A time for gratitude. The Talking Infrastructure Blog started on July 29 and since then, with the help of Mark Neaseby, Gregory Punshon, Jeff Roorda and Geoff Webb (thanks guys!) we have uploaded 46 posts and attracted 80 comments.
Our thanks to all readers for their presence here and I hope that it has got you thinking more about infrastructure decision making. And for those special readers who submit comments, let me say that I regard each and every one of them as a present and I take great delight in unwrapping them and discovering the truths they reveal. It is a curiosity of the complex world of infrastructure decision making that we can all much appreciate the arguments of others even whilst arguing against!
And if you should choose to use the holiday break for some practical or philosophical reflection on IDM issues -know that the web is always open!
HAPPY CHRISTMAS TO ALL
AND MAY YOUR 2017 BE FULL OF DELIGHTFUL SURPRISES!
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?
I have hesitated to write this on the grounds that I do not know enough. But, on reflection, that is now precisely why I am writing it.
Trying to get clarity on the issues surrounding the decision to (a) support and (b) finance the Adani coal mining venture in Queensland has shown me how little clear and rigorous debate has been reported. I am not saying it has not taken place, and maybe there is a detailed explanation somewhere, but it is not easily to be found.
In public pronouncements on the issue, the Premier of Queensland has publicly justified the decision based on employment figures that are grossly in excess of even the optimistic figures of the company itself. Opposing arguments on economic, social and environmental grounds have been ignored or dismissed rather than addressed. (Although, admittedly, these arguments themselves have often not been clearly articulated or rationally presented.)
It is testament to this lack of clarity that the cleanest account of the issues that I have seen comes from a landowner – Bruce Currie of Jericho – as reported in the Queensland Country Life, 7 December.
- Why is the Federal Government lending $1B to the Adani Group so that it can build a single (private) use 310km railway line from the proposed coal mine to the port.
- Why is the Northern Australian Infrastructure Facility supporting an operation that could threaten permanent destruction of water resources on which the agricultural industry depends, rather than supporting the viabllity of the region by opening up road and rail links for agricultural freight.
To my mind his most telling point is
“This is a project that will not last – within the life time of my children, the coal will be depleted, reliant businesses stripped of supply, the venture closed, miners unemployed, and groundwater supplies especially to the Great Artesian Basin in this area, destroyed forever.” (cf our post of 6 December on the life cycle of benefits)
His points may be right or wrong but surely we should be insisting that our governments, in the interest of accountability and transparency, should address them all – with clarity!
And if they don’t, perhaps we should emulate the French and take to the barricades?
When Nick Greiner, a graduate of the Harvard Business School, became the Premier of New South Wales he declared that Government was ‘Big Business’. It was said that he required a signed commitment from each of his Ministers about the way they were to manage their portfolios and that to properly manage the assets of those portfolios was one of his requirements. I never saw one of these contracts so I cannot vouch for their existence but I do know that it was the Ministerial offices who were first in line for copies of New South Wales’ Total Asset Management Manual. At the time I thought that this ‘big business’ approach was breath of fresh air, particularly as it led Nick Greiner to override the advice of his head of Treasury and to be the first state adopter of accrual accounting. He wanted to be able to compare the performances of his state authorities with large private companies. They used accrual accounting so he figured that the government should as well. This was a good move for better management of public assets so I applauded it. But there are limits to the application of business principles to the work of government, as Greiner himself found out some years later when he was charged with corruption. It wasn’t corruption. What he did would have been considered good management practice if it had been done within a business context. But it wasn’t. (See: ‘An Act of Corruption?’by Michael Gleeson and published by the Sydney Australian Broadcasting Corporation, 1992)
Business looks after its customers in order to make a profit. That is its job. It is not the job of business to care for the environment or for the social fabric of the community or for the damages it causes to others by its actions. It is not the job of business to act on behalf of the citizenry. That is the job of the government. So if government is doing business’ job – who is doing the government’s job? More specifically, who is ensuring that infrastructure is designed for the benefit of the community as a whole? Who can? Unless we know the ‘who’, the ‘what’, is a moot question.
In the last post I looked at the notion of taking the benefit life cycle into account in infrastructure planning. Today I want to raise an equally important issue for infrastructure planners, and that is ‘what do we mean, and measure, by “benefits”?
When the Adelaide Casino was first mooted, many years ago now, the benefit-cost analysis vaunted the new employment opportunities that would be created. The analysis failed to mention how many existing jobs would be lost. The losses included a nearby coffee shop with great ambiance that provided chess sets for customers to enjoy and was well patronised. However, it was unable to compete with the allure of the new casino and closed. Many other small eateries also closed. Later, when the excitement factor of the new casino died down, and customers wished to return, many of these small businesses were financially unable to afford to start up again. They were lost for good. The casino also laid off staff as demand declined. The employment ‘benefits’ were gross, not net, and thus were considerably overstated.
Given that many of our new infrastructure projects are roads, how many of the proposed benefits are similarly ‘gross’ not ‘net’ benefits? For example, how many existing roads now become under-utilised? (And what else needs to be ‘netted out’?)
What examples do you know of where the ‘benefits’ in the ‘benefit-cost’ analysis took these factors into account? Or didn’t?
Most now are familiar with life cycle costs. Infrastructure agencies build detailed and complex models for these costs and, given replacement costs and useful life of components, detailed prediction software is now available. But benefits are a different matter. We have yet to develop a software program for that.
Looking now to current infrastructure proposals, how much attention is paid to the life cycle of benefits? For example, what are the long-term benefits of a new road? Often justification is based on time savings, but how long do these time savings last? Those who remember the early days of the ring route in Melbourne will know that it cut about 30 minutes off the peak travel time from the airport to the city – but only for about 2-3 months – and then it was back to pre ring route time of 60 minutes. Was this ‘benefit decay’ factored in?
Manufacturers and retailers pay a great deal of attention to ‘product’ or ‘service’ life cycles. They seek to anticipate the decline or change in demand for what they are producing so as to be ready to produce a new product or service as the old one hits its peak and starts to decline. They don’t assume that they are ‘building capacity for the future’, for they realise that the future will be very different, and require different products. They seek to maximise the present.
We have been brought up on notions of infrastructure longevity and service stability, but could it now be time to re-think and incorporate more benefit analysis into infrastructure planning?
On Tuesday last, under pressure from Senator Nick Xenophon, the Australian Government committed to overhaul rules about how it spends its annual $60 billion procurement bill to maximise local content.The new rules will take effect from March next year. Under the changes, bidders for government projects worth more than $4 million will need to show:
- How much locally-produced material they will source
- How they are contributing to local employment
- How they are growing local skills
- The whole-of-life cost of the project, not just the build cost
- That the materials they use comply with Australian product standards
The fact that these changes were needed, and that they were resisted for so long, throws doubt on the long held popular notion that infrastructure ‘creates jobs’ and, by implication, Australian jobs. Now there is more chance that they will. The use of local labour and materials and increase in local skills will also improve our ability and reduce costs needed to maintain the new infrastructure.
But, perhaps the most interesting of the new requirements is the requirement for ‘whole-of-life’ cost of the project which will require assessment of the anticipated life of the project, and, hopefully, public discussion of what determines the useful life in a world of rapidly changing opportunities, demands and technologies.
I would like to see an additional requirement – designers and planners should be expected to show how they are actively minimising whole-of-life, or lifecycle, costs.
What do you like – or dislike – about Xenophon’s proposals?
What other additions might improve our approach to infrastructure?
There used to be two economic policy tools – monetary policy and fiscal policy. With monetary policy, we would raise or lower the interest rate to decrease or increase the amount borrowed and spent. It was argued that reducing the interest rate would decrease the readiness of consumers to save and so would lead to more consumer spending and simultaneously increase the willingness of firms to borrow and invest more. But interest rates have hovered close to zero (and in the case of Japan, below zero) for close to a decade and the expected increase in spending – either consumption or investment has not arisen. Despite calls that suggest governments should take advantage of low interest rates to spend on infrastructure, it is noticeable that investors (playing with their own money) are not doing so. The point is that it is only when the economy is healthy that tinkering with the interest rates is likely to work. For a long period after the end of the second world war, that was the case. We simply assumed it would always be the case, but we were wrong.
So, now we are down to one policy tool – fiscal policy. In the recent past governments have been trying to build up their surpluses while simultaneously encouraging the population to do the reverse! Communities have been urged to spend, while governments have struggled to save. But government savings (mostly through reductions in the public service or by outsourcing) has resulted in loss of jobs and, as this has mounted, loss of confidence. So consumers are not spending, they are saving for that inevitable ‘rainy day’. Again, when our economy was healthy, governments used capital spending as a tap that could be readily turned on or off. Recurrent spending was not seen to be so amenable to manipulation. This has morphed into today’s focus on infrastructure with a simultaneous reluctance to spend on the upkeep and operations that are necessary to provide service from that infrastructure. But infrastructure spending during the global financial crisis of 2008, which was seen as so successful at the time, led to severe reductions in spending subsequently in order to pay the interest bills incurred. So a short term gain at a slightly longer term cost.
Are we now down to zero economic policy tools? Are we clinging to the belief that infrastructure spending will save us simply because we know of nothing else? And is infrastructure spending better than nothing?
Thirty years ago the word infrastructure was hardly in the public eye. Today it is a panacea for all modern ills. It can make our countries stronger and richer, it can provide jobs for all, it can save the planet, it can prevent an economic downturn, it can rescue the poor from poverty, it can increase trade, reduce costs of production, and make our cities more productive. In recent times, not only is infrastructure considered to be able to do all of these things, it is seen as the only thing that can. Very much like the promises of the old snake oil merchants!
This is encouraging the public to demand more and more infrastructure (and perhaps all of them with a different infrastructure project in mind) and for governments to spend on infrastructure quite indiscrimantly, without thinking of future consequences. After all, if all infrastructure is ‘good’, it really doesn’t matter what you do. And so we get major 4 and 6 lane highways going nowhere!
So our question today is to ask all our readers:
What should governments be thinking about when they think infrastructure?
As ‘professionals’, economists, engineers, administrators and others have been educated to put emotion aside and concentrate on facts and logic. Moreover, we each have our own set of facts, and our own take on logic. Like a fish, who cannot imagine water, we have been surrounded by this approach all our lives and find it difficult to imagine another. Surely to be ‘professional’ we have to be ‘logical’ and eschew emotion and feelings?
Or do we?
In a future world guided by algorithms written by professionals, do we want the ‘human’ element omitted? It is now seen that lack of empathy for the plight of others on the part of the professional, the ‘educated’ class, was a major factor in Brexit and in the rise of Trump.
Nor is Australia immune from decisions without empathy. If you are sick at heart at the way the Australian Government has been treating those who have committed no crime other than wanting to live in safety, please demonstrate your empathy and caring by responding to the following call from the Asylum Seeker Resource Centre.
Let’s lead with fairness and decency.
In the past week, the Government has shamelessly trashed Malcolm Fraser’s extraordinary refugee legacy when Peter Dutton called the contribution of over 200,000 people a ‘mistake’. George Christensen has gone as far as to call Lebanese Australians ‘the sins of the past’. This effectively invalidates the very people who have helped make this country great.
This, on top of the Government’s unprecedented attempt to ban refugees from entering Australia forever, if they come by sea and a shaky refugee ‘deal’ with the US that has no time frames, no process and no plan in place.
The ASRC are calling this out for what it is – an attack on our values and strength as a multicultural nation. We are better than this.
Help the ASRC to keep fighting. Donate to our appeal
Make your voice heard
Over the past few weeks thousands of people have contacted their MPs and Senators calling on them to stand for decency and vote against the Government’s proposed lifetime refugee visa ban. We need you to make your voices heard and let the Senate know that you want them to vote agaisnt this ridiculous law.