Big Builds, Big Problems

Greater government accountability could help reduce the massive waste and opportunity cost of white elephant projects, economics professor and former Productivity Commission chairman Gary Banks argued at a recent Melbourne book launch.

As observed in my foreword to the new book White Elephant Stampede, the elephant seems to have acquired a special place in the lexicon of public policy. For example, there is the well-known ‘elephant in the room’—invoked when policy discussions start missing the point, as they often do. And there is the folk tale of the blind men who, on touching different parts of an elephant, come to different conclusions about what sort of beast they are dealing with. Policy initiatives can also be viewed quite differently depending on the standpoint of the decision-maker or ‘stakeholder’. Then of course there is the ‘white elephant’, the subject of the informative and entertaining volume launched here tonight.

A DIVERSE HERD

As readers of the book will discover, ‘white elephants’ come in many different forms and sizes, but they share a number of features; not least among these is the gulf between ambition and outcome, and the sheer waste of (public) money involved. We find repeatedly that need or demand is greatly overestimated while costs are greatly underestimated.

Yet, true to its ancient origins from the Kingdom of Siam, a white elephant once bestowed is not easily relinquished. Its costs can endure. Indeed, they can escalate.

Public capital investments provide some of the best known examples. Underutilised railways, moth-balled desalination plants, vacant technology parks, and expensive misfires in defence procurement are among my personal favourites—most represented in this volume. But as the range of case studies in the book demonstrates, there are plenty of other examples too, particularly within the regulatory domain and in the fertile territory of international ‘events’.

Then, of course, there are those public services that consume more and more resources over time without enhancing the benefits they provide. Foremost among these currently is the NDIS, which at recent growth rates would end up costing taxpayers more than six times the Productivity Commission’s original estimate of $14 billion, with only a fraction directed at those suffering the ‘profound’ disabilities for which the scheme was originally intended and designed.

The full cost of the Suburban Rail Loop is likely to be four times greater.

In short, if interpreted liberally to include any initiative for which costs greatly exceed benefits, white elephants appear everywhere.

VICTORIA LEADS THE WAY

It is fitting that this book is being launched in Melbourne, for there would seem to be no more hospitable environment for white elephants than the State of Victoria. Moreover, for those on the hunt for prime specimens of this sub-species, it is not necessary to delve into the past. You need look no further than what the Andrews Government calls (with fanfare) the ‘Big Build’. Hardly a week passes by without another ‘hard-hat/high-viz’ initiative being announced. Blow-outs in costs and completion times for such projects have become almost as common, however, even if less prominent.

To be fair, this has become pretty much par for the course Australia-wide. However, it is not just the inevitable blow-outs and delays in pet public infrastructure projects—these can be found everywhere—but the lack of a sound justification for many of them that puts the Victorian Government at the forefront.

Among contemporary examples, the Suburban Rail Loop is hard to beat. Like other iconic white elephant projects, it was conceived just before an election (2018) without the benefit of transparency or consultation, including within Government ranks. As The Age newspaper put it at the time, it was “a project born of secrecy, outside normal planning channels, and without an independent cost-benefit analysis”.

Apart from the politics of marginal electorates, the rationale for doing it remains unclear. Indeed, at face value the project would seem to have more cons than pros. Moreover, and true to form, the Government’s $50 billion initial guesstimate for the project was greatly underdone. Subsequent calculations by the Auditor General indicate the full cost is likely to be four times greater (if the project is ever completed).

To cap things off, just before the last State election, the Federal Labor Government committed more than $2 billion to the project. In so doing, it seemingly took its cue from Victoria in bypassing the agency, Infrastructure Australia, which was formally established to advise it on such matters.

Financing costs alone for Big Build projects have been pretty high, even with interest rates at rock bottom. But as rates normalise, they are becoming ruinous. Victoria’s net public debt has risen sharply over the past several years and, in proportionate terms, is now double that for NSW. The State’s credit rating has naturally not been immune, losing one of its coveted three stars and thereby raising further the interest cost of foreign borrowings. Those Victorians who, like me, lived through the years of the Cain/Kirner Government (1982-1992), will be experiencing that feeling of “déjà vu all over again” (with apologies to the great Yogi Berra).

A novel factor this time is China’s key role as financier, which sits uncomfortably within current national strategic settings. At least, thanks to earlier Federal intervention, Victorians have been spared the risks and complications of the CCP’s Belt and Road Initiative (or ‘Ball and Chain’, as many now call it). However, with a recent official visit to Beijing still exciting speculation, we may need to watch that space. (Editor’s note: see also ‘Tunnel Vision’, IPA Review, Autumn 2020, available on the IPA website).

PRIVATE DIMENSIONS

While the white elephant phenomenon is most common in the public sector, it is not unknown in the private sector. Sun Cable’s multi-billion dollar project to transmit solar power from the Northern Territory to Singapore (of all places) is a very recent, now aborted, case in point. However, when successful private companies do things that do not make economic or even financial sense, there will often be a public subsidy somewhere in the mix. This has been true in spades for many renewable projects, even if falling short in that case.

White elephants crowd out programs that would yield real benefits.

Normally, the forces of profit-seeking and market competition in the private sector provide a much less hospitable environment for white elephants than the forces of political competition that pervade the public sector. Indeed, when Opposition parties are critical of a government’s latest white elephant project it is often because of concern it might supplant a favoured one of their own!

Does any of this matter? Should we be concerned about the white elephant phenomenon? The short answer is: yes we should, more than ever. Once it was possible in policy circles to get a laugh by repeating the aphorism attributed to the notable US senator Everett Dirksen last century that “a billion dollars here and a billion dollars there and pretty soon you’re talking real money!” But billion dollar outlays have become so commonplace that the joke has lost its resonance.

The advent of perceived ‘easy money’ and the politics of catastrophe have seen a greater willingness by governments to spend up big and regulate harder, but with less inclination than before to do the hard yards involved in what used to be called evidence-based policy-making. The result has been burgeoning public expenditure, deficits, and debt, with little to show for them.

Yet the need for well-targeted public spending to address deficiencies in areas such as health services and aged care remains great, highlighted by the failures observed during the pandemic. But as seen in education and other fields, resourcing levels are often less important to outcomes than how systems are designed and operated. For example, devoting a larger share of GDP to defence will make little difference if the money continues to be spent as poorly as it has been. (The lamentable submarine saga is addressed in the book I am launching today, in the chapter by Binoy Kampmark).

Australia’s sorry scrapped submarine saga is explored in White Elephant Stampede chapter
‘White Elephants of the Sea: Australia’s Disastrous Future Submarine Program’ by Binoy Kampmark.
Photo: Naval Group

In short, white elephants do not just waste resources, they crowd out policies and programs that would yield real benefits to society.

WHAT TO DO?

The $64 billion question is how to stop them propagating and proliferating. There are no signs of this happening at present—quite the contrary. While the book in its final chapter contains sensible suggestions as to what is needed, not least more rigorous ex ante assessment processes and greater transparency, most such requirements depend on having political leaders who appreciate there is a problem to begin with. Such leaders appear as scarce today as white elephants are prolific.

What does seem clear is that the more information that is made publicly available about their costs and deficiencies, the less likely it is that white elephants will flourish. This volume makes a very useful contribution to that essential endeavour.

Professor Gary Banks AO (pictured above) was chairman of the Productivity Commission from its inception in 1998 until 2013, and later was chief executive and dean of the Australia and New Zealand School of Government until January 2017. Professor Banks is a professorial fellow at the Melbourne Institute of Applied Economic and Social Research.

These remarks were made in May 2023 at the Melbourne launch of White Elephant Stampede: Case Studies in Policy and Project Management Failures, edited by David Gration, Bruce Kingston, and Scott Prasser (Connor Court Publishing, November 2022), an extract of which appeared as ‘Queensland’s Dam Fools’ in the Autumn 2023 edition of the IPA Review.

This article from the Winter 2023 edition of the IPA Review is written by economics professor and former Productivity Commission chairman Gary Banks.