FOR FORTY YEARS, SINCE the repair of the destruction of World War II was finished in the 1950s, an unprecedented expansion of the world economy has been propelled by consumer demand, culminating in the developed countries’ great shopping spree of the 1980s. But there is mounting evidence of a deep structural shift—namely, economic growth and expansion can no longer be based on consumer demand.
One symptom: Ever since the first TV set appeared on the market, each new consumer-electronics product has immediately set off a buying explosion, especially in Japan. Yet when several technically very exciting consumer-electronics products were introduced in the Japanese market last year, they produced little more than a yawn.
More important, the new markets are not consumer-goods markets. Nor are they traditional producer-goods markets, that is, markets for machinery and factories. (In fact, there is probably worldwide overcapacity in manufacturing plants, most acutely in Japan and in Western Europe.) Rather, three of the new markets are for various kinds of “infrastructure,” that is, for facilities that serve both producers and consumers. And the fourth new market is for things that are neither “products” nor “services” in any traditional meaning of those terms.
The most immediately accessible of the new markets involves communication and information. Demand for telephone service in Third World countries and the countries of the former Soviet bloc is practically insatiable. There is no greater impediment to economic development than poor telephone service, and no greater spur than good telephone service. A telephone system is highly capital-intensive. But technologies that replace the “wiring” of traditional telephones with the “beaming” of cellular phones are radically reducing the capital investment needed. And once a telephone service is installed, it begins to pay for itself fairly soon, especially if it is well maintained.
In the developed world, the information and communications market may be even larger. Both the office of tomorrow and the school of tomorrow are likely to be built around information and communication. We already know that the factory of tomorrow will be organized around information (rather than automation as we thought only ten years ago). The technology is already in use; it needs only to be properly packaged.
The second of the new markets—call it the “environmental market”—may end up presenting an even greater opportunity than the first. It has three separate components, all rapidly developing:
The third new market is not really new at all. It is the growing need in developed and developing countries alike to repair, replenish, and upgrade physical infrastructure, especially transportation systems—roads, railroads, bridges, harbors, and airports.
Little of the world’s infrastructure is less than thirty years old, and in undeveloped countries, infrastructure has been neglected since 1929 or even since World War I. Even the few Japanese superhighways date back to the ’60s; the U.S. road system, once the wonder of the world, is older. No European rail system carries more than one-tenth of its country’s freight, and all lose money. Likewise in Japan: though its railroads carry enormous numbers of passengers, they are unable to serve the economy by being freight carriers.
In contrast, America’s railroads are in reasonable shape—at least, they carry almost two-fifths of the country’s freight and earn money doing so. But even in the United States, overloaded and undermaintained transportation systems cannot support much more activity. Ocean shipping—that part of transportation that in the developed countries of the non-Communist world has been left to private enterprise—is in good shape by and large. But otherwise the world’s transportation systems may require ten years or more of boom-time investment, comparable perhaps to the railroad boom of the mid-nineteenth century.
And then there is the fourth of the new markets, the one created by demography. It is the market for the investment “products” to finance survival into old age.
Life insurance, which should of course have been called “death insurance,” was a major investment product of the nineteenth century. It protected the family against economic catastrophe caused by the breadwinner’s early death. The new growth industry in all developed countries is “survival insurance”—the fund created by the income that wage earners put aside to provide for their retirement years. As everyone knows, pension funds have become the only true “capitalists” in the American economy. They are rapidly becoming the true capitalists in the other developed countries as well—and for the same reason: the growing number of people who live well beyond retirement age. This development creates a demand for investment vehicles that goes way beyond anything seen earlier.
There is thus ample potential for economic growth, perhaps even for another forty years of it. The demand is there; so are the technological and capital resources. But this potential does not fit traditional assumptions—and proposals by America’s Democrats and Britain’s Labour Party—that increased government expenditures will stimulate consumption. In fact, this is likely to do little more than trigger inflation. What is needed is not more consumer spending but long-term investment and the jobs it creates. The measures America’s Republicans and Britain’s Conservatives propose to encourage such investment are equally unlikely to do the trick. They assume that the investors are the “rich” when actually today’s investors are barely “affluent.” The typical individual contribution to a pension fund is well below $10,000 a year; and the typical mutual-fund purchase (the preferred investment vehicle for individual savers) runs around $2,500.
What is needed is something totally different: the privatization of infrastructure. The needs of communication, the environment, and transportation should be entrusted to investor-owned, profit-seeking enterprises, operating in competitive markets. There is a precedent for this: the concept of the “public utility,” invented in the United States in the second half of the nineteenth century. This enabled American railroads, power companies, and telephone companies to remain private and to stay competitive, while such services everywhere else in the world were taken over by government.
We can already see some progress in the privatization of infrastructure markets. Germany long ago cleaned up its most polluted river, the Ruhr, by making it profitable for businesses not to pollute. And in California’s Central Valley the water allotments of individual farmers have become tradable commodities, giving buyers incentives to conserve and to purify.
Privatization is the one way to make sure the needs for infrastructure will be fulfilled. No government in the world today is solvent enough to do so on its own, either through taxation or through borrowing. Yet the capital is there, and in abundance, and so are the opportunities for profitable investment.
1992
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