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25. The Cinderella of wealth creation

Before I was rudely interrupted by the Covid pandemic I was exploring three unsung heroes of wealth creation. They are:

  • waste reduction Wherever there is waste a free economic lunch beckons, and believe you me, there are enormous amounts of waste everywhere.
  • organisation To get things done, you need to bring the right people and things together in the right ways at the right time to do the right things. Modern wealth creation depends on stupendous feats of organisation and coordination.
  • infrastructure, which is my focus now.

Many years ago, the English philosopher Alfred North Whitehead commented that “civilisation advances by extending the number of important operations which we can perform without thinking of them”. That’s what infrastructure does — extend the number of important operations which we can perform without thinking of them. This makes it a critical engine of wealth creation.

How infrastructure works its magic

What does infrastructure do? First, it eliminates the need for duplicated effort. According to UNICEF, women in Africa spend about an hour a day fetching water (yes, it is mainly regarded as ‘women’s work’). Across Africa as a whole, that amounts 22,800 years of labour every day or 8.3 million years of labour every year. All to fetch water. 8 million years worth of back-breaking work that would be rendered unnecessary by a proper water infrastructure.

Second, by eliminating the need for duplicated effort, infrastructure frees up resources. If African women didn’t have to spend 8.3 million years labouring each year to fetch water, what other productive and enjoyable things could they invest this time in? Without the right infrastructure, you’re always walking on a treadmill just to stay still. With the right infrastructure, the treadmill reverses direction, accelerating your every step.

Third, infrastructure expands and extends usage. If we can access water simply by turning a tap we will use it more than if we have to labour for hours carrying pails of water. In doing so, it acts as a ‘possibility platform’ unleashing previously hidden and dormant opportunities, not only to do more of the same but new and different things too. Electricity is a classic example. Just think of all the appliances and conveniences (such as heat, light and electric motors) that blossomed into existence once access to energy became a given rather than a constant obstacle to be overcome.

Fourth, in doing all these things it creates a ratchet effect — it builds wealth creating momentum via what I call ‘webs of givens’. Take a recipe in a recipe book. It only has value if we (and the author and publisher) can take a huge number of things for granted such as: that the reader has acquired the level of education needed to read the recipe; that we have an oven to cook the food we are preparing; an energy supply to fuel it; instant access to water; the necessary pots, pans and equipment; and of course, easy access to the recipe’s ingredients.

How many recipes would we use if they started with ‘first, plant the seeds in the soil’, or ‘find the clay to fashion your pots and the wood for your furnace’? Recipes only become possible and useful thanks to multiple webs of givens, built up over decades, layer, by layer, by layer. That’s infrastructure’s really big contribution. The more webs of givens we have at our finger tips and can take for granted (as per Whitehead), the more things we can do and the easy, cheaper and quicker it becomes to do them — making us both more innovative and productive.

Cinderella status

The amazing thing is, if you look at what economists have talked about over the last 40 years, they hardly mention infrastructure. It’s all been about markets.

There’s an innocent side to this. As Whitehead observed, the joy of infrastructure is once it’s there, we don’t have to think about. But there’s a less benign reason too: it doesn’t fit current dogmas.

  • Infrastructure rarely comes in the form of private property. It tends to be shared as a social or collective benefit.
  • The economic benefits of infrastructure rarely come from firms trying to maximise profits but by lowering prices as far as possible. (The cheaper and easier it is to access electricity, water, transportation etc the more they lower costs for everyone. More people use it, putting it to more, different uses. Reducing the prices (and profits) of infrastructure provision makes sound, economic wealth creating sense while also democratising access to life’s essentials, making society more inclusive rather than exclusive.)
  • Infrastructure rarely create markets where firms can compete. Instead, it tends to create natural local or national monopolies. It doesn’t make sense, for example, to build three roads side by side from Manchester to Birmingham, just so that one road can compete with the other. (Of course you can try to impose market-like structures on infrastructure provision, like creating toll roads, or separating train operators from the provision of train tracks. But all this does is create pretend markets. It doesn’t actually change the inner logic of infrastructure provision.)
  • Building infrastructure such as roads, sewers, and electricity grids requires huge investments which are beyond the reach of most private firms.
  • If infrastructure is still going to be working 30 or 40 years hence it really needs to be thought through: planned. You can’t leave infrastructure development to the magic wand of free market forces.
  • Infrastructure also tends to generate collective action problems. While many individuals will want to use a bridge or access running water once it is available, none of them want to individually shoulder the responsibility, effort and risk of providing the infrastructure in question. ‘Free’ markets create collective action problems by only working at one level — that of individual economic agents. Solving these problems require action at a higher level, via non-market institutions that make decisions on grounds other than profit maximisation.

Looking forward

Why does all this matter? Because if we neglect infrastructure the multiple benefits it brings begin to decay, which is what’s been happening in countries like the UK and US for decades now. Also because we need to look forward. What would an ideal 21st century infrastructure look like and how could/should we go about creating it? What, for example, would a safe, efficient, socially and economically beneficial renewable energy or data sharing infrastructure look like? If we fail to even ask such questions, we’ll never arrive at any good answers.

One of the reasons rich countries are rich is because, every day, they enjoy the fruits of breathtaking investment in infrastructure: universally available water supply and sewerage, energy (electricity, gas, renewables etc), transportation (roads, railways, airports, aircraft), information and communications (radio, tv, and mobile masts, the internet, data servers), construction (homes, offices, factories, schools and universities, theatres, libraries, hospitals and related hospital equipment), payments systems, plus the knowledge, skills and know-how necessary to do all these things, which is provided by education. Also social infrastructure: the social and institutional arrangements that create the environment for all these activities to be developed and sustained.

None of these things are just about making and selling goods and services. They’re about building economic momentum, capabilities and capacities; about making possibilities. More on this in my next blog.

Next in this series: 26. Why Economies are like Rainforests

Previous: 24. Is changing how we spend money the answer to our problems?

The full contents of this blog series can be found here.

Bibliography

Books and articles I found particularly useful researching this blog include:

  • Robert Friedel, A Culture of Improvement: Technology and the Western Millenium, MIT Press, 2007
  • Ian Mortimer, Centuries of Change: Which Century Saw the Most Change?, Bodley Head, 2014
  • Brett M Frischmann, Infrastructure: The Social Value of Shared Resources, OUP, 2013
  • Amartya Sen, Development as Freedom, OUP, 1999

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