3

Table of Contents Executive Summary 1. Objectives ….... 8

2. Root Challenges of Infrastructure Development ….... 10

3. Transformation of Development Paradigm ….... 16

4. Infrastructure for Sustainable Economic Growth …….. 20

(1) Economic Analysis between Infrastructure and Economic

Growth

…….. 20

(2) Different Infrastructure for Different Countries …….. 22

5. Three Key Policies for Eco-efficient Infrastructure Development …….. 25

(1) Government led Long-term Growth Strategy …….. 25

(2) Adoption of Eco-efficient Concepts …….. 28

(3) Establishment of Collective Capacity and Institution Building

…….. 30

6. Policy Measures for Government led Long-term Growth Strategy …….. 32

(1) Synchronize the priority of infrastructure with goals of

national development plan

…….. 32

(2) Fill three important gaps …….. 34

(3) Acquire innovative modern knowledge and technologies …….. 36

(4) Promote industry for sustainable infrastructure …….. 38

(5) Intervene in foreign capital and FDI …….. 40

(6) Adopt green growth development paradigm …….. 44

7. Policy Measures for Eco-efficiency Approaches …….. 47

(1) Internalize environmental costs (price and tax reforms) …….. 47

(2) Reduce the distance with decentralized economies …….. 50

(3) Integrate visible and invisible infrastructures …….. 52

(4) Formulate unified green code for construction and building …….. 54

(5) Invest in a long-term programme for new green technologies

and designs

…….. 58

(6) Promote water cycling system and infiltration …….. 60

4

(7) Develop new water sources …….. 60

8. Policy Measures for Collective Capacity and Institution Building …….. 62

(1) Prioritized capacity building programmes …….. 62

(2) Establishment of collective capacity building …….. 62

(3) Establishment of suitable institutional infrastructure …….. 64

9. Conclusion …….. 66

Reference

5

Executive Summary Asian countries have made large investment in infrastructure development over the last

decades, and infrastructures played the key role in promoting economic growth, raising

incomes of the poor and providing better public services. Despite great contribution

from infrastructure, developing countries still face persisting and newly emerging

challenges in promoting sustainable infrastructure such as the shift to higher value-

added infrastructure, shift to development of eco-efficient infrastructure harmonizing

environmental needs, and the required capacities and institutions to promote the eco-

efficient infrastructure for sustainable development. The economic & financial crisis, the

resource crisis including fuel, food, soil, metals, minerals, water, energy and air, and the

ecological crisis heralded by negative impacts of climate impact have proven the

dominantly centralized development paradigms of infrastructure as unsustainable in the

21st century, which have depended on over-exploitation of natural resources and cheap

labours for last centuries. In addition, over next decades, the crisis seems likely to deepen,

as an increasingly crowded, diverse, and interconnected world confronts threats it does

not fully understand.

Notwithstanding many countries in Asia region recognized the urgent need to transform

their economic-social structure and development paradigm to overcome a set of crises,

which transformation does not happen ‘naturally’ or ’automatically’, it is not clear where

and how to move forward. In addition to the right policy and strategy for right

transformation, developing countries face a set of key challenges at root such as; (1)

to lock eco-efficient concepts and mechanisms in eco-efficient infrastructure

development while harmonizing environmental perspectives in a sustainable manner;

(2) to secure the appropriate financing for eco-efficient infrastructure development;

and (3) to build social and governance conditions such as the collective

capacity/institution building to enable the successful transformation of infrastructure

development toward more eco-efficient development paradigm of infrastructure.

6

In this connection, the suggested approach is to learn historical evidences and lessons

learned from other countries. It could be one of good policies to review and apply the

development patterns on how advanced countries like the UK, the USA, France, Northern

European countries, Japan, and Korea during the 16th - the 20th centuries successfully

addressed and overcame their infrastructure challenges when they were at the stage of

developing countries. It will provide insightful lessons and practices because, even

though policy tools involved for infrastructure development may have changed into more

varied and complex, but the general patterns have remained remarkably true to type. This

has transferability to countries in Asia. Asia-Pacific countries can short-cut this process

by looking at the lessons learned in these countries.

Historical development patterns of the UK, the USA, France, Northern European

countries, Japan, and Korea from the 16th to the 20th centuries shows that it would be

crucial for governments to prioritize what types of infrastructures are required to achieve

goals of the national development plans at each changing development stage, to play a

leading role to mobilize resources through reforms of tax systems and subsidies, to

intervene directly in the planning and construction of infrastructure for provision of better

public services, to establish systems to fill the three gaps (time gap, resource gap and

ecological price gap) between the short-term costs and long-term returns, and to promote

policy actions to foster infant industries for eco-efficient infrastructure development

through protective measures. Such the historical study emphasize the paradigm shift in

infrastructure development from traditional infrastructure toward eco-efficient

infrastructure; from the lack of recognition to the value of natural resources toward

considering the role and ecosystem services provided by natural resources; and from

investments just in physical infrastructure toward investments in both physical as well as

enabling (social, governance) dimensions. Furthermore, the historical analysis highlights

the urgent need for paradigm shift from individual capacities and competitions based on

neo-liberal orthodoxy toward more collective and cooperative social mechanism of

capacity and institution building.

7

Further analysis on newly emerging trends and challenges such as food crisis, fuel crisis

and climate change crisis for the last few years reveals that developing countries need to

adopt the eco-efficiency concept in development planning of infrastructure to enhance the

ecological and economical efficiency of natural resources as well as to move toward eco-

efficient consumption and production patterns.

In summary, from the viewpoint of the historical study and the analysis for emerging

challenges, government of developing countries should establish long term economic

growth strategy by synchronizing the infrastructure development with specific goals of

national development plans such as green growth, promote eco-efficiency in the national

development planning process of infrastructure, and foster the collective capacity and

institution building for planning and implementing eco-efficient infrastructure

development in the 21st century as enabling conditions.

8

1. Objectives

The objective of this research paper is to provide decision-makers and stakeholders in

Asia region with a macro level policy guide for sustainable infrastructure development.

The guide is expected to support decision-makers to have the quick understandings on

right policy solutions for eco-efficient infrastructure development and to assist

governments’ efforts to promote green growth.

The policy paper has three peculiar features. Firstly, it takes a macro approach because

decision-makers need the holistic and integrated picture for their strategic decision on

sustainable infrastructure development in the national level, rather than micro-technical

approaches which highlighted the technical solutions on infrastructure problems. The

paper suggests a set of diverse policy measures with the objectives not to debate if it is

feasible to transform toward new development patterns of infrastructure, rather to suggest

a set of policy framework and measures to minimize the mistakes that inevitably occur on

the way to success in the long term perspective.

Secondly, the paper takes historical approaches1 with empirical economic analysis and

experiences in other regions to overcome the theoretically-based propositions, which are

often detached from the reality. If a common pattern can be seen in the path of countries’

economic growth, it is reasonable to hypothesize that there should also be a common

pattern in the development of infrastructure that supports the country’s growth. However,

there have been surprisingly few attempts to apply lessons learned from the historical

experiences and patterns of developed countries to problems of contemporary

development of developing countries. The policy tools involved for economic growth and

infrastructure development may have changed into more varied and complex, but the

general pattern has remained remarkably true to type (Chang 2007).

With this in mind, it would be worth carrying out an analysis of economic growth and

1 The historical approaches are supported by the German historical school, Russian born American economic historian, Alexander Gerschenkron (1962), American economists, Hirshman (1958), Kindleberger (1958) and Gustave Ranis (1969).

9

infrastructure development patterns drawn from historical patterns how advanced

countries like the UK, the USA, France, Japan, and Korea successfully addressed their

challenges for infrastructure development for the 16th-20th centuries. Such analysis would

be highly significant for the preparation of long term strategic policies for the

infrastructure development in the contemporary developing countries.

Thirdly, this policy paper concentrates on practical solutions in reality beyond the

theoretically-based suggestions2, rather than revisiting challenges of infrastructure in the

region, because challenges for sustainable infrastructure have been well illustrated by

previous good research papers.

2 The theoretically-based suggestions here means the normative solutions without considering the financial and technical capabilities of developing countries, and without provision of historical evidences, which often suggested by the international organizations and donor countries. For example, simply emphasizing good governance as a pre condition to address infrastructure issues can be misguiding to developing countries.

10

2. Root Challenges for Infrastructure Development

It is widely accepted that infrastructure development has been as one of key success

factors for East Asia’s economic growth from the 1950s-2000s. Countries such as

Japan, South Korea, Malaysia, Taiwan and China made large investments in

infrastructure3, and these infrastructures have played the key role in promoting economic

growth, lowering income inequality and raising income of the poor more than

proportionately by providing better access to key services and jobs (Calderon & Serven,

2005, and ADB, JCIB, World Bank, 2005). Many research papers also supported this

view that infrastructure has played a central part in Asia economic development.

Therefore infrastructure is regarded as an essential ingredient to achieve economic

development and the MDGs including the poverty reduction and the supply of safe water,

etc.

Despite great contribution from infrastructure, developing countries still face

persisting and newly emerging challenges for sustainable infrastructure development

including the urgent need to shift to higher value-added infrastructure development. The

dominant centralized paradigms of infrastructure development, which have depended on

over-exploitation of natural resources and cheap labours, are proven as unsustainable in

the 21st century. Therefore the Asia region needs to change our economic development

paradigm to effectively overcome food crisis, fuel crises and climate change crisis, which

transformation does not happen ‘naturally’ or ’automatically’.

Developing countries have faced a few of key challenges in promoting sustainable

infrastructure for higher valued productivity, and in transforming their economic

structures towards sustainable development. The first key challenge in developing

sustainable infrastructure of developing countries is to set the priority of investment

among demands in investment of infrastructure in line with goals of national

3 East Asia’s accumulation of infrastructure stocks has outpaced infrastructure investment in other regions and the two fastest-growing economies in the region, China and Vietnam, are also investing around 10 percent of GDP in infrastructure (Straub 2008).

11

development plans.

Needless to say, the investment in infrastructure doesn’t always bring good results,

and the level of benefits from investment in infrastructure could be different

depending on countries’ goals, technological backwardness, international conditions

and human resource availability and so on. The maximum impact of infrastructure

development also rely on how countries use natural resources and finance more eco-

efficiently to increase eco-productivity and to achieve national development goals.

Therefore, it is essential to make the right investment in infrastructures for maximum

productivity based on goals of long-term national development plans.

The second challenge at root is how to secure the required financing for development

and management of infrastructure in a sustainable manner. Even though the Asian

countries achieved the rapid economic growth and poverty reduction over the last

few decades, a growing population and expanding economies still need more

infrastructures to meet social demands and to improve quality of services to the

people. ESCAP reports that the growth in population and national economies

outpaced the availability of infrastructure services4, and developing countries have

lacked the required finance for investment in infrastructures including the repair of

the aging infrastructure.

The key question here is how to build and strengthen own financial mechanisms to

support the infrastructure development financially. As financial crisis continues in the

Eurozone, most of donor countries including OECD countries struggle to cope with

their deficits, and high resource prices combining with other global drivers of economic,

social, and political change are increasing volatility, overseas financial support from

donor countries are expected to be decreasing or cosmetic at best. International

financial commitments often turn out not to involve ‘new money’, with donor

governments rarely held to account for what they have pledged for developing

4 A UNESCAP recent study (2006) that the total needed investment in water infrastructure is more than double from the current level of around $75 billion annually (around $180 billion annually).

12

countries (Evan 2011). The below table shows the decreasing percentage of aid in

domestic capital formulation is decreasing (Kim 2010).

Therefore, developing countries should establish own financial mechanism for further

investment in infrastructure development, and socialize the risks involved in

infrastructure investments, while minimizing their dependence on foreign capitals

with appropriate the national policies and operation on the budget and taxation.

In this connection, it will be enlightening for late comers (developing countries5) to

review the actual practices and lessons of developed countries during the 18th -20th

centuries, when they were developing countries, how they successfully mobilized 5 It is desirable to note that currently developing countries actually have much higher levels of policy and institutional development when compared with developed countries when they were at equivalent stages of development. If this is indeed the case, there may actually be relatively little room for effective improvement in policy and institutions for developing countries in the short run.

13

their required resources. The innovative policies to sustainably mobilize the internal

financial resources for infrastructure development become crucial for sustainable

development and quality of life in the region.

The third root challenge is how to use secured financing more eco-efficiently and

effectively for sustainable infrastructure while harmonizing environmental perspectives.

Catch up economies (developing countries) are faced with challenges to use the limited

resources more eco-efficiently in the long term perspective in order to catch up the

advanced countries. In this regard, it is necessary to recognize that the past rapid

economic growth of the Asian region were possible by depending heavily on

conventional development pattern of infrastructure, so called “Growth first, Clean up

later”, which consumed a large portion of natural resources and deteriorated

ecological carrying capacities.

While recognizing the important role that the conventional development pattern

played, which depends heavily on the exploitation of natural resources, land and

cheap labour, such development paradigm cannot be sustainable in the long term any

more. As Asian countries experienced the financial crisis in 1997-1998 and in 2008-

2009, the food crisis, the fuel crisis and the impact of climate change over the last couple

of years, policy makers of developing countries became aware the problems and

limitations of present development pattern of “Grow first, Clean up later”. Under the

circumstances, it is one of great challenges for developing countries to establish greener

development paradigm such as eco-efficient infrastructure in order to achieve sustainable

growth in the long run with limited and draining national resources6.

The fourth challenge is how to promote the enabling social conditions to support the

transformation of infrastructure development patterns through collective

capacity/institution building and the equitable distribution of improved services and

wealth. These enabling environments include (1) promoting the collective capacity /

institutional building to enhance the collective productivity; and (2) acquiring advanced

6 Eco-efficiency means to improve the ecological efficiency and the economic efficiency at the same time.

14

knowledge and green technologies to improve productivity as well as to cope with the

complexity and uncertainty of modern large scale of infrastructure development. One of

the best ways to address this challenge is to enhance local knowledge and technologies in

a country by actively importing the advanced knowledge and technologies from

developed countries through diverse measures such as subsidies and financial supports,

etc7. In addition, it is necessary to create institutional mechanisms that facilitate public-

private cooperation8 on improvement of knowledge and technology development.

Finally there are some resource-specific challenges. Among natural resources, the

investment in water infrastructure has been in a relatively poor condition for the last few

decades due to their lower political priority, which is expected to adversely impact socio-

economic development in the 21st century. The analysis (below graph 3) reveals that,

compared with investments in other infrastructures, the investment in water

infrastructure in the region has been stagnant for the last few decades. In this

connection, it is an important task to secure stable financing for investment in

infrastructure.

Unsustainable water production and consumption patterns have aggravated the

already deteriorating water quality and water supply system. Millions of tones of

untreated sewage and wastewater from the agricultural sector, industrial sector and

domestic sector make the region’s water eco-systems even worse. Over-consumption

of water resources deteriorated the ecological carrying capacities and imperiled

ecosystems on which all kinds of livelihoods depend, which are key elements for

sustainable development in the long run.

Moreover, the Asia-Pacific region is the world’s most vulnerable region with respect

to natural disasters and climate variability. Densely populated countries like the

Philippines, China and India have to face on average more than ten water-related

7 For example, the establishment of model factories, organization of exhibitions, granting of free import machinery to private sector firms. 8 For example, public-private joint ventures and industry associations with close links with the government.

15

disasters per year 9 . The annual investment needed for disaster management and

rehabilitation in the Asian region is estimated at $55 billion per year10. Furthermore,

climate change is supposed to dramatically change the frequency and intensity of the

rainfall including typhoons, resulting in overall negative impact on the region’s

hydrological cycle and greater volatility.

9 AWDO 2010 – KD1: Satisfying Household Needs, ESCAP, ADB, June 2010 10 $40 billion for disaster preparedness (about 1 per cent of the region’s GNI) and an estimated $15 billion for the reconstruction of infrastructure and economic recovery; These estimates are based on recent ESCAP studies and the damage sustained in disasters in developing countries, which has averaged about $21.3 billion per year over the past 15 years (Le-Huu Ti 2009).

16

3. Transformation of Development Paradigm

Despite the great progress in economic growth and the poverty reduction over the last

few decades, Asia-Pacific experienced its vulnerability to multiple crises such as; (1)

economic and financial crisis, (2) resource scarcity crisis symbolized by the volatility of

oil price and (3) ecological crisis heralded by negative impacts of climate impact as well

as the negative impact from unsustainable rapid urbanization. Over the next decade, the

crisis seems likely to deepen as an increasingly crowded, diverse, and interconnected

world confronts threats it does not fully understand. The environmental carrying capacity

in Asia region has also been becoming worse and worse because countries continued the

conventional economic growth pattern (growth first, clean later) that that encourage over-

exploitation of environmental resources and underinvestment in sustainable technologies.

As the UN Secretary- General warned that “current trends are bringing us closer to a

number of potential tipping points that would catastrophically reduce the capacity of

ecosystems to provide…essential services” in 2010, such development patterns

deteriorates ecological carrying capacity by over-exploiting natural resources such as fuel,

soil, metals, minerals, water, energy and air, etc., and by adopting the distorted price and

tax system. Thus countries borrow scarce resources from the future through high levels of

public and private debts.

<2008 Net Energy Import Costs for Asia Pacific Nations>

Rank Nation Net Energy Import Costs (as a percentage of GDP)

Net Energy Import Costs (in million USD)

1 Cambodia 116.7% $8,287 2 Singapore 28.5% $38,173 3 Mongolia 22.2% $399 4 Sri Lanka 20.8% $4,736 5 DPR of Korea 20.1% $2,288 6 Nepal 16.7% $1,149 7 Korea 13.5% $97,971 8 Thailand 12.8% $22,199 9 Pakistan 12.3% $13,047

10 Chinese Taipei 10.7% $44,375 11 Philippines 9.2% $9,791 12 India 7.9% $61,034 13 Asia 4.7% $175,399

17

14 PR of China 6.0% $144,213 15 China (PRC & HK) 2.5% $156,486 16 Bangladesh 4.7% $3,286 17 HK, China 4.5% $10,707 18 Vietnam -0.6% -$309 19 Indonesia -2.8% -$6,598 20 Malaysia -11.6% -$15,454 21 Myanmar -17.1% -$3,122 22 Brunei Darussalam -150.2% -$7,398

(Source: ESCAP estimated based on 2008 IEA data on net energy imports. Includes Coals & Peat, Natural gas and oil imports) Under the circumstances, to continue the sustainable growth, the current economic

structure and development patterns have to be fundamentally transformed toward

improving eco-efficiency and ecological quality of growth (called green growth). New

development paradigm called “Green Growth” aims to improve the ecological qualities

of growth by improving the eco-efficiency in production and consumption patterns,

promoting eco-efficient infrastructure, and stimulating green technological innovation,

design and green business. Furthermore green growth emphasizes the importance of the

reforms of price-tax-budget system (incorporating the environmental cost into

market price) as one of key working mechanisms to promote eco-efficiency in

production and consumption patterns, eco-efficient infrastructure, green technological

innovation, design and green business.

The green growth paradigm is important, especially in emerging and developing

economies because they are best placed to take advantage of the opportunities that green

growth offers. There are four reasons. First, as their middle classes expand and get richer,

emerging economies are expected to face increasing demand and price of resources in the

future. It is emerging economies that are the most vulnerable to the increasing price of

scarce natural resources, and seriously affected and damaged by impact of climate change.

Thus, green growth should be accepted as a survival strategy, not an option. In a world of

scarce resources they will inevitably have to find ways of improving eco-efficiency for

resource scarcity regardless of what advanced countries do, and whether or not global

cooperation frameworks are in place.

18

Second, because they are laboratories of the future, and potential engines of sustainable

markets, as they continue to build their cities, infrastructure, and industrial bases.

Whereas OECD countries face massive problems with sunk costs and stranded assets,

emerging economies have far more scope for creativity, innovation and developing new

areas of comparative advantage. Developing countries don’t need to repeat the resource-

dependent development paradigm. Thirdly, because they are the model that other

developing countries want to follow, they can be a knowledge hub to disseminate good

knowledge and experiences around the world. Low income countries in South Asia,

South East Asia and elsewhere are increasingly looking to countries like China and South

Korea for maps of the future, rather than to the US, Europe, or the aid industry’s policy

prescriptions. Fourth, because they have the potential to force rich countries to make

belated efforts to upgrade their legacy economies, as they realize they are being left

behind in the growth industries of the future11.

Under the overarch framework of green growth, eco-efficient infrastructure can play a

key role to achieve the sustainable economic growth. Eco-efficient infrastructure includes

not only innovative physical components such as green construction technologies and

efficient management knowhow, but also emphasizes the invisible infrastructure

components such as promotion of ecological price and green tax reform, application of

resource sensitive design and integrated planning among infrastructures, and the

decentralized planning and technologies of infrastructure by shifting its focus beyond

expensive, expansive and ecologically damaging physical infrastructure.

However many developing countries in Asia region face many challenges in promoting

eco-efficient infrastructure. Firstly, the simple fact is that most of developing countries in

the world today hardly have enough wealth to meet the level of expenses for

infrastructure to provide services desired by the majority of their people. Secondly,

nonetheless succeeded in securing appropriate budget and finance for infrastructure, the

question is what developing countries have the right vision, strategies and action plans to

11 For example, the US has taken China to the WTO for support to its renewable energy sector - a clear indication of the acuteness of US competitiveness fears.

19

develop infrastructure in an eco-efficient way, which is one of the prerequisite elements

for sustainable economic growth. Third challenge to overcome is poorly directed policies

to emphasize individual capacities and competitions based on an orthodoxical policy of

neo-liberal economics since 1980, rather than collective capacity/institution building.

This approach make the opposite results to expected outcomes by retarding sustainable

economic growth.

In this connection, the developing countries are requested to make the paradigm shift of

infrastructure development; from traditional infrastructure toward eco-efficient

infrastructure; from the lack of recognition to the value of natural resources toward

considering the role and ecosystem services provided by natural resources; and from

investments just in physical infrastructure toward investments in both physical as well as

enabling (social, governance) dimensions. The present framework of infrastructure in

transport, energy and water infrastructure, which emphasizing the centralized hard-ware

type construction and the consumption of natural resources, needs to be re-designed and

restructured based on the concept of eco-efficiency. Invisible structures (social

infrastructure) of our economy such as price-tax system, technological infrastructure and

regulations also need to be emphasized to move toward eco-efficient infrastructure

development for green growth.

20

4. Infrastructure for Sustainable Economic Growth

(1) Economic Analysis between Infrastructure and Economic Growth

It is widely accepted that infrastructure development has been as one of key success

factors for East Asia’s economic growth from the 1950s-2000s. Countries such as

Japan, South Korea, Malaysia, Taiwan and China made large investments in

infrastructure, and these infrastructures have played the key role in promoting economic

growth, lowering income inequality and raising income of the poor more than

proportionately by providing better access to key services and jobs. For example,

according to a report released by the National Bureau of Statistics in China, from 1989 to

2001, the Chinese government poured 6.3 trillion Yuan (about 761 billion US dollars)

into 1553 infrastructure projects, amounting about 20 per cent of GDP (Jain 2007).

Many research papers also supported this view that infrastructure has played a central

part in Asia economic development. It has been proved that infrastructure contributes to

long term economic growth by making the production process more efficient; expanding

the size of economic scale such as realization of bigger markets; improving the rate of

innovation and technological advance in the economy through networking of

infrastructures and between cities; facilitating the exchange of knowledge and

technologies; and contributing to poverty reduction and human development (Straub

2008).

The sample cases for analysis on a few of countries as below confirmed the positive

relationship between infrastructure and economic growth. As seen in the economic

analysis below graph 1, the tested three developed countries such as Japan, Korea and

Norway show that there are very strong relationships between investment in

infrastructure and economic growth. The same fact is also applied to the analysis of

developing countries such as the Indonesia, Malaysia and the Philippines.

21

[Graph 1] Relations between Infrastructure and Economic Growth Japan Korea

Norway Philippines

Indonesia Malaysia

<Source: Lee 2011, and CEIC Database National Account, and UN Statistics Division> The correlation analysis between investment in infrastructure and GDP growth as seen in

table 1 also confirmed the positive relationship by showing the coefficient of correlation

between 0.93~0.99.

22

[Table 1] Results of Correlation Analysis between Infrastructure and Economic Growth Indonesia

Malaysia

Korea

Norway

Correlations Japan Norway Korea Malaysia Indonesia Philippines

Pearson correlation .978** .973** .867 .984** .995 .985

Sig. (2-tailed) .000 .000 .000 .000 .000 .000

N 30 131 40 43 71 120

<Source: Lee 2011 and CEIC Database, UN Statistics Division>

(2) Different Infrastructures for Different Countries and Cities

It is aware that Asian countries have experienced different economic development stages

and developed different types of infrastructure over decades depending on their economic

conditions and histories. We should analyze the trends and historical policies to identify

challenges and tailed policies in the country level. The research by a Research Institute12

demonstrated a good methodology and outcomes of analysis by categorizing the cities of

developed and developing countries into some groups based on income levels and growth

potential.

12 Samsung Economic Research Institute 

23

The first group can be categorized as “countries13 with growth potential” in Asia that

have low income levels with around less than per capita GDP US$4,000, a high

population and cheap labor-intensive growth. This group can grow into an economic base

for their nation thanks to cheap labor and abundant resources with dense populations.

This group has high demand for basic urban infrastructure such as road, water and

sewage facilities. IT and telecommunication services are also considered basic

infrastructure. For example, Dhaka, the capital of Bangladesh, house more than 30% of

their nation’s urban population but even basic infrastructure such as electricity, roads, and

water and sewage are insufficient. Due to scarce financial resources, the slow buildup of

basic infrastructure cannot properly respond to the needs of their rapidly growing

population. Their infrastructure deficit has only worsened.

The second group can be classified as “countries with high growth rates” such as cities in

India, Southeast Asia and China’s second-tier cities. This group has grown into a

production base backed by government promotion of manufacturing. For these countries,

a lack of infrastructure can become a stumbling block to attracting foreign capital and

further industrial development. The penetration rate of mobile telecommunication devices

reaches around 80% in cities where GDP is up to US$5,000. Countries with per capita

GDP of US$7,000 are characterized by a significant rise in electricity demand along with

industrialization and in cities aiming for qualitative growth, where per capita GDP level

is around US$13,000, intelligent environment-friendly infrastructure and service

infrastructure such as medical service and education are sought.

For example, Ho Chi Minh City, Vietnam has experienced a 15-20% drop in production

of apparel, one of Vietnam’s major exports due to power outages, which have occurred

once or twice a week since April 2010. In a survey of 338 global companies,

infrastructure deficit such as inadequate transportation links in China’s west, India and

Southeast Asia was named a major concern in deciding on relocating operations.

13 The original paper titled “Infrastructure Opportunities in Emerging Market Cities” analyzes the infrastructure in the city level. The concept for cities is modified to countries.

24

The third group is the countries aiming for qualitative growth. It includes China’s first-

tier cities (e.g., Beijing and Shanghai) and large cities in the Middle East. These cities

have high income levels and have achieved sustained growth, so its residents are seeking

qualitative aspects such as parks, aesthetics and cleaner air.

Although countries including cities in this group have a relatively large economy size,

their competitiveness and quality of life are behind those of the developed world such as

European countries, Singapore and Japan, etc. The need for qualitative improvement is

growing rather than quantitative expansion in this group. According to “Cities of

Opportunity” released by PricewaterhouseCoopers in 2010 sustainability scores of

Shanghai and Dubai, belonging to cities aiming for qualitative growth, are far lower than

those of cities in developed countries such as Stockholm.

In countries pursuing qualitative growth (green growth), the demand for basic

infrastructure such as electricity and water is declining as the economic structure are

increasingly turning their infrastructure into intelligent and environment-friendly one by

introducing IT-incorporated smart infrastructure. The countries aiming for qualitative

growth can target the smart infrastructure market incorporated with IT such as IT

convergence infrastructure models such as imaging surveillance system in transportation

and security fields, mobile environment in the city, smart grid for energy, and green

building.

For example, Shanghai constructed a 500 kilowatt smart power transformer as part of its

smart grid project in 2010. It controls generation, transmission and distribution of

electricity and new/renewable energy generation. Dubai is also tightening green building

regulations for public construction projects. Saudi Arabia is also promoting green

building, which adopted an energy management system, for universities and government

agencies. Also, these countries are focused on improving their living environment. They

are creating complex infrastructure by setting up regional hubs and new cities with

abundant greenery. China has designated 13 trial cities as part of its 100 eco-cities

development plan (Lee 2011).

25

5. Three Key Policies for Sustainable Infrastructure Development

(1) Government led Long-term Growth Strategy

The first and most persistent challenge for sustainable infrastructure development in the

developing countries in the Asia region is the financial scarcity regardless of the type of

infrastructures. The simple answer to this challenge is to sustain the stable long-term

economic growth to ensure the availability of appropriate financing. Japan, South Korea

and Singapore have succeeded this infrastructure strategy, that is: be maintaining high

growth via technology-intensive industries, subsidizing export-oriented businesses,

continually finding niches in global economy and augmenting cluster development

plans14.

For formulation of the long-term strategy, the most important challenge is what and how

the social system should be formulated for developing countries. With regard to this

challenge, as briefed above, the application of practices and lessons learned from the

historical experiences of developed countries to problems of contemporary development

is the right approaches for developing countries because, even though the policy tools for

economic growth and infrastructure development may have changed into more varied and

complex, but the general pattern has remained remarkably same or at least similar to

prototype and help our understanding of the development process.

Cottrell (1980) and Harris (2000) both indicate that in the initial stages of low growth and

underdevelopment during the Industrial Revolution period in Western Europe, financial

investment in small, local, low-return infrastructure projects was made based on the

individual trust and coalitions. However, as the volume of investment increased for

complicate and large infrastructure, the advanced countries in the 19th -20th centuries

needed the specialized financial intermediation and government intervention in the shape

14 Suzhou Industrial Park (SIP) in China with GDP grew by 18.8%; International Tech Park Limited Bangalore India offers total business space solutions which assure guaranteed uninterrupted power supply and telecommunication facilities, immediate occupancy, business incubator space; Vietnam-Singapore Industrial Park with the link to Vietnam-Singapore Technical Training Centre; and Batamindo Industrial Park in Indonesia are good cases for cluster development.

26

of banks and equity markets that facilitate higher levels of resource mobilization. There

are also papers to emphasize the importance of streamlined high tax system for

infrastructure and long term growth15.

The study of infrastructure development in newly developed countries in Asia such as

Japan, Korea and Singapore for the 20th century also shows the interesting facts that, as

the UK, the USA and other advanced countries did, government-led long term

development strategy played a key role in mobilizing required resources for infrastructure

and in formulating required economic systems for the finance for investment in

infrastructure. For example, it is also worth to note the well designed savings-promotion

policy in Korea for 1960-1980 as one of key long-term development strategies for

internal resource mobilization for infrastructure and export industry.

Singapore’s annual average growth rate of gross fixed capital formation between 1966

and 1972 was 30% compared to 9.1% for private consumption and 17.2% for public

consumption. This capital was for government construction expenditure and urban

renewal projects including investment in various technologies and industrial machinery,

such as petroleum refining, electronic manufacturing, transport equipment, etc (Lim

2007). Mr Lee Chuan Teck, Executive Director of Monetary Authority of Singapore

observed: “While a large part of Asia's infrastructure development will be financed from

governments' balance sheet, an increasing proportion of private investment is desirable, if

not critical.”16

In this connection, there are a few of suggested country groups to deeply look into for

their successful stories of infrastructure development and economic growth.

15 Professor Voth concluded that higher and streamlined tax system of the UK is the one of key factors to defeat the Spain in the 18th century by saying that the UK had three times higher taxes per head of population, than Spain by the 1780s 16 Monetary Authority of Singapore (MAS), "Speech by Mr Lee Chuan Teck, at the Public Lender & Insurer Infrastructure Finance Summit 2006 on 21 Sep 2006", available at http://www.mas.gov.sg/news_room/statements/2006/The_Public_Lender_n_Insurer_Infrastructure_Summit.html

27

The first group is small rich European countries (SRECs) which made a good

development during the early 1900s such as Belgium, Netherland, Norway, Sweden,

Switzerland and Finland. These SRECs can offer a wealth of interesting lessons for

today’s developing countries17. Their histories are even more relevant than those of the

large rich countries because firstly, typically most developing countries are small like the

SRECs (among which the Netherlands, with 16 million people, is the biggest); secondly,

both the SRECs and most of today’s developing countries are not significant players in

international economic and political systems. Changing the international environment is

simply not a solution open to developing countries, which limits their policy options;

thirdly, the SRECs have experienced their own unique challenges18 similar to those of

developing countries today (Chang 2008).

The second suggested group is the newly developed Asian country group such as Japan,

Singapore, South Korea, China, India and Malaysia from early / mid 20th centuries. Most

Asian countries went through similar colonial experiences and were independent at the

same time around the 1950s. Considering these similarities, it is worth researching the

development experiences of these countries, specifically focusing on how they

successfully mobilized the required capital for infrastructure development. For example,

the case of Korea could provide a good lesson. Korea was a Japanese colony from 1910-

1945 and experienced a deadly war claiming the lives of 4 million people along with the

destruction of half of manufacturing base and more than 75% of the railways were

destroyed.

The third suggest group is the UK and the USA. It is very meaningful how the UK from

1485 - 193219 and the USA from 1789 – present achieved their economic success through

17 Specially it is recommendable to review agricultural development (the Netherlands, Denmark); various aspects industrial development (Belgium, Switzerland, Austria, Finland, and the Netherlands); corporate governance and the concentration of economic power (Sweden and Denmark); political and social factors (Belgium, Switzerland, Finland, and Sweden) 18 These are for example, colonial legacy (Finland, Norway, Belgium, and the Netherlands), ethnic division (Switzerland, Belgium, Finland, Sweden), religious division (Switzerland), ideological division (Finland and Sweden), difficult natural conditions (landlockedness and mountains of Switzerland and vulnerability to natural disasters in the Netherlands), the so-called ‘resource curse’ (Sweden, Finland, and Norway), 19 King Henry 7 (1485-1509) and Elizabeth 1 (1558-1603) established the foundation as a superpower through the promotion of infant industry and the protection of trade

28

the very well designed industrial policies and protective trade. The unknown historical

facts of their economic success provide many interesting lessons to today’s developing

countries in the era of globalization. In particular, it is important to note that, contrary to

conventional wisdom, Britain and the US – the supposed homes of free trade – were in

fact the most protectionist economies for their industries and technologies in the world in

their respective catching-up periods (between the early 18th century until mid-19th century

for the former and between the mid-19th century until World War II for the later) (Chang

2008).

The second challenge for developing countries is how to develop the infrastructure while

alleviating the impact on the environment and quality of life 20 . On condition that

appropriate finance is secured, the development of infrastructure can adversely affect the

environment and eco-system. Therefore it is another major challenge for developing

countries to transform into green growth development patterns while harmonizing

economic growth and environment protection in the perspective of long-term sustainable

growth. It is simply not enough to apply green technologies, rather it requires the

transformation of economic structure and patterns from the conventional pursuit for

quantity of growth to quality of growth (green growth), which focuses on the

improvement of ecological quality of growth and development.

(2) Adoption of Eco-efficient Concepts21

Economic and Social Survey of Asia and the Pacific 2011 highlights the survey result

that as many as 42 million more people could remain in poverty in 2011 as a result of the

return of food and fuel crises in addition to 19 million already affected in 2010.

Considering the impact of infrastructure on economic growth and poverty reduction, it is

very crucial how developing countries manage and use limited resources for sustainable

infrastructure framework. The conventional cost-benefit analysis method is constrained

20 Low impact development (LID) approach 21 The concept of eco-efficiency was first introduced by the World Business Council on Sustainable Development (WBCSD) at the beginning of the ‘90s in an attempt to overcome the apparent conflict between economic and environmental objectives.

29

as a good means of decision-makings concerning core infrastructure development which

frames future national economies in the long-term because synergies with other sectors,

external economies and production effects on national economies are beyond the cost-

benefits analysis.

In this regard, the second policy strategy is to adopt the eco-efficient principles and

incorporate them in infrastructure planning and management. Eco-efficiency 22 in

infrastructure is to promote the resource value and productivity in infrastructure

development within its eco-system.

It is essential to begin with discussing the definition of an eco-efficiency in water

infrastructure. According to the WBCSD, Eco-Efficiency can be defined as ‘the delivery

of competitively priced goods and services that satisfy human needs and bring quality of

life, while progressively reducing ecological impact and resource intensity throughout the

life cycle to a level at least in the line with the earth’s carrying capacity’ (WBCSD, 2000).

This definition implies that eco-efficiency can bring about more added values with less

environmental impacts. The term ‘eco’ can be translated to mean improving both

economical efficiency and ecological efficiency through innovative policy, green

technologies and designs, etc.

Beyond the more productivity and quality improvement of individual firms, it is

necessary to look at eco-efficiency in the industry and in the national planning level such

as eco-efficient water infrastructure to maximize impact of the long-term growth plan.

The eco-efficiency in the national planning requires more prioritization and coordination

between the different complementary public inputs and actors. Eco-efficient

infrastructure contributes to promoting sustainable growth by enhancing resource

efficiency including energy and water resources as well as fuels. Therefore, the eco-

22 The idea of Eco-Efficiency (E/E) was coined first in 1989 by Sturm and Shaltegger as a way of reporting environmental progress, particularly in production systems, and the term was first used in 1991 by the Business Council on Sustainable Development (now the World Business Council on Sustainable Development – WBCSD).

30

efficiency in infrastructure is accepted as an implementing strategy to achieve MGD 1

(poverty reduction) and MDG 7 (environment protection) in a harmonious manner.

Eco-efficient infrastructure includes not only innovative physical components such as

green construction technologies and efficient management knowhow, but also

emphasizes the invisible infrastructure components such as promotion of ecological price

and green tax reform, application of resource sensitive design and integrated planning

among infrastructures, and the decentralized planning and technologies of infrastructure

by shifting its focus beyond expensive, expansive and ecologically damaging physical

infrastructure. The eco-efficient infrastructure development plays a role to be

supplementary to traditional infrastructure which has been dominated by the centralized

and separate management framework since the mid 1800s. The dominant

centralized/traditional development paradigm of infrastructure has proven inflexible and

resistant to the necessary changes required for sustainable resource management.

On the other hand, it is essential to review how developed countries integrated the eco-

efficiency concepts into the infrastructure development and to apply the lessons learned

to the contemporary challenges. For example, the case of Canada could be a good

historical lesson to learn (Brandes 2006).

(3) Establishment of Collective Capacity and Institution23 Building

The third key element is to foster collective capacity24 and institution building as an

enabling factor to create the teamwork between the workforce and stakeholders within

the system. Good institutional building can contribute to enhancing the productivity

around existing capabilities by improving institutional response and coordination to

shifting high-dimensional problems and challenges in the national development process

(Rodlick 2007). Key challenge in this regard is how to transform individual knowledge

and capacities to social institution to create the intellectual externalities and generate high

23 Institutions are more permanent arrangements while policies are more easily changeable. 24 Collective capacity means the increased ability of key stakeholders at all levels of the system to make changes necessary to improve economic development. It involves new knowledge, technologies and skills.

31

productivity and new jobs. Individual capabilities will be more effective when backed up

and linked systematically by so-called ‘technological infrastructures’ (policies and social

institutions).

Past experiences have shown that institutions of collective action play an important role

in how people use natural resources effectively, which in turn shapes the outcomes of

productivity of systems (Pandolfelli, 2007). As seen in case of the UK, the USA, Japan

and the Korea for 1700-2010 (Chang 2007), sustainable infrastructure and economic

development depend on how countries successfully could synergize the capacities of

individuals to a productive system (institution) because, without such institutions

(technological infrastructure), there are low chances for individual to yield high valued

productivity with their knowledge and technologies.

Another good case worth noting is that from Sweden in an early development stage of the

19th century. Sweden developed interesting forms of public-private cooperation in

infrastructure development and in some key industries, especially iron. This collaboration

is also remarkably similar to that which East Asian countries used during the postwar

period (Chang 2007).

Lastly it is important to keep in mind that collective capacity and institution building

itself is not enough to produce the leaps that are often required to sustain economic

growth, such as from coffee to garment, from garments to electronics, or from electronics

to biotechnology. While it is crucial to develop the policy mechanisms to strengthen

organizational capacities and collective institutions, it is also essential to integrate a set of

institutions with goals of the national development plans, because a set of institutions can

contribute to expand the frontiers and range of the production space much wider, and

which are thus able to stimulate capacity building “jumps”.

Furthermore, developing countries are advised to study and learn past experiences and

strategies of advanced countries regarding capacities and institutional building and to

identify the suitable ways in the context of each developing country.

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6. Policy Measures for Government-led Long-term Growth Strategy

(1) Synchronize the Priority of Infrastructure with Goals of National Development

Plan

Nobody will deny that the strong leadership and efficient coordination for infrastructure

development, and a well-defined focus and priorities on infrastructure development were

the critical factors for long-term economic growth. The key question is what types of

infrastructures needs to be matched with what goals of national development plans. Every

country experiences different development stage and conditions.

First of all, these questions can be addressed by the study on the historical experiences

and lessons of developed countries when they were developing countries. The below

cases of Japan, Korea and Singapore can show how they transformed the priority and

investment in infrastructure along with changing goals of national development plans.

For example, Korea prioritized the infrastructures along with the shift of national

development plans. During Korea's first Five-Year Development Plan (1962-66) and

during the second Five-Year Development Plan (1967-71), government of Korea

constructed 275 kilometers of railways and several small highway projects to support the

light industries, the country’s import substitution capacity and stimulation of exports.

However Korea shifted the focus and priorities of infrastructure toward airports, new

deepwater seaports, highways, railways, and telecommunications systems to support

heavy and chemical industries such as petrochemicals, steel and shipbuilding since the

third Five-Year Development Plan (1972-76). For these decades, government of Korea

used the following sources such as taxation, designated funds, public pension funds, and

private funds as the main sources of funding for Korea's infrastructure development.

Since 2000, the government of Korea tried to move toward the public-private cooperation

and private participation in infrastructure (PPI) for infrastructure development include

allowing public agencies to acquire land, pairing marginal projects with profitable

projects, arranging long-term financing from public funds, and allowing tax exemptions

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(Ro 2002).

The key features for Singapore’s infrastructural development are that they has been often

guided and driven by government agencies (URA 2007). Singapore’s annual average

growth rate of gross fixed capital formation between 1966 and 1972 was 30% compared

to 9.1% for private consumption and 17.2% for public consumption. Government

infrastructural expenditure is spent on construction expenditure and urban renewal

projects, such as on high-rise office buildings and shopping complexes as well as

investments in various technologies and industrial machinery, such as petroleum refining,

electronic manufacturing, transport equipment, etc.

Japan’s experiences in infrastructure development also provide valuable messages in the

JBIC review paper. In many developing countries, whether they are stagnating or

growing, their forests are dwindling rapidly. Destruction of forests caused by poverty and

economic growth proceeded simultaneously. The combined impact is widely recognized

as a critical environmental problem. For example, the wooded land in the total national

land area of Thailand was approximately 70% in the 1950s, but now, (half a century

later), the figure has fallen to approximately 30%. If the infrastructure of energy supply

were not switched smoothly along the progress of development phase, deforestation and

land degradation would have been progressed even in Japan, which is seen today in

densely populated developing countries (Yoshida 2000).

Another symbolic case of Japan is the shift among transportation infrastructure. Before

the war (1941-1945), there was a sharp shift from coastal shipping to railways, while the

postwar era has seen a rapid shift from rails to roads due to technical innovations and

economies of scale, and changes in the economic values of time. In general, the

infrastructure of Japan to meet the demand has been shifting from a high resource

intensive structure, which requires relatively high amounts of materials and energy, to an

intellectual industrial structure which asks for knowledge based services and information

(Yoshida 2000). The above evidence suggests that the priority fields for infrastructure

investment must accommodate shifts in socioeconomic structures in a flexible manner. In

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conclusion, the appropriate infrastructure development of infrastructure in conjunction

with changes of development structures fulfills the long-term development objectives.

The second important policy is to reflect the currently emerging trends and demands

appropriately into the development plan of infrastructure. Recent financial crisis, rising

energy/resource price & volatility, and climate change make countries to rethink the

viability of conventional development paradigms, which depend on over-consumption of

natural capitals for growth. Many countries are exploring the possible paths and shifts

from energy/resource/carbon intensive “Quantity of Growth” to energy/resource/carbon

efficient (eco-efficiency) “Quality of Growth” as a national development strategy.

In this connection, it is essential to reformulate the development patterns of infrastructure

along with the changing priorities of national development goals, from the centralized

and visible (physical 25 ) infrastructure depending heavily on consumption of natural

resources toward the decentralized and harmonized development patterns of visible

(physical) & invisible (non-physical26) eco-efficient infrastructure.

(2) Fill Three Important Gaps

Developing countries face three key gaps which limit the sustainable infrastructure

development and long-term economic growth. The first key gap is the time gap between

short-term investment (cost) and long-term benefits (returns). Given the market’s

propensity to reap short-term returns, government should develop the system such as

long-term investment fund and equity markets to socialize the risk of investment at the

initial stage to enable the long-term investment in infrastructure.

25 Visible Infrastructure: Pipe and dams, road, energy, waste treatment plants, etc; 26 Invisible infrastructure: Price, regulation, technology, urban design, capacity, etc

35

[Picture 1] Example of Grow first and Clean-up later, (Short-term cost and Long-term returns)

(Source: Japan Infrastructure Development Institute presentation) The second important gap is the resource gap between the demand and supply of

financing for investment in infrastructure. The shortage of financing for infrastructure has

been persisting problems for policy makers. Most of policy makers tried to implant the

well established systems of the present developed countries. However the enabling

conditions of developing countries are quite different from those of developed countries.

In this regard, it is rather helpful to study how the advanced countries successfully

mobilized the required financing at the initial stage of their development during the 17th-

20th centuries. The case of the USA in the 18-19th century shows that, as the number of

people living in cities increased, large and complex infrastructure was introduced to play

increasingly vital roles in protecting urbanities such as transportation and clean water

supply infrastructure. Such the demand from urbanization and large investment for

infrastructure transformed the type of funding resources from private financing and

ownership to government’s direct involvement27. It is found that a combination of tax

system including general tax revenues, property tax revenues and the restitution of

development gains, which benefited from the increased property values from the

improvements in infrastructure and the provision of other public benefits (Jacobson 1995).

27 The proportion of government owned waterworks in the USA from about 6 % in 1800 to about 53% in 1896 (Jacobson 1995). Government intervention has different types: indirect subsidy type, direct-intervention such as establishment of construction companies for housing and water supply.

36

On the other hand, the savings-promotion policy for internal resource mobilization for

infrastructure development which advanced countries used in the 20th centuries needs to

be studied thoroughly. For example, it is interesting to see the comparative study between

Korea which depended on internal resource mobilization rather than external resource

(FDI), and Malaysia which depended more on FDI28. Korea conducted strong saving

promotion policies such as one person-one bank account promotion for 1960-1980.

The third gap is the price gap between economic theory and reality. The economic theory

based on the Solow’s growth model and on a Cobb-Douglas production function assumes

that national incomes arise from labour and capital. The equation is Y = A (L ; K).

However this conventional equation doesn’t reflect the reality that labor/capital are no

longer scarce resources, and rather, ecological goods such as water which have been

regarded as free goods in terms of traditional economics are much scarcer and no longer

free.

Nonetheless, the mainstream economics’ measurement and pricing system treat

ecological goods as almost free goods and don’t incorporate the cost of the negative

impact on environment29, which causes overconsumption, price-externalities and pricing

distortion. For example, the current oil price doesn’t reflect the environmental impact and

damages which a society has to pay later. Therefore, governments in the region need to

establish the ecological pricing mechanism to incorporate the ecological cost

appropriately to measure the correct eco-efficiency of infrastructure development. By

doing so, we can see the real impact and cost of infrastructure development.

(3) Acquire Innovative Modern Knowledge and Technologies

28 In 1990, the ratio of FDI in Korea, Malaysia and the world is 0.7%, 5.3% and 2.7% of GDP respectively (Source: World Bank World Development Indicator 2002) 29 The concept of ecosystem services becomes very crucial. This includes the inclusion of the value of the environment in the over-all infrastructure costs.  

37

One of key conditions for eco-efficient infrastructure is to increase the ecological

productivity of infrastructure development which can be possible only by the acquisition

of more productive knowledge, organizational capabilities and modern technologies to

upgrade the structure and process of infrastructure development structures. With the

accumulation of capital and abundant labour, the very thing that makes some countries

developed and not developed depends on their differential abilities to develop and use

technologies, or what is known as ‘technological capabilities’. The key challenge for

developing countries is how to upgrade the technological capabilities.

Technological capability accumulation does not happen as an abstract process. Unlikely

capital and labour, technological capabilities cannot be defined as general ‘capital30’ or

‘labour’ that a country can accumulate and deploy wherever necessary. Even if a country

accumulates more human capital to justify its entry into the automobile industry, it cannot

start making cars if all its engineers and workers were trained for the textile industry.

Most (although not all) technological capabilities are accumulated through concrete

production experiences in the form of ‘collective knowledge’ embodied in organizational

routines and institutional memories. Without entering the industry and developing

technological capabilities, it is simply not possible for developing countries to

accumulate internationally competitive capabilities in new industries and it is impossible

to know how long it will take for the country to acquire the necessary technological

capabilities to become competitive internationally.

This is why Japan had to protect its car industry (Toyota) with high tariffs for nearly four

decades with a lot of direct and indirect subsidies and virtually ban foreign direct

investment in the industry before it could become competitive in the world market; the

electronics subsidiary of the Nokia group had to be cross-subsidized by its sister

companies for 17 years before it made any profit (Lin 2009); and Korean governments

operated more than 20 policy and technology-related research institutions to support

technology development and become one of top five inventive nations in terms of

30 Capital is accumulated in concrete forms, such as machine tools for the car parts industry, blast furnaces, or textile machines.

38

number of patents granted annually by the US Patent Office (Chang 2010). Therefore,

governments should develop industrial policies to encourage the generation of new

technologies through practical application in the production process of industries and

enterprises as well as make policies to import more productive technologies easily from

advanced countries.

In addition, developing countries are requested to take the relatively lax attitude for

intellectual property rights (IPRs) and patents to obtain the knowledge and technologies

with low costs. If we look into the the early days of their industrialization of developed

countries, when they needed to import technologies from abroad, the protection of IPRs

in rich countries, especially foreigners’ IPRs, was very weak until the 19th century. Cases

of the Netherlands and Switzerland are more interesting. Switzerland did not introduce

any patent law until 1888 and when it did, its patent law protected only mechanical

inventions31. It was only in 1954 that the Swiss patent law became comparable to those of

other developed countries (Schiff, 1971).

The Dutch case is even more interesting. The Netherlands actually had introduced a

patent law relatively early in 1817, but abolished it in 1869 on the ground that patents are

artificially created monopolies that are not compatible with its free-trade principle.

Despite the absence of the patent law, Switzerland and the Netherlands during the

‘patentless’ period were technologically innovative and dynamic (Schiff, 1971).

(4) Promote Industry for Sustainable Infrastructure

The strengthening of the new knowledge and technologies is the key for sustainable

infrastructure development. Sticking to old and low-grade technologies and industries

don’t allow developing countries to catch up with advanced countries and to depend on

developed countries forever. However, modern knowledge and technologies themselves

are not sufficient to achieve sustainable economic growth. These knowledge and

technologies should be transformed into so called technological capabilities in the form

31 Inventions that can be represented by mechanical models (Schiff, 1971, p. 85)

39

of production of enterprises, which take responsible of infrastructure construction. At the

same time, it is equally important to protect the strategic industries in the nascent stage

for a certain time with policy measures until they can have the internationally competitive

capabilities to conduct the infrastructure development.

The core question is how to promote the strategic industries and enterprises responsible

for infrastructure development. To mature certain industries and enterprises require the

right policy, resources and time to some extent, often one generation. To address this

challenge, it is meaningful to review historical practices and cases, which may provide

good lessons to decision makers in the region how developed countries promoted their

nascent industries with what industrial policies.

In 1961, the per capita income of Japan was a mere 19% of that of the US ($563 vs.

$2,934), but Japan was then protecting and promoting all sorts of strategic industries such

as automobiles such as Toyota, steel, shipbuilding, and so on. When Nokia in Finland

moved into the electronics industry in 1960, the per capita income of Finland was only

41% of that of the US ($1,172 vs. $2,881) which was the frontier country in electronics

and overall industries. As an even more dramatic example, there is the case of South

Korea. The Korean steelmaker, named POSCO, which was established in 1968, started

production in 1972, when Korea’s per capita income was a mere 5.5% of that of the US

($322 vs. $5,838) under the desperate conditions that there were no coal, ore, market and

technologies (Lin 2009).

From the historical lessons, when designing the policy for industries and enterprises,

three points need to be considered. The first is how the promotion strategy for industry

will be linked with the infrastructure development plan and the national development

goals. The second point is regarding government’s leading role. It proposes that industrial

policy activities be oriented around two different axes: One that works “locally” to

improve the performance of existing industries through stepwise increases in their

capacities, and the other that works “globally” through strategic bets on new infant

industries whose success depends on bigger capacity leaps. (Rodrick 2007).

40

Good examples in the water industry are Singapore and France, and in the steel industry

is the POSCO of South Korea. Singapore provided a good successful story of water

industry. Based on strong partnerships between public and private sectors, the

government of Singapore has built a sizeable and innovative water industry over the last

four decades by developing four different sources known as the “Four National Taps32”.

Singapore aims to supply technology and products to 3 per cent of the global water

market. It is also noteworthy that Singapore SOEs called Public Utility Board (PUB) had

lead the development of new technologies in water industry and that 22 per cent of

Singapore’s GDP comes from SOEs, compared with the world average around 10 per

cent.

Lastly but an important point is to put the emphasis on getting the strategic collaboration

with the private sector which directs policy to work right. Besides the conventional policy

measures such as tariff protection, tax rebates, R&D subsidies, directed credit, industrial

zones, governments should evaluate its industrial policy framework for industries not by

asking questions of the type: “Which tax breaks or subsidies are we using?”, “Which

sectors have we identified?”, “What is the budget we have allocated for industrial

promotion?”. The relevant questions instead are: “Have we set up the institutions that

engage the bureaucrats in an ongoing conversation of pertinent themes with the private

sector?” and “Do we have the capacity to respond selectively, yet also quickly and using

a variety of updated policies to the economic opportunities that these conversations are

helping identify?”

(5) Intervene in Foreign Capital and FDI

Nowadays the world is not a closed economy but an open economy. Foreign capital and

FDI is one of key factors affecting sustainable infrastructure development. Foreign

capital and FDI have been accepted for a long time as essential and prerequisite for

32 Water from local catchment areas, imported water, reclaimed water (NEWater) and desalinated water

41

infrastructure development in developing countries because they fill the savings gap

while providing a healthy external balance to developing countries. Furthermore, they are

expected to improve productivity and economic efficiency by allowing capital to flow

into large scale of projects, spread ‘best practices’ in the planning and implementation of

infrastructure development and corporate governance, and increase employment and

effective competition by bringing the best managerial knowhow, organization skills and

modern technologies.

However, quite oppositely from the popular theoretical presumption that foreign capital

and FDI played a great role for developing countries to grow quickly as illustrated, we

can learn from the historical facts that many foreign capital and FDI have actually

brought seriously adverse results to developing countries because of unspoken and

hidden mechanisms as follows. These foreign capitals are actually volatile, tend to come

in and go out exactly at the wrong time, can temporarily raise assets price beyond their

real value (creating assets bubble), tend to leave on a massive scale during economic

crisis and make the economic downturn even worse as notified in the 1997 Asian crises,

and intend to use foreign subsidiary to borrow from domestic banks or exchange the

money into foreign currency and send the money out.

More importantly, historical study reveals that a critical but often ignored impact of

foreign capital and FDI is that the translational companies through FDI deprive and

destroy the chances which national firms could have grown up because of premature

exposure to severe competitions. In addition, as much as 80 percent of total world FDI in

2001 is ‘brownfield investment’ which buys existing local companies (no further job

creation and fund inflow), not ‘greenfield investment’ to invest new funds like the case of

Intel chip factory in Costa Rica. Brownfield investment does not add any new production

facilities and job creations.

In this connection, the historical review can provide very good lessons to policy-makers

of contemporary developing countries that how seriously rich countries protected their

infant industries from the 16th- the 20th centuries by using protective policies of trade and

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FDI. Contrary to the conventional belief that advanced countries developed their

economic growth and industries through free trade and free foreign direct investment,

these countries used trade protectionism, subsidies, regulation on foreign investment, and

other policy measures that are intended to protect and nurture their ‘infant industries’

against superior foreign competitors from abroad. In short, they operated trade and FDI

policies very selectively to secure high technologies from advanced countries and to

protect nascent domestic industries to ensure their competitiveness.

[Table 2] Average Tariff Rates on Manufactured Products for Selected Developed Countries in Their Early Stages of Development (weighted average; in percentages of value) 18202 18752 1913 1925 1931 1950 Austria3 R 15-20 18 16 24 18 Belgium4 6-8 9-10 9 15 14 11 Canada5 5 15 n.a. 23 28 17 Denmark 25-35 15-20 14 10 n.a. 3 France R 12-15 20 21 30 18 Germany6 8-12 4-6 13 20 21 26 Italy n.a. 8-10 18 22 46 25 Japan7 R 5 30 n.a. n.a. n.a. Netherlands4 6-8 3-5 4 6 n.a. 11 Russia R 15-20 84 R R R Spain R 15-20 41 41 63 n.a. Sweden R 3-5 20 16 21 9 Switzerland 8-12 4-6 9 14 19 n.a. UK 45-55 0 0 5 n.a. 23 USA 35-45 40-50 44 37 48 14<Source: Ha Joon Chang presentation> As seen in table 2 & 3, in spite of our belief that the UK promoted their industries

through international competition during the 16th -18th centuries by liberalizing trade, the

international flows of goods, capital and labour, and deregulating their domestic

economies and industries, the real truth is that the UK pursued the opposite policies to

promote their industries by regulating foreign capital and FDI selectively, and “import

substitution industrialization” from 1489 until 1578 (almost 100 years) in the middle of

Elizabeth 1’s reign (1558-1603) (Chang 2007).

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[Table 3] Average Tariff Rates (%) on Manufactured Products for Selected Developed Countries in the early post-Second-World-War Period 1950 1959 1962 1973 1979 Europe Belgium 11 14 France 18 30 W. Germany 26 7 Italy 25 18 Netherlands 11 7 E.E.C. Average1 15 13 8 6 Austria 18 202 11 8 Denmark 3 Finland 20+3 13 11 Sweden 9 8 6 5 Japan n.a. 18 10 6 UK 23 16 United States 14 13 12 7 <Source: Ha Joon Chang presentation> The USA also took the same policies as those of the UK. Since the first secretary of

treasury of the USA, Mr Alexander Hamilton suggested a series of protective measures33

to achieve the industrial development of the USA in 1791, the USA adopted these

protective policies until 1947 to promote their industries and enterprises. For example, in

the 19th century, the US regulated FDI in finance, banking, shipping, mining, logging,

and especially in banking as shown in table 2 and table 3. Under these policies, only

American citizens could become directors in a national (as opposed to state) bank and

foreign shareholders could not vote in directors’ board34.

33 His suggested measures in his book “Report on the Subject of Manufactures” in 1791 include protective tariffs; import bans; subsidies; export ban on key raw materials; import liberalization of and tariff rebated on industrial inputs; prizes and patents for inventions; regulations of product standards; and development of financial and transportation infrastructures 34 Reasons that they regulated the FDI are: (1) Foreign subsidiary companies can use its assets to borrow from domestic banks, change the money into foreign currency and send the money out to other countries; (2) parent companies may recall the intra company loan it has lent to the subsidiary. In extreme case, most FDI that came in can go out again through such channels, adding little to the host country’s foreign exchange reserve position. (3) FDI can make the additional demand on imports from the oversea country which provided FDI. (4) Foreign company can vastly reduce their tax obligations by shifting most of their profits to a paper company registered in a tax haven. (5) About 50-80 per cent of FDI is the type of brownfield investment which buys the existing local companies. Brownfield investment does not add any new production facilities and could be just the activity for assets stripping on existing firms. (6) The entry of transnational companies through FDI can destroy existing national firms that could have ‘grown up’ into successful operations without this premature exposure to competitions or it can pre-empt the emergence of domestic competitors. (Ha Joon Chang 2007)

44

Japan, Korea, Finland. India and China also followed a similar path to promote their

domestic industries and enterprises from 1900-2000. Japan, as well as Korea and Taiwan

to a lesser extent, virtually banned foreign direct investment until the 1980s. Finland even

classified all firms with more than 20% foreign ownership as “dangerous enterprises”.

In conclusion, from the perspective of historical facts, it is very clear that advanced

countries maintained very interventional policies toward foreign direct investment (FDI)

to protect domestic industries and nurture new industries.

Therefore, it can be recommended that governments of developing countries need to be

more cautious, when considering opening domestic markets and the FDI to industries

with the objectives to create higher productive capabilities, nurture local industries and

develop more effectively new technologies in the long run.

(6) Adopt Green Growth Development Paradigm

More importantly, one of the most important strategies is to integrate green growth

development paradigm in national development plans of developing countries to promote

the eco-efficient infrastructure systematically. If we target long-term economic growth

rather than short-term benefits, the developing countries are requested to recognize the

need to change conventional development patterns in a direction to accommodate

ecological dimensions in the long-run.

Our current economic growth pattern depends heavily on cheap labours and over-

consumption of natural resources such as oil, metal, coal and water. As the economies in

Asia region are rapidly growing and the population is increasing fast over last few

decades, the consumption of natural resources has increased, resulting in the deterioration

of ecological carrying capacities as analyzed in graph 6. Therefore, with steadily

increasing price of natural resources from the deteriorating ecological capacities, it

becomes clearer that we need to accommodate the ecological dimensions into the policy

planning and implementation process, and finally transform to the green growth

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development and eco-efficiency approaches.

[Graph 6] The Scarcity of Non-renewable Natural Resources (NNRs)

(Source: “Increasing Global Nonrenewable Natural Resource Scarcity - An Analysis” 35) Pursuing green growth36 means more than just integrating environmental sustainability in

current development patterns. It means the fundamental transformation of our economic

structure from current quantity of growth to quality of growth by integrating ecological

dimensions into economy structures and national development plans.

Integrating the green growth development paradigm in the national development plans

and programmes requires three key prerequisites. First and foremost, developing

countries must make efforts to identify strong analytical evidences and good practices

from history to provide feasible successful practices and lessons to policy makers of

developing countries. Secondly, it is required to establish social mechanism to integrate

physical infrastructure (visible infrastructure) such as dams and pipes, and non-physical

infrastructure (invisible infrastructure) such as pricing and taxes, regulations, subsidies

and green procurement, to lock societies into sustainable production and consumption

35 An Analysis” by Clugston, Chris. The Global Non-renewable Natural Resource Scarcity Assessment based on US Geological Survey (USGS) and US Energy Information Administration (EIA) data, highlighted that 50 of the 57 analyzed NNRs (88%) experienced global scarcity during the 2000-2008 period; and 23 of the 26 analyzed NNRs (88%) will likely experience permanent global supply shortfalls by the year 2030 (Chris Clugston, 2010). 36 Internalizing the environmental costs in market prices, investing in sustainable infrastructure, promoting green business and technology, and fostering sustainable production and consumption patterns are suggested as concrete actions.

46

patterns, and to promote the innovative green industries for green growth. Thirdly, there

should be a global consensus to provide preferential treatment to developing countries

(small size players) such as extra protection, subsidies and regulations, so that they can

have necessary time to transform to a green economy and to nurture their green industries

in the face of unequal global competition with larger size players (developed countries

with high tech).

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7. Policy Measures for Eco-efficient Approaches

(1) Internalize the Environmental Cost (through pricing, tax and budget reforms)

Conventional economics assumed for a long time that air and water are unlimited and

free while labor and physical capital are scarce. Now we are living in a world where there

is a mismatch between labor supply and demand, and the capital market is bigger than the

real economy. Climate change is an irrevocable proof that ecological carrying capacity of

our earth is over-stretched and ecological services such as stable climate are no longer

freely available. Rising unemployment and excessive liquidity of capital that repeatedly

triggered financial crises are telltale signs of the changed scarcity scale and the gross

misallocation of capital.

Under the circumstances, current market-price system does not reflect real social and

ecological costs caused by environmental pollution and social damage in the price of

goods and services. Such conventional pricing structure will expedite wasteful use of

natural resources and prevent the appearance of new eco-efficient technologies and

business. However, experiences over the past two decades indicate that the

implementation of pricing reforms is a complex process that often challenges long

standing institutional, legal and cultural values. Nonetheless, actual implementation of

this consensus on the ground has been, at best, mediocre. It has been long overdue to fix

the price right due to the fear that it might hurt the economy.

Now the situation has changed. If we do not fix the price right, the market will continue

the current practices, which will damage the economy in the long run, not to mention the

environment and our future. In order to steer towards green economy, market price has to

accord a proper price signal for ecological services and resources. If properly

supplemented with investment strategies and legal and social instruments, internalizing

ecological prices into the market price structure can be a strong and powerful

leapfrogging strategy for many developing countries towards sustainable development.

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A government should evaluate its industrial policy framework not by asking questions of

the type: which tax breaks or subsidies are we using? which sectors have we identified?

what is the budget we have allocated for industrial promotion? The relevant questions

instead are: have we set up the institutions that engage the bureaucrats in an ongoing

conversation of pertinent themes with the private sector, and do we have the capacity to

respond selectively, yet also quickly and using a variety of updated policies, to the

economic opportunities that these conversations are helping identify? Our impression is

that the answers

The relevant questions are not whether there is historical evidence, but how to design and

implement the price-tax-budget reforms to maximize the benefits, and how to move from

the principles to the actual and concrete implementation of the policies. The first

suggested policy option is to adoption of Ecological Tax reform (ETR) which emphasizes

the structural shift of price-tax based on “tax neutrality”. The concept of tax neutrality

means the change of tax structure while maintaining the same tax burden as before. As

seen in graph 7, it reduces taxes on income and increase taxes on carbon/pollution while

maintaining revenue neutrality, which could bring about a double dividend of reducing

carbon emissions and increasing employment and even growth (Chung 2011).

In the early 1990s Denmark, Finland, Norway and Sweden, and the Netherlands, the UK

and German in the late 1990s introduced the ecological tax reform with generally positive

results. In case of Germany and the UK, the tax shift is 0.9 percent and 0.05 percent of

GDP respectively.

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[Graph 7] Transformation of the Price and Tax Reform

(Source: UNESCAP director Rae Kwon Chung’s presentation) The second policy option is the budget reform. For example, the creation of a specific

institutional mechanism called “a centralized fund/budget” may be considered as

suggested by Professor Dani Rodrick of Harvard University. Based on the key concepts

of his approach, modified suggestion is to create a centralized fund to assist the

government efforts by linking the fund to a specific government goal such as the

transformation toward eco-efficient water infrastructure or eco-efficient production and

consumption patterns. The mechanism says that (1) public entities compete to get this

additional fund; (2) the centralized fund/budget enables the public entities dealing with

the private sector to buy the necessary services such as eco-efficient production and

consumption patterns; (3) actors, for example, bidders such as coalitions of the public

entities and firms which they are cooperating, start to learn to meet the fund’s eligibility

criteria, to increase their commitments to the goals of government, and to motivate them

to undertake government goals and tasks beyond its current reach; and (4) finally the

central fund can offer the opportunity to “buy” more and more reform. Experience shows

that the change at the innovative margins of government would incrementally entail the

change at its entrenched and unresponsive sub-government entity level, which usually

cannot be produced by even the most emphatic command to reassess the utility of all

existing programs (Rodrick 2007). Green procurement provides another example of

sensitizing public entities and private sectors to accommodate the ecological pricing-tax-

budget system and investment in eco-efficient water-energy-production.

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In conclusion, such ecological fiscal policies can provide a clear and coherent signal to

market for eco-efficient infrastructure development and foster infant water industries, and

ensure a good basis for qualified water services to all citizens while again create new jobs

and sustainable economic growth.

(2) Reduce the Distance with Decentralized Economies

Water infrastructure development in Asia region including water supply, sanitation and

stormwater discharges has been dominated by the centralized and separate management

pattern since the early 1900s. The centralized paradigm has served countries well over the

last one hundred years. However, the reliance on centralized sources of water has proven

to be inadequate for population growth, droughts, climate change and the protection of

important eco-systems.

Moreover, the dominant centralized management paradigm has proven to be inflexible

and resistant to the necessary changes required for sustainable water management. Asian

cities have experienced water shortages whilst discharging more rainwater, stormwater

and wastewater than the total water demand of those cities. Therefore the centralized

paradigm shows limited use of abundant decentralized water sources. It is now

recognized that multiple sources of water from centralized and decentralized locations in

combination with a diverse range of water conservation strategies can increase the

resilience of a city’s water supply (Coombe 2011).

In this connection, the second suggested policy approach for eco-efficiency is to reduce

the distance of the infrastructure development and to develop water infrastructure in a

decentralized manner with integrated urban planning and design. The reduction of

distance contributes to water and energy saving in infrastructure development, which

again leads to the reduced demand for new infrastructure development. As seen in below

picture 2, longer distances for water supply and wastewater treatment facilities will

require higher consumption of energy and creates a large amount of water leakage.

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Governments need to integrate necessary measures to reduce the distance of

infrastructure into related regulations such as regulation for construction and building.

[Picture 2] Example of Long Distance with High Possibility of Leakage

(Source: Professor Mooyoung Han’s presentation) Reducing the distance of infrastructure needs to be integrated and designed in parallel

with decentralized approaches. Such decentralized approaches should be also integrated

with the development plan of local green economy to enable the implementation and

maintenance of infrastructure based on local priorities such as the creation of more

sustainable livelihoods from eco-efficient infrastructure, and the better conservation of

the quantity and quality of ecosystems that provide services to humans and all living

things.

In conclusion, the success for decentralized approaches of infrastructure development is

again deeply related to the promotion of local cluster economies. Without sustainable

local economies, the decentralization of water infrastructure cannot be sustainable in the

long term.

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(3) Integrate37 Visible and Invisible Infrastructures

One of key actions to enhance the eco-efficiency in water infrastructure is to consider an

integrated approach to water management issues. Fragmented approaches to water

management issues had been criticized and blamed as primary causes to trigger

inefficient water resources development, allocation, water quality control, and flood

prevention methods towards the end of the last century.

In this regard, the two key questions will be raised with reference to ‘integration’: 1) what

to integrate as priority; and 2) how to integrate them effectively. In response to the

questions, first of all, it is noted that our infrastructure is a system of sub-systems

involving diverse sub-infrastructures and social organizations. Recent emerging trends

show cross-sectoral features such as the nexus of water and energy, and infrastructure

development increasingly become complex and inter-connected with other development

sectors, i.e., agriculture, energy, industry, transport, the environment, health and regional

development (Lee 2010).

This implies that we need to fundamentally transform our development paradigm of

infrastructure from conventionally single objective infrastructure development toward

more integrated, multi-disciplinary approaches of infrastructure development. In this

connection, it is essential not only to strengthen the integrated planning of a set of

infrastructures such as water, energy, transport and telecommunications, etc., but also to

promote the integration between physical (visible) infrastructure such as dam, road, rail

and telecommunications and non-physical (invisible) infrastructure such as price, laws,

institutions, regulatory programs, technology and design, etc to enhance the eco-

efficiency.

The second question is how can promote the integrated planning between visible and

invisible infrastructures and between a set of infrastructures. Integrated Water Resources

37 ‘Integrate’ indicates that the two things become closely linked or form part of a whole idea and system (Colins Cobuild, 2001; McDonnell, 2008).

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Management (IWRM) provides some insights. The challenges to implement integrated

planning of infrastructures are often not technical issues but rather institutional drivers

that are often unique to the different affected sectors such as environment, flood

management, energy, mining, municipal, and industry. In this connection, one of initial

policy measures for integrated planning of infrastructure is to establish the inner

circulation mechanism within a governmental structure targeting high-ranking officials

among Ministries with the objectives to increase the mutual understanding, cooperation

and coordination. Furthermore, the continued education and exchange of knowledge and

information on integrated planning of infrastructures is necessary to move forward more

eco-efficient infrastructure development.

Multipurpose small dams are one of symbolic examples. The traditional way of water

management depending on large-scale dams has already faced serious environmental

impact. The small-scale dam with multi-functional services can be the alternative for

people’s security and fundamental life quality as exampled in picture 3. Multi-functional

small dams are regarded as more eco-efficient under the deteriorating environment

conditions.

[Picture 3]: Examples of small dams

(a) sabo dam (Mt. Gyejok, Daejon, Korea)

(b) Small hydropower plant (Yangyang, Korea)

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Climate change and urbanization deteriorates the stream flow regime especially in small

streams with happening of flood, debris flow and land slide in small watersheds in

mountainous area (picture 4). While the large dams and the associated water supply

networks provide the area and people located along the main streams with an access to

the relatively safer guard from the floods, droughts, landslides and debris flows, on the

other hand, the local regions around small river basins are still placed under the usual

threats from natural disasters and unstable water supply (Lee 2010). In this sense, multi-

functional small dams are expected to conduct the following multi-functions.

Multi-purposes – economically advantageous

Protect natural disasters - flood, debris flow, and land slide

Water supply – emergency water, in-stream flow, agricultural water

Small-Hydropower with minimized environmental impacts

Recreation

Environmental and ecological protection (fish way, in-stream flow regulation, etc)

[Picture 4]: Natural disasters frequently occurred in small streams

(a) floods (b) debris flow (c) dried stream

(4) Formulate Unified Green Code for Construction and Building

A national unified code for green construction of infrastructure and green buildings is an

important instrument in the promotion of eco-efficiency including better energy

efficiency. To promote the code, legislation provides the basis for effective enforcement

of the code in building and on properties. For example,

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At the time of China-Japanese War of 1894~1895 and the Russia-Japanese War of

1904~1905, the government of Japan purchased the 17 largest private railway companies

among 38 private railway companies through the National Railway Ownership Act in

1906, in a way unifying standards and management for efficiency and promoting industry

(Yoshida 2000),

Finland’s “Land Use and Building Act” was put in place in the year 2000 with the

objective "to ensure that the use of land and water areas and building activities on them

create preconditions for a favorable living environment and promote ecologically,

economically, socially and culturally sustainable development", is reported to provide the

basis for more detailed regulations on building laid down in the National Building Code

of Finland.

According to the Sustainable Construction and Building Initiative of the UNEP, a large

fraction of about 30-40% of global energy is consumed by the building sector alone. The

building sector also accounts for 30-40% of material resource consumption and 30-40%

of waste production. In addition to this, the materials that have been conventionally used

by the building sector have high carbon footprints and contribute to high green house gas

emissions. In short, they have a significant impact on global climate change thereby

worsening the global warming situation.

Therefore, the nationally unified green code of construction contributes to enhancing the

efficiency, promoting the local industry and enterprises, and alleviating the impact of

climate change and disaster prevention by allowing governments to tackle uncertainty in

a more integrated manner. In addition, the green code for green construction and green

building increases the eco-efficiency with which buildings use resources - energy, water,

materials - while reducing the impact of the building on human health and the

surrounding environment during its life cycle, through better sitting, design, construction,

operation, maintenance and the removal and recycling of waste.

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(5) Invest in a Long-term Programme for New Eco-Technologies and Design

New eco-efficient technologies and designs are the key to develop sustainable

infrastructure. There are two ways to acquire new technologies and designs; (a) to import

the new technologies and designs from advanced countries; and (b) by reverse

engineering. Considering the trend of strengthening patents in countries, it will become

more costly and difficult to obtain core technologies. Furthermore, reverse engineering is

also more difficult because of complicated production processes linked with invisible

software.

In this connection, while importing new technologies and designs from advanced

countries, developing countries should also develop long-term research supporting

programmes by providing incentives such as R&D subsidies to local innovative

enterprises and research agencies. Due to the fact that the outcomes from the research can

take many years, the supporting programmes should be more than 5 – 10 years through

the establishment of special laws.

[Case] Innovative Design at Kirigaoka Reservoir in Japan

<Tennis court at normal> <Play as reservoir at flooding>

(Source: Dr Masahiro Imbe’s presentation)

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[Case] Yokohama Business Park (Hill of Bellini), Yokohama, Japan

<Before at normal> <Play as reservoir at flooding>

(Source: Dr Masahiro Imbe’s presentation) One of the best good practices in the region is the case of Australia called “Water

Sensitive Urban Design (WSUD)”. WSUD is the initiative by the Sydney Metropolitan

Catchment Management Authority (SMCMA), which is a New South Wales (NSW)

government agency responsible for the coordination and management of Sydney’s natural

resources as well as the Melbourne Water. It is commonly agreed that the WSUD is a

planning and design approach that integrates the following opportunities into the fabric of

settlements: retention, rather than rapid conveyance, of stormwater; capture and use of

rainwater and stormwater as an alternative or supplementary source of water to minimize

reliance on centralized supplies drawn from remote catchments; use of vegetation for

filtering purposes; utilize water efficient landscaping; protection of water related

environmental, recreation and cultural values; decentralized water harvesting for various

uses; and decentralized wastewater treatment and reuse (Peter 2011).

In 2000, the first WSUD conference was held in Melbourne, which was initiated by

Melbourne Water to identify opportunities and barriers to the widespread adoption of

WSUD in Australia. – a synthesis paper “Water Sensitive Urban Design in the Australian

Context” was published after the conference. Sustainable Water Challenge (Workshop)

has been held since 2003 to improve the awareness of WSUD program, and to involve

councils entering projects that deal with more sustainable water management (improved

water sustainability) in some way which are judged by an expert panel. WSUD Planning

Guide in 2003 and WSUD Technical Guide in 2004 were developed to help local council

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planners and state government agencies. It can be adapted for use by councils to

update/consolidate existing local environmental plan (LEP) and development control plan

(DCP).

(6) Promote Water Cycling System and Infiltration of Water

While urban development provides a more convenient life style for many, it also makes

the urban environment much drier because urbanization reduces green belt areas due to

condensed construction, increased un-infiltration rate of pavement for road construction,

and reduced natural water flows in streams and rivers. The level of underground water is

also lowered because of increased un-infiltration area throughout the city. Such

phenomenon causes increased flooding in lower elevations as well as areas adjacent to

rivers and streams, reduces water supply from underground aquifers and rivers, and

reduces natural lows of the water in streams and rivers and while deteriorating the quality

of water.

Infiltration

Groundwater Recharge

Increase of Evaporation

Precipitation

Rainwater Storage

Surface Runoff

Urban Area Increase of Ordinary River Discharge

Increase of Spring Water

Water Supply

Sewerage

Rainwater Use Treated Water Reuse

Rainwater Infiltration

Image of Desirable Water Cycle in Urban Area

(Source: Dr Masahiro Imbe’s presentation)

Therefore in order to enhance eco-efficiency, it is necessary to improve the automatic

adjusting functions of cities on urban temperature by transforming the water system into

a water recycling system including the appropriate planning and management of

rainwater, stormwater, wastewater and underground water, etc; to secure the appropriate

supply of water by nurturing the water industry on water recycling and by lowing the

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dependence on piped water supply; to convert un-infiltration pavement to an easy

infiltrating pavement system to enhance the infiltration of water into underground

aquifers; to increase the evaporation rate by installing green roofs, using rainwater and

stormwater actively, and to expanding more rainwater storage tanks throughout cities;

and to improve urban planning to secure green areas with water flows and to design flow

water into dry streams

[Case] Measures of Improved Rainwater Infiltration

(Source: Association for Rainwater Storage and (Source: Dr Reeho Kim’s presentation) Infiltration Technology (ARSIT), Japan)

(Source: Association for Rainwater Storage and Infiltration Technology, ARSIT, Japan)

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(7) Develop New Water Sources

As fresh water resources from river and ground waters are reaching their limits, the

development of alternative water sources becomes ever more important to reduce water

stress and competition and meet the ever-increasing demand for water. These alternatives

include the active use of rainwater and urban storm water, the recycled use of wastewater

(e.g. treated sewage effluent) and exploiting fresh water bodies that are available

underneath the sea. Harvesting rainwater and reclaimed grey water holds the potential for

fresh water conservation, wastewater and storm water discharge reduction, and should

also be considered in terms of its contribution to an integrated water management system.

The reasons that these alternative water resources have not been developed are relatively

high costs and a complicated process of management. However due to technology and

design development such as portable membrane and smart design, these water sources are

becoming much easier to develop along with decentralized approaches. However, at the

beginning stages of development, government regulation and commitment are required to

promote development and open new markets and industry. For example, since 2009 the

law in Korea requires new public buildings, including schools, to install a certain level of

rainwater facilities and provides incentives for doing so. Such measures promote the

development of new technologies and innovative ideas such as green filters and eco-

energy devices while also promoting the creation of new markets for small-medium

business such as those in membrane development.

These public policies that are aimed at improving access to new water resources,

contribute to environmental protection and promotion of better practices for wise use of

water through recycled waste water and enhanced adaptive capacity, and by recharging

groundwater aquifers and augmenting surface water reservoirs.

As seen below in the analysis of a city in Korea (graph 8), if this city could collect the

total rainwater throughout the city, this would be equivalent to total water consumption

and address key water issues in the city. Not only from the perspective of economic cost,

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governments need to take actions to manage rainwater and stormwater for the proactive

prevention of disasters, to promote an environmentally sustainable water cycle and the

protection of eco-systems.

[Graph 8] Analysis for Rainfall and Water Consumption in Suwon city, Korea

(Source: Professor Mooyoung Han’s presentation)

Another important source to manage is ground water. The groundwater is important

water resources for local water users. However, land subsidence due to the depression of

groundwater table and saltwater intrusion can be problems (Graph 9). To avoid these

problems and secure eco-efficient groundwater use, the systematic monitoring and

recharge should be implemented under the repeated cycling framework of groundwater

pumping – groundwater depletion – aquifer recharge (Lee 2010).

[Graph 9] Impact of over-pumping of groundwater

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8. Policy Measures for Collective Capacity and Institutional Building

(1) Prioritized Capacity Building Programmes

It is widely accept that well trained workforce through well designed capacity building

programme is the key factor for sustainable infrastructure and sustained economic growth.

Skilled and adaptive people play a crucial role in taking advantage of the potential

offered by the explosion of new knowledge and technical change. Researchers and

technicians are necessary, as is a workforce that can adopt the new technologies and a

general population that can efficiently use electronic products and information services.

Addressing these needs will require developing education and training policies and

capacity building programmes to prepare the appropriate human resources.

However, when we talk about capacity building, we do not clearly indicate what kinds of

capacity building measures should be prioritized in policies for developing countries and

how to enhance the national productivity via strengthened capacities. Therefore, first of

all, developing countries need to prioritize the contents and types of sector for capacity

building programme along with the national development plans.

(2) Establishment of Collective Capacity building

Even though a well-educated workforce equipped with high skills is said to be absolutely

necessary for economic development and sustainable infrastructure development, there is

some evidence showing that more education does not always result in greater national

prosperity (Ha Joon Chang 2010). Below, table 4 shows that a high education level on

individual knowledge did not have much impact on economic growth over the last 50

years. Much of the knowledge gained in education is necessary for quality of life but it is

not always automatically linked to actual productivity enhancement and economic

development in many countries.

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What really matters in the determination of national prosperity is not the educational

levels of individuals, but the nation’s ability to organize individuals into strategic

industries with high productivity. What makes the poor countries poor is not the lack of

individual capacities but their inability to channel the individual capacities into collective

national productivity through appropriate institutions. For example, capitalist folklore

like Edison and Gates could achieve great highs because they were supported by a whole

host of collective institutions (in other word invisible infrastructure) such as corporate

laws, social systems, educational systems, and financial systems that enabled them to

acquire their knowledge and experiment with it.

<Table 4> Relationship between Literacy Rate and Per Capita Income

Countries Literacy Rate Year Per capita income($)

Argentina 91% 1960 378 (1960s)→7,000 (2000s)

Philippines 72% 1961 200

Korea 71% 1960 82 (1960s) → 21,000 (2008)

Taiwan 54% 1961 122

Sub-Saharan Africans

Improved from 40% to 60%

from 1980 to 2004

Fell by 0.3% per year

Swiss Until 1996, university enrollment rate is 16%

OECD average is 34%

Made the successful economic growth despite low university enrollment.

Therefore, beyond the individual capacity buildings, it is important to build a system

(institution) to enable educated people and workers to participate systematically in high

industrial production activities and process. Despite the importance of institutional

building, nowadays our view is too biased towards individualistic capacity building. In

other word, an efficient national system consists of the networks of institutions, rules, and

procedures that affect how a country acquires, creates, disseminates and uses knowledge.

Key components in this creative process include universities, research centers and policy

think tanks. NGOs, private enterprises and the government are part of the innovation

system as well. The mere existence of all of these organizations is not sufficient. What

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counts is the extent to which they are efficiently organized to create, adapt and

disseminate knowledge to the firms, government, organizations and people who put it to

use.

(3) Establishment of Suitable Institutional Infrastructure

Even when we agree that certain institutions are good and necessary, we have to be

careful in specifying their exact shapes and what exact form it should take. For example

what type of bureaucracy or financing systems are good for sustainable infrastructure

development and economic development? Only one set of ‘best practice’ institutions

(which usually mean Anglo-American type institutions) which most countries adopted

may be highly problematic. In this sense, it is desirable to approach that improvements to

the quality of institutions seem historically to have been associated with better growth

performance of infrastructure development pattern with historical and contemporary

evidences.

Less obvious but also important for an effective institutional infrastructure are the rules

and procedures in a society, which in turn determine how decisions are made and actions

taken. These include the relationships between legal rules and procedures, social

conventions, firms, government, non-government organizations and markets.

It is also important to note the additional aspects that not only institutions make an impact

on economic development, but also economic development can also make an impact on

institutions 38 because increased wealth due to economic growth may create higher

demands for higher-quality institutions with greater transparency and accountability and

greater wealth also makes better institutions more affordable. In addition, the issue of the

costs of establishing and running institutions should be not ignored.

38 In the 18th century, the rising industrial capitalists supported the development of banking against the opposition to it by landlords, while in the late 19th and the early 20th centuries, the growing power of the working class led to the rise of the welfare state and protective labour laws, against the capitalists who thought those institutions would bring about the end of civilization as they knew it

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To sum up, it is important to note that addressing infrastructure challenges and

developing sustainable infrastructure is dependent on how well our workforce is

organized into collective entities with high productivity activities and water industries.

Such good collective institutions will contribute to economic development by facilitating

the development of strategic industries such as water, energy, transport, and

communication industries. Therefore, a range of collective institutions that encourage

investment and risk-taking for development of “infant strategic industries” such as a

financial system for “patient capital” to long-term productivity-enhancing investments,

public subsidies for R&D and proper regulation, should be appropriately locked in the

society.

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9. Conclusion

Despite a great deal of progress in infrastructure development for economic growth over

the last few decades, developing countries in the Asia region have still faced three key

challenges for sustainable infrastructure development, namely, securing the sustainable

financing for infrastructure, developing the eco-efficient infrastructure, and fostering the

collective capacity and institution building for complex infrastructure development. The

way infrastructure is designed and built is critical in determining the eco-efficiency and

competitiveness of a country. Infrastructure underpins socio-economic systems and is

also one of the main determinants of resource efficiency and carbon intensity of

economic growth patterns. These are not just environmental problems. Higher energy

consumption, for example, has a negative impact on energy security and economic

competitiveness, and can also affect human security, as shown by the global food and

fuel crisis of 2008.

In order to address challenges of infrastructure, it is one of good approaches to

review the historical patterns and lessons. The actual practices and lessons learned

from the advanced countries from the 18th Britain to the 20th South Korea on how they

successfully developed infrastructure for their economic growth, could be good

policy guides for late comers (catch-up economies) because the policy tools involved

for economic growth and infrastructure development may have changed into more varied

and complex, but the general patterns have remained remarkably true to type.

In this sense, developing countries need to make deep researches and apply the lessons

learned from the historical experiences and patterns to challenges associated with

contemporary development in the Asia region. The historical lessons suggested, as key

policy recommendations, (1) to establish the government-led long-term development

strategy to support and maintain the infrastructure development in a sustainable manner;

(2) integrate the eco-efficiency concepts into national development planning and

production process of infrastructure; and (3) foster the collective capacity and institution

67

building that enable relevant work forces to promote knowledge and green technologies,

beyond individual capacity building.

Facing the deteriorating ecological carrying capacity, climate change, financial crisis and

rising resource price, a paradigm shift is required. Developing countries need to

transform their conventional economic structure, which depending on over-consumption

of natural resources and cheap labours, toward a more green growth development

paradigm based on eco-efficient infrastructure development. Conventional development

of patterns of infrastructure should be replaced with the eco-efficient development

patterns of infrastructure through interventionist policy measures such as (1) promoting

price-tax-budget reform by filling in the gap between ecological price and market price

and the gap between short-term costs and long-term benefits; (2) synchronizing the

infrastructure development with goals of national development plans based on national

priority; (3) fostering and protecting strategic industries for a certain time until they can

have the internationally competitive capabilities to conduct infrastructure development;

(4) acquiring advanced knowledge, green technologies and design to improve

technological infrastructure; and (5) strengthening the collective capacity and institution

building to improve the responsiveness and coordination to changing demands of society,

etc.

We need to recognize that the development of eco-efficient water infrastructure for green

growth is not a conditionality, rather a survival strategy for sustainable growth, climate

change, energy security and food security of developing countries. The current "Brown

Economy" which heavily depending on resource-intensive development path, cannot

continue due to rising resource price. Investing in eco-efficient infrastructure will be a

key driver for economic growth and employment. Providing clean energy, safe drinking

water, mobility and adequate sanitation and housing will also contribute to meeting the

MDGs.

Lastly, policy makers should also note that the eco-efficient infrastructure in the

framework of green growth does not automatically alleviate poverty and address equity

68

and inclusiveness, So is the case for conventional economic growth strategies. Policy for

the development of eco-efficient infrastructure needs to be complemented by other policy

measures directly aimed at improving equity and reducing poverty. Moreover, policies

for the eco-efficient infrastructure cannot be a substitute for sound social policies. Eco-

efficient infrastructure in the framework of a green growth and a green economy will still

require and additional set of specifically designed policies to address health, education,

gender, and other social issues.

69

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