Continuing Education... Bent Flyvbjerg on Megaprojects

EconTalk Extra
by Amy Willis
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Bent Flyvbjerg on Megaprojects... Martin Weitzman on Climate Cha...

What's the track record of multi-billion dollar projects affecting the lives of millions of people? Surprisingly poor according to this week's guest, Oxford University''s Bent Flyvbjerg this week on such megaprojects. Now we'd like to hear about what you took away from this week's episode. Share your thoughts with us in the Comments, and share these discussion questions over dinner. Either way, we love to hear from you!

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1. What are your top three takeaways from this week's episode?

2. Do you know of a local public megaproject that seems like it was a massive mistake or alternatively, a great investment? Do a little research and see how much of it was paid for locally vs. paid for by others and report back here.

3. Flyvbjerg notes four "sublimes" that make megaprojects so attractive- the political, technology, economic, and aesthetic sublimes. Which of these do you think bears the most influence, and why? Which is the most problematic?

4. How does "Hirschman's Hiding Hand" lend in justifying megaprojects? Are there any megaprojects you are now happy to see in existence? To what extent would they have been justified ex ante absent Hirschman's hand? Which #megaprojects are you happy to see in existence today?

5. Russ finds "Hirschman's Hiding Hand" an "appalling argument." Why? Do you agree?


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COMMENTS (13 to date)
Daniel Barkalow writes:

I'd like to call out as a good non-megaproject the Boston-area I93 bridge repair project of a few years ago. The project was to replace 14 ugly, crumbling bridges on an interstate while keeping the highway open at all times. They replaced them with 14 nondescript bridges, and did it on budget and ahead of schedule (in 10 weeks), and met its stated benefits ("no more car-sized potholes where you can see through the bridge").

Everyone in the area was extremely impressed at how clean the project was: they didn't do anything unnecessary, didn't majorly inconvenience people, didn't spend a ton of money, and were done within a political cycle. Juggling the traffic was a neat trick, provided a real benefit, and entertained the engineers. If you've got a billion dollars to spend, do 10 projects like this, and give the leftover money back, because people will probably actually be more impressed with each of them than with the $1b megaproject you were thinking of doing, like building that lovely bridge a few exits further south.

Jeff W writes:

Russ,
I was a little surprised that you never asked Bent Flyvbjerg to explain how he determined whether the project was a financial success or not. Exactly how do you determine whether a bridge paid for itself or not. He brings up a lot of great points but he never explained how he determined that some projects paid off while others did not. What is the time frame, you could easily argue that the Interstate system is still paying huge dividends.

Paul Stinson writes:

I just finished working on a megaproject, as Flyvberg defines them (>$1 billion). It was $ 2 billion and one of the rare successful ones. I often have said that only 10% of large project (even less than mega) are completed on time and on budget, so that was not new to me. I found the discussion fascinating, however, as a good analysis of the main reasons for such frequent failure.

Amy Willis writes:

@Daniel, sounds like a good example. So what do you think made this project turn out so well? Is it because it "fit" within the political cycle? If so, would your recommendation of smaller megaprojects (oxymoron?) still hold as long as the timeline were shorter? Does the public/private distinction matter here?

@Jeff, I wanted to know that, too! Maybe we can get a follow-up! ;-)

Brendan Riske writes:

I loved this episode. It reflects what i've felt for a long time. Small can be beautiful. No need for these massive projects, people would be served by many small effective structures better. People need to get away from this growth paradigm and the need to build larger and larger. Sustainable building is going to be key this century.

I point to the huge damn projects in China and Africa as the most egregious failures. Three gorges and aswan high damn are the worst. They caused extinctions and destroyed the environment around them, lead to massive increases in water borne disease, and barely provide the power they were supposed to. Damns need to be rethought.

I cant point to any major successes. All the works of man which have seemed so impressive in the last 100 years are faux. Nature will inevitably destroy what we have built, and it may happen faster than people think.

Here's a link to the MassDOT's I-93 bridges project Daniel Barkalow mentioned above. I take note of this;

MassDOT incorporated an incentive/disincentive clause, which was contingent upon completion of all the bridges by summer's end and timely reopening to traffic each weekend. If the schedule was fully realized, the contractor could earn a $6.9 million incentive, a significant amount when compared to the winning bid of approximately $78 million.

Speaking as someone who spent ten years in a business that repaired bridges (and other infrastructure), I can attest to the power of incentives to bring new ways to the fore.

Tom Coss writes:

Given the recent news of FIFA, this is an amazing story. According to Statista http://www.statista.com/chart/3504/fifas-corruption-also-has-a-human-cost/.

As the title suggests, there are human cost of these Ozymandias projects.

Thanks, t

arde writes:

Question 3.
Which sublime bears the most influence? I think it depends on the country and situation. I suspect (not sure though) that in the countries and Asia and Middle East, the technology sublime dominates. They want to impress the world with the tallest, longest buildings and constructions. The smaller and less affluent countries are not in a position to push the technological frontiers, and for them probably the economic sublime dominates.

The most problematic is economic sublime because it is based on wrong reasoning and misinformation (stressing only the winners). While the megaprojects create jobs and incomes for visible many (landowners, construction companies, consultantsā€¦), they also reduce jobs and incomes for others, less visible (taxpayers, in present or future or in other regions, who have less money to spend on other things).

The political sublime is also problematic because it is so egoistic. I want to cut the ribbon, I want to enter the history, I want my name to be mentioned, I, me, mineā€¦ Being egoistic with one's own money is not so problematic, but this is not the case in megaprojects.

Sunil writes:

1. What are your top three takeaways from this week's episode?

A - The episode has many wonderful learning opportunities. The three important ones for me are -

1. Megaprojects are really hard. We should try to avoid them in preference to smaller evolving ones. Unfortunately, megaprojects cannot be avoided, much as we may try.
2. Megaprojects are difficult in both public and private sectors. It is in the nature of Megaprojects.
3. The most crucial question often ignored is the question of risk - what is the risk, who takes risk, and what is the cost associated with risk taking. Earlier acknowledgement of risk may mitigate hubris often associated with megaprojects.

2. Do you know of a local public megaproject that seems like it was a massive mistake or alternatively, a great investment? Do a little research and see how much of it was paid for locally vs. paid for by others and report back here.

A - I-35W/ Hwy 62 untangling was a largish project in Minneapolis region (http://en.wikipedia.org/wiki/Interstate_35W_%28Minnesota%29#I-35W_and_Highway_62_Crosstown_Commons_reconstruction_project). The untangling was needed because someone thought it prudent not to incur the cost of keeping the highways disentangled when I-35W was built a few decades earlier. The project made life hell for commuters in the southern part of downtown Minneapolis for a couple of years. It has made life so much better for daily commute.

I believe that we can be short sighted in defining our infrastructure projects - you cannot jump over a channel in two leaps.

3. Flyvbjerg notes four "sublimes" that make megaprojects so attractive- the political, technology, economic, and aesthetic sublimes. Which of these do you think bears the most influence, and why? Which is the most problematic?

A. I think political sublime (I love the way this word is used in the context) is the most influential. There is a great pressure to create physical imprints of our personal influence on the landscape.

I think that economic sublime is the most problematic. Especially when both costs and benefits are so problematic to estimate. Does Chinese megaproject investment, widely admired in USA, ever go through an economic cost benefit analysis? I think not. They are made on the come, to support a vision of what the politicians in power want China to be.

4. How does "Hirschman's Hiding Hand" lend in justifying megaprojects? Are there any megaprojects you are now happy to see in existence? To what extent would they have been justified ex ante absent Hirschman's hand? Which #megaprojects are you happy to see in existence today?

A- An underpass project in Hyderabad, India where I grew up. They discovered a tangle of pipes, cables and sewers as they started to dig. Clearing this mess, rerouting their routes took years at an important spot in the city. I am sure it took millions more than planned. Use - the least used underpass in the world! There was not way the project would have been built had it not been for the sublimes gently guided by Hirschman's hand.

5. Russ finds "Hirschman's Hiding Hand" an "appalling argument." Why? Do you agree?

A - I have experienced Hirschman's Hiding Hand almost daily as an entrepreneur. Or at least some version of the hand. When you start a business, you do not anticipate the issues that will emerge to (almost) kill your fledgling company. You trust your ability to solve problems and the willingness of your investors to forgive your mistakes, daily. Mulla Nasruddin kept my back through the tense and tough times of a startup (see - http://en.wikibooks.org/wiki/Sufism/Nasrudin#Nasreddin_and_the_Sultan.27s_Horse).

Russ has a problem of confirmation bias. He sees Hirschman's Hiding Hand "appaling", which is silly in my opinion. I have discussed above why I find the same limb enabling. Russ tries to see every situation (apriori) as a way to beat the public sector and social provisioning of services, riding his idealogical hobby horse. Hirschman himself described the hidden hand from a perspective that I have used above as an enabler of creative process (see http://en.wikipedia.org/wiki/Hiding_hand_principle). I wonder why Russ saw HHH thusly. IMHO Hiding Hand has been poorly used in this EconTalk episode.

Russ Roberts writes:

Sunil,

Did you miss the part where I defended the hidden hand? It was at the 45 minute mark:

Russ: So, let me, even though I made fun of it, let me defend the hiding hand for a minute. So, there are many, many projects that were built long ago that may have been disasters for cost-benefit, "mistakes" as a result, but I'm kind of glad they are here. So let's take some examples. I'm glad New York has a subway system...

By the way, I hadn't heard of Hirschman's hidden hand until this interview. Let me again quote Willie Brown's interpretation:

News that the Transbay Terminal is something like $300 million over budget should not come as a shock to anyone. We always knew the initial estimate was way under the real cost. Just like we never had a real cost for the Central Subway or the Bay Bridge or any other massive construction project. So get off it. In the world of civic projects, the first budget is really just a down payment. If people knew the real cost from the start, nothing would ever be approved. The idea is to get going. Start digging a hole and make it so big, there's no alternative to coming up with the money to fill it in.

I hope you don't have to share my ideology to find that justification unattractive.

Walter Clark writes:

My take-away was the terrible track record of such investments and yet they keep being made.
The Erie Canal, I believe, is the first large scale private/government collaboration on infrastructure. Jefferson and other limited government types were against it finding no provision in the Constitution. But other than the slippery slope argument, was this investment the wrong thing to do when you look at the size of New York City?
It is difficult to measure the cost-benefit to the economy as a whole, of the Erie Canal. It is especially difficult after a hundred years including the cost of expansions and maintenance and the unforeseen competition of railroads that kept a ceiling on the tolls. If the Erie Canal did not exist, some other city or combination of cities would be greatest, but there's absolutely no doubt that it was the Erie canal that gave a head start to New York City to jump ahead of Philadelphia and Boston as the business center of the country; the world perhaps.
It is the jump-ahead that I think is the most difficult argument we (those that want no government investments) must summon up against government investing in megaproject infrastructure. Whatever form of government aid to business, it is the statists desire to give a new technological industry a head start that I find most difficult to argue with.

Charlie writes:

Russ,

Does the New York City subway really fail a cost-benefit test? What does that mean? If "we" could go back in time and not do it we'd be better off. Who is the we stakeholder? It doesn't pay for itself? It was a net outlay to one generation of tax payers?

It seems quite plausible the NYC subway had big cost over runs and delays, and yet was still worth it in retrospect.

That sentence, I think, captures the lack of clarity in the cost benefit calculations discussed in the podcast.

James Lusk writes:

One thing that I was disappointed was not mentioned in the show was megaprojects overtime. For example, when the Empire State building was made, it was a mega project as it was the tallest building in the world at the time. However, it has become more like average today. So as time goes on, projects get bigger, do things that were mega projects become common?

If this is true, there are some other important questions. For example, do the concerns of overpromising and under delivering alleviate as these projects become normal in size? Another important question is if megaprojects should be built as a learning experience, thinking of it as an investment in education, so that the overall value to society extends beyond the project created in the form of expertise?

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