Inadequate infrastructure hurts the ability of low-income populations to lead safe, healthy, dignified and productive lives. Consider three varieties of such infrastructure:
• Physical infrastructure (transportation, power, communication and public distribution systems); • Social infrastructure (education, healthcare, drinking water, sanitation);
• Business infrastructure (IT, office space, finance). Weak institutions prevent interaction between low-income communities and businesses in organized markets. Examples of such institutions include:
• Organizations capable of matching workers’ skills to businesses’ requirements;
• Agencies generating authentic information about markets;
• Networks extending enterprises’ market reach;
• Independent regulatory institutions. Consider the impact such infrastructural and institutional deficits have on businesses and communities: Increased transaction costs. Poor-quality infrastructure forces businesses to resort to expensive alternatives to gain access to markets or to source inputs, thereby increasing their transactions costs. In extreme circumstances, businesses may decide to shut down some operations. As a result, local communities lose access to several organized markets linked to operations in that region. Moreover, increased costs of completing transactions within organized markets compel consumers to continue buying and using products and services in black or gray markets.
Information gaps. Businesses cannot acquire timely data on markets they want to serve and talent they want to hire in particular regions in a timely manner. Lack of such information erodes their profitability. Moreover, locals lose out on employment opportunities, even if they have the right skills, because businesses have no information about their abilities.
High cost of market entry and exit. The absence of independent regulation and transparency exposes businesses to arbitrary policies and regulations, which can stall their entry into or exit from markets and compel them to stay in even highly unprofitable markets. In both cases, local populations suffer. In the first case, they miss out on organized opportunities to develop new skills and secure alternative employment opportunities, owing to the lack of incremental investment in the region. In the second case, companies may be forced to withdraw some of their activities aimed at imparting skills and employment opportunities to local communities.