. Most commutes don't match the suburbs-to-downtown routes followed even by newer mass transit systems like Washington's Metro and Atlanta's MARTA. And most development of the past 50 years isn't dense enough to support mass transit--even when it is, the failure of newer suburbs to build sidewalks has made it unpleasant or impossible for many Americans to walk short distances to schools, stores, bus stops, and train stations. (This, coupled with the rise of fast-food chains, may be where the Interstate system and the nation's obesity epidemic intersect.)
Some people have been returning to tightly packed older cities that are better set up for mass transit. New York City bucked longstanding demographic trends by adding 685,714 residents in the 1990s; Boston, Chicago, and San Francisco all gained population as well. But now and for the foreseeable future, most economic activity will happen out along the Interstates. Consider the San Francisco Bay Area during the booming 1990s: Most of the actual "wealth creation" took place south of the city off Interstates 280 and 880 and U.S. 101. It was the parties to celebrate it that happened in San Francisco.
As you may remember, that wealth creation (and subsequent destruction) had to do with the building of another network of commerce and communication--the information superhighway. The federal government played a crucial role in the early years of the Internet, but it was private investors who paid to link corporations in the U.S. and around the world with high-speed data connections. This new network has transformed business and--it appears--put productivity growth on a sharp upward trajectory. It's having a huge impact on the FORTUNE 500: The list is now liberally sprinkled with technology companies like Intel, Microsoft, and Cisco and has seen the continued rise of highly sophisticated users of technology--your Wal-Marts, FedExes, and Dells. What's still not in place is a high-speed pipeline into most Americans' homes. In 2003, 22% of American households had broadband connections, according to research firm eMarketer. In South Korea, thanks to government subsidies, broadband penetration was 69%. Is the U.S. missing out by failing to subsidize broadband? Should connecting the "last mile" of fiber-optic cable to American homes be today's Interstate program?
Who knows? The creators of the Interstates certainly didn't know the full consequences of what they were getting into. Perhaps the most dramatic change was that by making roads more reliable and by making Americans more reliant on them, they took away most of the adventure and romance associated with driving. "This great road ... you know that well," rhapsodized James Agee in a 1934 FORTUNE article. "How it is scraggled and twisted along the coast of Maine, high-crowned and weak-shouldered in honor of long winter. How in Florida the detours are bright with the sealime of rolled shells.... How like a blacksnake in the sun it takes the ridges, the green and dim ravines which are the Cumberlands, and lolls loose into the hot Alabama valleys." And so on. No one writes like that about Interstates. The whole point of them is their dreary reliability and sameness.
And for all the talk of an "American love affair with the automobile," that ended with the Interstates as well. Most of us aren't in love with the car; we're stuck in a long and passionless marriage from which there appears to be no possibility of release. Why else would most Americans perennially choose automotive mates characterized either by their dull reliability (Toyota Camrys, Honda Accords) or their seeming ability to protect us from the world (Ford F-150 pickups, Chevy Tahoes)?
So this is the future. We can't drive across the country in a day. But we can drive Japanese and German luxury cars blindingly fast through parts of it. After which we can stop at chain motels with free Wi-Fi access, pull out our made-to-order laptops, and play computer games against South Koreans. The people who trooped through Futurama might just have found that impressive.