The pol­i­tics of in­fra­struc­ture

In­fra­struc­ture projects have the abil­ity to shape the eco­nomic fu­ture of a coun­try. The role of govern­ment is to iden­tify those projects that would en­sure broad-based eco­nomic devel­op­ment. But is this hap­pen­ing?

Finweek English Edition - - Contents - By Jo­han Fourie Jo­han Fourie

what type of in­fra­struc­ture would be best for South Africa’s fu­ture? The an­swer, of course, de­pends on your point of view. If you live and work in Gaut­eng, your an­swer might well be to ex­pand the Gau­train net­work. Or if you re­side in Cape Town, you might pre­fer in­vest­ments in de­salin­i­sa­tion plants. Your oc­cu­pa­tion may also be rel­e­vant. If you’re a miner, you are un­likely to support the ex­pan­sion of re­new­able en­er­gies. A trained soft­ware en­gi­neer? Well, you’re likely to support large in­vest­ments in telecom­mu­ni­ca­tions in­fra­struc­ture.

An im­por­tant – but of­ten un­der­ap­pre­ci­ated – role of govern­ment is to choose the type of in­fra­struc­ture that is des­tined to shape the coun­try’s fu­ture devel­op­ment path. This choice is never neu­tral though: for ev­ery de­ci­sion there are win­ners and losers. Choose to build a new coal-fired power plant? That will ben­e­fit coal mine own­ers and work­ers, while the users of elec­tric­ity, were the costs of al­ter­na­tive sources to fall rapidly, will pay. Choose to build a high-speed train net­work across the coun­try (a hyper­loop, per­haps!), then users of this net­work, likely to be high- or mid­dle-in­come South Africans, will ben­e­fit, while long-dis­tance bus ser­vices, taxi oper­a­tors and rental cars will pay. The govern­ment’s job, in the­ory at least, is to choose the projects that will max­imise the ben­e­fits and min­imise the costs.

But things are never that sim­ple. A re­search pa­per that will soon ap­pear in the Euro­pean Re­view of Eco­nomic His­tory, writ­ten by Al­fonso Her­ranzLon­can and me, in­ves­ti­gate the in­fra­struc­ture in the Cape Colony built dur­ing the sec­ond half of the 19th cen­tury. Be­fore the discovery of di­a­monds in 1867, the few rail­ways that ex­isted (in and around Cape Town) were pri­vately owned and largely un­prof­itable. But the discovery of di­a­monds and the rush to the mines meant the de­mand for fast, af­ford­able in­land transport in­creased ex­po­nen­tially. The Cape govern­ment had to re­act.

They did. They bought the few ex­ist­ing lines, and then be­gan the process of con­nect­ing Cape Town to Kim­ber­ley, fi­nally achieved in 1885. The con­nec­tion to the boom­ing di­a­mond re­gion brought huge eco­nomic ben­e­fits: we es­ti­mate that the rail­way may ac­count for 22% to 25% of the in­crease in in­come per capita in the Cape dur­ing the di­a­mond min­ing pe­riod (1873-1905). This is a mas­sive share for a sin­gle in­vest­ment and a clear in­di­ca­tor of the trans­for­ma­tive power of rail­ways dur­ing the first era of glob­al­i­sa­tion.

But these ben­e­fits were not equally shared by ev­ery­one. Sur­pris­ingly, the govern­ment it­self earned a mea­gre 3.7% av­er­age re­turn on its cap­i­tal. Had a pri­vate firm built the rail­ways, far fewer branch lines

Pol­i­tics shape the type of in­fra­struc­ture that’s built. And in­fra­struc­ture shapes the di­rec­tion of eco­nomic devel­op­ment.

would prob­a­bly have been built. As Stel­len­bosch PhD stu­dent Abel Gwain­depi now shows, the govern­ment in­curred huge debt to build this in­fra­struc­ture, and al­though it did ben­e­fit through cus­toms du­ties and other tar­iffs, the main ben­e­fi­cia­ries were the own­ers of the di­a­mond fields. The rail­way link be­tween Cape Town and Kim­ber­ley could now transport the ma­chin­ery and food­stuffs re­quired to feed the grow­ing Kim­ber­ley pop­u­la­tion. Western Cape wheat farm­ers, who sup­plied the mines with food, were an­other group of ben­e­fi­cia­ries. It is not en­tirely co­in­ci­den­tal that it was also these two groups – mine own­ers and Western Cape farm­ers – who had formed a po­lit­i­cal al­liance in the Cape par­lia­ment.

Of course, it was not only mine own­ers and Cape farm­ers who ben­e­fit­ted. As de­tailed re­ports of pas­sen­gers show, Cape Colony res­i­dents from all walks of life used the rail­ways. But, ul­ti­mately, it was tax­pay­ers who had to foot the debt that was in­curred, and of­ten these tax­pay­ers were spread across the en­tire colony (far from the di­rect ben­e­fits of the rail­ways) – and af­ter uni­fi­ca­tion in 1910, the rest of the coun­try. And the lo­ca­tion of the rail­ways meant that those with less po­lit­i­cal in­flu­ence – like Ba­sotho farm­ers, who were of course pro­duc­ing wheat much closer to the di­a­mond fields – lost out. Here is one mis­sion­ary re­port from 1886, the year af­ter the rail­way line was com­pleted: “Ba­su­toland, we must ad­mit, is a poor coun­try… Last year’s abun­dant har­vest has found no out­let for, since the build­ing of the rail­way, colonial, and for­eign wheat have com­peted dis­as­trously with the lo­cal pro­duce.” The 19th-cen­tury Cape rail­ways con­trib­uted sig­nif­i­cantly to eco­nomic growth, but it in­ad­ver­tently also had dis­tri­bu­tional con­se­quences: some ben­e­fit­ted more than oth­ers, and some even suf­fered as a re­sult of its con­struc­tion.

The lessons for today? Pol­i­tics shape the type of in­fra­struc­ture that’s built. And in­fra­struc­ture shapes the di­rec­tion of eco­nomic devel­op­ment. So the key ques­tion is this: Are we build­ing the type of in­fra­struc­ture that will put South Africa on a path of broad-based eco­nomic devel­op­ment, or is the choice of in­fra­struc­ture de­ter­mined by the self-in­ter­est of those with de­ci­sion-mak­ing power, much like Ce­cil John Rhodes and his cronies dur­ing the late 19th cen­tury? Put dif­fer­ently, when we choose a new power-gen­er­at­ing fa­cil­ity or na­tional air car­rier or telecom­mu­ni­ca­tions li­cence, do we con­sider the ben­e­fits for so­ci­ety as a whole or the ben­e­fits for a spe­cific in­ter­est group? ■ ed­i­to­rial@fin­week.co.za is as­so­ci­ate pro­fes­sor in eco­nomics at Stel­len­bosch Univer­sity.

The rail­way sta­tion in Ad­der­ley Street, Cape Town, around 1910. The rail­way be­tween Cape Town and Kim­ber­ley, com­pleted in 1885, re­sulted in ma­jor eco­nomic ben­e­fits for some role­play­ers.

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