Railroading capital spending..

IScreenshot 2014-08-30 07.35.11nfrastructure investment is a huge business. Worldwide there are estimates that upwards of a trillion dollars extra per annum are required in investment in water, power, sewerage etc. Total global infrastructure needs are estimated to be of the order of $60tr over the next couple of decades.  The changing regulatory environment, combined with weaker banking systems, and the need to find attractive returns for pension funds are also combining to make financing of infrastructure more complex and involving more partners. Globally infrastructure has been a good bet for investors. Infrastructure and related indices are consistent outperformers over equity and bonds. So what does all this have to do with Ireland ?


sliders_suisse_transportDespite what we might think, and perhaps surprisingly, we have good infrastructure here.  Every year the global competitiveness report produces a survey of perceptions on infrastructure. We perform well. On a ranking of 1-7 where 7 is global leader we score an overall 5.2 – Switzerland, Hong Kong and Finland are at 6.6. Our overall infrastructure is seen as being approximately the same overall as that of Australia, the UK or the Baltics. Not world class, mostl pretty good. It is not markedly worse, in perception, to that in Japan, Belgium, or the USA. This “pretty good actually” is across the board : roads, , ports, air traffic are all at or around the overall, rail is poorer, we are world class in electricity. Overall, we are actually fairly well found in infrastructure. Much of the capital improvement has been on roads in teh last two decades. A drive from Dublin to South Kerry that took in excess of 6 or sometimes more hours is now four and a half. The drive from my home in Kildare to UCC is about 2/.5h. We have very decent fixed line telephony- there was a time younger readers will be shocked to know, when one could wait months for a telephone to be installed. We have reliable secure electricity supply, adequate ports and airports, and so on. Thus, the calls for increased infrastructural spending which come about every year in the run up to budget time, these should be treated with the exact same degree of caution as the calls from any other lobby group. The CIF and its fellow travellers are as much or as little a lobby group as are ISME or the ICMSA. We cannot have lobbynomics dominating. 


800px-Map_Rail_Ireland_Viceregal_Commission_1906The arguments put forward for increased capital spending typically are one of three ; we need this thing, building this thing will generate X jobs, this thing is a good investment.  We might cast a cold eye on all these.  While we may need a thing, the thing we need and the thing we get are often far apart. The phaoronic tendencies of planners and engineers need to be curtailed. Take roads. We have a shiny new motorway, the M9. This has a capacity for 40,000 vehicles per day and is carrying 10,000. The new Gort to Tuam motorway will carry even less, 8,000 per day. 2+1 carriageways, combined with  one-way bypasses of congestion points opening in the appropriate direction according to traffic flow patters would alleviate most remaining problems.  We have continued investment in peripheral but political rail routes despite in some cases only  a few dozen passengers  per day taking these. Not all capital spending makes sense. There is a compelling economic case to consider a further radical culling of the rail system, combined with increased targeted investment in what remains. This would be a shame – we had a dense railway network once but then we also had a thriving barge and drayhorse industry. It would take me 50% longer involving multiple train changes and cost 50% more for me to go by train to Cork than to drive. I already pay tax to support the capital investment in Irish rail, I have a car, so the relevant cost is the marginal one. This indicates the terminal state of the railways. We should cull them to a single high speed electrified east coast line from Belfast to Dublin and Cork with a spur to Rosslare. The days when the railway went to Valentia island and Glenties were the days when there were few private cars and fewer roads on which to drive them. Romantic though it may be those days are gone. 

public works jpegCapital spending has two effects. One is pure Keynesian effect – the money spent on building the thing. The other is an induced effect- how more efficient or effective is the economy post the thing. Note that even if these are negative there may well be good social (but more usually political) reasons to go ahead. The problem we have is that while the first is easy enough to measure the second is much harder. It typically involves heroic assumptions about what people will do  with the 20m saved on a road, or the increases in total factor productivity arising from a new power station etc. All too often also we see cries for what are in effect subsidies. Again, these are not in and of themselves bad, if they are there for a social or some market failure reason. But we should be clear as to why we wish to, say, increase broadband in rural areas. The economic effects, if any, will be slow and hard to calculate, but the social and political effects are strong. We need to be clear and upfront that some capital investment is disruptive – we want jobs and we want electrified dairy parlours, but we seem to be confused as to how to get the electricity – pylons are unsightly but underground is vastly more expensive. We want cheap, pretty, low impact high deliverable power distribution.  

A recent IMF working paper casts a lot of doubt on the efficacy of public capital drives. These should not be confused with the regular “ticking along” of capital spending, but are instead the government popularised rapid ramp-ups in spending on particular areas.  It finds that these drives have little long-term impact on economic development. This may be more pronounced in lower income than higher countries but a great deal of evidence also exists on the issue of how one uses capital versus how much one has.  A road that is not used is money that could be used for a slightly less fancy road that would be used (but perhaps not in a marginal constituency).   We need less glamour and more pedantic capital spend. When the Greens were in power, doing incalculabe damage not just to the economy but to the cause of environmental politics in Ireland, they had a chance to do pedantic. Instead of engaging  in the Siege of Stalingrad, sorry Poolbeg, they could have insisted that all new build houses had renewables. Want to build a one-off home? Coat the thing in solar panels, put in groundwater heating, a turbine and make it passive. These lay within the power of the Minister for the Environment via building regulations. Instead we got him sleeping through the bank guarantee, hunting stag hunters, and incenetaring his party. And John Gormley is one of his generations most able, effective, honest and passionate parliamentarians.

Pedantic, technocratic, sensible, slow, unglamorous, these are not things that the Irish politician wants to engage with. Strokes, cute hoorism, shape throwing, doublespeaking and lurking around funeral parlours, these things we reward. And we wonder why we get what we get? 

This is a expanded version of my Irish Examiner column of 30 August 2014


One thought on “Railroading capital spending..

  1. Pingback: The future of railways | Irish waterways history

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