It is obvious that the UK’s infrastructure needs investment. We have daily news stories on leaks, dumps of wastewater on beaches, potholes in roads, the NHS at breaking point, the urgent and massive needs to decarbonise the economy, and the increasingly stretched public transportation network – among more. The UK’s infrastructure stock (as a share of GDP at 47 percent in 2016) lags behind its European peers (Italy, 52 per cent; France, 54 per cent; Netherlands, 55 per cent). The political class has woken up to these realities. Infrastructure is all the rage, and it is even more so now that we have entered another election season.
Yet it is unclear how additional investment in infrastructure will be financed. The private financing initiatives of PFI and PF2 have been abolished, and post-Brexit Britain will no longer have access to infrastructure funds from the European Investment Bank (EIB). At the same time, there is significant contestation with regard to the consensus that came to prevail in the last two to three decades, which put private finance at the heart of infrastructure provision in the UK. Further, the fiscal rules around debt and public spending are likely to end up on the scrapheap, following this year’s election potentially ending the austerity practices that have dominated contemporary politics.
All this creates a “policy gap”: how will projected increases in infrastructure investment be financed? Our research seeks to contribute to filling this “policy gap” by going beyond traditional macro approaches to infrastructure. While macroeconomics tends to understand the impact of infrastructure in terms of effects on output, employment or productivity, the origins of investment finance and associated financial flows also have significant, if little understood, macroeconomic implications.
The project then takes its cue from Nobel Prize-winning economist Ronald Coase (1974). He chastised his fellow economists like J.S. Mill and P. Samuelson when they advanced ideas on how infrastructure should be financed and managed, for failing to engage with specifics before developing a general theory. More specifically, they failed to do a detailed study of specific financing and governance arrangements (in the context of lighthouse provision) before developing a general theory of market failure.
Coase (1974) insisted that:
“I think we should try to develop generalisations which would give us guidance as to how various activities should best organised and financed. But such generalisations are not likely to be helpful unless they are derived from studies of how such activities are actually carried out within different institutional frameworks. Such studies would enable us to discover which factors are important and which are not in determining the outcome and would lead to generalisations which have a solid case. They are also likely to serve another purpose, by showing us the richness of the social alternatives between which we can choose”.
We take up Coase’s challenge by using an interdisciplinary, empirical approach to explore the emerging cultures of expertise in infrastructure and their effects. Combining insights from economics, political economy and anthropology, our work examines these cultures: who puts them forward and why, and what their implications might be. The project offers a way to assess the institutional basis of macroeconomic policy-making around infrastructure and aims to put forward alternative policies.
The research will generate important insight across macroeconomic theory and policy. A closer look at how macro policy takes shape and effect can reveal broader lessons about macro policy interventions beyond infrastructure. Infrastructure financing hence serves as an “index” (or a “worked example”) of how to understand macroeconomic policy more broadly.
The project will shed light on significant factors such as the structural, the systemic, the historical, and the cultural that affect the design and the outcomes of economic policies. These features are not adequately addressed in traditional economics, yet they are core to making sense of macroeconomic policy outcomes. Our innovative interdisciplinary approach will put essential real-world features of contemporary capitalism at its core (and use these as starting point). This is in contrast to mainstream approaches that theorise the macroeconomy on the basis of abstract optimisation exercises – however modified via ad-hoc attempts to incorporate select features of contemporary capitalism.
Watch this space for updates as research findings start crystallising!
This project is financed by the ESRC/NIESR Rebuilding Macroeconomics Network.
It is the joint effort of Dr Elisa Van Waeyenberge (Head of SOAS Economics Department), Dr Kate Bayliss (Research Fellow at SOAS Economics) and Dr Benjamin Bowles (Research Fellow at SOAS Economics and Senior Teaching Fellow at SOAS Anthropology).