Inclusion-Enhancing Public Investment in Infrastructure

Public investment in infrastructure is often considered a “growth engine”. What is not always spelled out is the type of growth such engine serves. The destination of public investment in infrastructure, as well as the form in which it is executed, have a huge impact on the nature of national and local development. It should cause no surprise, then, that certain public investments in infrastructure successfully advance social and economic inclusion, while others do not.Inclusion-Enhancing Public Investment in Infrastructure[[This article draws on the Investing Better with a View to Growing More Panel, 2010 Metropolitan Forum, held on November 23-24, 2010 and organized by Fundación Metropolitana [www.metropolitana.org.ar->www.metropolitana.org.ar] ]]

Public investment in infrastructure is often considered a “growth engine”. Indeed, the development of roads, energy, communications, potable water, irrigation, sewer and storm drains, ports, dwelling solutions, among other types of infrastructure, drives social and economic growth. What is not always spelled out is the type of growth such engine serves.

This is so because the destination of public investment in infrastructure, as well as the form in which it is executed, have a huge impact on the nature of national and local development. It should cause no surprise, then, that certain public investments in infrastructure successfully advance social and economic inclusion, while others do not.

Destination of Public Investment in Infrastructure

The allocation of public investment in infrastructure is decided based on sectoral and territorial economic criteria. Yet, it is not always made clear that each investment choice also has different social and political implications, and that –openly or covertly– such dimensions also weigh heavily when public investment decisions are made. In fact, each type of destination favors different actors. Thus, for instance, a road project may favor an entire community or, depending on its layout, only certain producers or users: in terms of inclusion, the impact would be much different if those who benefit from that road infrastructure investment were mostly large producers or high-income neighbors or, conversely, if its benefits further included a significant number of small producers or low-income families.

Likewise, different possible sectoral destinations compete among one another, each one having a different impact on social and economic inclusion. Public investment in one particular sector competes with the unmet needs of other sectors, as public support is always subject to budgetary restrictions. Even though the interests of the social whole should orient the allocation of public investment, the truth is that there is no such thing as an ideal, universal allocation of that investment and, instead, the same will depend on a variety of circumstances, including the development stage the country is at, the goals being pursued and the priority given to inclusion efforts, the prevailing correlation of political forces, the conception of how development should be managed, the availability of resources, and the multiple demands converging on the budgets of the national and local governments.

A similar thing happens with the territorial allocation of public investment in infrastructure. Even when the beneficial effects of any infrastructure investment might irradiate beyond the territory where it is executed, its impact favors differentially certain regional economies, and within them –perhaps– certain players more than others and, therefore, different local governments and politicians.

Regardless of the above-mentioned examples, it is clear, then, that the way in which public investment in infrastructure is allocated will impact, to a greater or lesser extent, the process of social and economic inclusion of different national and local population segments.

The Way in which Public Investment in Infrastructure is Materialized

The capacity of public investment in infrastructure to drive social and economic inclusion does not depend, however, only on its allocation or destination, but also on the way in which that investment is materialized. Here, two aspects of the utmost importance are to be considered: (i) who will carry out the investment and, (ii) who will take advantage of the multiplying effects deriving from it.

(i) Those that carry out public investment in infrastructure are usually large corporations, which often gather together in consortia when large-size projects are involved. These firms are awarded work contracts and, in carrying them out, generate employment and draw gains that allow them to keep growing. It would seem that not much more might be said in this respect; yet, that is not true. Whoever awards a public work, be it the national government or local governments, may play a part so that the impact on social and economic inclusion of public investment in infrastructure is greater or lesser: that will depend on the type of work, on how the investment is devised, and on the selection criteria established in the calls for bids. Thus, for instance, there will be some infrastructure works that can be broken down into sections so that small and medium-sized businesses may bid in order to get contracts. That is the case of dwelling solution programs which, if not divided into modules, might only be awarded to large construction firms; conversely, if such programs were structured in sets of 50, 100 or 200 dwelling solutions, a much broader entrepreneurial involvement might be ensured.

In other cases, as it happens with the construction of large dam projects, works are difficult to be divided into parts; yet, certain modalities are always available to ensure the participation of small and medium-sized businesses (SMBs), such as the creation of positive scoring mechanisms for those who make efforts to include SMBs via subcontracting, or reserving certain ancillary works to be carried out by small and medium-sized units.

(ii) Any public investment in infrastructure generates multiplying effects, some of them very direct, such as the jobs or income derived from the works performed, and other potential ones, associated with the new conditions created by the public investment itself. In this last respect, the agency awarding the public work may adopt a detached attitude so that this new potential opportunity may be perceived and seized by the market, that is, by those players having better vision, greater access to relevant information, or simply the resources or organization required for that purpose. This detached attitude, however, entails a two-fold risk: on the one hand, that no one at the local level may take advantage of the new opportunities, thus wasting a significant portion of the potential multiplying effects in the community where the public investment in infrastructure is to be made; on the other hand, since those who are best suited to take advantage of new opportunities are not usually the sectors who lag behind and, much less, those who are excluded from formal production activities, the absence of an offsetting intent would reinforce the tendency to concentration.

But the impact would be much different if agencies awarding public infrastructure works explicitly included, within the work design and calls for tenders, the goal of promoting inclusion policies through public work. In that case, the public sector will be required to take a more active role, training and preparing its technical teams so that they may be able to include, in each specific bid, operational modalities ensuring the participation of SMBs, so that these can take advantage of the public work-derived multiplying effects. One thing is to broadly state that such multiplying effects are likely to be generated, and a very different one is not only to identify the opportunities that are estimated to result from a public work but also to suggest how small producers might seize them. In this respect, agencies awarding public infrastructure works could have, as a part of the investment programming effort, a specialized unit designed to act as a sort of inclusive venture developer.[[A brief description of the concept of inclusive venture developer in this [article->http://opinionsur.org.ar/Inclusive-Venture-Developers?lang=en].]]

Such unit would be responsible for exploring the potential multiplying effects of each public investment project and, based on that analysis, develop alternatives for today scattered small producers to take advantage of those new opportunities by joining together in medium-sized organizations using modern businesses engineering tools.

Catalyzing Rather Than Blocking

This dimension of public investment in infrastructure as a social and economic driver should be properly crafted so that it may successfully catalyze the participation of small and medium-sized ventures without blocking or delaying the execution of the public work itself. We would be doing a very poor favor to the inclusion efforts if we ended up turning them into new obstacles to national and local development, which badly needs public investment in infrastructure.

Any innovation requires determination to meet the difficulties and risks that any change entails, as well as creativity to develop effective solutions. This is possible and desirable, in spite of the two-fold challenge entailed: on the one hand, facing the resistance of those who will see their privileges threatened and, on the other one, overcoming our own ignorance, inertia, negligence or ineptitude. There is much thinking, creating, experimenting and proposing to be done in this field.
The public sector, civil society organizations, the scientific and technological community, and the most innovative players in the private sector may converge to underpin this innovation with knowledge of excellence, instead of that residual or scrap knowledge that is often devoted to the least empowered sectors in our societies. It is no more and no less, a matter of improving the social and economic efficacy of public investment in infrastructure.

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