Energy and Environment

Infrastructure investment and economic growth

Government spending on infrastructure is a subject on which Keynesians and Neoclassicists tend to agree. The former are interested in the short-term stimulus effect, while the latter see it as a way to increase the economy’s trend growth rate. Unconditional support for infrastructure spending makes sense if you share the views of Paul Krugman, who argues that it would be a good idea to spend public money on fending off an attack from outer space. But it makes less sense if your aim is to boost the economy’s long-term rate of growth. Britain’s early motorway construction programme is a case in point.

Both before and after the Second World War powerful lobbies called for public monies to be spent on a network of advanced highways linking Britain’s city regions.  A similar network was built in Germany in the 1930s, and following visits by official delegations, the autobahn network strongly influenced British thinking. Consequently, when plans for this country were unveiled after the War, they were of a similar hue: special roads for motor traffic only, with a heavy emphasis on long-distance travel, what planners now call a ‘strategic network’.

It was not until the end of the 1950s that the first motorway opened, initially a very small piece of what is now the M6, followed by a much larger, southern section of the M1. Progress thereafter was, by today’s standards, remarkably rapid, and 1000 miles of motorway opened in little more than a dozen years. This achievement was all the more impressive because the network included a number of major bridges, notably the Forth and Severn bridges. By the end of the 1970s, after the opening of nearly a further 500 miles of motorway, the fundamentals of the present-day interurban motorway network had been established.

Unfortunately, there were major flaws in the executed plan. The corresponding pre-war German network, on which the British plans had been modelled, was inter-urban for a particular strategic reason, namely a need to move troops and war materials quickly across the Reich. Britain’s post-war needs were quite different: a comprehensive survey of the nation’s road goods traffic in 1962 showed that, to a remarkable degree, industrial and commercial links were local in nature.  If road building was to stimulate economic growth in the short term, a network of good roads within regions, not a symbolic network between them, would have been a first requirement.

To make best use of the interregional motorways that did emerge from the ill-informed plans meant that industry and commerce had to adapt. Logistical supply chains needed to relocate, and vehicle and tyre technology had to evolve too, so that larger and more powerful trucks could run across the network at sustained high speeds. And a change in working practices in a strongly unionised workforce was needed so that delivery schedules could be shortened.  These processes of adaption took time and the costs of transition were possibly substantial which would help to explain why, in 2009, when the OECD examined the outcome of Britain’s investment in motorways, they were unable to detect an impact on growth.

There are two important conclusions to be drawn from this early investment in UK highways: politics dominates economics in the selection of schemes – politicians like symbolic vanity projects which often produce poor economic returns. And second, the benefits even of well-chosen projects can take a long time to materialise; infrastructure investment generally is ill-suited as a counter-cyclical policy.

David Starkie is a Visiting Professor at the University of Applied Sciences, Bremen. This article is based on his paper ‘Investment and Growth: The Impact of Britain’s Post-War Trunk Roads Programme’, Economic Affairs, 35(1): 60–74. 

Head of Education

Dr Steve Davies is the Head of Education at the IEA. Previously he was program officer at the Institute for Humane Studies (IHS) at George Mason University in Virginia. He joined IHS from the UK where he was Senior Lecturer in the Department of History and Economic History at Manchester Metropolitan University. He has also been a Visiting Scholar at the Social Philosophy and Policy Center at Bowling Green State University, Ohio. A historian, he graduated from St Andrews University in Scotland in 1976 and gained his PhD from the same institution in 1984. He has authored several books, including Empiricism and History (Palgrave Macmillan, 2003) and was co-editor with Nigel Ashford of The Dictionary of Conservative and Libertarian Thought (Routledge, 1991).