Visualizing the Prioritization of Infrastructure Development

MANAGI Shunsuke
Faculty Fellow, RIETI

New value index

An index which gives insights into the prospects of the region in which one resides has been proposed. Known as the Inclusive Wealth Index, it is a simple index showing in monetary units how the well-being and happiness of future generations can be secured. The Inclusive Wealth Index is the outcome of the United Nations (UN)' wealth measurement project. It adds together produced capital, education capital, health capital, and natural capital, and is adjusted by total factor productivity (TFP), which reflects damage caused by climate change, capital gains stemming from rising crude oil prices, and technological advancement. The approach of the index has already been introduced in "New Economic Index ‘Inclusive Wealth’: Placing Importance on the value of education, health and nature," May 9, 2017, Nihon Keizai Shimbun.

The UN Inclusive Wealth Report 2017, which I presented as a representative, shows that this wealth is different from the level of happiness which is often used in discussions. The vertical axis of the graph shows the past average levels of happiness of individuals. The higher the country is positioned, the greater is the population who answered that they were happy. The horizontal axis shows the per capita inclusive wealth growth rate. The correlation is fairly loose, and it does not show a strong relationship. The report details the importance of calculating the accumulated inclusive wealth for the evaluation of the sustainability of a region.

Figure: Relationship between Happiness Levels and Inclusive Wealth(Urban Institute and UNEP, 2017)
Figure: Relationship between Happiness Levels and Inclusive Wealth(Urban Institute and UNEP, 2017)
[Click to enlarge]

Here, I will introduce the results of my latest book, showing what became apparent when examining the issues of sustainability in regions of Japan. First, it was shown that from 2000 onward, the sustainable growth rate has been rising but not in a small number of regions, including Aichi prefecture.

Generally, the decline in sustainability in core cities, which have concentrated populations, is not often discussed, yet it is those places in which sustainability is in decline. In certain cases, the fact that some rural areas are sustainable can be an opportunity to reconsider discussions on regional revitalization. At a more detailed local level, sustainability is being maintained in regions such as Tokyo, which have extreme concentrations of population due to labor mobility. In western Tokyo and some remote islands, the reduction seen is recognized as a realistic result.

Also, the ordinance-designated cities, which are convergences of core cities, have experienced declining sustainability since 2000. In many cases, the loss of human capital, which shows educational and health values, is a main factor in the decline of sustainability.

Searching for strengths: Automated driving, value of nature?

Produced capital is that which is normally referred to as capital, and includes machines, buildings, and infrastructure. Technological innovation plays a large role in the expansion of this produced capital. In Japan, reconstruction of urban development, in particular, automated driving, is drawing interest as a main form of infrastructure of the future (See "Social Challenges of Automated Driving: From the development of AI technology to the development of relevant rules").

Large gains can be obtained through optimum management. It is shown that, in the future, if congestion could be eliminated through automation, it would be worth around 20 trillion yen. From the perspective of infrastructure policy, this cannot be ignored. Furthermore, the value of fully automated driving, which is expected to be achieved through the application of artificial intelligence (AI) technology, is around 190,000 yen per person. While around half of the Japanese population intends to buy such a vehicle, in the current situation, the understanding that there are more obstacles is a reasonable conclusion when viewed against the actual facts. At the same time, it shows that there is a demand for convenience which is able to solve the problem of congestion, however, it is recognized as a demand that cannot be satisfied with the current level of technology.

Similarly, regions which specialize in nature can be rated highly. In other words, from the size of natural capital, which shows the value of nature to inclusive wealth overall, we can see the level of actual excellence in environmental aspects in the regions. From the results of regions which specialize in the value of nature, we can see that some of the remote islands show large values.

In general, from the perspective of population decline, it is difficult to see if remote islands are sustainable. It is recognized that, in reality, many islands face a difficult future. Among them, I show the historical circumstances of the way in which Yakushima and Sado islands accomplished sustainable growth. Put in other words, sustainability of many other remote islands, in which it is difficult to see the special characteristics, is possible by showing the importance of leaving beneficial capital to future generations.

Prioritization in future developments

When considering domestic local infrastructure, industrial infrastructure, agriculture, forestry and fisheries, and national land conservation aims, it is important to think about how infrastructure can be constructed effectively. With current infrastructure investment levels as the baseline, I conducted a simulation which took into account the serious social phenomenon of population decline and the low birthrate and aging population. The results of each region showed that Kyushu has the highest future value, while Tohoku has the worst outlook. These are results which take into account the order of priority from a macro perspective when thinking of future investment choices and concentration.

Frequently, we hear the opinion that private capital and know-how should be used through private finance initiative (PFI) in financing infrastructure investment. In reality, PFI is a valid solution for infrastructure maintenance and renewal. However, it is only limited to cases in which there is business feasibility (sustainability as a region) and cannot be used where there is no feasibility. The question is whether or not the business feasibility in this official relationship is sustainable from the perspective of inclusive wealth. It can be said that, in the future, within a limited budget, the order of priority will be established from the perspective of further enhancing welfare. It is necessary to proceed with infrastructure development in each region while considering the comprehensive well-being of inclusive wealth.

June 7, 2017
  • Managi, Shunsuke, Valuation of Well-being: Construction of the Inclusive Wealth Index, Chuokeizai-sha, 2017
  • Urban Institute and UNEP. 2017. Inclusive Wealth Report 2017.

June 19, 2017