Reinventing Infrastructure Economics: Theory and Empirics

• Main Author: Mehrotra, Shagun
• Language: English
• Published: 2012
• Subjects: Infrastructure (Economics) > Management; Developing countries; Government business enterprises; Transportation and state > Economic aspects; Railroads; Indian Railways
• Online Access: https://doi.org/10.7916/D8FX7HJD

My dissertation is a study of the conditions under which state-owned enterprises improve infrastructure services--transport, energy, and water--particularly in developing countries. This research is relevant because, despite successful privatization of infrastructure that yielded over trillion and a half dollars in investments since 1990, infrastructure provision remains dominated by state-owned enterprises (Estache & Fay, 2007; Gomez-Ibanez, 2003). The OECD estimates that over the next two decades, US $35 to 40 trillion will be required to meet the global infrastructure deficit. At least half of this investment will be made by governments, particularly in, but not limited to, developing countries (OECD, 2007). In contrast to conventional wisdom, my research identifies mechanisms for reforming public infrastructure utilities through a new recipe for an inclusive reform framework that, unlike the textbook approach, jointly optimizes equity and efficiency without privatization. This dissertation contrasts the world's largest public utility, the Indian Railways, with the ideal-type textbook privatization, illustrated with the case of the British Railways' privatization. I focus on the Indian Railways as a paradigmatic example of how to reform infrastructure-providing state-owned enterprises while balancing equity with efficiency concerns. I analyze primary data gathered through 100 in-depth interviews and on-site observations. The fieldwork was conducted over a period of two years, including half a year at the Office of the Minister for Indian Railways. In addition, I utilize secondary data through archival review of policy documents and analyze fifty years of the Railways' statistics. My dissertation shows how the Indian Railways was transformed, between 2005-2008, counter intuitively, without privatization, retrenchment, or fare-hikes for poor passengers, under the leadership of a populist politician, the then Minister of Railways. I explain how the Railways' was rescued from near bankruptcy in 2001 to realize US $6 billion annual surplus in 2008. An essential element of the Indian Railway's complex strategy was to leverage existing assets by operating faster, longer, and heavier trains on the supply-side, as opposed to investing in asset accumulation. On the demand-side, the Railways shed a monopoly mind-set in favor of customer centric, dynamic, and differential pricing and service provision. Based on the positive case of Indian Railways, I derive an equitable alternative to infrastructure reform: A tripartite inclusive reform framework--diagnostic, invention, and agency. First, crafting space for reform by diagnosis and navigation of conflicting and competing interest groups to isolate apolitical variables that jointly increase efficiency and equity outcomes. Second, reinventing reforms by focusing on all manipulable variables for supply optimization and demand responsiveness, because profit in public utilities is a function of several manipulable variables, not only fares and wages. Third, agency, through radical incrementalism, an approach to minimize the risk of catastrophic errors, and yet yield rapid transformations.