Infrastructure - one size does not fit all

By infrastructure, we mean the large physical and natural assets linking all our economic activities. In the UK, the conglomeration of such assets is enormous – spanning the energy, water, telecommunication and transport sectors, to name but four. The assets come in many vintages, some at the cutting edge of modern technology including broadband, others dating back to the Victorian age such as parts of our water network.

Future infrastructure investment goes to the very heart of ESG and sustainability, raising specific issues about controlling large technology risks, optimising systems, underwriting ‘sunk’ investment costs, managing cost and demand uncertainties, curtailing monopoly power, ensuring fairness and basic rights, and addressing what economists refer to as ‘externalities’ – these encompass both third-party health effects and global climate change.

No wonder then that Lenin saw the Russian energy sector, for example, as a pure exercise in central planning, rather than one requiring market institutions. At times Boris seems to be skirting closely with this philosophy and may yet be forced to remind his followers, as was Franklin D. Roosevelt, that he is not a communist!

Let’s celebrate the diverse and distinctive infrastructure system we have inherited and learn from that – it is far from perfect, but it is certainly not bad. The real job is to try to leave an even better one for our descendants.

In our democratic UK context, infrastructure is inevitably an area where the Invisible Hand of Adam Smith meets the Visible Hand of the State, and various organisational and ownership forms, need to coexist – state and private, together with a host of hybrid partnerships where the fingers intertwine to solve the challenges.

The first lesson in infrastructure is the value of distinctive approaches – we should not think in terms of ‘one size fits all’ for every sector, in terms of either its organisation (the extent to which it is liberalised) or ownership. Nor should our thinking be stationary.

For example, in terms of asset ownership, different forms may be more appropriate at different times in the same sector. The nationalisation of the UK’s energy system in 1948 underpinned the successful recovery of the economy after the Second World War. By the time of Nigel Lawson’s speech to the British Institute of Energy in 1982, when he declared that the duty of government was not to plan energy but to create a framework where the private sector could do that, the tide had turned. In 2013, when Ed Miliband made his speech to the Labour Conference promising to freeze energy prices, the ebb of the privatisation era was itself all-too evident.

There are many more layers of complexity to the ownership debate. As just one example, we may have different structures within the same sector at the same time. Compare, for example, the ownership of water assets in Scotland or Northern Ireland (‘GoCos’ – that is government-owned companies) and those in England (mostly in private ownership). Welsh Water adds further colour, with its not-for-profit status.

In summary, even in the specific area of asset ownership, the complexities involved in assuring a robust infrastructure for the UK are enormous, if the evidence is any guide. We would do well to move beyond entrenched ideological positions. We need to ensure the foundations for our future infrastructure lie well beyond the domain of short-term politics. Instead, let’s celebrate the diverse and distinctive infrastructure system we have inherited and learn from that – it is far from perfect, but it is certainly not bad. The real job is to try to leave an even better one for our descendants.