Wednesday 11 April 2012

The Infrastructure Dilemma: How a shock for visitors to London hints at greater changes to come

The hot weather in London the weekend before last got me thinking about how unpleasant the London Underground can be at the height of summer, and what a surprise this might be to visitors coming to London for the first time to attend the 2012 Olympics. The London Underground is one of the oldest subsurface railways in the world, with deep and narrow tunnels that are impossible, as yet, to keep cool. The carriages are not equipped with air-conditioning and even if they could be, the existing tunnels don’t allow sufficient ventilation to dissipate the heat to the surface.

In contrast, many ‘developing’ countries have modern metros with fully functioning air-conditioning. They also have wider tunnels and wider trains, which do not require that tall passengers stoop to fit in. Unlike the London underground, many of these metros also support underground mobile phone reception. Visitors from Beijing, Bangkok, Kuala Lumpur and Shanghai may get a shock to find themselves disconnected and in sweltering conditions as they travel on the Central and Bakerloo Lines this summer.

This particular example seems to me to be part of a broader problem facing the ‘developed’ world. Countries in Western Europe and North America were comparatively early in building a lot of the core infrastructure that supports our daily lives. Roads, railways, water networks, sewerage networks, and electricity grids were installed decades or centuries before the rest of the world. This is a big part of the reason ‘developed’ countries got a headstart on the rest of the world in developing industrialised economies. Economic growth theory suggests that a country’s asset base is a key determinant of its labour productivity, so a large asset base (of both physical assets and knowledge) has a positive feedback effect. A classic example is factory tools: investment of capital can improve the tools, which makes the factory more productive and so increases the capital available for further investment.

For most kinds of physical and knowledge-based capital, this dynamic allows whichever country is in the lead to stay at the forefront. However with infrastructure things are different. Unlike other kinds of assets, such as factory tools, computers or science textbooks, infrastructure cannot simply be ripped out and replaced when a new, better version becomes available. Our roads, railways and water networks are in constant use, and in the case of water pipes and the London Underground are buried beneath our streets so that they are costly or impossible to access. For this reason, countries which put in place infrastructure later will have a distinct advantage: they will be able to build better networks than we have. As a result they will gain greater productivity advantages from it – and since they can also upgrade non-infrastructure assets, the ‘emerging’ countries which are currently underdogs could end up leapfrogging the West. They may end up with higher productivity, higher GDP per capita and higher standards of living than what we currently call the ‘developed’ countries.

This process has already begun. Already, Singapore has among the highest GDP per capita in the world. And already, the high costs of maintaining and upgrading hundred-year-old infrastructure are weighing heavily on the city of London. As I’ve previously argued, developed countries need to come up with innovative solutions to their infrastructure dilemma. Furthermore, government planners and civil engineers in less developed nations must learn from what is happening in the West, and design their infrastructure with future change in mind. 

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