Infrastructure Essay ⋆ Business Essay Examples ⋆ EssayEmpire

Infrastructure is a wide-ranging term that describes the underlying framework and structural characteristics of a location or activity. Generally it refers to such tangible and physical facilities as buildings, equipment, roads, bridges, harbors, rail networks, airports, communications, gas and electrical power, flood control, healthcare, education, police and fire protection, water, and sanitation, but it can also be used to represent more elusive concepts such as organizational structures, knowledge, monetary exchange, property rights, social customs, and other institutional characteristics. By and large the term infrastructure is used to represent those assets that facilitate the production and distribution of goods and services, but it can also be used more generically to describe such things as social and institutional practices, literacy, and the flow of information. In the sense that infrastructure is comprised of the vital materials of everyday life, it is fundamentally allied with the routines of both individuals and institutions, since any or all of these issues and factors can affect relative economic, social, cultural, and political conditions.

In historic terms, infrastructure can even be touted as enabling the very development of civilizations in the sense that most societies necessarily occupy particular locations capable of sustaining and fostering life, and each location requires the provision of core necessities. And even though the scale of any particular community will vary, its residents still need to acquire sufficient quantities of food and water as well as the desirability of disposing of its waste in order to make some effort to curb disease. For example, the impressive growth of the world’s great metropolises in the late 19th and early 20th centuries (such as London and New York) can be directly coupled with the development and investment in systems that delivered potable water, disposed of sewage, and offered sustainable food supplies by linking urban areas with hinterland regions and markets. Accordingly, both the pace and the model of modern industrial societies can be tied to the establishment and implementation of infrastructure.

In common application, the term infrastructure came into use in the post–World War II era and is sometimes referred to as “social overhead capital.” Public capital is also typically not an insignificant proportion of an industrialized nation’s entire capital stock. The use of the term social overhead capital underscores that many of the more obvious examples of infrastructure (such as roads and bridges) are pervasive assets that are often publicly or socially provided but consumed collectively and individually. They are also social assets that often have substantial initial fixed costs in their creation but relatively low variable costs in their marginal use once provided.

Accordingly, one of the issues around the provision of local public goods such as roads is whether an appropriate amount of the good is being provided relative to its direct and indirect return. The construction of a road will be unambiguously beneficial to the community if it significantly reduces transportation costs and enhances access and exchange. On the other hand, too much or too little of a good is likely to lead to both social and private inefficiencies since both the overproduction and overconsumption of social capital can be inefficient and costly. Unnecessary and duplicative roads are examples of overproduction while traffic congestion is an example of the overconsumption of an existing road network. The availability and relative quality of infrastructure is likely to have significant economic and social impact, not only on many of the costs associated with the production and distribution of any number of goods and services, but it can also define the extent and efficiency of individual markets as well as entire communities.

One of the confounding factors in evaluating the true economic and social influence of infrastructure or social capital is that these are investments that provide benefits across dissimilar industries as well as in diverse time periods. The direct and indirect economic benefits of infrastructure can range from considerable to slight in alternative circumstances and thus may or may not be readily apparent to various consumers and producers that the due influence of social capital on output levels, productivity, and in due course on an area’s material standard of living. The social effects of infrastructure, while not necessarily simple to quantify, can likewise range from the obvious to the obscure but all the same can have considerable influence on the manner in which people and institutions subsist and interact. Indeed, communities and individuals are defined and shaped by both the immediate and persistent effects of infrastructure in any number of overt and subtle ways.

Infrastructure and Economic Development With rising concerns about both the process and the rate of economic development, attention has arisen to explain not only why wealth and poverty are so variable by location and situation but also to identify the probable role of infrastructure in that variation. The notion that infrastructure is directly related to economic development would seem self-evident. Moreover, when you take into account that many of the features most commonly categorized as infrastructure (transportation, communications, and utilities) are organized and function in systems of networks, then the apparent correlation between the availability of infrastructure and economic activity seems fairly straightforward. Nevertheless, economic development is clearly more than a one-dimensional process and consequently any resources, whether publicly or privately invested in the creation of infrastructure, ought to be evaluated in its appropriate context and relative to alternative investments.

Assuming that some minimal amount of overhead capital is essential for any reasonably sized community to subsist, the development and application of additional appropriate infrastructure is likely to be a necessary condition for further economic growth to occur. To be sure, there may well be some debate about whether or not providing necessary infrastructure would then be sufficient for economic growth to occur, but the notion that social capital can potentially advance the relative economic condition of the community seems reasonable. The adoption of new forms of infrastructure can also be the means by which technological change is diffused through an economy. For example, in both transportation and communications there have been changes not only in the way people move around but also in the means by which they send and receive information. Paved roads permit heavier loads at higher speeds, while fiber-optic cable networks transmit vast quantities of data much more rapidly than did earlier systems. Even though the existence of a technological change does not assure economic growth, most likely the reliance on archaic and inefficient social capital would inevitably engender economic stagnation. On the other hand, if a community’s infrastructure were to experience a suitable and sufficient degree of technological change in conjunction with the appropriate institutional responses and policy decisions, then it certainly ought to be an active economy that encourages growth.

While the formation of infrastructure is often associated with public works projects, the production and maintenance of overhead capital does not necessarily involve public financing. Given the diversity of assets and characteristics that are suitably regarded as infrastructure, they can be funded by not only public and private investments but also directly by user fees. With respect to the relative well-being of a community, more pertinent issues include such things as how public capital is utilized in private production and distribution as well as what effect infrastructure ultimately has upon per capita income.

Quantity And Pricing Of Infrastructure

Among the concerns of providing social capital goods is choosing an appropriate quantity of the good as well as setting a pricing scheme that efficiently and equitably reflects relative values. Infrastructure reduces costs for both consumers and producers and, as such, there are sufficient incentives on both the demand and supply side of markets to promote the creation and maintenance of infrastructure. Despite these incentives, it is also a potential free-rider problem since it is possible for users to access some of these social capital goods without the necessity of making fair payment. The occurrence of too many free-riders threatens the relative efficiency of providing a local and collectively consumed public good. There are also externalities that mean that potential market failures may well lead to an inefficient provision of social capital.

The relative return on public versus private capital investments is an issue of concern to development economists and policymakers. Private firms clearly have a vested self-interest to pursue private investments that augment their own profitability, but the public nature of infrastructure investments suggests that an equivalent public capital investment would potentially advance overall productivity not only in one product, manufactured by one firm, but simultaneously and consistently across a number of products and industries. Given the pervasiveness of infrastructure, it can be problematical to separate and quantify the real economic value of social capital. For instance, a healthy, literate, and skilled workforce enhances worker productivity, not merely for a particular firm but also across all local industries; accordingly, benefits accrue to employees, employers, and to the entire community.

Bibliography:

Adjo A. Amekudzi and Sue McNeil. Infrastructure Reporting and Asset Management: Best Practices and Opportunities (American Society of Civil Engineers, 2008);
Patricia Clarke Annez, Gwénaelle Huet and George E. Peterson, Lessons for the Urban Century: Decentralized Infrastructure Finance in the World Bank (World Bank, 2008);
Marianne Fay and Mary Morrison, Infrastructure in Latin America and the Caribbean: Recent Developments and Key Challenges (World Bank, 2007);
Alvin Goodman and Makarand Hastak, Infrastructure Planning Handbook (McGraw-Hill, 2006);
Sameer Kochhar, Infrastructure & Governance (Academic Foundation in association with Skoch Consultancy Services, 2008);
Alicia Munnell, “Policy Watch: Infrastructure Investment and Economic Growth,” Journal of Economic Perspectives (Fall 1992);
National Council of Applied Economic Research, India Rural Infrastructure Report (Sage, 2007);
Organisation for Economic Co-operation and Development, Infrastructure to 2030. Volume 2, Mapping Policy for Electricity, Water and Transport (OECD, 2007);
Martin Rodriguez Pardina, Richard Schlirf Rapti and Eric Groom, Accounting for Infrastructure Regulation: An Introduction (World Bank, 2008);
Urban Land Institute and Ernst & Young, Infrastructure 2008: A Competitive Advantage (Urban Land Institute, 2008).

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