Thoughts on economics and liberty

The need for (almost entirely) private ownership of infrastructure

Someone asked me about SBP’s manifesto: It’s not clear to me how creation and maintenance of infrastructure would be achieved in building/maintenance of roads or airports?


First, read the whole section carefully:

Government to facilitate/regulate, and only rarely directly build infrastructure

It is sometimes taken for granted that infrastructure should be created and maintained only by the government. But even infrastructure should be subject to the laws of market and private initiative. Inefficiency and waste resulting from unnecessary government involvement has resulted in severely stunted infrastructure in India. Our railways, roads and energy deficits are a serious bottleneck to economic activity.

Wherever possible, we will hand over the creation and maintenance of infrastructure to private initiative and subject it to the normal laws of markets. Except in the rarest of cases, the direct construction and maintenance of infrastructure by government departments will be brought to an end. Even in areas of potential monopoly such as water, sanitation and laying internet cables, we will advance significant private sector involvement under regulatory oversight. We will also support high speed rail networks where these are economically self-sustaining and without taxpayer subsidy.

Where competitive ownership and/or management of infrastructure by the private sector is not feasible, we will procure work from private vendors through competitive bids, with accountability of relevant public sector managers to deliver results at more competitive rates.

Some local infrastructure will continue to be built through work created as part of emergency relief, although such emergency situations are likely to be fewer in the future, given our social insurance scheme which will kick in for those impoverished through natural calamities.

Well, the first question: should always be: why should government be involved in this (or that) activity in the first place.

Almost all infrastructure in the world was ALWAYS built by the private sector in the first instance. Study some economic history. Almost all railways, all buses, all airports, all airlines, all power stations, even water supplies. It is only later that governments decided to step in and meddle. In some cases they improved things, in most cases they harmed the entire society.

Vast swathes of roads across the world (generally toll roads) are built and managed by the private sector. Japan’s famed train system is privately owned. Electricity generation, distribution and retail is entirely privatised in Victoria, where I work (in the USA the idea that government would produce electricity never even came into question. ALL power plants in the USA (including nuclear plants) are privately owned. Water is privately owned in the UK. Vast dams and irrigation facilities are privately owned in Tasmania. All major airports are privatised in Australia (and I’m sure in most parts of the world).

ANYWHERE, where it is possible for a private operator to put a barrier around a service (e.g. train/ airlines/ water/ electricity) and charge for specific use, it is possible to fully privatise – in some cases under regulatory oversight to minimise the effect of monopoly ownership.

Where there is some difficult (e.g. most roads), the government probably needs to play some role (but not all: merely a facilitator).

Sanjeev Sabhlok

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