Infrastructure is perhaps the most fundamental feature required for the working of an economy. Roads, bridges, laws and regulations, development of human resources and the financial system all contribute to the economy. It is relatively simpler to understand the economic contribution made by development of transportation, communication and energy infrastructure as compared to the contributions made by laws and regulations, education, and healthcare systems.
Anytime we think of infrastructure, we instinctively think of roads and bridges; and why not! It becomes more convenient to transport goods and services between places making them more affordable to consumers. Efficiency in production is increased by employing better technologies that is made possible with transfer of knowledge and quality in services increased due to competition brought on by supply of labour made possible by more efficient transportation and communication infrastructure. Energy makes everything possible. It is fundamental; whether it is produced by fossil fuel, renewal natural resources, nuclear power, or alternative forms like wind and solar power.
The demand for energy is increasing every year. Governments and private businesses are employing enormous resources to study more efficient and environmentally friendly ways of producing energy. The developed world supported by a seemingly limitless supply of highly skilled human resources has tremendous advantages in developing newer efficient technologies and profiting from them. Their ability to attract skilled human resources and infrastructural facilities that exists to support talented work force brings out the best in human creativity. Developing nations racing to catch up with the developed world often find themselves lacking the resources for economic development. Poor infrastructure fails to support and make developmental activities very difficult. Skilled labours set out for better opportunities elsewhere as the domestic infrastructure fails to provide the facilities that free their potential to apply and create. Many developing nations with abundant natural resources often find themselves unprepared to take advantage of and benefit from the resources they own essentially due to absence of skilled labour. Thus, developing nations with abundant oil and gas reserves or plentiful water resources fail to refine or harness the energy without seeking assistance away from home.
Development of human resources is paramount for a developing nation. Education serves as a powerful force of socialization and helps make an informed and responsible society. Many nations offer free elementary and secondary education and most nations subsidize higher education for eligible students. Developed nations have been successful in adapting their education programs on a continuous basis according to the requirements of the changing world. The quality of training they receive, the resources that are available and the rewards that await them create a competitive and efficient society. Economic security made possible by high income enable them to focus on their responsibilities without being troubled about basic obligations such as putting food on the table or paying rent. A labour law that guides employment practices and an education system that supplies skilled individuals enable employers to select the best talents.
For many in the developing nations, life is a struggle; a constant battle for survival with ceaseless difficulties that presents little opportunity for economic growth. Businesses are small scale and concentrated in a few places compelling many to move to these business centers for employment. In some instances, governments are the primary employers in the economy which sometimes results in a large labour force crafting an unwieldly infrastructure slowing economic progress for the individual and the society. Regulations and laws fail to encourage economic opportunities giving people little confidence to be self-reliant and a belief that anything is achievable with dedication and hard work.
Property laws safeguard ownership and provide protection within a legal system. Although the rights to possess a property is not absolute; in general, property rights allow individuals and entities to own and use things and transfer ownership to others. Mortgage and financing laws based on the principles of property law facilitates the secured lending of loans on terms and conditions addressing risk and return. Financing laws function as instruments that allow the lending and borrowing of financial capital in return for economic gain. Financial institutions and services companies operate under these laws providing capital and investments for businesses and entrepreneurs. Monetary regulations give guidance for safe operation of banks and investment companies. The lending and investment services are regulated by central banks who act as guardians of an economy. Interest rates and supply of money are increased or decreased depending on the situation of the economy. Competition is encouraged to establish prices and foster efficiency in the market.
Credit and debt financing should be encouraged. Debt instruments such as bonds assist governments and business to finance huge investment projects. Many governments have financed roads, bridges and capital investment projects through government and municipal bonds. Small developing economies need to look within to finance infrastructural projects using financial instruments and employment of local resources is key. Huge government financed projects should encourage the participation of local businesses and aid in their growth. The local businesses in turn help the economy grow through investments and employment. Investments can be supported by the financial institutions in the form of financial instruments made possible by well-designed and executed property and contractual laws. The laws will safeguard credit and lending facilities offered by financial institutions who will take confidence in the protection provided by these laws. This will increase the supply credit facilities decreasing the cost of capital for investments encouraging many to participate in economic activities contributing to the growth of the economy.
Participation of citizens in economic activities is essential for a small developing nation. In Bhutan, we must promote growth of the private sector. Our economic development strategies must address the contribution of the private sector. Contributions by the private sector in infrastructural development projects in transport & communication, energy and manufacturing industries ought to be motivated improving the competence of our private sector. Roads and bridges can be financed through Royal Government of Bhutan Bonds. Our government must encourage a capital market as we need to discontinue the practice of relying on external assistance & aid for our economic development. Policies promoting an environment enabling opportunities for economic grown is essential to attract investments both domestic and foreign. Our philosophy on borrowing has to be reconsidered and confidence in our own ability be promoted. A strong human resources and financial infrastructure may pave the way for a strong economy and eventually a self-reliant Bhutan.
Contributed by Sonam Dorji
Thimphu
The writer is the former executive director of RICB. The view expressed in this article reflects his own and does not in any way represents any organization’s.