The lesser of two incompetencies
The story that threatened to derail the Conservative Party conference in the UK this week was a significant and controversial one.
The delays, overspending and now the cancellation of the Birmingham to Manchester leg of HS2 high-speed rail is seen by many as an embarrassment for the Conservative Party, who failed to deliver a national infrastructure project, and the country as a whole. The perception is that this failure epitomises the UK’s inability to deliver projects of this complexity and ambition.
So, woe is Britan. But wait, if talking incompetence, we must consider another “white elephant” project closer to my hometown. California’s High-Speed Rail project was planned to connect LA to San Francisco in 2hr40. Like HS2, it’s failing – but which is the biggest failure?
Similarly awful
Both projects were conceived years ago and have been beset by delays, objections from environmentalists, cost overruns, and a recent scaling back of ambitions on a grand scale.
In Manchester this week, PM Sunak cancelled the planned HS2 rail link from Birmingham to Manchester. In California, new rail is now only going to run between two cities in the Central Valley, and extensions to San Francisco and LA don’t have funding and may never get built.
No one would’ve supported HS2 if it only going connecting north London to Birmingham. And the California project was always about more than connecting two Central Valley cities. So why are the respective leaders not sucking up the costs, dismissing the doubters, and cracking on?
Sunak’s sunk costs
The majority of the UK media sees the cancellation of HS2 as a failure. But this is, perhaps, a mistake, as the tough (/brave) decision taken by Sunak was made on the basis of new info (e.g. revised costs). It’s a great example of pushing back against the “sunk cost fallacy”.
According to Google, this is defined as:
“the phenomenon whereby a person is reluctant to abandon a strategy or course of action because they have invested heavily in it, even when it is clear that abandonment would be more beneficial.”
In other words, decision-makers today should make decisions based on current information and what they know about the future, and not be swayed by how much they’ve already invested in the past.
Completing the Birmingham to Manchester HS2 leg would now cost a further £34bn – so the economically “correct” course of action is to evaluate all the potential ways to spend £34bn and choose the best option. The key is to forget how much has been spent to date, as it cannot be recovered, and it shouldn’t bias any money that is still to be spent. If there’s a better option for spending £34bn, decision-makers and leaders must be bold and brave enough to change course.
Pushing back
In politics, pushing against the sunk cost fallacy is hard. Controlling the narrative is difficult as rational economic decision-making rarely writes good headlines, especially if you’ve already spent c£50bn. But it’s fair to say that, in the UK, especially outside London, investment in local transportation is likely better value than putting another £34bn into more London-centric links.
California’s project is similar, in that so many people fly between San Fran and LA that the train doesn’t add that much capacity. Yes,within these two metropolises, traffic is awful, and public transportation is poor. Hence, the cash saved as a result of a rethink may well have a much much bigger impact if spent locally on buses, subways, trains, and commuter rails.
Of course, voters are inspired by flagship projects, and politicians love to make grandiose promises. The FT’s Simon Kuper writes a fascinating article explaining that, “Even in countries bigger than England, high-speed rail is often a vanity project that escapes public scrutiny.”
In politics, you live by the sword and you die by the sword – and in this case, despite his choice being the more rational one, the cancellation of HS2 will likely hurt Sunak in the short term. What the outcome is for him over the medium and long term remains to be seen.
Yay! The UK is less bad
But Rishi and the Conservatives shouldn’t be too despondent. This article about infrastructure in the US is a sobering read and outlines how even Uncle Sam gets it wrong quite a lot of the time:
“There are several reasons why U.S. transit projects, generally speaking, cost so much more than in the rest of the world. As the NYU research group found after years of extensive study, it is a complicated web of poor contractor and consultant management, poorly coordinated work between different entities, viewing infrastructure projects as job programs, and over-designing projects from the start, among other problems. These findings have been broadly confirmed by other research groups.“
So, while HS2 is an example of a UK infrastructure project gone wrong, maybe there is some consolation in knowing that things are actually quite a bit worse in the US. Whether voters care about that at the polls in the General Election next year remains to be seen. Strange to think that Sunak’s premiership may sink or swim as a result of voter’s knowledge of the sunk cost fallacy.