the planning system system

why is infrastructure so expensive in common law countries

Topical this week, as the cancellation of the HS2 rail project in the UK demonstrates either “the UK’s structural inability to invest infrastructure” (one perspective) or “the natural result of a project which spent its entire life from announcement to cancellation under a single party’s government, one which is noticeably lacking in administrative ability, ideologically unsympathetic to public sector investment and politically dependent on property owners in constituencies along the proposed route” (another perspective). But there is a more general question than this …

The general question that might be asked is - why is infrastructure more expensive in English-speaking countries, seemingly, than in places like Spain or Japan? (and it is) Is there just too much consultation? Do Anglosphere polities just give too much damn say to people who don’t want to be pushed out of the way for the common good?

And my answer is … yes and no. Basically, I am not sure that the UK/US/Australian system really does have more veto points and people wanting to be bribed or look after local interests than anywhere else. But it seems very likely to me that the Anglo-Saxon system of governance does have one characteristic that makes it much more likely that every single such potential sticking point will become an actual sticking point.

And that characteristic is “a healthy, vigorous and well-resourced professional services industry”. We know that this is one of the crowning glories of common law economies - it’s the great big intangible asset which was created in the time of William the Conqueror, has been invested in relatively consistently for nearly a thousand years, and which generates consequent outsize returns.

But if you’ve got such an industry, then you have to respect it as a system. And as a system, it generates fee income. That’s what it’s there to do. And you can’t expect that it’s going to differentiate between one sort of fee income and another. Everyone involved in infrastructure procurement is paid according to a proportion of the costs, either contractually or de facto.

So my first-order explanation for why it is that common-law countries spend so much on consultations, inquiries and litigation over every little bit of public investment is that there are lots of nice family houses in conveniently located London suburbs, the mortgages on which depend on this being so.

I wouldn’t want this to be mistaken for the ordinary kind of boring cynicism; it’s a special, cybernetic kind of boring cynicism. What appears to have happened is that the civil service (previously the place where the competence and planning functions for infrastructure were located) got hollowed out, and so the government itself lost the ability to balance competing demands. This was outsourced to the consulting industry, with planning inquiries and consultation exercises as a check-and-balance.

But these checks and balances have a dysfunctional symbiotic relationship with the private sector contractors, because they generate “changes of specification”. Under the usual professional services charging model, this is extremely costly - whatever price has been agreed in the original project spec, new work can be charged at the standard hourly rate, with very little way of assessing how many hours would be reasonable to spend on it.

And the inquiry/consultation model unfortunately doesn’t play nicely with a common law system in one particular way - anyone who loses at this level is given a chance at a do-over in the courts. Or in fact, one do-over per relevant law they can find to litigate under.

All this is true of private sector investment too, but the public sector infrastructure stuff has a number of particularly vulnerable characteristics. It’s big, so it has a large attack surface. And it’s still ultimately the responsibility of civil servants, who do not share in the upside of a successful project but bear considerable downside risk, particularly legal risk. Consequently, they tend not to settle out of court and pay people off, but rather to fight everything through to a judgement, the most expensive way of doing your legal business.

And unfortunately, I don’t see much that can be done about this. The cost of building railway lines in England is largely due to the presence of very aggressive and skilful consultants and lawyers. But the revenue base that pays for the infrastructure is also largely due to the presence of a big and successful professional services industry. We’ve somehow created a pathological relationship between the two, but it’s not obvious how you can cut out the bad bit while leaving all the valuable stuff alone.