Six Heretical Questions

A heresy is a belief or opinion contrary to the orthodox (usually for religion, but applicable more generally)  Here are some heretical questions in the asset management/infrastructure decision making field.

Heretical Question 1.  Spend better or spend faster?   An economist speaking at the IPWEA Congress in Canberra recently, argued that a greater spend on infrastructure was better ‘performance’. But is it?  Jeff Kennett, former Victorian Premier, complained that 26% of funding allocated for capital construction had not been spent. He blamed over cautious bureaucrats.  Both are focused on the size of the spend – and not what the money is being spent on.   Is this really in the community interest?  Or is this attitude (not confined to Australia) a contributing factor to the increasing evidence that infrastructure funds are poorly planned and many demonstrably lacking in justification? (cf Joseph Berechman ‘The Infrastructure we Ride On’ 2018)

Heretical Question 2.  What is the purpose of infrastructure?  And what should it be?  Wearing our ‘better angels’ halo we say we are building for the future, but is this really true?   If we were, would we not have a well developed vision of the future that we wished to create, and an infrastructure decision process that enabled us to plan to achieve it – and to adapt those plans as changes occur?   Where is that vision?  Where are those decision processes?

Heretical Question 3.  The pipeline.   An economist spoke of waves of capital expenditure and was concerned at the lack of a pipeline of projects that would maintain construction activity in the near future.  Another speaker commented to the effect that Australia should ‘prioritise infrastructure’.  But should it?  Why?  A pipeline of construction projects will ensure work in the construction industry.  But the construction industry represents only about 10% of total employment.  Why should we spend massive amounts of capital to ensure the jobs to privilege such a small section of the economy?

Heretical Question 4.   Multipliers.   You might argue that construction expenditure generates much more by way of multipliers – three times as much according to one speaker.  Really?  Where is the evidence for this?  Many people blithely quote figures such as this, but cannot justify them.  Construction expenditure does create jobs.  ANY expenditure creates jobs.  If the people who receive the income go out and spend it, other people benefit.  This much makes sense.  But how much of a large construction contract goes to the rich who may save rather than spend, and how much of the rest goes to workers who do not know where their next job is going to come from, and thus will tend to save more than spend?  Wouldn’t a permanent maintenance job do more good for the economy than a short term construction contract. Or the same amount of money spent on nurses or teachers?

Heretical Question 5.  Supply driven infrastructure.    Jeff Kennett argued that we would do well to follow up projects with more projects to take advantage of the, now unemployed, workers completing the first job. In other words build infrastructure to provide jobs.  Is this sensible? Tasmania in the late 1980s came to grief over this. With little employment in the North, infrastructure projects were created to provide jobs.  The projects not only provided work for the unemployed in the north, but they attracted others from around the state so that when the  project finished, there was now a bigger pool of unemployed, demanding a bigger project – and so on.  Now most of the Tasmanian population is in the South so the infrastructure was largely underutilised.  As a result of this expenditure, the state came close to bankruptcy.  So, is this really a sensible idea?

Heretical Question 6.  Vision/Plan.   We have a tendency to use these words interchangeably, but is this sensible and safe?   A plan is a set of actions designed to secure a goal or objective.  A vision is an idea of some future state that we would like to achieve.  Affordable healthcare could be a vision.  A set of projects including asset and non-asset solutions could be in a plan.  As technology, demographics, environment, governance and public attitudes change and information is acquired, we would have a succession of plans, all adapting to the current circumstances but addressing the vision.  The vision may be a 50 year vision (even a 7th generation vision) but we would surely not wish to commit ourselves to a 50 year set of projects conditioned by only what we know now.

Feel free to add your own heretical questions.

2 Thoughts on “Six Heretical Questions

  1. Roger Byrne on September 9, 2018 at 7:06 pm said:

    Hi Penny.

    Q1 It is the eveness / flatness of the future programs that are more essential if we are to build resource capability in the key areas.
    Also the 26% is generally caused by a politician saying just build it and there is not the planning in place to enable it nor the contractors / suppliers because we have no pipeline

    Q2 Deliver required / desired / justified / necessary services cost effectively

    Q3. Same answer as above. We need them in all segments of infrastrucuture e.g tunnelling projects are about to bottleneck ,

    Q4. Economists must answer this. Some good stuff done in Canada and elswhere

    Q5. Again a decent planning period of at least 30 years and good project pipelines but only on fully justified projects with good BC Ratios and capable of being funded

    Q6. concur with your ideas on vision and plans ..

  2. These are great questions that got me thinking! Thank you for sharing!
    I do agree with your points that building infrastructure without having a vision on how it is going to be used in future (or without thinking about it) could be quite risky. Unfortunately it happens a bit more often than it should, with justification for infrastructure investments being sacrificed for various political ambitions.
    As to the multipliers for construction industry, the numbers look quite right – according to ABS estimates based on late 1990s stats the construction industry multiplier was 2.866 (!OpenDocument), which is close to 3. I have not been able to quickly find more recent reports on that, but I don’t think it has changed much since then. The industry is still quite labor intensive and still relies mostly on domestic input with output being consumed directly.

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