In the euphoria over the surge in China's investment-driven growth announced last week, many forget that there is a real economic cost to excessive infrastructure investment.
After all, if China has fewer good roads, bridges, airports, and high-speed railways than rich countries do, how can the mainland suffer from too much infrastructure investment?
It can. Infrastructure investment in China is different than that of rich countries because while high levels of infrastructure may cost as much to build on the mainland as in rich countries, their economic benefits are likely to be much lower.
To see why, let's assume that China builds a high-speed railway similar to France's TGV. As someone who has travelled on the TGV, I can say that it is a remarkable train and it may very well create so much convenience for French commuters that it justifies its considerable cost.
But would it have the same economic benefit in China? The Chinese, after all, are as eager to travel in comfort and convenience as are the French, and so shouldn't a TGV line on the mainland provide the same benefits as it would in France?
Maybe not. Aside from the fact that fewer Chinese might be able to afford it, the French are also more likely to put a higher economic value on their time and convenience, in part because of much higher incomes and productivity levels. An hour saved of French time has a greater economic value than an hour saved of Chinese time.
Some egalitarians might dismiss this line of reasoning and insist that there should be no difference in the economic value of time in China and France. But there is. An easy way to see why might be to ask French and Chinese households how much they would pay a month to save an hour of commuter time every day.
