In the last post I referred to the Economist’s idea for infrastructure decisions to be made by a ‘group for building stuff’ as if the real issue were ‘how to build’ rather than what to build – and, even more critically, why to build it – and why now?   It is said that during the depression, people constructed holes and others filled them in again, as a means of keeping people employed and with an income. Now, no one wanted the holes – or they wouldn’t have been filled in again.  But is it any different today, with a desire to ‘build stuff’.  Perhaps we are fooling ourselves that today’s constructions are more community-valuable than those holes?  If so, should we not focus on the value to be achieved, rather than the building of stuff?

The right wing think-tanks make great play with ‘mistakes’ made by governments, not excluding corruption, but ignore the fact that a large proportion of private companies fail, creating havoc for their shareholders and communities when they do. Statements such as ‘8 out of 10 entrepreneurs who start businesses fail within the first 18 months’ and ’50% of businesses fail within five years of inception’ are easy to find on the net (even if rather contradictory). Then there are the spectacular failures of older and large companies either through fraud or incompetence. Recently, there has been a flurry of suggestions that our infrastructure decisions should be made by some ‘group for building stuff’ (The Economist) or Paul Keating’s suggestion of a Reserve Bank for Infrastructure). What is the rationale for thinking that either would be superior?  Comments?

Infrastructure managers have long been perplexed at why more resources are not devoted to maintaining the infrastructure we put so much effort into obtaining.

Perhaps the answer lies in the fact that we really don’t want infrastructure at all, it is merely a convenient means of securing what we do want.  So politicians may want the ribbon cutting and voters may want the promised jobs.  Council CEOs may want the adulation (and subsequent job security and salary increases) that come from winning capital grants.  What no-one particularly wants is the financial responsibility for maintaining that capital over the longer term.

Commuters don’t want a road. Few of us would get much pleasure out of simply admiring a strip of bitumen.  What we do want is to get from A to B. Similarly we don’t want a power plant, or transmission wires, we do want to power up our lights and electrical appliances. Morover we don’t want prisons or law courts, what we do want is to feel safe and to be reassured that justice is served.

We may call infrastructure an asset but, once acquired, we think of it as a liability. While the announcement of a new infrastructure project is usually received with joy and jubilation, once the project is completed and the construction jobs have vanished, the mood changes. Governments, agencies and voters now unite in resenting contributing to ongoing operations and maintenance.  Bi polar!

What’s the treatment?  Bi polar disorder is treated with mood stabilizing drugs. The drugs change perceptions. Highs are dampened, lows are uplifted.  Perhaps the answer for infrastructure is the same?  Stop the nonsense of venerating new infrastructure projects as a panacea for all human ills.  And equally stop  the nonsense of assuming that services can continue to be provided without operations and maintenance resources. Dangerous illusions, both.

Both can be addressed by a better understanding of what infrastructure can and can’t do and a far better understanding of alternatives – this is one of our aims here at ‘Talking Infrastructure’.

And so our question today is:  If you were an Infrastructure Medic – what would you do to dampen the highs and elevate the lows?

A heated holiday case study

Few today would disagree that decisions should be evidence based. But how can this be when decisions on infrastructure are decisions about the future – about future demand and future supply. Consider the following decision about the wisdom of expanding waste incineration capacity in the UK. The facts were not in dispute, but the disagreement was heated.

The facts were these. In Europe incineration had been widely adopted by member states with eight large incinerators burning more than one third of municipal waste. However, re-use and recycling are more profitable as well as sounder environmentally, so countries were doing their best to first, reduce the total amount of waste generated, and then to re-use and re-cycle as much of the rest as possible. The more successful they were in this environmental move, the less the feedstock that became available for the incinerators. Concern then started to grow over excess capacity in the expensive incinerators.

Compounding this problem was the European Commission’s green paper on “A European Strategy on Plastics” that reported that just over 20% of plastics used in Europe were recycled, half going to landfill and the rest going to energy recovery, i.e incineration. The Commission called for 100% collection rate for plastics alongside efforts by manufacturers to use plastics more sustainably and to make re-use and re-cycling easier.

Now this is where the story gets interesting. At the time, the UK had about 18m metric tons per year of incineration capacity (either existing or under construction) and about 27m tons of residual waste – or a gap of about 9m tons, material for landfill. If the EU targets were met, increasing recycling from less than 42% to over 78% it would take out all 9m tons, This was before considering reductions in commercial and industrial waste which were also subject to waste reduction programs.

Development consents had already been given for between 2m to 4m tons of further incinerator development and were continuing to be given.

Over – or under Capacity? This gave rise to a very public, and very fiery, debate between two major environmental consultants. One argued that the UK was headed for over-capacity in incineration, the other said not. Both had access to the same information given above and did not dispute it. So why were they in such disagreement?

1. They were in dispute not over the current situation but the likely future. One argued that heavy oversupply of incineration capacity in Europe would attract feedstock from the UK at more favourable prices than could be offered by local incineration. The other argued that, although there was excess supply in Europe, the export markets were volatile, unpredictable and prices unreliable and this would encourage UK facilities to regain self sufficiency and treat waste at home.
2. They also disagreed on future trends in waste generation (essentially how successful the waste reduction programs would be and how quickly they would achieve their targets).
3. But the most important source of disagreement – and one that can affect any market – was how effective the market will be in sorting out any potential oversupply. Both consultants agreed that market oversupply would have a dampening effect on new development – investors in the early stages of their development would choose not to go ahead when they saw that the market was already full. The difficulty here is how efficient and effective is the market? A perfect market would handle this with ease, but we do not have perfect markets. The consultant arguing for overcapacity said “There is a juggernaut effect as projects reach financial close which means that there will not be an immediate response to reaching capacity. Yes, new project development will eventually tail off- but there will still be a capacity overshoot due to the time lag between changing market conditions and the response to this.”

This dilemma is really about when it becomes obvious to the players that the market is already full. When can they ‘see’ it? Those who can remember when fried chicken shops were first introduced in Australia will recognise this juggernaut effect – for a period we were swamped with fried chicken shops. Over half of them were subsequently closed. However, it wasn’t until this oversupply was visible that new construction tapered off. Perhaps not so important with chicken shops, but with large and expensive public infrastructure it is a different matter.)

What are the important lessons from this story?

Analysing demand side data, unlike supply side asset data, is a matter of opinion rather than fact, because we are not looking at what is, but what might be. This is not so much a matter of evidence, but a matter of inference. It requires trend analysis and understanding markets.

In July, I went to Bali on holiday.  I took my laptop, my iPhone and my iPad, admittedly, a  trifle excessive, especially for a holiday.  The airline then lost my luggage containing the charger cables for these devices and I was effectively ‘offline’  – for 3 days.  Did I just kick back and enjoy the beautiful surroundings, the water, the massages and the respite from my inbox?  After all, I was on holiday.  Or did I fret?

Does the thought of being ‘unconnected’ fill you with dread?  I thought of this experience whilst catching up with an article in the Guardian (from August 11, 2015) by one of my favourite authors, Brett Frischmann (“Infrastructure: the social value of shared resources”) He was suggesting that with the ‘internet of things’ it may soon become physically impossible for us to go ‘offline’. For many of us, I reflected, it may already be emotionally impossible. I was intrigued by the term ‘digital gerrymandering’ to reflect the way that Facebook, Google and others ‘influence’ us.  But I was especially taken with the following proposition by Frischmann and his co-author, Evan Selinger:

“The internet of things is envisioned to be a “programmable world” where the scale, scope, and power of these tools is amplified as we become increasingly predictable: more data about us, more data about our neighbours, and thus more ways to shape our collective beliefs, preferences, attitudes and outlooks. Alan Turing wondered if machines could be human-like, and recently that topic’s been getting a lot of attention. But perhaps a more important question is a reverse Turing test: can humans become machine-like and pervasively programmable.”

Brett speaks to this idea in a  short interview on YouTube

The question that this raises for me is:  in this programmable world, how valid are our ‘community consultations’? Is there any role left for us, as  citizens, as community, to impact infrastructure decisions?

Talking Infrastructure has recently been working in the Pacific Islands, assisting Auditors-General to design and implement infrastructure management audits. The infrastructure problems experienced in the Islands are those that we, in developed countries, also experience – but magnified a hundred-fold, making them valuable learning for all.

With the exception of Papua New Guinea, the Pacific Islands (21 of them) are small, both geographically and in terms of population. Their ability to provide infrastructure to their people is extremely limited and they rely on international donors such as Australia.  How effective is this donor ‘help’?  Questionable, at best, especially when donors choose their own designs, fly in their own workers, provide their own materials, and – in some cases – even to provide their own food for their workers.  When this happens, the local community not only gets little or no benefit from the actual construction but, by not being involved in the construction, they are limited in  their abilities to  maintain.  The structures then degrade more rapidly and the use of  imported materials means that repair and renewal is often prohibitively expensive. Whilst, in principle, donors are required to co-ordinate decisions with the local communities, this rarely happens in sufficient depth to avoid the worst of impacts – such as the design of the fully air-conditioned building that required operating and maintenance costs seven times the budget of the agency to which it was ‘gifted’. (To say nothing of its draw on limited power facilities).  It is hardly surprising that the Islands have developed what is called a ‘build-neglect-rebuild’ approach to infrastructure. (See ‘Infrastructure Maintenance in the Pacific, challenging the build-neglect-rebuild paradigm, by the Pacific Region Infrastructure Facility (PRIF))  Under the circumstances, this may indeed be considered to be a very sensible (even necessary) infrastructure management strategy.

This is a problem that needs urgent addressing in the Islands.  But when we think about it, the same practices are occurring here in Australia and in other developed countries where one level of government provides capital funds (and also many of the decisions on what is to be funded) and a lower level of government, with far fewer resources, is left to pick up the ongoing costs.

Question for consideration:  What can we do, in our everyday decision-making, to at least moderate the worst impacts of capital decisions made at one level with O&M at another?