Going Deeper Into Infrastructure

Turning on a faucet, taking a train to work, driving down a country road — these everyday activities rely on infrastructure that has been developed largely by governments. The role of the public sector in the creation of roads, bridges and sewers is something most people take for granted.

Yet government builds other kinds of infrastructure that are perhaps even more important. In the U.S., there is the legal system, a realm that includes everything from property law, to the architecture of corporations, to international law and more; the education system, which over time has created a common body of knowledge; systems of defense and crime control; and many others.

This deep infrastructure shapes our society and our economic markets, but it isn't often recognized. There is a belief, not discussed because it is so widely accepted even on the political left, that some sort of independent, free-standing market exists with its own laws, similar to those of natural systems, such as the law of gravity. Democrats want to poke, prod and regulate this market; Republicans say they mostly want to leave it alone. But governments don't just regulate markets; they design and create them. And their design is or can be a public choice.

This role physical infrastructure, particularly transportation, in shaping an economy is easy to see.

New York State opened the Erie Canal, publicly financed, in 1825 after a generation of work by political leaders. The canal was inspired in part by a national plan for roads and canals, crafted in 1808 by President Thomas Jefferson's brilliant Treasury secretary, Albert Gallatin. New York City worked for a half century to authorize a public water works before the Croton system it opened 1842. Government on the local, state and federal level mobilized to aid the construction of private railroads in the 19th century. State and federal governments constructed the national road network in the early 20th century. And then came the Interstate Highway System.

But there is a parallel world of non-physical infrastructure, which government makes and is even more important to commerce and the contours of our daily life. Government has shaped and reshaped these systems.

Private corporations, such as Apple or General Motors, are cornerstones of our economy. Yet their status as corporations, as opposed to mere groups of individuals doing business together, is obtained through government, which writes and grants corporate charters. How these charters are granted, what their powers are, is up to government, at both the state and national level.

In centuries past, governments used to create corporations only for public purposes such as cities, universities and public-works operators. The City of New York is a corporation, one older than the nation itself. In the later 19th century, state governments, including New Jersey and Delaware, began allowing private, for-profit corporations to be created without a vote by the state legislature. Other states followed suit. This brings us to our present day, when private corporations are very powerful and have a high degree of independence. But their existence is still determined by the charter that government writes and grants, and which government can change.

Patents, copyrights and other forms of intellectual property, which also have become key to the economy, are also grants of government power. Long before they were awarded to inventors, kings and legislatures handed out patents for all sorts of things, ranging from using land to selling salt. The American Revolution was sparked in part by what was seen as an abuse of power by England in handing out too many patents.

The role of government in building an economy and a society, which has been an underlying issue in the current presidential campaign, is large and irreplaceable. While Americans highlight the individual, none of us makes our way by ourselves. We depend on systems put in place by our ancestors and our current elected leaders, through an institution called government.

Alex Marshall talks about these ideas in his book, "The Surprising Design of Market Economies" (University of Texas Press, 2012). A recent op-ed by Alex Marshall about his new book can be seen in Bloomberg News at http://bloom.bg/QfGLOV