It’s unlikely that we are ever going to get a book as rigorous and comprehensive in its treatment of infrastructure as a commons than Professor Brett Frischmann’s recently published Infrastructure: The Social Value of Shared Resources (Oxford University Press). This book is a landmark in the study of the social value of infrastructure, a theme that is generally overlooked or marginalized.
Who among us gives much thought to the economics and policy structures that govern the Internet, telecommunications, water systems, roads and highways or the electric power grid? These resources hover in the background, nearly invisible, until they break down. Then people start to contemplate the wide-ranging social, economic and civic benefits of safe bridges and reliable, efficient water systems. And if we're lucky, prudent policies are enacted.
Infrastructure tends to be neglected because it is generally very complex, technologically and financially. Its value extends well into the future and so it’s easy to ignores its benefits. And since the benefits also tend to be diffused among the general public, there is often no single individual constituency to rally behind infrastructure except those who directly profit from it.
Not surprisingly, lots of private interests have made great fortunes by privatizing public infrastructure. Since deregulation in the 1990s, the broadcasting industry has enjoyed exclusive control over our airwaves with no meaningful public interest obligations – an enclosure worth hundreds of billions of dollars. The atmosphere is used as a free waste dump by polluters. Multinational bottlers continually prowl the globe in search of free or cheap groundwater supplies while other attempt to privatize municipal water systems.
Now that government at all levels is experiencing serious budget crises, there are great temptations to underfund infrastructure or worse, sell it off to private leasees. The City of Chicago is famous for its ill-fated choice to sell off the management and revenue streams from its parking meters; the privatization quickly resulted in a big spike in meter fees and a decline in quality of service.
Despite this experience, Chicago Mayor Rahm Emanuel recently created the Chicago Infrastructure Trust that is anything but a trust. Its mission is to solicit private infrastructure investment totalling $7 billion for parks, streets, schools commuter rail and the city airport. Instead of raising taxes and borrowing, the City will let investors charge tolls, user fees and premium prices, or even get tax breaks. Taxes and city borrowing would likely be a cheaper way to go over the long term for Chicago residents than outsourcing infrastructure financing to private investors. But Mayor Emanuel clearly understands the political upside of avoiding tax hikes and of striking deals with powerful banks and corporations.
The great virtue of Brett Frischmann’s book is to explain why it makes sense – economically and socially – to share infrastructure resources in an open, nondiscriminatory manner when possible, i.e., not to privatize ownership and control. Surveying communications, transportation and even the environment and culture as infrastructure, Frischmann, a law professor at Carodozo Law School, provides a general theoretical framework for examining the social value of shared infrastructure. Infrastructure is heavy on standard economic analysis, sometimes in ways that only trained academics and specialists will appreciate. But it will therefore have substantial credibility in many respected citadels of economic and policy analysis while also advancing the idea that infrastructure should enlarge our civic, social and economic options now and into the future.
Frischmann sees commons-based management of infrastructure serving three basic purposes: 1) it “diffuses pressure within both market and political systems to ‘pick winners and losers’ and leaves it to users to decide what to do with the opportunities (capabilities) provided by infrastructure; 2) it helps keep certain opportunities for using the infrastructure open and available for the future rather than narrowing its current and future uses; and 3) it create a “spillover-rich environment” where “new and unanticipated innovations, knowledge and social capital” can be developed – innovations that can contribute to both economic growth and social welfare even if traditional economic metrics don’t easily capture such things.
Why is infrastructure important? Frishmann states plainly:
Infrastructure resources are intermediate capital resources that serve as critical foundations for productive behavior within economic and social systems. Infrastructure resources effectively structure in-system behavior at the micro-level by providing and shaping the available opportunities of many actors. In some cases, infrastructure resources make possible what would otherwise be impossible, and in other cases, infrastructure resources reduce the costs and/or increase the scope of participation for actions that are otherwise possible.
A key part of Frischmann’s argument is that infrastructure has important spillover effects that accrue to third parties in accidental, incidental and unexpected ways. Or as he puts it, “the social returns on infrastructure investment and use may exceed the private returns because society realizes benefits above and beyond those realized by providers and users. Spillovers may be difficult to observe and account for fully in a microeconomic framework focused on in-system behavior….”
The evolution of online computing is a particularly vivid example. In the 1980s, there were a number of private services such as Prodigy and America Online whose networking protocols (using standard telephone lines) were closed and proprietary. Therefore the only services and innovation within those digital realms were seller-authorized activities that were seen as contributing to the bottom line. When the open standards of the World Wide Web arrived in the early 1990s and exploded with the release of the Netscape browser, countless, unanticipated user-driven websites and projects blossomed -- a direct result of an open, shareable infrastructure. In short order, the top-down, seller-controlled infrastructure of private vendors was eclipsed by the more versatile, socially accessible commons-based infrastructure of the Internet.
In considering roads, telecom and other types of infrastructure, Frischmann repeatedly exposes how conventional economic theory overlooks the actual economic and social benefits that infrastructures have when managed as commons. He takes to task, for example, the habit of regulatory economics to discount the importance of market externalities, both positive and negative, because they often cannot be easily identified or measured, or because their benefits accrue to third parties (not buyers and sellers). Frischmann derides this “acknowledge and then ignore completely” habit, noting that it ignores the importance of “nonmarket goods” such as environmental benefits, social capital and quality of life intangibles. Such “social goods” have enormous impacts at both the micro- and macro-levels of the economy, and yet they are often ignored or assumed away.
Frischmann therefore develops what he calls “a demand side theory of infrastructure and commons management.” How refreshing to have a theory that explores the connections between infrastructure and nonmarket goods. In this and other areas, Frischmann's book challenges many gaping empirical holes in standard economic analysis.
But because Frischmann attempts to do this from within the standard economics tradition – and therefore must accept the familiar worldview of rational actors, utility functions and the like – he has “one hand tied behind his back,” in my view. After all, social and ecological activities don’t necessarily conform to the rational, mechanistic and utility-minded premises of standard economics. The intersubjective, for example, can be quite powerful in a commons, and the nonlinear, dynamic effects of ecosystems over time are often surprising and inscrutable.
The very use of the term “spillovers” to describe social goods generated by infrastructure makes me a bit uncomfortable because it implicitly validates market exchange as the primary engine of value-creation. Nonmarket social goods are seen as secondary or derivative effects of market exchange. Must we be so deferential to such categories? And does the causation truly go from market to nonmarket? What if we were to consider social, nonmarket “spillovers” as a primary concern and force of agency, over and above market exchange?
Social interaction on the Internet, for example, is the key driver of value-creation online. It generally occurs outside of the marketplace, and becomes economically significant only when ingenious innovators like Facebook and Google build business models “on top of” online social relationships; they create private infrastructures to host social commons, and then reap monopoly rents from that role. Social community on the Internet is not seen in its own terms, but mostly as a resource to be monetized. Generative nonmarket social exchanges are translated into economic terms, as if people really did behave as Homo economicus. A socially based theory would be more explanatory, I believe. Yet I also understand the value of engaging in the standard economic frame of analysis, which continues to be the coin of the realm.
These are quibbles because Frischmann has carved out a rich new vector of analysis, and he has done so with great rigor and sophistication. He takes seriously the economic and social virtues of the commons and skillfully applies its concepts to a realm that has long been dominated by “econo-dwarves” – Eben Moglen’s term for socially indifferent, market-fixated, corporate-oriented economists. Infrastructure is a welcome addition to a growing field of study, the economics of the commons.