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.
Questions today:
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.
Understanding how we make choices is at the core of a new site that MIT has created, ‘The Moral Machine’. Gregory Punshon referred to this site in his recent post in which he wrote about a decision made by Mercedes-Benz that, in the event of a collision between one of their self-driving cars and a bystander, the car would be programmed to protect the life of the passenger. Gregory noted that prioritising passenger lives is attributed to there being more control over the passengers’ situation. This choice is one of the many trolley problems that arise for us when machines are given ‘intelligence’.
The Moral Machine’s interest in decision making is concerned with machine intelligence.
‘From self-driving cars on public roads to self-piloting reusable rockets landing on self-sailing ships, machine intelligence is supporting or entirely taking over ever more complex human activities at an ever increasing pace. The greater autonomy given machine intelligence in these roles can result in situations where they have to make autonomous choices involving human life and limb.
This calls for not just a clearer understanding of how humans make such choices, but also a clearer understanding of how humans perceive machine intelligence making such choices.’
I think it calls for more than that. Who, in the choices to be made in this coming digital infrastructure world, is weighing in on the side of community wellbeing? Who is speaking for ‘the common man’? Silicon Valley speaks for the technicians who are inventing new devices. Wall Street speaks for the businesses like Mercedes-Benz who stand to make a profit from them. But who speaks for us?
In a wiser world, this would be the politicians that the people elect to represent them, but they do not seem to be doing this. Where do we now look?
This is not only a problem for the management of machines. Paul Keating’s idea for a “Reserve Bank” for physical infrastructure (see the last post) raises exactly the same questions.
What is the difference between handing over infrastructure decisions to an unaccountable body of private sector financiers and public servants and handing them over to machines? How should decisions involving the disposition of community taxes and the future directions of community wellbeing, be made?
How are we going to make choices?
And Who should get to make them?
A few days ago, the former Prime MInister, Paul Keating, came out with a proposal for a ‘Reserve Bank for Infrastructure’.
“What Australia desperately needs is a Reserve Bank of infrastructure, that is a public body that nominates the big projects and then gets them going, that’s what I’d be doing.”
On line comment was generally favourable. The idea of taking infrastructure decisions out of the hands of politicians (but putting it where exactly?) was also well received. We don’t trust our politicians. But is there any other group that we do trust? Bankers? Professionals? Overseas Investors? Big Business? (Who would fill the ‘private’ slots in the proposed public-private RB?)
Only one commentator thought to ask exactly what infrastructure Keating had in mind, and what growth might result from it. Which is to my mind the real issue with infrastructure decision making – we don’t know how to do it. If we had clear criteria on what constituted a ‘good infrastructure investment’ then we could leave it up to a professional group to determine. We could even leave it up to a computer algorithm!
Two questions:
How might such a ‘Reserve Bank’ work – and in whose interests?
If such a RB were to be established, what rules would you like to set for it?
In the early days of asset management, enthusiasts, seeking to expand the boundaries of their craft, would argue that we should consider people as assets. At the time it was meant positively. For example, if you invest capital in an employee’s training, then you need to maintain that capital by providing opportunities for practice and maybe refresher courses, or the new skills and learning will gradually fade and disappear – or depreciate.
Others, however, argued that thinking of people as assets was unwise. Assets are a means to an end but people, in any civilised context, are the end in themselves. People are citizens. Public infrastructure, in particular, is to serve the citizenry.
We lose sight of the ultimate end game – the wellbeing, strength and resilience of our communities – when we focus on people as merely cogs in a production machine.
Moreover, if we are to cope with future change – political, demographic, climate and technological change – we need people who can respond imaginatively, can be flexible, and can innovate, not for personal gain alone but for the sake of the community as a whole, to be part of civic improvement. So important for infrastructure decisions.
Which brings me back to Virgin (see previous post). But not only Virgin. To all companies that treat their people as cogs in a machine, and to all governments that do the same. Companies can change, governments can change, but it is unlikely that change will come from within.
Where then does change come from? I am reminded of a comment by Michael Breen in an online forum on change that I ran many years ago. It was shortly after the death of Princess Diana and, in answer to the question of where change comes from, Michael referred to the strange thing that happened at Princess Diana’s funeral. After the eulogy by her brother, the very upright audience clapped. (This was completely not ‘the done thing’ at a solemn state funeral!) Michael observed that the clapping at the church ceremony started outside in the park. The insiders were too culturally bound to change things – even spontaneously. The outsiders were less bound, and therefore more able to be spontaneous, so much so that the inside people were able to ‘join in’. So the ‘opinion makers’ were able to change their behaviour with permission from commoners outside the elect group.
Question: As ‘commoners outside the elect group’, what can we do to get the positive change that we need to ensure that the infrastructure decisions we make will serve our future well?
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