Infrastructure
Infrastructure refers to physical fixed assets that facilitate other consumption and production activities. It comprises of highways, power gridlines, pipeline, railway lines, bridges, airports among others. In the United States, Infrastructure is provided by private sectors, the government as well as private-public partnerships.
Infrastructure provision should be the government’s role for various reasons. Firstly, infrastructure supports both consumption and production activities. Therefore, development and maintenance of good infrastructure creates a conducive investment environment attracting both domestic and foreign investment. Consequently, it creates economic growth and reduction in unemployment level. Secondly, infrastructure projects create demand for goods and services and provides employment. Infrastructure projects are often multi-billion projects that employ thousands of people. The income earned by the workers often translates into increased demand for other goods and services which boosts economic activity and creates employment in other sectors of the economy.
Thirdly, it is noteworthy that Infrastructure is can be both a public good and a private good. Private goods are goods that are excludable. Therefore, those who need it bear the entire costs and exclude others from benefiting. However, in most cases infrastructure is a public good. It is non-excludable once it has already been provided. Therefore, there is no incentive by any agent to provide the good. As rational consumers, everybody would want to free-ride and benefit from the good without making any contribution. Therefore, less than optimal infrastructure will be provided if left to the private sector. The government intervention is needed to provide the socially optimal infrastructure level. Lastly, infrastructure projects are often capital intensive and the returns are not immediate. Therefore, private firms and individuals may not have the financial muscle to oversee mega infrastructure projects. The government can pool resources through taxing the citizens and undertake such projects.
