Quick Lesson: Arguements Against Private Funding of Infrastructure

The argument against World Bank and IMF funding of infrastructure projects is the same argument Western governments face when building their own domestic infrastructure: private development is cheaper and quicker than government agencies. Although, as shown by Rietveld and Bruisman, infrastructure tends picked up by the private sector after the government has started it, especially in profitable ventures such as canals and rail. The problem with the reliance on private funding for infrastructure is that building roads and bridges to create linkages is expensive and the ability to create links that are useful and feasible is usually left to the discretion of the planning and transportation agencies of governments. In theory, however, private firms would seek to minimize the “costs of building or operating profitable infrastructure…whilst the return is maximized” (Graham 2000:192). The problem with such “profitable” infrastructure is that it usually includes passenger rail, toll bridges/roads and is concentrated in more urban and economically developed areas that can pay for the use of the services.

Although the idea of a more capitalist approach to infrastructure seems to be plausible in nations such as the United States which already have a solid system of roads and highways which are available free of charge for public use, and with some toll bridges/roads and passenger rail to provide more choice to citizens, the concept of relying fully on private funding of roads would not lead to wise planning decisions based on accessibility by the population but instead would fixate around capital flow and the most economically profitable venture. While infrastructure that provides revenue for government and companies is not necessarily a negative, the main issue with reliance is the lack of external considerations and good planning practices.

Transportation Infrastrucre in the Soviet Union : a quick lesson.

Transportation infrastructure, for the purposes of this paper is going to be limited to roads and industrial rail for freight and passenger services. Throughout the Cold War, the Soviet Union set the model for infrastructure development in centrally planned economies with the “neglect of transport costs in location decisions [and] very intensive use of rail and freight services” (Aghion and Schankerman 1999). Although there was some development of passenger rail and personal transportation, centrally planned government tended to focus freight rail in order to transport manufactured goods to market. The general market benefits of building infrastructure are wide spread, and involve lowering the cost of the transportation of goods, while also providing incentives for new firms to enter into the market. (Aghion and Schankerman 1999)

A good majority of the development of Soviet rail lines and transportation were outlined prior to the advent of the Second World War and were expressed in the various “Five Year Plans” that were developed until the collapse of the Soviet Union in 1991. As a whole, “except for the old historical centers, almost all of Russian urban growth has taken place during the socialist era…[and] the fact that urban development took place in a period when land was nationalized and administratively allocated…has had a very profound impact on the internal organization of Russian cities” (Bertaud and Renaud 1994). Land allocation in a nation without free markets led to an overdevelopment of industry and rail lines that would likely not have naturally occurred. By 1993, the former territory of the Soviet Union had approximately 140km/100,000 of the population for rail density and only approximately 85 km/100,000 of population of road density. Although the density of roads was comparable to the European Union (EU) in 1993 which had approximately 100 km/100,000 of population the density of rail between the show an even larger disparity with the EU having only 50 km/100,000 of population. (Aghion and Schankerman 1999) Although the Soviet Union had developed a significant amount of rail, most of those lines remained within the borders of the newly formed Russia, leaving only about 35 km/100,000 of population in the remaining CIS states with Russia having just over 100 km/100,000 of population for rail density.

The under-development of road transportation was intended under the central planning of the Soviet Union. (IRU, 2002) For the Soviet Union the emphasis on rail was due to the association with industry and strength, as well as created a steel industry for creating the rails and equipment. The legacy of rail in the Soviet Union left a solid network of freight rail, with no real passenger rail or road alternative to travel. Although the rails were useful for the initial industrial development of the nations, unlike most other states, the Soviet Union did not turn to the development of roads or truck-based transit of goods.