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Will infrastructures become monopolised and, if so, who will own them?

Posted By Administration, Tuesday, September 25, 2018
Updated: Tuesday, February 26, 2019

Daniel Bonin has written his seventh installment in our Emerging Fellows program. Here, he explores infrastructures in the light of monopolies. The views expressed are those of the author and not necessarily those of the APF or its other members.

Monopolies have a long and varied history. As regulators start to fear the misuse of market power by monopolistic companies they develop policy tools to regulate and unbundle markets. Still different types of monopolies like natural or geographic monopolies continue to exist. What will their future look like and could it be that new infrastructure monopolies and even outright state monopolies emerge by 2050?

Monopolies are not bad per se, they can help to cope with the problems which a free market economy fails to deliver. Until 2050, more and more governments may decide to tolerate a monopoly to ensure equal access to vital infrastructures in their depopulating rural areas. A monopoly provides also a certain amount of security, an environment in which the issue of costly upfront costs in new infrastructures could be solved. There is another argument for infrastructure monopolies that stems from technological change.

The past showed that monopolies have been responsible for miss-allocation in the economy. But what if new monopolies are the only way to allocate resources amid increasing connectivity and complexity by 2050? Artificial intelligence provides us a tool to handle complex systems like the supply and demand of infrastructures. However, it could work best if the monopolistic infrastructure operator has access, power and authority to change all of the variables that are relevant to the system. Think of an intelligent transport network that balances different modes of transport and movement of freight. With full access to real-time data and relevant infrastructures, such a network could even adjust traffic management systems and even the width of traffic lanes to accommodate the different users like humans, trams, autonomous vehicles and drones alike. Would a country be able to resist the tender of a monopolistic company that promises to provide such a smooth and cheap infrastructure or would it drawback and tolerate or even nurture new monopolies?

Would countries even have an incentive to create state monopolies? Governments are always concerned about the interference of other countries in their domestic affairs. Considering the growing connectivity of infrastructures and the role of data. It seems that concerns over interference of other countries in domestic affairs could provide such a reason. Countries would otherwise risk foreign competitors gaining access to vital information and the ability to manipulate infrastructures.

It is not only about the access to data, but the risk of the manipulation of data and news. Caught in this crossfire of threats, a state controlled telecommunication infrastructure monopoly could be a rational move for a liberal country to clear the situation. One strong state monopoly could also allow a country to strongly influence global infrastructure standards and win the race for new key enabling technologies like 5G. Thinking further ahead until 2050, a state monopoly for satellite operation becomes a first step to monopolise space and exercise geopolitical power. Earlier than one thinks, owning world’s first space debris management infrastructure might become of importance for the balance of power in space.

If countries decide to accept or even promote infrastructure monopolies, they need to develop a toolkit to regulate private infrastructure monopolies before it is too late. Financial institutions became too big to fail and monopoly-like platforms became too big to be regulated. In a similar way, private infrastructure monopolies could become too efficient to be regulated and too security-related to be not nationalised. To prevent some of this risk, state monopolies could be considered. However, as politics becomes more and more involved, it needs to be critically reflected that political interests and cycles are at odds with the life-cycle of infrastructures and the speed of innovation. Could state monopolies become the grit in the gears of future-proof infrastructures?

© Daniel Bonin 2018

Tags:  government  infrastructure  monopoly 

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Do we need new levers to close infrastructure investment gaps?

Posted By Administration, Tuesday, June 5, 2018
Updated: Monday, February 25, 2019

Daniel Bonin‘s fourth post in our Emerging Fellows program concerns infrastructure investment gaps. The views expressed are those of the author and not necessarily those of the APF or its other members.

Forecasts suggest that infrastructure investment gaps are here to stay, especially when it comes to transportation and electricity. How can we close these gaps by 2050? The World Economic Forum distinguishes three major levers: (a) reduce demand, (b) build new infrastructures and (c) optimize existing infrastructures. There may be two additional important levers on our way to 2050 that stem from the growing connectedness of people and intelligent things paired with self-executing contracts (i.e. smart contracts). The first lever is novel pricing models for infrastructure usage or, more exactly an “intelligent user charges principle”. The second lever relates to effective altruism movement, the idea of identifying areas where one additional Euro can create the most impact.

Today, we are used to all kinds of pricing structures to pay for products and services. Product purchase, freemium models, flat rates or pay per use are part of everyday life. There is a second class of pricing structures that benefit from the growing connectedness and powerful algorithms. These have just started to become a normal part of life. There is Uber’s surge pricing that is based on market demand levels. Contingency pricing, which is common in the manufacturing or energy sectors, conditions the amount to be paid on the performance of the contractor. Any Mac user who tries to book a flight should be familiar with differential pricing, pricing based on the type of customer. So why shouldn’t we pay a dynamically adapted price for each time we “consume” infrastructures? Think of paying a certain amount of money per kilometer travelled? We could be reimbursed for travelling during off-peak hours or pay extra to have priority during peak hours. Depending on how the fuel economy of our car ranks compared to the median fuel economy or whether we share a ride or not, we would pay a dynamic price per kilometer travelled. And who has not yet dreamed about punishing the SatNav for inefficient routing? There could even be subsidies to foster the adoption of new environmentally friendly technologies. What about subsidies for vehicles that pro-actively improve the air quality in cities or discounts for socially disadvantaged families? The possibilities are endless and so are the synergies. If we track the kilometers we travel, we could also identify the roads that are working at a particularly high level of capacity utilization and allocate maintenance and expansion investments accordingly. This is similar to effective altruism, which tries to identify areas where a certain amount of money can generate the largest societal impact.

This may sound like Sci-Fi, but if we take all the buzz around the Internet of Things, distributed ledgers like Blockchain and Artificial Intelligence seriously, why shouldn’t the intelligent charge principle and effective altruism be feasible? Yes, there are various obstacles. For instance, we would need to quantify and balance a tremendous number of aspects. There are ethical questions like how should eligibility for discounts be calculated? Is it OK to favour densely populated areas and how can we make sure that infrastructures with low capacity usage are not side-lined? All these are questions and trade-offs that we need to find answers to in any case amid budget constraints. I believe that both, user charge principle and effective altruism driven infrastructure planning can help to find fairer answers and pose the right questions.

Another argument for why we need to consider both levers is, that on our way to a more sustainable world, certain trends undermine the ability of our existing infrastructure funding mechanisms to function properly. Firstly, we will need a lot of resources to roll out an intelligent transport and energy infrastructure. Secondly, E-mobility and mobility services with lower vehicle ownership have a negative impact on today’s infrastructure funding mechanisms. While E-mobility and more efficient transport systems reduce externalities and perhaps even infrastructure demand, they also reduce revenues from fuel taxes. The impact of E-mobility is even more far-reaching as this new paradigm will increase the investment needs for our energy grids. With lower private car ownership due to mobility as a service paradigm, countries with historically high motorization rates will see their tax revenues from car registration dwindle. In order to secure a steady monetary stream for infrastructure maintenance and expansion, we need to establish a policy that links taxes to the actual usage of infrastructures. These examples also raise another question: with all that change in terms of way of living and technology until 2050, do we overestimate future infrastructure demand or does Jevons paradox hold true? I will try to address this question in the next post.

© Daniel Bonin 2018

Tags:  economics  infrastructure  technology 

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Hyperloop: Will infrastructures of today be the border posts of tomorrow?

Posted By Administration, Wednesday, April 11, 2018
Updated: Sunday, February 24, 2019

Daniel Bonin‘s fourth post in our Emerging Fellows program concerns infrastructure for emerging technology such as the Hyperloop. The views expressed are those of the author and not necessarily those of the APF or its other members.

According to dictionaries, borders are “a line separating two countries, administrative divisions, or other areas.” They separate areas with different laws and norms. Borders tend to follow natural features and have been the result of war and negotiation in the past. Considering this logic, what are the implications of high-speed transportation infrastructures like the Hyperloop, a vacuum-based transport system that is 2-3 times faster than today’s fastest trains? Could it be that they create quasi-borders within countries that follow the logic of inclusion and exclusion based on speed and accessibility?

Cities and their suburbs are growing in terms of population, economic, political and social power. They might have the power and the critical mass to make costly high-speed transportation systems viable. But on the other side, rural areas and structurally weak urban areas will struggle to keep up with that pace. They will suffer from tight budgets and fail to attract investors due to a lower population density and their demographic challenges of depopulation and aging. Establishing an interstation there is also rather unattractive. If not a network of entitled cities, who would manage to create a high-speed transportation link like a Hyperloop?

A new common identity of interconnected mega corridors, a connection of two or more cities via a Hyperloop link, would emerge as resources, people, commuters and ultimately ideas, values, and norms wander back and forth and merge faster than ever before. There is another side to consider: disparities within countries are reinforced as excluded areas are at the risk of transport disadvantage. Disadvantage stems from a lack of such a system or inaccessibility of a system in reasonable time. It results in the inaccessibility of excluded areas to people, goods, services, networks and decision making. Outsider areas will lose out in the competition for factors like inhabitants, labor supply, enterprise locations, tourists and political influence. In addition, borders are created within cities that have a Hyperloop. Neighborhoods in close proximity to stations will experience gentrification and repurposing of residential areas for commercial activities. Even negative externalities are created for those excluded but traversed by the infrastructures, like in the U.S. when major roads were routed through neighborhoods of minorities. Thus, transport infrastructures threaten to exclude outsiders and draw borderlines within countries.

The question then becomes what is the role of outsider areas, or put differently, what are the limits of the borderlines? Apart from international connections, a Hyperloop could bridge vast distances within large countries like the U.S., India or even China, where the state-owned Aerospace Science and Industry Corporation dreams to combine vacuum and magnetic levitation. However, the impact is at least as decisive in smaller countries like Germany, Japan or the UAE, where nation-wide mega corridors in commuting distance could emerge. To get an understanding of the limits of the borderlines, there is the over 20-year-old idea of Marchetti’s constant, stating that the time budget people give to commuting is on average one hour per day independent of the distance traveled. Autonomous vehicles and ubiquitous internet, enable superior feeder services and change our perception of what it means to spent time bridging the first and last mile to stations in cities plagued by congestion. Given superior feeding services, we might be well willing to increase our travel time budget. Today, people commute between Berlin and its outskirts, tomorrow they may commute with high speed between Germany’s two most populous cities: Berlin and Hamburg. The travel time budget of at least 60 minutes becomes the borderline. Beyond that line, outsider areas could be considered remote and exposed to transportation disadvantage. This implies a three-tier hierarchy: Hyperloop cities, areas with sufficient accessibility and outsiders beyond the border.

Yet the disparities are not inevitable. The central question is where should a high-speed station be based, within a city center or its suburban belt? How can outsider areas ensure accessibility to stations? Can outsider areas make traveling less desirable and necessary, especially aging areas whose residents might have a lower mobility demand? If one were to consider politics: could a Hyperloop counteract populism and deglobalization or could initiatives like the One Road One Belt be exploited to play hardball in a more multipolar world?

© Daniel Bonin 2018

Tags:  Hyperloop  infrastructure  technology 

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Does a lack of infrastructure represent an opportunity for developing countries?

Posted By Administration, Monday, March 5, 2018
Updated: Sunday, February 24, 2019

Daniel Bonin‘s third post in our Emerging Fellows program concerns infrastructure in developing countries. The views expressed are those of the author and not necessarily those of the APF or its other members. 

A lack of infrastructure creates opportunities and carries risks for developing countries. Legacy infrastructure reduces the degree of freedom for infrastructure planning in developed countries. There lies the opportunity when planning infrastructure from scratch for developing countries. Infrastructure layout and services could be completely re-thought without the confinements of existing infrastructure and tailored to their specific needs. This is in the interest of developing countries as they need unique solutions that work at their scale. As a consequence, new infrastructure paradigms could emerge.

New paradigms could be based on both frugal and high-tech concepts, depending on the state of the economy of each country and other regional specifics and trends. For example, a lack of waste management infrastructure could be overcome by both artisan like circular economy approaches and even more futuristic solutions that consider automated underground waste collection systems. In other areas, a lack of infrastructure could facilitate the implementation of novel concepts around topics such as clean energy and water. There is already a shift towards decentralization and prosuming, a new paradigm under which consumers turn into producers. Developing countries might leapfrog towards renewable energy generation of prosumers, microgrids, and atmospheric water generation. This would constitute a paradigm shift compared to centralized infrastructure and grid dependency of today.

Sometimes less is more – this also holds for urbanization. Entirely new neighborhoods or even entirely new cities will emerge in developing countries until 2050. Today, we see uncontrolled urban sprawl and conversion of precious arable land. For tomorrow, we need to steer the rapid urbanization. New urban areas could look completely different if they were to be designed from scratch. Entirely new paradigms for urban planning would be possible. More green space or even forest cities could be realized without the disruption to established processes and grown structures. Last but not least, a lack of housing and surrounding infrastructure paired with more powerful infrastructure development banks hold potential for employment and economic growth in developing countries.

A lack of infrastructure is only an opportunity if actions are taken at the right time and at the right place. It is necessary to develop future scenarios to understand where people might move and what their future needs might be. In order to exploit the potential of a fresh start, it is also important to anticipate technological change. Otherwise, there is a danger that a large amount of legacy infrastructure is created.

This also highlights the thin line between the risk of delaying infrastructure and meeting the growing demand for infrastructure in developing countries that comes as a result of ongoing urbanization and income growth. If these challenges are mastered, infrastructure planning can play a new role besides the provision of services. Infrastructure then defines the order of societies and economies in developing countries. How developing countries deal with a lack of infrastructure will determine whether they will be characterized by decentralization, prosuming, and more livable urban areas. This could be their contribution towards a more sustainable world and might cause them to emerge as role models.


© Daniel Bonin 2018

Tags:  economics  infrastructure  nation 

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Why do we need to think about the infrastructures of tomorrow?

Posted By Administration, Thursday, December 28, 2017
Updated: Sunday, February 24, 2019

Daniel Bonin is one of our Emerging Fellows. He and our other Emerging Fellows will be posting throughout the year. His first article discusses the importance of futures thinking for building infrastructure.

By 2050 the face of our built environment will have changed. While this seems to be a long way off, there is good reason to start thinking about tomorrow’s infrastructure today.

Infrastructures outlive civilizations, country borders, and governments. It can take years until they are up and running. Infrastructures have been symbols and indicators of power: from the Egyptian Pyramids to the Golden Gate Bridge in the U.S. or the One Belt One Road Initiative of China. Infrastructures are physical legacies for the generations to come and constitute the framework conditions we innovate around. In some sense, our thinking is not only shaped by bounded rationality but bounded by the existing infrastructure. We tend to think of new ways to use streets, but not about alternatives to streets. As a part of a complex system, partially aged infrastructures cannot be simply removed and re-inserted without risking disruptions. The inert nature of infrastructures is also at odds with faster innovation cycles in technology. These characteristics are at stark contrast with the evolving needs of people and business and the global challenges on our way to 2050.

Depending on whom you ask, you will get different answers to the question of what infrastructures are. Some will spontaneously name airports, high-speed trains or broadband internet access, while you can hear the dreaming in the voice of others when they say wastewater disposal, uninterrupted power supply or well-equipped hospitals. Infrastructures are the physical backbone that allows people and businesses to fulfill their needs and desires. And even a fully digitized world with telecommuting or tele-education would still require some sort of physical infrastructure. The access to infrastructures means somehow destiny – reducing or exacerbating social inequalities. It is evident we need to think about infrastructures in order to meet the UN’s Sustainable Development Goals in areas like health, education, renewable energy, environmental protection, justice, and peace. A more sustainable world would ultimately be a world where infrastructure converges both between and within countries.

This is clearly an ambitious goal, considering a perfect storm of weaker economic growth, growing governmental debt, workforce ageing and a reduced taxpayer base due to labor automation. These factors will greatly reduce the ability of governments to fund and maintain infrastructures up to the year 2050 and beyond. At the same time, less developed countries and their energy and resource hungry middle classes will grow. Besides the unprecedented demand for expansion in less developed countries, developed countries are starting to fall behind in infrastructure quality as their century-old infrastructures continue to age.

The resulting infrastructure investment gap could be even larger than previously thought, given that economic growth forecasts have shown to be way too optimistic in the past. But infrastructure development comes not only at an easy measurable monetary cost. Each additional square meter of sealed surface, deforestation and land grab of the world’s most fertile soils puts our ecosystem under more and more pressure. Yet the irony is that we will need to expand and adapt our infrastructure to tackle challenges like climate change and push decarbonization efforts. With tighter governmental budgets, economic costs might well trump environmental impacts. It is all the more urgent to develop business models for sustainable infrastructures that are attractive for private investors. On the positive side, higher efficiency technologies and decentralization of knowledge, power, and production might reduce some of the expansionary demand.

The overwhelming majority of our infrastructure for the year 2050 has yet to be built. Each additional infrastructure must be well planned as it adds complexity to the inert infrastructure systems. We have to anticipate tomorrow’s needs to understand future investment requirements. Moreover, we need to design infrastructures in a way that they can be adapted over their lifetime to keep up with the changes ahead and beyond 2050. Otherwise, we will find ourselves drawing upon yesterday’s infrastructure to cope with the challenges of tomorrow.

© Daniel Bonin 2017

Tags:  government  infrastructure  politics 

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