Public discussions about big infrastructure projects always attract plenty of participants who’re impatient with “petty” concerns like opportunity cost, distributional issues, and formal benefit-cost analysis.
They argue that such worries are small minded and lack vision. Where would we be today, they insist, if the mean and unimaginative calculations of bean counters had stopped nation building projects like the Snowy Mountains Scheme or the construction of international icons like the Sydney Opera House?
The same question can (and is) asked about a long list of iconic structures like the Parthenon, the Pantheon, and the Taj Mahal. The benefits are huge and obvious the argument goes; they seem to tower over what it must’ve cost to build them. After all, don’t we routinely build structures today that’re much larger than the Taj Mahal?
Matt Yglesias posed a novel question on Twitter yesterday that’s an interesting way of looking at these sorts of arguments.
Here’s a profound question – do we regret that Ancient Egypt built pyramids?
Unfortunately he doesn’t elaborate, but it seems beyond question that the world would be a poorer place today without the pyramids. They’re probably the best known architectural structures in the world.
Their historical value is incalculable; the major extant ones date from 2670 BC. They also generate huge tourism revenues and associated employment for Egypt.
But the world of 2,500 BC when the pyramids at Giza were built was not improved by these projects. The cost of construction was astronomical in terms of the resources extracted from the population and diverted from other more productive uses.
There was also the cost in terms of death and injury borne by the 10,000 workers it took to build a pyramid. According to the former director of Berlin’s Egyptian Museum, the pyramid workers weren’t slaves but nevertheless endured harsh conditions.
They lived a short life and tomography skeletal studies show they suffered from bad health, very much likely because of how hard their work was.
The benefits – an assured life in the hereafter – flowed entirely to the tiniest of elites. Even then, the efficacy of the pyramid in producing the desired result couldn’t be shown; the only tangible benefit was the belief that it worked.
The rest of the population, including hundreds of successive generations of descendants, got no benefit from the stupendous resources poured into these projects.
The pyramids passed antiquity’s version of benefit cost analysis (Pharoah’s Whim?) because the elite set the rules and put an infinite value on their passage to the afterlife.
But if done at the time in accordance with today’s practise, the benefits would be miniscule relative to the enormous costs; and the distributional consequences would be horrific.
The tangible benefits have all manifested in recent times, say over the last couple of centuries (Napoleon visited Giza in 1798). They’re huge, but from the perspective of 2,500 BC, they couldn’t possibly have been foreseen. Even if they were, benefits discounted from more than 4,000 years in the future would be worthless.
If we don’t regret that ancient Egypt built the pyramids, it’s because we get the benefit without having paid the cost. Those who paid the cost didn’t get any benefit.
Both benefits and costs matter in project selection. Those who accuse cautious governments of “knowing everything about costs but nothing about benefits” invariably know nothing about either.
As I’ve discussed before, citing extraordinarily successful projects like the Sydney Opera House while ignoring failures like the Ord River Scheme is highly selective (see Would we build another Opera House? and Where are the infrastructure white elephants?).
It also suffers from what, for want of knowing a better term, I’ll call the Retrospectivity Fallacy i.e. assuming from today’s vantage point that the planners of the Opera House somehow knew for sure back in the late 1950s that it would become an international icon and the greatest architectural expression of the twentieth century. (1)
The Opera House was a lucky break; almost all attempts to deliberately create international icons fall well short of expectations (see Does Sydney need another architectural icon?).
Careful analysis and evaluation of both costs and (broadly defined) benefits doesn’t guarantee that bad projects will be avoided, but it can increase the chances of avoiding a mistake and of choosing the best option. It can also help us better understand beforehand who’ll benefit and who’ll lose. At the very least, it shows how wrong politicians often get it.
If in some science fiction world they could’ve guaranteed such an outcome, then they could’ve spent a hundred times more than they did and still come out well ahead!