Who pays for our infrastructure? An interdisciplinary investigation.
On Saturday, 9th of November year 12, 13 Economics students and year 11 Business students travelled to SOAS university to see a lecture on infrastructure by Dr Kate Bayliss, Dr Ben Bowles and Dr Elisa Van Waeyenberge. The professors specialise Interdisciplinarity, Anthropology and Economics respectively and started by introducing their areas of expertise.
In the morning, Dr Ben Bowles introduced us to anthropology, which is the study of human societies, cultures and their development and consists of cultural, physical and linguistic anthropology as well as archaeology. He explained his focus on social anthropology and briefly touched on the “immersion method”, which involves going away to live with and like a different culture to learn about it and that anthropologists view cultures in their own merit. This is called cultural relativism. Dr Elisa Van Waeyenberge discussed the assumptions made in economics, including the ideas that all consumers make wholly rational decisions and that consumers will always seek to improve their own welfare. She explained that these assumptions are made because it is easier to understand humans as a collective as opposed to individuals, especially when viewing them as factors of an economy. Dr Kate Bayliss then detailed how the differing agents of economics and anthropology can be used to examine the question, “who pays for our infrastructure?”, through an interdisciplinary approach.
Before approaching the question, Dr Kate Bayliss defined what infrastructure is as well as the differences between financing and funding. We learnt that infrastructure is the basic system and services that are necessary for a country or organisation to operate effectively. It can refer to electricity, transport and in this particular lecture, we looked at water. Financing refers to the money that has to be raised upfront to pay for the construction and operation of infrastructure, whereas funding relates to how you pay for infrastructure over its lifetime. Financing can either be public (this involves raising the country’s debt) or private (through project finance). For instance, the government can take out a loan from an intergovernmental bank to publically finance new infrastructure and fund it through taxes.
Interestingly, the government chooses to privately finance the UK’s infrastructure. This is although the private sector has greater financing costs than the public sector due to the interest on debts. This allows the government to avoid increasing fiscal deficit, which they tend to use to promote themselves, especially during general elections. However, since financing costs are greater, the infrastructure will require greater funding, so taxes must be raised.
Dr Bayliss explained that most infrastructure investment goes to transport (about 80% of the government’s money is invested in that industry) and it’s mainly privately funded and financed because we’re directly charged for it. Social infrastructure, such as schools, are publicly funded by the central government. However, utilities, like water and electricity are privatised, so we pay a user charge (such as water rates) to use them.
Water infrastructure was privatised from 1989, and today it’s a monopoly: the infrastructure is only owned by 10 large private regional companies in England and Wales. Privatisation has led to 26.8% of water companies net profit going to shareholders as dividends. While we learnt that we pay for the infrastructure to provide water, we question whether the continuation of a private water industry was justified. Is it right that few companies can set the price of water, while a ⅓ of households still struggle to pay for water?
Overall, our experience at SOAS taught us the interdisciplinary approach towards infrastructure and the policies it involves. We learnt about the distinction between funding and financing; the effects of different methods of funding and financing and why the government chooses certain approaches.