Friday, 11 August 2017

Infrastrucure - chickens and eggs.

Lola, in a comment on Bayard's post:

"The Skye Bridge both confirm and confounds my contention that infrastructure spending comes after economic growth."

It does both, it's chicken and egg. From the point of view of an individual or a business, everything that everybody else does or provides is "infrastructure".

Sticking with the car example: there are car manufacturers, petrol stations, car mechanics, motorists and roads. The motorist needs all four things, he couldn't care less whether the government/taxpayer or private businesses provides the cars, petrol, repairs and roads. The car manufacturer doesn't care whether it's government/private sector demanding cars, or providing roads, petrol, repairs. Ditto the petrol stations and so on.

Which also illustrates that supply creates demand - not necessarily for the thing itself, but demand for complementary stuff, and the more complementary stuff there is, the more demand there will be for the thing which sparked it off in the first place.

The Skye bridge is, from the point of view of the traveller, vastly preferable to taking the ferry. On a static basis, it is difficult to justify spending £25 million of taxpayers' finest (yes I know it was a PPI PFI job but the taxpayer ended up paying for it) on a lovely bridge for 10,000 inhabitant = £25,000 each. Either take the ferry or move to the mainland.

But that's not the end of the matter.

The bridge (especially now it is toll free) has led to a surge in tourism. If the local NIMBYs don't succeed in choking this off, then with the benefit of hindsight, the bridge does justify itself. £25 million x ten percent amortisation/running costs a year ÷ 150,000 tourists a year = £17 per extra tourist, which looks like a great deal from Skye's point of view, the average tourist will spend a lot more than that.

And those tourists create extra demand for all sorts of things, which in turn creates demand for other things and so on, hopefully in a virtuous circle.

If only there were some elegant way of clawing back the £25 million via the tax system...


Bayard said...

(yes I know it was a PPI job but the taxpayer ended up paying for it)

I think you mean PFI. A pity, really, because if it was a PPI job, the government could get its money back via one of those nice claims companies.

ThomasBHall said...

Or maybe mark meant PPP? It's still only one letter off...

Mark Wadsworth said...

B, my bad.

TBH, which is only one letter from PEP* or YPP etc.

* The old name for ISA.

Bayard said...

It's a classic illustration of how PFI combines the worst of both worlds: a privately-owned monopoly in the first place, so the tolls were too high as that monopoly was exploited, followed by a state-owned monopoly, where the tolls were removed, i.e too low as an overreaction for political reasons. Thus opponents of both public and private ownership are happy: both can point to the Skye Bridge and say "your system doesn't work", ignoring, as ever, that the problem lies not with the system, but the implementation thereof. (For the ultimate application of this principle, see

Mark Wadsworth said...

B, all depends on your point of view. It is not a question of stuff "not working" it is a question of which conflicting aim you have.

Optimum use of cash might have been never build the bridge in the first place, definitely from the view of the terry company.

Optimum use of bridge (once built) is revenue maximising toll charge. But difficult to get rights and very, very price sensitive demand.

Optimum use of island from NIMBY point of view is very few visitors = high toll.

But hypocritical as ever, they also want a free bridge.

Optimum use of lovely scenery is lots of tourists come and look at it = low toll.

Optimum number of tourists from point of view of hotels etc = lots = low toll.

The island and the scenery is all "infrastructure" for these purposes, somebody or something else created it, everybody else has to make best use of it.

My view is, make the bridge free and let land value tax sort it out.