On the Term "Infrastructure"

 

Contents

A. Jochimsen's Approach

B. Defining Material Infrastructure

C. A Definition of Infrastructure

 

A. Jochimsen's Approach

The broadest version of the term "infrastructure" dates back to Reimut Jochimsen (1966). In his book on the theory of infrastructure, the author seeks to present preparatory studies for a modern theory of the development of a market economy especially by systematically considering the problem of infrastructure endowment (p. 1). In this note, some important principal features of this still very topical contribution will be sketched; however, its manifold approaches will have to be pursued in future research on infrastructure.

Jochimsen refers to the development of a market economy in order to be able to focus also on social and cultural events of economic activities, apart from economic and technological aspects. The stage of development is determined by the following magnitudes: (a) the level of economic activity, measured as the net social product at factor costs per employee; (b) the degree of integration of the economy that reflects the deviations of prices for relatively homogeneous and mobile production factor services by regions, sectors and firm sizes; and (c) the extent of provision to the population of goods at the threshold levels of consumption necessary for regaining labour productivity. The problem of minimum provision of goods generally does not exist for basically developed market economies so that it may be excluded hereafter (p. 88). Thus the stage of economic development will be described by the level and the degree of integration of a market economy that are specifically interdependent according to the given development path of the economy.

In this context Jochimsen critically evaluates, in both static and dynamic views, the essential contributions of the traditional theory explaining economic development: Methodological approaches (notion of equilibrium, distinction of data and variables); assumptions and results of important teaching and research approaches (theory of comparative costs, results of the Heckscher-Ohlin model as, e.g., the theorem of factor price equalization, theory of market structure, theory of external effects, theory of cumulative processes, theory of investment allocation); basic deficiencies of theory (especially the neglected role of the historical component in economic development as, e.g., the given spatial order of the market economy).

The relevant time-paths of economic development are (a) quasi-stagnation, (b) economic dualism, and (c) self-sustained development. Quasi-stagnation is characterized by a relatively constant level of economic activities, mostly the subsistence level, due to the absence of any stimuli to change. However, dualism results in the disintegrating decomposition of the economy into segments with differently changing activity levels with respect to sectors, regions and firm sizes due to the linkages of external effects, institutional rigidities, technological discontinuities and other frictions of the market economy. In the case of self-intensifying growth, we may generally assume an increasing level of economic activities. For all time-paths of development it may be stated that the degree of integration behaves differently; it may increase, remain constant or decrease, depending on the concrete development process and the corresponding research period. With respect to self-sustained growth processes in the long run the constancy or an increase of the degree of integration is observed.

The important preconditions of economic development concerning the time-path in question and the transformation processes leading from one time-path to another are denoted by Jochimsen as infrastructure that is provided by the state or must be controlled by it. The term "infrastructure" stems from the usage of military language where it refers to military installations such as barracks and airports. More recently we understand infrastructure to mean the necessary organizational basis of an economy. The author defines infrastructure as the sum of the material, institutional and personal foundations of an economy that contribute to realizing the assimilation of factor remuneration, given an expedient allocation of resources, i.e., a relatively high degree of integration and as high a level of economic activities as possible (p. 100).With this definition Jochimsen refers to the works of Friedrich List (1841) and Bronislaw Malinowski (1944).

In a pragmatic sense material infrastructure is understood as " ... 1. the totality of all earning assets, equipment and circulating capital in an economy that serve energy provision, transport service and telecommunications; we must add 2. structures etc. for the conservation of natural resources and transport routes in the broadest sense and 3. buildings and installations of public administration, education, research, health care and social welfare" (p. 103). These capital goods have certain properties in common such as their long duration, technical indivisibility and a high capital-output ratio.

"Institutional infrastructure comprises the grown and set norms, institutions and procedures in their "reality of constitution", insofar as it refers to the degree of actual equal treatment of equal economic data, excluding "meta-economic" influences. It determines the framework within which economic agents may formulate their own economic plans and carry them out in co-operation with others" (p. 117). Jochimsen highlights this definition from Walter Eucken´s (1940, 1952) term "economic constitution" (Wirtschaftsverfassung) as he considers the real implementation of the norms in the "institutional basis" of the market economy. Thus institutional infrastructure, being assigned the function of social integration of values, is the object of economic and legal policy.

Personal infrastructure refers to " … the number and the qualities of people in the market economy characterized by the division of labour with reference to their capabilities to contribute to the increase of the level and the degree of integration of economic activities" (p. 133). Leaving aside the population aspect of personal infrastructure, the function of personal infrastructure for determining the quality of the economic agents' values (achievement motivation, productive capacity, value integration) results in three essential approaches: (a) the tasks of economic agents in the economic process (entrepreneurial guidance, unskilled and qualified labour, teaching etc.), (b) the importance of personal infrastructure for the individual (short-term and long-term consumption of education), and (c) the social relevance of personal infrastructure (integration effect of education) (pp. 137-142).

A central question of economic policy concerning growth concentrates on the preconditions for the creation of an upwardly directed economic development and the pertaining constellations of necessary infrastructure categories. The better the various aspects of material infrastructure (e.g., the relevant capital formation and the corresponding technical progress), institutional infrastructure (e.g., strengthening the citizens' own responsibility, reduced share of the state in social product and the realization of a strong state) and personal infrastructure (e.g., willingness-to-work of labour force, existence of dynamic entrepreneurs and augmentation of education levels) co-operate in a balanced way, the more successful the course of the time-path of economic development will ensue.

Another essential problem concerns repercussions of the stage of development of the market economy on its infrastructure in the processes of integration and growth. In a comprehensive sense we must not only deal with the effects, but also with the determinants of infrastructure.

Jochimsen concludes his studies pointing out selected aspects of material, institutional and personal infrastructure policy and general consequences for economic policy.

In his treatise the author does not discuss the relationships of the theory of infrastructure to (a) traditional distribution theory, although the degree of integration provides a relevant access point; (b) the theory of location, the theory of structural development of economic sectors and the theory of the optimum distribution of firm sizes that can be summarized in a theory of spatial equilibrium.

For the future it is up to us theoretically and empirically to reconsider, apply and extend the approaches of Jochimsen's contribution to research on infrastructure necessary for the market economy with respect to concrete problems.

References

W. Eucken (1940), Die Grundlagen der Nationalökonomie. Jena (Fischer Verlag); 8th ed., Berlin 1965 (Springer Verlag).

W. Eucken (1952), Grundsätze der Wirtschaftspolitik. Bern (Francke Verlag et al.); 7th ed., Tübingen 2004 (J.C.B. Mohr (Paul Siebeck)).

R. Jochimsen (1966), Theorie der Infrastruktur, Grundlagen der marktwirtschaftlichen Entwicklung. Tübingen (J.C.B. Mohr (Paul Siebeck)).

F. List (1841), Das nationale System der politischen Ökonomie. Stuttgart et al. (Cotta Verlag); popular ed., Basel et al. 1959 (Kyklos Verlag et al.).

B. Malinowski (1944), A Scientific Theory of Culture and Other Essays. Chapel Hill, N.C. (The University of North Carolina Press).

B. Defining Material Infrastructure

The following section is taken from Buhr (2007, 14-17).

Qualities of material infrastructure. Modern language usage identifies infrastructure with material infrastructure meaning an enumeration of public capital stocks such as roads, ports, hospitals, schools, sewerage systems etc. in most cases produced and operated by the state (cf. Frey 1978, 201; on the development of the term cf. Schatz 1996). This approach towards a definition of infrastructure is considered to be unsatisfactory ...

It will be shown that Jochimsen's (1966) classification of infrastructure in material, personal and institutional infrastructure forms a solid and rewarding basis for the discussion of infrastructural problems. This approach has the advantage of being systematically comprehensive and is in clear contrast to today's isolated investigations of numerous aspects often preferentially performed by the scientific community. The role of the state in infrastructure provision must be evaluated in a very differentiated way.

Let us turn to the definition of material infrastructure in more detail. Assuming the preferences of the population, the levels of technology, the institutional rules, the level of development and the geographical particularities of a nation as given, material infrastructure is essentially characterized by two distinguishing qualities. The first trait refers to the essential prerequisites of human life. Those wants of
economic agents (cf. Douglas 1998) originating from physical and social requirements of human beings are satisfied by infrastructure outputs (goods and services) which have been produced by the use of the pertaining immobile, noncirculating capital stocks fixed to the ground, called material infrastructure. For example, the need of drinking water is met by the corresponding supply of water collected, say, in a reservoir which, as a capital good, is a specific type of material infrastructure. A material infrastructure output results from the interplay of its corresponding supply and demand depending on physical or social wants. The supply side is determined by the production functions, finance situation, and organizational structures (including regulations of ownership) of infrastructure producers such as industrial enterprises and administrative units. Representing technical characteristics of production, the production functions relate infrastructure outputs to the factors of production, which are the given quantities of land involved, the labor force employed and the capital stocks utilized (material infrastructure). They are changed by investment. Other cases are given with respect to the direct utilization of capital stocks over time as supplied infrastructure outputs, e.g., in the case of roads. These capital stocks are the capital outputs of preceding production processes. The main problems of production related to material infrastructure such as cost reduction, price formation or network design will not be discussed in the present context (cf., e.g., Bobzin 2006).

With respect to the different requirements of human life to be satisfied by material infrastructure outputs we may set up the following overview in Table 1. It collects important hints, but is not considered as complete.

want	infrastructure output (good or service)	pertinent capital stock (material infrastructure)
physical requirements
water	drinking water, water for industrial uses, irrigation water, water for generating hydro-electric power	reservoirs, canals, waterways, pipes, irrigation facilities
warmth	gas, oil, electricity, coal, nuclear energy	drilling platforms, pipelines, generation plants, coal mines
light	electricity, gas	generation plants, drilling plants, circuits, pipelines
health	medical care, refuse collection, waste water disposal	hospitals, dumps, sewerage systems
protection against nature, shelter	accommodation, working places, flood protection	houses, buildings, plants, levees
social requirements
security	legislation (laws), judiciary, stability of the value of money, protection against crimes, outward defense, military goods	public buildings, police stations, military installations
information	usage of telephones, mobile phones, radios, television, Internet, newspapers	telecommunication facilities, post offices, newspaper production works
education	child care, lectures, research, lending out books	kindergartens, schools, universities, research institutions, libraries
mobility	usage of roads by cars, buses, trucks	roads, highways
	usage of tracks by trains	tracks, train stations
	usage of airports by airplanes	airports
	usage of ports by ships	ports
environmental protection	clean air and water	air purification filters, waterworks

Table 1: Material infrastructure to satisfy requirements of human life

This overview has been developed essentially from the viewpoint of households, taking firms and other economic agents to be institutional offspring that evolved during the intensified process of division of labor so that their infrastructure demand is not neglected.

The fundamental importance of the indicated infrastructure goods and services and the pertinent material infrastructure becomes perfectly clear in a spectacular situation of even temporary emergency such as the substantial contamination of water or the break-down of an electricity supply system.

We should also notice that material infrastructure facilities are usually highly complementary to each other. A good example is housing in relation to public utility networks (e.g., water and energy supply equipment).

The second distinguishing quality of material infrastructure is the nonavailability of infrastructure goods and services to the individual household or firm for production and cost reasons, i.e., economic necessities of mass production. The usually high fixed costs of facilities require the (often joint) production of large volumes of outputs (fixed costs degression). Since the fixed costs are very different comparing various capital stocks, material infrastructure provision takes place under the conditions of different market structures (above all (natural) monopolies (e.g., electricity supply), however, also competition (e.g., housing construction)). We are aware that, at a low level of development, there may be relatively simple and small substitute facilities to satisfy basic infrastructure needs such as household-oriented electricity generators or sewage disposal arrangements.

Implications of the term. The obligation of society, the responsibility of the government, to guarantee the supply of infrastructural goods and services to the individual economic agents of a nation, that is to build up an economy's material infrastructure, results from the second quality of material infrastructure.

The mentioned qualities of material infrastructure, reflected on the background of the given restrictions of analysis, are sufficient to delimit infrastructure goods or services. Here are two examples. Although bread may still our hunger, it is not an infrastructure good, since the inputs for bread production are easily procurable; everybody today is able to bake bread himself (second criterion not fulfilled). Also a car is not an infrastructure good because it belongs into the category of mobile or circulating capital goods which are excluded. Moreover, it cannot fulfill a social need, unless lanes, streets or roads exist. Driving a car implies the demand for road utilization (first criterion not fulfilled).

In a dual view, the satisfaction of the physical and social requirements of human life by material infrastructure outputs corresponds to the creation of the functions of material infrastructure stimulating and supporting economic growth. These functions help to mobilize the economic agents' potentialities and to safeguard the opening and the development of the activities of households, firms and markets. For example, roads enabling mobility of travelers (social requirement) serve economic agents to access specific locations (function of roads) (cf. Buhr 2003, 14-17) with the consequence of reduced or increased disparities among regions due to the rate of mobility people are prepared to accept. Reductions of material infrastructure capacities may have contrary effects.

State production of infrastructure goods and services and state ownership of material infrastructure are not stringently necessary characteristics of material infrastructure, as, for example, private schools, private hospitals and private railroads already indicate. If state influences within the institutional framework such as measures of public control are considered necessary, they refer to the economic behavior of producers, not to the infrastructure production process itself. In our context, the term "public capital" and its pretended relevance (cf. Aschauer 1989 and Esfahani, Ramirez 2003) have no importance.

Material infrastructure takes on different configurations: point infrastructure (e.g., airports), point-network infrastructure (e.g., electricity supply) and network infrastructure (e.g., roads). These forms may refer to different spatial levels: nation, area, region, community or lot. The capital goods as stocks located in space constitute the spatial order of a nation.

Thus we may define material infrastructure as those immobile, non-circulating capital goods that essentially contribute to the production of infrastructure goods and services needed to satisfy basic physical and social requirements of economic agents and unavailable to the individual economic agents (households, firms etc.) for production and cost reasons so that mass production is economically cogent; the fulfillment of these requirements implies the activation of the functions of material infrastructure.

References

D. A. Aschauer (1989), Is public expenditure productive? in: Journal of Monetary Economics, 23, 177-200.

H. Bobzin (2006), Principles of Network Economics, Lecture Notes in Economics and Mathematical Systems 561. Berlin, Heidelberg (Springer-Verlag).

W. Buhr (2003), What is Infrastructure? Discussion Paper No. 107-03, Department of Economics, School of Economic Disciplines, University of Siegen. Siegen.

W. Buhr (2007), General Considerations on Infrastructure: Essence of the Term, Role of the State, Impacts of Population Decline and Aging, in: X. Feng, A. M. Popescu (Hrsg.), Infrastrukturprobleme bei Bevölkerungsrückgang (Infrastructure Problems under Population Decline), Schriften zur öffentlichen Verwaltung und öffentlichen Wirtschaft, Bd. 202. Berlin (Berliner Wissenschafts-Verlag), 13-48.

M. Douglas (1998), Art. wants, in: J. Eatwell, M. Milgate, P. Newman (eds.), The New Palgrave, A Dictionary of Economics, Vol. 4. London (The Macmillan Press), 872-874.

H.S. Esfahani, M.T. Ramirez (2003), Institutions, infrastructure, and economic growth, in: Journal of Development Economics, 70, 443-477.

R.L. Frey (1978), Art. Infrastruktur, in: W. Albers et al. (Hrsg.), Handwörterbuch der Wirtschaftswissenschaft, 4. Bd., Stuttgart et al. (Gustav Fischer et al.), 200-215.

R. Jochimsen (1966), Theorie der Infrastruktur, Grundlagen der marktwirtschaftlichen Entwicklung. Tübingen (J. C. B. Mohr (Paul Siebeck)).

K.-W. Schatz (1996), Zur Entwicklung des Begriffs Infrastruktur, in: H. Berger (Hrsg.), Wettbewerb und Infrastruktur in Post- und Telekommunikationsmärkten, Beiheft 19 der Zeitschrift für öffentliche und gemeinwirtschaftliche Unternehmen. Baden-Baden (Nomos Verlagsgesellschaft), 122-136.

 

C. A Definition of Infrastructure

The following explanation comes from Buhr (2009).

Definition of material infrastructure  We may ... define material infrastructure as those immobile capital goods that essentially contribute to the production of infrastructure goods and services needed to satisfy basic physical and social requirements of economic agents and unavailable to the individual economic agents (households, firms etc.) for production and cost reasons so that mass production is economically cogent. The fulfillment of these requirements implies the activation of the functions of material infrastructure. The configurations of material infrastructure in space constitute the capital element of an economy's landscape structure (p. 18).

Definition of institutional infrastructure  This category of infrastructure encompasses all customary and established formal rules and informal constraints (conventions, norms of behavior) to  shape human interaction ... as well as the procedures of enforcement to guarantee and to implement these rules, e.g., by the state (p. 18, 19).

Definition of personal infrastructure  Personal (or human) infrastructure covers the number (and the structure) and the relevant properties (physique, characteristics) of the working population, the labor supply of an economy, independent of whether the workforce is employed or unemployed ... That is, we have to consider population as a stock variable and the labor participation rate ... (quantitative aspect of personal infrastructure). We must also be concerned with the value of productive capacities of the workforce, the human capital or labor quality, determined by investment in general and special education and in learning from experience, research and development, given the inbred qualities of the human beings as income producing actors (qualitative aspect of personal infrastructure) (p. 28).

Defining infrastructure

In an aggregated view, the term infrastructure of a country's economy refers to its specified labor force as personal infrastructure whose working and operationality are guaranteed by existential goods and services which immobile capital stocks as material infrastructure produce within the framework of generally valid, binding social rules and constraints as institutional infrastructure.

This definition may be reformulated in a disaggregated way as follows. A country's infrastructure seizes on

- the material infrastructure: the part of man-made landscape structure that is represented by immobile capital goods whose outputs, serving basic physical and social needs of economic agents, are otherwise unavailable to individual actors for production and cost reasons,

- the personal infrastructure: the working population characterized by different aspects of  human capital which pursues its activities in space ordered by material infrastructure, and

- the institutional infrastructure: the formal rules and informal constraints essentially determining the course of economic activities in space as well as the public and societal procedures of their enforcement. 

If we look at one person (quantitative aspect of personal infrastructure) and her productive capacities (qualitative aspect of personal infrastructure), take this person's well-being to be provided against a shortage of existential goods and services (supplied by material infrastructure) and assume this person to enter into economic interactions with other economic agents according to certain rules (institutional infrastructure) which also radiate back to personal and material infrastructure, we comprehend the core of the term infrastructure as the growth framework of the market economy (p.40).

Reference

W. Buhr (2009), Infrastructure of the Market Economy, Volkswirtschaftliche Diskussionsbeiträge, Discussion Paper No. 132-09, Fachbereich Wirtschaftswissenschaften, Wirtschaftsinformatik und Wirtschaftsrecht, Universität Siegen, Siegen/Germany (cf. http://ideas.repec.org/s/sie/siegen.html).