Stories
The annoying thing about Ireland’s ropey infrastructure is that we haven’t been slow to fund it.
According to a 2017 analysis by the IMF, Ireland spent the seventh-most in the world, per person, on public infrastructure. The same report ranked the quality of our infrastructure as the 14th best in the world.
It’s important because Ireland’s population has grown very quickly in the last 30 years, and is forecast to grow very quickly in the next 20. We need to get good at building things.
And something is going wrong with how we do it.
With Ireland, the key question isn’t how much we’re willing to invest in hospitals, rail and schools.
The key question is how we build our infrastructure. What is it about Ireland that causes us to get such poor bang for our buck?
It’s an impossibly big question to answer because it encompasses every department and function of the state.
But I hope by looking at one important infrastructure project — the plan to build a metro between Dublin City centre and Dublin airport — we can shed some light on where we’re going wrong.
The latest iteration of the metro was announced in July. It’s forecast to cost €9.5 billion — that’s about €500 million per kilometre of underground. And based on our track record, you can expect the forecast price to undershoot the final price.
We can say MetroLink is going to be bad value because of the work of this week’s guest on The Currency podcast, Marco Chitti. Marco is an expert in transport infrastructure investment. Specifically, he focuses on best practices in transport investment, and how countries tend to go wrong.
Chitti and his colleagues at the transit costs project have gathered data on subway construction costs all over the world.
The average subway, they found, costs about half the forecast cost of Dublin’s metro link, at €250 million per tunnelled kilometre. Why is this?
You might think Dublin’s Metro will be expensive because Ireland is rich and expensive. But in their data, Chitti and his colleagues found zero correlation between a country’s wealth and the amount it costs to build its subway networks. There’s something else going on.
The problem, said Chitti, is common to English-speaking countries. “I think part of it is the political system,” he said. “It tends to produce so much paperwork, and so many studies, and every kind of this preparatory thing, before really jumping into the project.”
Another problem is politicians getting involved – something we’re familiar with in Ireland. Politicians make demands. As Chitti put it: “I want it deeper, I want it out of sight, I want it built in a way that’s more palatial. Because my community deserve it.”
Then to make matters worse, English-speaking countries copy each others’ bad practices. Instead of copying the Italians or Koreans, we look to the UK or the US.
It’s common to think about the size of the state in terms of its budget. There is this separate concept of state capacity, which broadly means the ability of the state to get things done. Can it win a war, educate a four-year-old, build a tunnel?
Chitti argued English speaking states deliberately weakened themselves during the Thatcher/Reagan era: “One of the big reasons that costs are very high in the Anglosphere, is that state capacity was emptied out in the 80s and 90s. Everything has been outsourced to the private sector. So everything is done by external consultants. There is a lot of this in the government sector. The civil service is retained just a function of supervision, but without often having the technical capacity.
“They have too many managers. Instead of engineers, they have many people that are just good at processes.”
What does this mean in practice? One example is knowing when you’re getting ripped off. “It’s like someone like going to buy a car and having no idea if the car should cost 1,000 or 10,000. It’s fundamental that the government keeps this minimal knowledge.”
So, when it comes to public works, the state is out of practice. That’s certainly the case when it comes to Ireland’s first metro system. But it’s true at the contractor level too:
“We have a lot of people that have worked in both continental Europe and North America saying North American contractor sites are a mess. ‘There are a lot of people going around, I don’t know what they do.’
“And there are a lot of these Unionise rules because you know, unions work very locally in the United States… So it’s a lot of these inefficiencies that are built within the system.”
*****
Investec is the sponsor of The Currency’s business podcast series. It provides a range of solutions, including specialist FX, Treasury, Corporate Finance and Lending services. To find out more about how Investec can help your business, click here.
Investec Europe Limited trading as Investec Europe is regulated by the Central Bank of Ireland. Investec Private Finance Ireland Limited trading as Investec is regulated by the Central Bank of Ireland.
