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strategy and business
 / Spring 2007 / Issue 46(originally published by Booz & Company)


Lights! Water! Motion!

The roles played by the public and private sectors also need rethinking. Since the early 1990s, politicians and economists have engaged in a heated debate over a false dichotomy: Which form of authority is better at developing infrastructure, government or business? We now know that success or failure has little to do with this essentially meaningless question. Many well-known and conceptually credible projects have gone awry under public management; the Channel Tunnel and the Boston “Big Dig” are just two examples. But projects also falter under private management, particularly when there is a de facto monopoly in place. A series of German high-speed interurban rail projects undertaken in the 1990s by Deutsche Bahn AG led to that company’s near-bankruptcy; the privatized toll-booth plan for the Capital Beltway in Virginia went over budget by $100 million; and many independent power projects (IPPs) of the early 2000s, particularly those intended to generate electricity from natural gas, are now worth half of their original investments.

Experience suggests that the best projects are those that make best use of the public–private relationship. Unfortunately, government agencies and private contractors (such as engineering and construction firms) are typically not in a position to fully appreciate the dependence that each has on insights from the other or the potential advantages in working openly with each other. They lack the kinds of incentives, relationships, and information that would make it easier for them to plan and execute projects together.

But it doesn’t have to be that way. A more effective infrastructure approach starts with a series of questions. How can we create a public environment in which the private sector is naturally motivated to make the right longer-term investment decisions? How can the public overseers keep the project from becoming an inherent monopoly, without trapping the private-sector companies in a web of controls and obligations? How can the project as a whole set reasonable cost estimates and ultimately charge viable prices, when much of the population cannot afford the true cost of the energy, mobility, and water provided in even the most minimal “lifeline” service? And if the private sector does not perform to expectations, how can the investment of millions already spent be salvaged and transferred to newcomers?

Answers to these questions are emerging in each of the three basic stages of infrastructure management: design and approval, oversight and financing, and construction and operations.

Photograph © Reuters/Corbis
“Insane gridlock” on the commercial Oshodi road in Lagos, Nigeria, April 17, 2003

Light-Handed Government
Critics sometimes argue that there is “too much government” in design and approval. They typically mean that governments play a heavy-handed role in choosing and planning projects, often favoring those special interests that, through lobbying and other forms of influence, promote suboptimal projects and goals. But in fact, that is a symptom of too little government.

A genuinely effective planning process uses the government’s convening power to create a transparent, open discussion from the start, with sufficient opportunities to hear from stakeholders and anticipate possible problems before the design is finalized. This requires straightforward and complete statements of the plan’s objectives (unfortunately a real-world rarity), along with its costs and benefits, made clear to the public. It may also require a more coherent overlap between the geographic scale of a project and the coordination of authority. Consider the A86, the outer ring road around Paris; it meanders in parts because of the veto power held by local jurisdictions over its route. The road’s planning began in the 1970s, and because there was no single authority that could direct rights-of-way over private land, construction has taken more than 25 years. Contrast this to Beijing’s ring road system: four fast-flowing concentric highways, completed by a central authority in less than 10 years. In a democracy, cross-agency coordination plays a more critical role than many people realize; it will make or break many of the infrastructure projects that cities need to survive.

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  1. Alan A. Altshuler and David E. Luberoff, Mega-Projects: The Changing Politics of Urban Public Investment (Brookings Institution, 2003): American political history from Robert Moses to Boston’s Big Dig, proposing new forms of multiple accountability.
  2. H. Spencer Banzhaf and Randall P. Walsh, “Do People Vote with Their Feet? An Empirical Test of Environmental Gentrification,” Resources for the Future discussion paper 06-10, March 2006: The answer to the title’s question is yes, when the quality of life declines. PDF download.
  3. Shaila Dewan, “Cities Compete in Hipness Battle to Attract Young,” New York Times, November 25, 2006: Atlanta and Portland, Ore., are magnets, whereas Philadelphia struggles.
  4. Bent Flyvbjerg, Nils Bruzelius, and Werner Rothengatter, Megaprojects and Risk: An Anatomy of Ambition (Cambridge University Press, 2003): Skeptics document how enthusiasts negligently green-light bad projects and explain how to build in better accountability, particularly in Europe.
  5. Daniel Gabaldon, Tom Hansson, Eric Spiegel, and Joseph Van den Berg, “The Next Wave of Generation Investment,” Booz Allen Hamilton white paper, May 2006: Strategy for electric power companies to invest presciently amid the risk of gas prices, regulations, and new technologies. Adapted as “Baseload in the Balance,” Electric Perspectives, May–June 2006, and as “Betting Big on Baseload,” Electricity Journal, August 2006. PDF download.
  6. Mark Gerencser, Reggie Van Lee, and Fernando Napolitano, “The Megacommunity Manifesto,” s+b, Summer 2006: How to bring together multiple organizations to develop solutions to complex problems. Click here.
  7. Joseph Giglio, Mobility: America’s Transportation Mess and How to Fix It (Hudson Institute, 2005): Impassioned, well-reasoned plea from a financier–academic for transportation infrastructure investment.
  8. International Energy Agency, “World Energy Outlook 2004,” OECD/IEA 2004: Comprehensive forecasts of energy demand and supply. PDF download.
  9. Bill Jackson and Vikas Sehgal, “One Billion New Automobiles,” s+b, Winter 2006: One billion new cars will need at least 1,000 new roadways. Click here.
  10. Jeffrey Rothfeder, Every Drop for Sale: Our Desperate Battle over Water in a World about to Run Out (Tarcher/Putnam, 2001): Journalist’s view of the pending global crisis in water infrastructure.
  11. Lord Andrew Turnbull, “Toward a Flexible Energy Future,” s+b, Winter 2006: How governments can promote better capital investments despite imperfect information. Click here.
  12. Eric M. Weiss, “Beltway Toll Plan May Need Virginia Funds; Rising Costs Strain Private Partners,” Washington Post, October 23, 2006: Private ownership is not a panacea for infrastructure projects.
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