Infrastructure Essay

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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:     

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

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