Infrastructure and the Economy

Investing in infrastructure is key if a country wishes to see its economy grow.

In his seminal book An Inquiry Into The Natures And Causes Of The Wealth Of Nations, in 1776 Adam Smith promoted the idea that infrastructure (or public works as he called it) was essential for a healthy economy. He believed that certain infrastructure, at least, was essential,

“That the erection and maintenance of the public works which facilitate the commerce of any country, such as good roads, bridges, navigable canals, harbours…”

Infrastructure is the “economic arteries and veins; roads, ports, railways, airports, power lines, pipes and wires that enable people, goods, commodities, water, energy and information to move about efficiently,” according to the Economist*.

This is what the IPPR wrote in their report into the Northern Powerhouse in England,

Infrastructure is essential for sustainable economic growth. While a certain minimum level of infrastructure is required for a modern economy to function, strategic investment in infrastructure can theoretically increase the longrun economic capacity of any economy. Such investment can expand the productive potential of the economy, which in turn can increase growth while maintaining a steady rate of inflation (Mankiw 2015). The International Monetary Fund (IMF) estimates that infrastructure investment has a short-term multiplier of 0.4 and a long-term multiplier of 1.4 (IMF 2012) In fact, the balance of evidence is strong and conclusive: a very large number of studies from all over the world have now demonstrated a clear and positive correlation between public sector infrastructure investment and economic growth, with the multiplier varying from country to country and investment to investment, but always positive

Connecting communities, ensuring the flow of goods and services, providing the best possible facilities for education and health, all of these and much more besides are essential for a successful economy.

“Economists will tell you that a key ingredient in a country’s economic growth and prosperity is the state of its infrastructure. A developed infrastructure allows competition to flourish and resources to flow to their highest-valued use. It enables investment and the accumulation of capital, both material and human, which lead to greater productivity and wealth” (Federal Reserve Bank of Cleveland).

There’s no doubt that investing in infrastructure is a real boon to the economy. As the IPPR notes, above, it has a multiplier effect.

In 2014 the Economic Policy Institute in the US argued that investing in the US’s infrastructure would see a growth in their GDP. Moreover they argued that it was worth borrowing money to fund infrastructure as the positive impact was worthwhile, with increased GDP and employment resulting from the borrowing.

But anyone who knows Wales or who has visited Wales will know that we are lagging behind the rest of the UK when it comes to our infrastructure.

On the periphary

Why? Because we are part of the UK.

How can we say this with such certainty?

According to a House of Commons Briefing Paper, Infrastructure policies and investment, by Federico Mor,

“More infrastructure in and of itself does not necessarily translate into higher long-term growth. The key is for infrastructure investment to occur in areas that will boost the economy’s supply potential”.

This is the exact same thinking that Adam Smith propagated in the Wealth of Nations,

“A magnificent high road cannot be made through a desert country where there is little or no commerce, or merely because it happens to lead to the country villa of the intendant of the province, or to that of some great lord to whom the intendant finds it convenient to make his court. A great bridge cannot be thrown over a river at a place where nobody passes, or merely to embellish the view from the windows of a neighbouring palace” said Smith.

And therein lies our problem.

As long as Wales continues to be part of the UK, we will always be a periphery region, and not an “area that will boost the economy’s supply potential”. We will always be ‘a desert country where there is little or no commerce’ if compared to the Goliath that is London.

This proves the unending circular nature of infrastructure investment,

London is the Capital and the home of the Economic services and Government,

London gets the investment,

London is the area that will boost the economy’s supply potential,

London gets the investment,

And so on

This truth is born out further by research carried out by the OECD and published by them in 2015. In the OECDs Economic Surveys: United kingdom they note that there are large ‘regional’ imbalances found in the UK when it comes to infrastructure investment.

The report shows that the wide gap in productivity is evidence of this investment disparity.

During the Golden Age of Steam this was not a problem. Wales produced some of the essentials that the then British Empire needed to thrive, with a wealth of minerals ripped out of the ground, and a network of roads, canals, and train lines connecting remote parts of Wales with the whole of the UK.

As the value of these raw materials declined so did the investment in our infrastructure. Wales was ravaged and then brutally dumped like trash, forgotten and abandoned. We were only good for one thing, and the well-being of the people who lived here and the culture cultivated over thousands of years was considered valueless.

Infrastructure pipeline

So considering the OECD’s criticism of the UK‘s unequal infrastructure spending, what has changed?

Frankly nothing.

More than half UK investment in transport is in London, says study https://t.co/Hsjs0L50tt — The Guardian (@guardian) February 20, 2017

London is set to get over ten times the amount of Government spend on infrastructure between 2016/17 and 2020/21 than what Wales will receive.

The UK’s current Infrastructure Pipeline shows a total of £3bn Government spend on UK infrastructure projects in Wales between 2016/17 and 2020/21 compared to £31bn Government spend on infrastructure projects in London in the same period.

England, and more specifically London get huge infrastructure projects, and because they are included as part of the Government’s NIPS (National Infrastructure Projects), they are deemed to benefit the whole of the UK, and therefore we all pay for them through our taxes.

The National Infrastructure Delivery Plan 2016-2021 highlights where the Government intends to direct £483bn of investment – both public and private on infrastructure. Notice the disparity. Huge road improvements in England, especially motorways, HS2, Crossrail, Intercity Express programme and nearly every main train line will see significant improvements, huge improvements in and around the Thames Estuary, Thames Tideway Tunnel, hundreds of millions towards science and research in English cities and universities. Some projects, on the face of it might, equally benefit Wales such as greater investment in 4G and 5G technology, yet we know that Wales has some of the largest blackspots in the UK when it comes to mobile reception.

These are all projects which we contribute towards but get no benefit from.

What’s more, of the National Infrastructure Projects which were planned for Wales the vast majority are to do with energy production and transportation. The UK Government is planning for Wales to become one of the key energy producers for England’s large cities and industries in order to sever the UK’s dependency on Russian gas and Oil.

Welsh projects within the NIPs include the North Wales Connection, connecting Wylfa B with the National Grid; Clocaenog Forest Wind Farm Connection; North Wales Windfarm Connection; Mynydd Y Gwynt Wind Farm; SP Mid Wales Connection; Brechfa Forest Wind Farm, and many others.

So what we have here is a National (sic) Infrastructure Project that invests in road, rail, airport, and ports, improved technological developments, and key research facilities for England, particularly London and the areas around the M25; while Wales receives investment to develop energy projects – mainly infrastructure for generating and transporting electricity, and gas to fuel England’s growing consumption.

Wales’ loss

A report published by the UK Parliament recently shows that Wales produces twice as much electricity as we consume. In 2016 Wales produced 13% of the UK’s electricity, we consume 5.9%.

What makes this doubly worse is that our electricity, like our road infrastructure, is transported west to east.

Back in 2006 Miller Argent, the company who developed Ffos-y-Fran near Merthyr Tydfil, said,

“due to the lack of distribution network between North and South Wales, South Wales has to import power from England. As a result, South Wales has one of the highest electricity prices in the UK. This not only makes it less affordable for more people in South Wales, but also starts to make it a less competitive market, particularly in industries such as manufacturing with large power requirements.”

There’s an interconnector between Pembrokeshire and Ireland, and a massive on-going project linking Deeside, Flintshire with Hunterston in Scotland.

Yet there’s no infrastructure to transport electricity from one end of Wales to the other.

At the same time Wales has some of the highest electricity prices anywhere in the UK.

But looking beyond electricity, Wales has the largest LNG terminal in Europe at South Hook, Milford Heaven. The 197 mile gas pipeline, the UKs largest high pressure gas pipeline, has been built across the length of Wales – West-East, of course – to transport the gas to Gloucestershire.

As the South Hook LNG company themselves boast on their website,

“The South Hook LNG Terminal is a strategically significant link in the world’s first fully integrated supply chain that stretches from the gas fields in Qatar to the deep waterway of Milford Haven, West Wales.”

Note, it’s ‘strategically significant’. Then later on,

“The South Hook LNG Terminal has a total processing capacity of 15.6 million tonnes per annum, which is equivalent to around 20% of the current UK natural gas demand.”

It’s a vitally important facility for the whole of the UK, bringing in 20% of the UK’s natural gas demand.

Now Wales, because of our geography, has a greater number of people on a domestic gas meter than other parts of the UK, with 8.6% of the UK’s metered customers here in Wales.

So we import far more Gas to the country than we use – we’re awash with it; our land is used to transport the gas elsewhere; and demand here is higher than elsewhere.

So why are we paying over the odds for our energy?

Do you ever get the feeling that you’re being ripped off?

What’s clear is that the infrastructure that is being developed here is being developed to ensure that the imperial capital and its regions have enough resources – in people, energy, food.

Wales’ purpose is to feed the Imperial capital, and be a playground for them when they need some down-time.

There’s no infrastructure to link parts of Wales together because, let’s face it, from a London point of view what’s the point wasting money on such projects? They don’t see us as a nation but merely a region to be used to support someone else’s needs. For as long as the UK remains a single State then that mind-set won’t change.

As long as we remain part of the UK we’ll forever be on the peripheries.

Unionists will argue that public expenditure is far more in Wales, Scotland and Northern Ireland, per head, than it is in England. This is true, and we would never argue against the fair distribution of wealth to all the regions of England as well as the nations of the UK. However London receives more in the form of public spending than Wales (2016/17: London – £10,192; Wales – £10,076). It also benefits from the multiplier effect of having so much spent on infrastructure there resulting in greater private investment and more money circulating in the economy, which we referred to at the beginning of this piece.

Outrage

Sadly it’s always been this way.

Which is probably why we don’t hear more outrage about this glaring inequality. We’ve become inured to it, and accepted that this is the way things have always been and will always be.

Our relative poverty and London’s wealth is to a large degree the result of this unequal funding in infrastructure. The Government’s planned National Infrastructure Pipeline will only worsen the situation. For as long as this inequality in infrastructure investment continues we will remain relatively poor.

As we’ve discussed before, one of the big problems facing the Welsh economy is our low levels of productivity. But we know, from the OECD report referenced above, that improved infrastructure increases productivity. For every pound spent on key infrastructure projects it has a multiplier effect creating growth and a stronger economy.

Just imagine how much better things could be if we had the ability to borrow and invest according to our needs? To link north and south, ensuring that all regions benefit from our energy generating capabilities.

Imagine how things could be if we developed our infrastructure according to our needs as a nation, not according to the needs of a mega city which acts like a black-hole, sucking in everything nearby. And no, we’re not talking about the shambles who are pretending to know what they’re doing in the Welsh Government, who are busy redeveloping the UK model here in Wales, heavily investing in one region at the expense of another. Ours shouldn’t be the London model – we can and should do things differently here.

An independent Wales is our opportunity to show the world that we can do things differently and equitably, distributing our wealth fairly amongst the people of Wales in every corner.

The economy of Wales is being held back because of this lack of investment in our national infrastructure; because of the unequal nature of the UK’s infrastructure projects; because London and the M25 gets far more than their share of the funds.

Simply put, our economy is suffering because we are part of the UK. The UK is not working for us. It’s a failed project.

The Welsh National Infrastructure Project – building Wales up with our own hands according to our own needs. That’s a National Infrastructure Project that we would gladly get behind!

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*(The Economist, Economics: An A-Z Guide, 2009)