Tuesday, August 09, 2011

Can a mega-project not become the next Great Planning Disaster?

F.A. Hayek famously taught us to appreciate the division of knowledge that goes with Adam Smith's division of labor.  Arnold Kling has recently elaborated and wondered how it is that "experts" can possibly be expert when discussing ever more complex systems.  Knowledge is ever more dispersed and specialized, so who can possibly be expert?  National economies are a case in point.  Experts opine and offer "solutions", but very few of them have a respectable track record.

We expect that it's best to leave things to market forces whenever possible. Anything that can be metered can be privatized and (it is thought) priced and provided much less wastefully than via politicians advised by experts.

But there are exceptions.  Among them are the "mega projects".  Market demand is hard to identify when it comes to one-of-a-kind projects. And project scale and/or uncertainty limit the possibility of attracting private capital.  The "mega" projects, then, are the ones not benefiting from market discipline and the trial-and-error learning of owners. Peter Hall has famously written about Great Planning Disasters, all of which were mega-projects?  What to do? 

Cleaning my office, I came across Charles Lave's "Playing the Rail Forecasting Game" (TR News, September-October, 1991), which I cannot find on-line.  Lave suggested that mega-project consultants and others behind those rosy performance forecasts should be required to post bond to guarantee that their projections are reasonable.  This great idea naturally comes to mind whenever I hear about how many people are "projected" to ride high-speed rail.

Closer to home, the LA Times reports "Los Angeles OKs outlines of downtown football stadium deal."  There will be fans and jobs and nothing but benefits to the local taxpayers.  Fine.  But will the various consultants place some of their fees in escrow until we can tell how accurate they were? 

Probably not a chance.  But thanks to Prof Lave (unfortunately deceased) for suggesting that there is a way to deal with the inevitable mega-projects.