John Kay - Why do we need to pay billions of pounds for big projects?

Why do we need to pay billions of pounds for big projects?

The London Olympics of 1908 cost £20,000. The budget for the austerity games of 1948 was £750,000. The current estimate for the cost of the Olympics in 2012 is £11bn.

This escalation in price is extraordinary, but today big schemes seem to imply very big budgets. The earliest underground railway lines in London – and the world – cost half a million pounds a mile to build. Roughly, you can assume that average prices in Britain multiplied by 10 between the Victorian era and 1960, and by another factor of 10 in the 50 years following. The cost of the Victoria line, built in the 1960s, had risen in line with general inflation and came in at about £7m per mile.

This, however, now seems an astonishing bargain. A decade later, the Jubilee line cost £36m per mile to build and its extension in the 1990s 10 times as much. The tunnels for Crossrail, the newest underground railway connection in London, are budgeted at almost £1bn per mile. The explosion of the cost of mega projects appears to be a phenomenon of the past 50 years. The Forth Bridge, an engineering marvel that connects Edinburgh with Fife, was completed in 1890 at a cost of £3.2m. The parallel road bridge erected in the 1960s cost £19.5m – broadly in line with general inflation. The budget for a third crossing is currently £1.6bn.

The Victorians were cavalier in their view of human life and the rights of – most – people who lived near these huge schemes, in a way we could not now accept. Perhaps 100 people died building the first Forth Bridge and many more were injured. The major change in social attitudes occurred long ago, however; for the second bridge, casualties were reduced by more than 90 per cent.

In the Victorian era, the men behind great projects had a strong sense of public mission but there were always many snouts in the trough.

The Brooklyn Bridge, completed in 1883 at a cost of only $15.5m, linked the Tammany Hall fiefdom of Boss William Tweed with the Brooklyn stronghold of Boss Hugh McLaughlin. That bridge was built by a private company, as were the Metropolitan line (the first London Underground railway) and the Forth Bridge. Similar projects go ahead today only if underwritten from the public purse.

The history of major projects, from the Victorian era to our own, is that contractors and financiers prosper at the expense of the stockholders or taxpayers who put up the cash.

A plethora of consultants is attached to every modern project, and although the purpose is to ensure more cost effective management, it would appear that this hope is not fulfilled. Only a few global firms are now perceived as capable of running mega projects, and they are hired by often inept public sector purchasers. These clients change their minds frequently and are prone to insist on idiosyncratic specifications.

Perhaps the principal culprit is technological overkill. The argument that we need the best and latest is powerful in political decision making, even among people who would never behave that way in their everyday lives.

We see the same phenomenon in medicine and military hardware. Real, but marginal, improvements may add greatly to the cost. The British aircraft carrier, HMS Ark Royal, torpedoed and sunk by the Germans in 1941, cost £3m to build a decade earlier. A later Ark Royal, launched in 1981 and decommissioned in 2011, cost £250m: new British carriers today are budgeted at £3.5bn and rising. The ships have become massively more sophisticated – yet an aircraft carrier is, fundamentally, a very large floating platform. The decommissioned Ark Royal is currently awaiting its fate, after spending a year on the government website edisposals.com. It may still serve a purpose in future, although probably on dry land – perhaps as a nightclub, a school in China or a casino in Hong Kong.

Perhaps technological advance has reduced rather than increased productivity, by offering enhancements that do not represent value for money. The result is that major projects cannot be afforded or, if they are afforded, squeeze out smaller advances that would add more to human welfare. To start with, we need to take a much tougher line with the proponents of Edinburgh’s £1bn tram, the Royal Navy’s £5bn ship, the £11bn Olympics, and the planned £30bn high-speed train.

 

[ RSS feed for comments on this post. ]