Professor Iain Docherty, Dean of the Institute for Advanced Studies, University of Stirling
Whenever economic setbacks occur, from the closure of a small town manufacturing plant to an event on the scale of the Global Economic Crisis, the clarion call for more infrastructure investment to help stimulate recovery can be heard almost immediately. Business leaders inevitably announce that there is an “urgent need” for investment in whatever projects are deemed “shovel ready”, and politicians keen to have ribbons to cut are usually only too happy to oblige, budget permitting of course.
The snag is that the evidence base on the links between infrastructure investment and the economy is inconclusive, and it is far from clear how spending money on infrastructure actually improves economic performance in the real world. Whilst macroeconomic reviews claim links between the overall quantum of investment with growth at country level, finding evidence in the real economy, in real places and in real firms about the causal links that explain how such investment promotes better economic performance – by enhancing productivity, for example – is usually much more difficult. Indeed, the last major independent review carried out for the UK Government on the impacts of transport infrastructure on economic performance, that by the former Chief Executive of British Airways Sir Rod Eddington, set out quite unambiguously that in advanced industrialised countries with mature infrastructure systems, the potential for subsequent investment to achieve the often exaggerated claims for economic stimulus is much less than is commonly assumed.
Yet the a priori belief that infrastructure investment will lead to improvements in economic performance remains resilient. Consider the ways in which the High Speed 2 railway project is being sold to an often sceptical public; that it will ‘rebalance’ the economy between north and south. Leaving aside the rather obvious yet often wilfully ignored point that transport infrastructure is – sometimes literally – a two way street, and that economic activity can move in both directions as relative accessibility changes, the idea that any single project, however large, can make a substantive impact on an annual GDP shortfall measured in the tens of billions is fantastical. Much of the same wishful thinking can be discerned in the claims made for the criticality of high speed broadband: very high download speeds might help your choice of evening entertainment on Netflix download more quickly, but for many if not most businesses, a good enough speed to facilitate a website and/or electronic payments coupled with dependable service reliability is what is required.
Then there is the issue of whether we can measure the impacts of infrastructure investment properly in the first place. For decades, most of the value released by transport infrastructure improvements has been assumed to derive from improvements in travel times, underpinned by the assumption that travel time is completely lost to productive activity. Major schemes with substantial price tags, and hence significant opportunity costs given the competition for scare public funds, have often been justified on the basis of some really quite small time savings, the impacts of which we don’t fully understand. For example, if a rail commuting journey is reduced from one hour to 45 minutes, how do the people that use the service every day react? Does that 15 minute saving translate into more work at the office and therefore more economic output for the economy? Does it make them more likely to be able to maintain their commute over the long term so that the labour market works more efficiently? Or do they just stay in bed 15 minutes longer in the morning? And even if they do just that, does their wellbeing improve enough as a result to make discernible differences to their health, so that they work more productively when in the office? The transformation of the travel experience by the almost universal adoption of the smart phone, so that people can either work whilst mobile or spend the time satisfying more social needs to keep in touch with others, adds a whole other dimension to the complex debate on travel time that researchers are actively exploring.
So, what should policy makers do when considering the role of infrastructure investment as part of government’s toolkit to improve the economy? The most important thing is perhaps to acknowledge openly the high level of uncertainty about the causal mechanisms linking infrastructure investment such that a range of options for action is thought through carefully. It is entirely possible for a coherent case for infrastructure investment, including the very largest schemes, to be constructed so long as proper efforts are made to understand its actual impacts in the places it occurs and on the people and firms it is supposed to support. So the next time the call for the shovels to be readied rings out, the question should be “yes, but for what purpose?”