From the editor
Infrastructure is too costly
Is spending money on infrastructure the answer to all our problems? Most people seem to think it is. But I’m in the middle of reading a paper from James Ferguson of Westhouse Securities that suggests rather the opposite. It seems that while big projects might add directly to official GDP in the short term (which is why governments love them), when the final sums are done, it usually turns out that they have destroyed more value than they have created.
According to research from Bent Flyvbjerg of Said Business School – who looked at projects in 20 different nations in his report Survival of the Unfittest: Why the Worst Infrastructure Gets Built – around 90% of big projects suffer from cost overruns, and those cost overruns come in at an average of 45% of the spend for rail projects and 33% for bridge or tunnel projects. But it isn’t just the cost that the planners almost invariably get wrong. It is the benefits too. The traffic on the average rail project is overestimated 90% of the time, with forecasts for usage tending to come in at about double the actual usage.
Eurotunnel was a pretty classic example of this kind of thing. Other examples include the Millennium Dome, the Scottish Parliament building, Edinburgh’s horrible tram project, the West Coast Mainland upgrade, the Olympics, and so on.
It is a long list but one that is guaranteed to get a lot longer.
• Read the full editor’s letter here: Infrastructure is too costly.
View the latest issue of MoneyWeek magazine online now:
MoneyWeek subscriber? Log in
Not a subscriber? Sign up for a 3-week FREE trial