Infrastructure and Prosperity

In the past, if you mentioned the word "infrastructure",infrastructure in all the aforementioned categories. That
the verbal reflex would be: "physical". Infrastructurethis is a tautology, no one seems to notice. If the
was roads, telephone lines, ports, airports and otherinfrastructure is already developed - an investment is
very tangible country spanning things. Many thingsnot needed. When it is needed, the private sector will
were added to this category as time went by, butnot supply it, unless it is already developed. The result is
they all preserved the tangibility requirements - eventhat proper investments of the private sector - not
electricity and means of communication weresubsidized, not partial, not correlated by international
measured by their physical manifestations: lines, poles,funding - is limited to the developed, industrial
distances.Today, we distinguish three additionalworld.Research discovered four disadvantages of
categories of infrastructure which were unbeknownstcountries with under-developed infrastructure:Such
to our forefathers:Social infrastructure - laws, socialcountries suffer from interminable bottlenecks in all the
institutions and agencies, social stratification,levels of economic activity, especially in the production
demographic elements and other social structures,phase and in the transportation of raw materials to the
formal and informal.It is amazing to think that previouslyfactories and of finished products from them to the
no one thought of the legal codex as infrastructure. Itmarketplace.This adversely affects the availability of
has all the hallmarks of infrastructure: it spans all thethe domestic product both in the domestic and in the
country, it dynamically develops on the basis of aforeign markets. Agricultural produce is most affected
previous strata, without it no goal oriented humanbut, to a lesser extent, so are industrial goods. If the
activity (such as the conduct of business) is possible. Ainfrastructural problem is with lines of communication,
foreign investors is more interested in the answer tothe service sector is harmed and cannot provide its
the question whether his property rights are protectedproducts (the services) to its customers.A second
under the law - than in the availability and accessibilityissue is the distortion of the price mechanism. Prices
of electricity lines.He can always buy a generator andare heightened due to the resources wasted on trying
produce his own electricity - but he can never enactto overcome problems in infrastructure. Prices are
his own laws unilaterally. A local citizen is bound tosupposed to reflect inputs and values and thus to
encounter the law (or resort to it) sometime in his life -assist the markets to optimally allocate its resources. If
even if he never travels a road or uses athe prices reflect other, unrelated, issues - then they
telephone.The second category of infrastructure is theare distorted and they distort the economic activity.The
human infrastructure. What is the mentality of thethird problem is that a disadvantage of a country - is
people? Are they lazy, industrious, submissive, used toan advantage to its competitors, rivals, neighbours and
improvise, work in groups, individuals, rebellious, inventiveenemies. Other countries, with better infrastructure
or stifled and so on? Are they conservative, open tobenefit : they attract more foreign investment, they
the world, xenophobic, ethnically radicalized, likely to useconduct more business, they export more, they have
brute force to settle disputes? Are they ignorant,lower inflation (cheaper prices) and their economy is
educated, technologically oriented, consume informationnot distorted by irrelevant, ulterior, non business
or reject it, trustful and trustworthy or suspicious andconsiderations.The fourth - and maybe largest and
resentful?An educated workforce is as much anlongest term - handicap is when the country's image is
infrastructure as any phone line.The last category ofaffected. Infrastructure is much easier to fix than a
infrastructure is the information infrastructure. It is all thecountry's image. If the country acquires a reputation of
infrastructure which tackles the manipulation ofa mere transit area, an underdeveloped, inefficient, non
symbols of all kinds : the accumulation of data, itproductive, hopeless case - it will suffer greatly until this
processing and its dissemination. Words are symbols -is amended. This - the image - has the gravest
but so is money and computer bytes. So banks,possible consequences: repelled investors, reluctant
computers, Internet linkups, WANs and LANs (Widefinanciers, frightened bankers, disgusted foreign
and local area computer networks), standardizedinvestors. All this amounts to an ex communication of
accounting, other standards for gods and services - allthe country.There are eight known solution to the
these are examples of the informationproblems of a country with underdeveloped
infrastructure.The development of all theseinfrastructure:It can start by privatizing its infrastructure
infrastructures is intimately linked. They usually develop(commencing with its energy and telecommunications
almost concurrently. They form feedback loops. Thesectors, which are the most attractive to foreign and
slow or hindered development of one of them willdomestic private investors alike).Then, it can allow the
disturb all the others.This is really quite easy tobusiness sector to operate parts of the national
understand. If the workforce is not educated, it will notinfrastructure. The usual arrangement is that the
be keen on the manipulation of data and symbols. It willbusiness sector invests in creating the infrastructure
buy less computers, use the Internet less, bank lessand then collects a fee for operating and maintaining it.
and so on. This, in turn, will reduce the need for phoneThe fees collected are large enough to cover both the
lines, office buildings and so on. There seems to be aninvestment and the maintenance costs. The most
"infrastructure multiplier".This multiplier is a two wayfamous example are toll roads which are constructed
street: an increase or decrease in each type ofby private sector firms.Another way is to
infrastructure adversely or positively influences thecommercialize the infrastructure (to collect fees for
others.The West is in dire need of infrastructure itself.using the telephony network, or highways) and to
Its infrastructure is either old and crumbling - orploughback the proceeds exclusively into projects of
overloaded and crumbling. Roads in large parts of theinfrastructure. Thus, all the income generated by cars
USA are in poorer condition than roads in manypassing in a highway will be dedicated to the
countries in Africa. America-On-Line, a major Internetconstruction of additional highways and not be
provider was unable to provide services to itsfunnelled to the general budget.The fourth method is to
customers in the last few weeks becauseadapt the prices of using the infrastructure to the real
communication lines in the USA were totally blocked.costs of constructing and of operating it. In most
Certain places in Israel could receive television signalsdeveloping countries, consumers pay only a fraction of
only in the last few years, as infrastructure reachedthese real costs. Prices are heavily subsidized and the
them. Infrastructure is a universal problem.No surpriseinfrastructure is left to decay and rot away. This,
that the West invests in the infrastructure in developingobviously, is a political decision to be taken by the
countries in two venues only:Through internationalpolitical echelons. In many countries it could create
finance organizations (such as the World Bank and thesocial unrest and have severe political ramifications.The
European Bank for Reconstruction and Development).country could condition investments in multilateral
The terms and conditions of this kind of financing areinfrastructure projects upon investments in its own,
very lenient. Those are really grants more thanlocal infrastructure. A multinational firm wishing to invest
credits.The implementation of these infrastructuralin a highway (thus reaping considerable cash rewards)
projects is awarded to contractors through- should invest a portion of the future profits in local
international tenders, wherein bids are submitted fromroads and other forms of infrastructure. A multinational
the world over.Rarely, a local firm outbids its betterfund which is interested to invest in a
financed, better equipped and better motivated firsttelecommunications project connecting three countries,
world rivals. Local firms usually have the lowermust oblige itself to a "local investment" clause, a "local
hand.The other possibility is that multinational firms getcontent purchase" clause or an "offset" (the purchase
involved. But this kind of financing comes with a lot ofof local goods against any import of goods connected
strings attached. The multinationals expect to get backto the project to the country) clause.The country must
both their investment and a reasonable return on it.open its markets to domestic and foreign competition
They come heavily subsidized by the governments ofby de-regulating itself. It must dismantle trade barriers :
their countries. Their contribution to the local economy,tariffs, quotas, restrictions, anti-investment regulations,
during the construction of the infrastructure, is fleeting,restrictive standardization and so on. Competition will
at best. They prefer to employ their own crews andboth lower the costs of the infrastructure and improve
equipment. They do not trust the locals too much orits quality, as rival firms will strive to supply more value
too often.But whichever way the infrastructure isat less price.An important condition is that the country
created, problems arise to the host country.International,does not promote one kind of infrastructure over
multilateral, finance organizations inevitably think on aanother. All categories of infrastructure should be
global scale.They invest in infrastructure only if andsimultaneously and similarly stimulated. This will carry
when it services - or has the potential to service in thefavour with the international business community and is
larger scheme of things - a cluster of neighbouringbound to alter the image of the country for the better.
countries.Clear benefits to regional groupings ofIt will also create a positive feedback loop whereby an
countries has to be unequivocally demonstrated. Suchimprovement in one category of infrastructure will yield
finance organizations will forever prefer to invest in aimprovements in all the others.Last - but far from being
cross-border highway. They will neglect, overlook, orleast - the country must promote international
outrightly reject an investment in a much needed localagreements which will facilitate reductions in the costs
road, for instance. The benefit to the domesticof cross-boundary transport of goods, services and
economy of the local road could be appreciativelyinformation, packaged no matter in which form. Less
more sizeable. Still, the international fund woulddocumentation, less one sided fees, less bureaucracy -
encourage the cross border highway. This is its charterwill reduce the costs of businesses and the total
- to promote multilateral investments - and this is whatdamage to the national economy. The less
it does best. The interests of the host country are aencumbered by red tape - the more a country tends
secondary consideration.On the other hand, the privateto prosper.
sector invests only in countries with well developed