It started with demography: at a conference in early July at the Central Bank, Eddie Casey of the Irish Fiscal Advisory Council warned that, by 2050, the costs of looking after Ireland’s elderly would result in much higher taxes for everyone else.

I posited that bringing in about a million additional workers would do the trick. Then the following week I talked about how a million workers would qualitatively improve Ireland. 

Finding extra workers would not be hard. Visas could be offered to everyone who can wire a house, design a bridge, or graduate from one of India’s top 50 universities.

But there’s an obvious objection to all this: Ireland is full. Not in terms of space (it’s the seventh emptiest country in Europe). But in terms of stuff. The housing crisis is the clearest manifestation of the problem. But the problem is bigger than housing. We don’t have enough stuff per person. The “Ireland is full” crowd has a point here.

But the thing about stuff is, you can always make more of it.

The blind leading the blind 

To be fair to Ireland’s overstuffed houses, the population of the country has risen very quickly in the last twenty years. Between 2000 and 2021, the population of Ireland rose 32 per cent. That’s the fastest growth in the European Union. 

Before 2000, Ireland spent the previous 150 years gently depopulating. Unlike say Northern Europe, Ireland hasn’t got a lot of experience building liveable urban areas. 

The IMF’s assessment of Ireland’s infrastructure confirms this. An assessment in 2017 found the quality of Ireland’s public infrastructure was out of sync with the amount of money spent on it. 

This is all very discouraging. But the good news is: we’re terrible. It’s easier to improve from here. There are obvious things we can do to get more bang from our capital investment buck. 

I speculate that part of the reason Ireland is bad at building is because it hasn’t had to be good. The other part of the reason is that it’s an English-speaking country and, for whatever reason, English-speaking countries are bad at building infrastructure cost-effectively. 

This was one of the first findings of the Transit Costs Project, which studied in-depth the cost of building 1km of subway in different parts of the world. The worst performers were in the US, New Zealand, Hong Kong, Canada, Singapore and the UK. Ireland would no doubt be up there if we had gotten around to building one.

Why are English-speaking countries bad at building infrastructure? The authors of the Transit Costs Project say it’s because they look to each other for best practice. The US is pretty good at a lot of things, and taking one’s cue from US best practice is usually a good strategy. But the US is bad at building infrastructure. The blind are leading the blind.

When it comes to building infrastructure, we should be looking to Europe for leadership. Spain and Italy can deliver a 1km of subway line for about ten per cent of the cost of New York’s recent 5th Avenue subway extension. 

Ways forward

The US is bad at building infrastructure but it’s good at figuring things out and coming up with solutions. The Transit Costs Project is based at New York University. Another new paper from economists at Yale, Columbia and UC Berkeley universities sheds more light on what’s going on.

The Transit Costs Project was undertaken by transport researchers. The more recent paper uses the methodology of economics, but builds on the methods of the Transit Costs Project.

The paper was trying to understand why US procurement costs were so high. In the US, the inflation-adjusted cost of building a mile of road tripled between 1960 and 1980. Procurement costs amount to 25 per cent of all government spending in the US.

Their methodology was to reach out to officials and contractors involved in road building across 50 US states and ask them what they thought drove high costs. Then, they built a database of how much road projects cost per mile. And they looked at what survey responses were correlated with high construction costs, controlling for other factors such as weather.

The paper found two big factors associate with higher costs. The first was the quality of officialdom. In states with well-staffed and well-regarded departments of transportation, projects got done much more cheaply. States with a “neutral” rating for the quality of their officials had almost 30 per cent higher costs per mile than one whose officials were rated “moderately high quality”.

The second factor was competition. The more contractors bidding to win projects, the better. The report found that an additional bidder for a project is associated with 8.3 per cent lower costs. 

Why might that be? It might be simply that contractors are forced to take smaller margins in the presence of competition. But as well as that, competition forces companies to be lean and efficient. In places where lots of people are capable of building roads, road builders will be better than in places where not many people are capable of building roads.

What does this mean for Ireland? The first point is obvious: make sure we have enough officials and that they’re well-paid and well-regarded. This was also a conclusion of the transit costs project. That report found that infrastructure was delivered much more cheaply in places where there were technically trained officials handling key decisions. In their absence, decisions got fobbed off to consultants, who didn’t care as much about delivering value for money. When the state is investing billions on infrastructure, competent officials are a good investment.

When it comes to competition, the paper stressed that the state has an important role to play. It found that places that actively courted more bids ended up with much lower costs. It found a one standard deviation increase in bidder outreach was correlated with a 17.6 per cent decrease in costs. 

The right lesson

Ireland isn’t the US and it doesn’t have a thick market for contractors. But over time, we can expect to get better at this. We can attract more contractors. Our officials can take on more responsibility. Our contractors can get more efficient. 

The Children’s Hospital is an incredibly high-profile failure of procurement. We can take one of two lessons from it and I hope we take the right one.

The wrong lesson would be for officials to cover their behinds, and refuse to ever take any risk on a project again, lest they fail publicly and ruin their careers. This would be a disaster. The lesson from successful capital investment programmes, according to the Transit Costs Project, is that the state should take on as much risk as it can on these projects. Offloading risk to contractors is a short-termist behind-covering measure that ultimately results in much higher costs.

The right lesson to take would be to say that the Children’s Hospital, as expensive as it was, is only the first step in a much bigger capital investment programme. We can only expect to get better at capital investment by doing it, by failing and adjusting, and getting more efficient. Let’s stick at it.

Having enough capacity to bring in extra workers would be the icing on the cake. Whether we do that or not, it’s a national imperative that we figure out how to get good at building stuff.