Infrastructure Resilience in a World of Economic and Political Change (Part 6)
Introduction
Economics and politics play important roles for infrastructure; economic factors can dictate the demand placed on infrastructure and the affordability of infrastructure investments, and the economy of a country can also be influenced by infrastructure. Equally, politics and policy can direct investment to and from infrastructure, guide the creation of regulation and even incentivise private companies to invest in infrastructure. Both economics and politics represent powerful levers in affecting infrastructure change and so also pose potential resilience risks to the sustained development and maintenance of infrastructure within the UK.
It important to also acknowledge that economics and politics cannot always be treated in isolation of each other with respect to infrastructure; determining the cost-effectiveness of infrastructure investment is an intrinsic part of policy that can have long-lasting effects on the economics of a country. Further to this, politics, especially in Western democracies, is often subject to short-term political agendas that recently have followed popular opinion as the greatest arbiter of policy [1]. Of course, independent institutions such as the National Infrastructure Commission have been created to deliver a form of independence, the politicisation of infrastructure is clear to see in large controversial projects such as HS2 [2].
Economic Change
Economic change has a two-way relationship with infrastructure; it both affects the affordability and investment into infrastructure while the provision of infrastructure services also facilities economic growth [3]. An economic downturn (or crash) can have very serious implications for the affordability of infrastructure investment. This is impactful both at the national and local level with national government passing on cuts and budget tightening to local government. This said, in the case of an economic downturn, it is more likely that the private sector becomes more conservative in its investments as companies are often at the coal face of impact from recessions. The sharp impact of the 2008 financial crash on the building construction industry is a good example of this [4].
On the reverse side, investment in infrastructure can be a key enabling factor for economic growth. Investment into high-speed broadband, for example, has enabled significant additional growth of UK GDP of around 0.1% per annum [5]. From a physical infrastructure perspective, investment in the strategic road network (SRN) has been instrumental in facilitating easier and faster connections between cities within the UK [6].
A central question concerning investment in infrastructure is one of cost-effectiveness. Investment in the right project can deliver infrastructure that not only meets the needs of users but also enables future economic growth [7]. Further to this, investment in the wrong project can result in sunk costs and a negative impact on future economic growth [7]. Measuring the cost-effectiveness of a project in terms of a cost-benefit analysis (CBA) can be a powerful tool in avoiding poor infrastructure investments [8]. Careful application of CBA is required, however, as CBA has often been inappropriately supported such that estimates of important factors (like job creation) have been insufficiently modelled and can also be manipulated to produce results that act as post-justification for decisions that have already been made [7].
Even after the decision to invest in infrastructure, the cost-effectiveness and ultimate impact is still very much uncertain. Infrastructure projects are often very large, which presents a prime opportunity for inefficiencies and wastage to developed [9]. Because of this, strategic planning of all phases from design, delivery, operations and maintenance, to end-of-life must be carried out to ensure infrastructure investments ultimately end up delivering their purported value and avoid cost overruns.
Political Change
As discussed above, political change can also play a very significant role both in ensuring infrastructure resilience, while also posing a risk to it. First and foremost, policy can directly drive government spending into infrastructure; large projects like HS2 are directly funded by the UK government using a mechanism called ‘grant-in-aid’ (money for a specific project) [10]. For very significant infrastructure projects that require investment but are either so significant that no-one company could afford or that there is no direct commercial benefit to, central government policy in delivering investment is crucial.
More generally, the role of policymaking can be integral to setting a national agenda towards the development of infrastructure [11]. This can be embodied in various ways including the offering of subsidies to companies operating within a certain area, making infrastructure investments attractive to the private sector [12], providing public funding for companies to address a specific problem or even imposing regulation that mandates change. The UK government, for example, has offered subsidies to renewable energy projects, essentially guaranteeing providers a minimum price for their power; this ultimately ensuring a minimum level of return for power generation [13]. The UK government also supports companies in tackling strategically important problems through the use of Innovate UK grants which companies can apply for [14].
Development and investment in infrastructure can also be somewhat at the mercy of the political whims of the day. While many infrastructure bodies are run by civil servants or are founded as independent bodies, with governments wielding a central baton of investment it is impossible to prevent infrastructure being in some way impacted by political ‘shifts-in-focus’. With two of the greatest challenges to have faced the UK still unfolding, the COVID pandemic and Brexit, the long-term impact on infrastructure investment and resilience is yet to be fully realised. Unavoidably, however, a significant amount of uncertainty has been introduced into the operation of many pieces of critical infrastructure resulting from the political crises surrounding these issues.
Conclusion
Overall, it is clear that both economics and politics both affect infrastructure resilience. Even between the two, there is a significant amount of cross-over with many levers of policy delivering economic effects and the economic state of a country driving policy decisions. The scope of impact is far greater than the specific aspects discussed in this section; however, the key point is that the consideration of infrastructure resilience requires an inspection for many angles, not just from an engineering perspective.
References
[1] J. Kyle, “Populism & Policy: Where to go from here,” Tony Blair Institute for Global Change, Dec. 19, 2019. https://institute.global/policy/populism-policy-where-go-here (accessed Dec. 10, 2020).
[2] S. Jenkins, “HS2 was only ever about politics. And the battle will reach the heart of No 10,” The Guardian, Jan. 24, 2020. https://www.theguardian.com/commentisfree/2020/jan/24/hs2-politics-boris-johnson (accessed Dec. 10, 2020).
[3] National Infrastructure Commission, “Strategic Investment and Public Confidence,” 2019. [Online]. Available: https://nic.org.uk/app/uploads/NIC-Strategic-Investment-Public-Confidence-October-2019.pdf.
[4] G. Plimmer, “UK building industry hit by ‘lost decade,’” Financial Times, Aug. 04, 2014. https://www.ft.com/content/62465ed6-19a0-11e4-8730-00144feabdc0 (accessed Dec. 07, 2020).
[5] P. Koutroumpis, “The economic impact of broadband: evidence from OECD countries,” OECD, 2018. [Online]. Available: https://www.ofcom.org.uk/__data/assets/pdf_file/0025/113299/economic-broadband-oecd-countries.pdf.
[6] Highways England, “The Road to Growth,” 2017. [Online]. Available: https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/600275/m160503_the_road_to_growth_Our_strategic_economic_growth_plan.pdf.
[7] Project Management Institute and Institute for Government, “How to value infrastructure: Improving cost benefit analysis,” 2017. [Online]. Available: https://www.instituteforgovernment.org.uk/publications/value-infrastructure-september-2017.
[8] European Commission, “Guide to Cost-Benefit Analysis of Investment Projects: Economic appraisal tool for Cohesion Policy 2014-2020,” 2014. [Online]. Available: https://ec.europa.eu/regional_policy/sources/docgener/studies/pdf/cba_guide.pdf.
[9] UK Government, “Improving Infrastructure Delivery: Project Initiation Routemap,” 2016. [Online]. Available: https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/529311/handbook_2016.pdf.
[10] UK Government, “HS2.” https://www.gov.uk/government/organisations/high-speed-two-limited (accessed Dec. 09, 2020).
[11] World Economic Forum and UK Government, “Behind the Scenes of Impact Investment Policy-Making,” Aug. 2018. [Online]. Available: https://www.weforum.org/whitepapers/behind-the-scenes-of-impact-investment-policy-making.
[12] World Economic Forum, “Infrastructure Investment Policy Blueprint,” Feb. 2014. [Online]. Available: https://www.weforum.org/reports/infrastructure-investment-policy-blueprint.
[13] S. Twidale, “Britain’s new renewable subsidies hit record low on the path to net zero,” Reuters, Sep. 20, 2019. https://www.reuters.com/article/us-britain-renewables-offshore-wind/britains-new-renewable-subsidies-hit-record-low-on-the-path-to-net-zero-idUSKBN1W50T3 (accessed Dec. 09, 2020).
[14] Innovate UK, “Innovate UK.” https://www.gov.uk/government/organisations/innovate-uk (accessed Dec. 10, 2020).
