The UK Needs 21st Century Infrastructure, Not 19th

17/07/2012 12:21 BST | Updated 16/09/2012 10:12 BST

Today the government announced £9bn worth of investment into Britain's railways. This will include upgrading track and electrifying several lines. It's good to see the UK's 19th century infrastructure finally brought into the 20th. But if we want real economic growth, shouldn't we be thinking about 21st century infrastructure instead?

The economy of the decades to come will be driven not by bricks and mortar or rails and roads, but by intelligence and knowledge. This is especially true since innovation investment is suffering: recent Nesta research suggested innovation investment had fallen by £24 billion since 2008. There are two types of infrastructure that will be particularly important if we want to invest in the future: smart power grids and super-fast broadband.

Smart grids are electricity networks that use computers and sensors to know how much power is needed at any time across the system. Because they are radically more efficient, they cut fuel bills, and are better for the environment. Research by Ernst & Young suggested that smart grids could save the UK £19 billion on its energy costs, net of the cost of investment. And McKinsey & Company analysis argued that energy efficiency was the best and cheapest way to reduce carbon emission.

Smart grids look like a smart idea. But they won't happen on their own, or at least not quickly. Our regulatory regime for electricity suppliers and providers is focused on price, not innovation, and does little to encourage new technologies. In the United States, President Obama has set up a $4bn (£2.5bn) co-investment fund to back businesses that invest in smart grids. With a fraction of the money we're spending on rail, we could do the same.

Super-fast broadband is the 21st century equivalent of the motorway system. It delivers speeds of 100 megabits per second and more, over 12 times the current average speed UK households experience. At this kind of bandwidth, radical new applications become possible: not only can we send television and web-pages down the line, complex software can be delivered remotely, and factories, homes and offices can communicate seamlessly.

It is hard to estimate the benefits of broadband radically faster than what we currently have, because it has the potential to transform the way we do business. It is certainly not easy to build a neat economic model, as one can when planning a road-widening scheme or laying on an extra rail service. But the potential upside is much larger. Technology gurus like Brian Arthur and George Gilder have argued that the combination of new bandwidth and new computing power has the potential to transform the economy, leading in Arthur's words to a second industrial revolution.

But like with smart grids, if we leave super-fast broadband to its own devices, roll-out will be slow. BT and Virgin Media are gradually deploying to a slower form of "super-fast" broadband, which involves laying fibre-optic cable to each street, but not to every property. The Broadband Stakeholder Group estimates that 90% of UK households could be connected to the fastest type of super-fast broadband at a cost of £11 billion. Government co-investment of just a fraction of the money being spent on rail could go a long way to making this a reality in the UK.

These 21st century investments are not just valuable in themselves. By building them before other countries do, we will also build our industrial base, and our expertise in building infrastructure that others want to buy. The miners and engineers who gained their skills in Britain's industrial revolution shopped their expertise around the world in the 19th century. Taking the lead on these important technologies will allow us to do the same in decades to come.

None of this is to say that traditional infrastructure is unimportant to an innovation economy: the proposed reopening of the Oxford to Cambridge rail line is a great example of how the transport of bodies can lead to the flow of ideas. But if we want to build an economy fit for the future, we need to build the infrastructure of the future, not of the past.