Public infrastructure without economic calculation - he institutional choice between skin in the game and non-accountability

Abstract

The thesis analyses the economic consequences of public infrastructure provision, ownership and financing from the perspective of economic theory with particular emphasis on economic accountability. The key hypothesis of the thesis is that non-accountability is a systemic feature of public mandates of infrastructure provision due to the impossibility of economic calculation. The line of reasoning is that equity, understood as invested capital attributable to an identifiable owner, does not exist in the public domain. The funds disbursed to public entities have no identifiable owner and, consequently, no rational economic goal can be formulated. As a result, the operation and financing of state-owned infrastructure enterprises leads to a systematic accumulation of economic error that materializes in form of financial and productive losses. On the financial side, higher taxes, increasing public indebtedness levels, in particular ballooning pension obligations, the creation of public contingent liabilities, continuous bailouts of sovereign and sub-sovereign entities, are a universal phenomenon. On the productive side, the absence of competition and non-accountability of public entities leads to slowing technological progress, a general lack of innovation, overstaffed (sclerotic) organizations, bad product quality (and customer service), lack of product differentiation, to name just a few. Based on his more than 20 years experience in international telecommunication markets as finance expert, the author validates above hypothesis by presenting the case study of the unexpected success of privately provided mobile telecommunication services in even very poor countries comparing it to the failure of public fixed-telecommunication networks through public monopolies, the creation of which was informed by the neoclassical natural monopoly doctrine. The broader objective of the thesis is to contribute to a more precise understanding of the material and economic nature of infrastructures and to reveal the many misconceptions in the public discourse, for instance the untenable notion of infrastructure (investment) gaps, which serves as a narrative that is popular with politicians, economists and, in particular with supranational organisations such as the World Bank, to justify their mandates.