Wednesday, December 7, 2011

Why Does Infrastructure Cost So Much in the US?

Socialistic, big government countries like England, Germany and Japan can build new transportation infrastructure for a lot less than we can. Brad Plummer has some numbers:
California’s high-speed rail will cost about twice as much, per kilometer, as the Shin-Aomori extension of the Tohoku Shinkansen in Japan, a comparable project. . . . The 13.6 kilometer Second Avenue subway line in New York will cost $17 billion, or about $1.24 billion per kilometer. By contrast, Sinagpore’s new Circle line cost $4.8 billion for 35.2 kilometers and 28 stations — or $136 million per kilometer. Subway expansions in Madrid, Paris, and Berlin have all been far, far cheaper, per kilometer, than New York’s big project.
Engineer David Levinson explains that this applies even to small projects like putting up traffic signals at an intersection, which costs around $175,000. He had some thoughts on why here, of which I liked these two:
  1. Standards have risen. Our obsession with safety, features, environmental protection, and quality drive up the cost. Engineering design is often 20% of project costs. If only we would tolerate a few more deaths, a bus without AC, pollution, and frequent breakdowns, our initial costs would be lower. But when do reasonable investments become gold plating? Does the firetruck really need to do a 360 degree turn on the cul-de-sac, or can it back out?
  2. Principal-agent problem. Public works agencies are spending Other People's Money, and so are less motivated to get value for dollar than an individual consumer on their own. This principal-agent problem prevails in lots of organizations, but especially so in public works where the bias is not to have a failure.
I see both of these all the time. I once worked on a project that included building a sidewalk across a historic storage cellar, and the highway department's engineers designed a sort of bridge over the cellar that used the standards for carrying heavy truck traffic. My own train stop is getting a new platform, which I suppose will be nice, but I am perfectly ok with the existing set-up and I am sure the state has better things to spend its money on. When it comes to government money, Americans want everything done to the highest possible standard, and the bureaucrats in charge of these projects know that they will get much more grief from citizens over anything done wrong than for spending too much.


Unknown said...

These things may make infrastructure work here difficult, but it's not clear to me that either explains why American infrastructure projects cost more than those in, say, Japan or Germany. I presume those are built with public money, and they seem snazzy enough in terms of safety and luxuries to me. #1 might explain why our mass transit costs more than that in, say, Lagos, but not why it costs more than that in Tokyo.

I suspect that two other explanations might be more apt: first, the kinds of ethos, training, and prestige that go with bureaucratic jobs in Germany and Japan, and, second, the ability of government in those places to run roughshod over local resistance, property claims, special interest complaints, and lawsuits. I wonder if there aren't also different laws applying to things like bond issues and insurance.

John said...

Yes, American projects spend a lot to bribe locals to go along. I am not sure, though, how that impacts construction costs, which are the main driver in the cost differences. Maybe projects in the US have to be organized to avoid inconveniencing people (keeping lanes open on highways while they are rebuilt, for example) more so than elsewhere.

I also wonder if maybe a big factor is a difference in the balance of power between bureaucrats and the owners of construction companies. As David says, bureaucrats in Japan and Germany are more respected and powerful people than here, and maybe that difference translates into billions saved.