Saving Ferroviarias

ADIF at Luarca station

This essay reviews the broad policy context of Spain’s passenger railways, highlighting the residual tension between pre-democratic and Modern eras, the financial impetus to make the high speed network more viable, and the evolving policy paradigm of rationalisation. “Saving Ferroviarias” is the first essay in the sequence “Café Para Todos“, an exploration of the contemporary relationship between the railways and the people of Spain. “Disassembling Trenes“, the second essay in the sequence, deconstructs Spain’s current passenger railways to expose the deceptions of AVE and nation therein. “Deconstructing Estaciones” provides a demographic analysis of Spain’s railway stations, that explores the unserved areas and probes the differences between regions. The fourth, “Understanding Obligación“, builds a model of the human connectivity offered by Spain’s railways, revealing the patterns between Spaniards and the democractic tension therein, with income analysis that explores the import of “Obligación de Servicio Público”. “Reanimating Regional” outlines the regional biases of Spanish railway connectivity, reassesses the role of Castilla in the national railway, and ponders the balance between actuality and perception inherent in Adolfo Suárez’s doctrine of “café para todos”.

The Human Semaphore

Five roads, two sidings. Three passenger platforms, one freight warehouse. Station building, two floors. Toilets, two sexes, immaculate. Ticket office, staffed and open. Next passenger train, five or maybe six hours hence. For now the daily freight approaches, light but double-headed. The station master dons cap and stands to attention upon platform one. Arm outstretched, flag clenched vertical. The human semaphore signal, the only sign of life. But all is not well in toytown. For taped to the unnecessarily large timetable case is a demand: “Por un tren digno para todas, más inversión pública y menos concesiones” – for a train worthy of all, more public investment and fewer private concessions.

This diorama, reminiscent of European railways of the early 20th century, is not primarily remarkable because it persists on the north coast of Spain a century later. Rather that the railway line on which it persists, that from Ferrol to Gijón, was not even opened until 1972 – its construction having spanned an entire era of “cohesión territorial” from Primo de Rivera in 1923 until the death of Franco in 1975. For Rafael Benjumea y Burín, the Count of Guadalhorce who served under both, “cohesión territorial” tended to emphasise land, a residual feudalism that characterised much policy of the period: Many of the routes Guadalhorce proposed connected Spanish provinces that had not been directly connected by the private railway concessionaires of the later 19th century, typically because those routes connected few people, hence would have generated little traffic and thus insufficient commercial return on investment. In retrospect, Guadalhorce’s railway-building plans were, almost by definition, economically irrational. But judged within Guadalhorce’s era, the policy failed not because of an entirely predictable dearth of traffic, but because of the inability of the fragile and isolationist Spanish state to fund such an expensive mode of transport in the absence of private capital: That the purely public state was not strong enough to deliver the “cohesión territorial” the state needed in order to maintain state is a basic and still largely unacknowledged arithmetic flaw in Spanish rail-based state-building, which in the current era has led the nation state to depend (financially) on a global world that by definition undermines it, a vicious circle expanded by the essay On the Wings of Hope.

Few of Guadalhorce’s proposed railways were completed, and even fewer were retained in the subsequent era of “democracy”. Modern Spain shifted the emphasis of “cohesión territorial” toward people. However that demos was structured too hierarchically, as if the external projection of Spain as a singular sovereign nation meant that Spain could be managed internally as an absolute power: A model which simply cannot reflect the interactions of the people of Spain, which are between people, especially between small but intensively known groups of people. This tension, first explored in the essay Absolute Devolution, routinely renders gaps in transactional responsibility, leaving the state held responsible for providing that which the populous cannot themselves fully comprehend. National in conception but often rather local in delivery, it is consequently widely understood that state-owned Spanish railway operator Renfe only offers services in certain places, yet there is scant understanding of why. While “democracy” may have shifted public expectations toward serving people – railways that offer passenger utility – the formal structure of that democracy still tends toward the projection of authority from what used to be called God – an idea of physical “presence” introduced in The Expectations of Competition. The combination is a state railway that should, by Modern Spanish democratic expectation, relate people together, but is too often moribund by a political structure that can only affect relations through physical infrastructure, and especially struggles to relate past infrastructure to contemporary use. A struggle that has now festered for a century, almost oblivious to fundamental demographic and economic change in the meantime, mocking any sense of societal equality appended to the modern rhetoric of “cohesión territorial”.

As explored in the next section, the long-run financial unsustainability of modern Spain’s high speed railway network now poses a threat to the whole national railway, a threat that logically perpetuates the evolution of Alta Velocidad (AV) into a more regional service, in search of more revenue-earning traffic – a gradual slide that started the moment Ciudad Real was accidentally added to the first Línea de Alta Velocidad (LAV), as described in Is Alta Velocidad Fast? But at least LAV was conceived to link large centres of population in an era when people mattered – even if the residual manifestation of authority, and more specifically the structural needs of Castilla (explored in the next essay, “Disassembling Trenes“), still appear to focus those links upon Spain’s largest city and capital, Madrid. In contrast Ferrocarriles de Vía Estrecha (FEVE), the traditional state operator of the metre-gauge railway network introduced at the start of this essay, remains resolutely stuck in the previous era: If the only aim is to link Galicia to the Asturias, it matters not that the population of Luarca are offered no same-day return railway journey to Oviedo, their regional capital. Or that the people of A Mariña (Lugo’s coastal belt) cannot use the train to travel to work or to hospital. Indigno indeed.

FEVE‘s suburban core is scarcely better, its combination of speed and frequency woefully inadequate to compete with modern autopistas (motorways) – or, in Asturias, even to compete with the traditional rival, Renfe. Oh, Renfe (Viajeros SME SA) may have taken ownership of FEVE’s passenger operations at the start of 2013, but the two organisations continue to maintain not only separate trains, but separate labour agreements, separate passenger information systems, and even separate ticket offices in certain shared stations. Such integration surely serves only to dilute FEVE’s abysmal financial performance: For example, across the whole of the Asturias, FEVE only carries about five thousand people each day across roughly 270 daily train journeys, averaging under 20 passengers per train. Just 14% of FEVE’s Asturian operating costs are covered from passenger revenue. That performance is on a par with Iberian-gauge Renfe routes slated for closure – such as the original line to Segovia which has been largely surpassed by an AV alternative – but is a travesty of market development given FEVE’s core Asturian operating territory around Oviedo: A fragmented, but still relatively high density of population, where the focus of much local travel is a city whose transport policies are intent on dissuading car use. Yet even Íñigo de la Serna – a native of the north coast, who must have been well aware of FEVE’s malaise – could only propose an 8-year survival package of track and trains: A strategy of maintaining a status quo that was defined in a very different era.

Although the town’s bus station is now in denial – their timetables not even afforded a proper display, in sharp contrast to local municipal bus services – Luarca is the L in ALSA, “Automóviles Luarca Sociedad Anónima”: A commercial business that has grown to become Spain’s largest bus operator, and is now part of a global public transport group. Much of ALSA‘s pre-1960s success can be attributed to the Galicia-Asturias corridor, an axis which then had no railway, and thus no incumbent rail operator with the legal right to deny ALSA their long-distance bus concessions. ALSA’s dominance was undiminished by the eventual arrival of the railway – ALSA’s current service through Luarca is faster, vastly better scheduled, and generally stops closer to the people it serves. And one look at Oviedo’s massive ALSA-dominated bus station suggests this pattern is not unique to Luarca: ALSA’s territorial victory marked by the building of a bus station on a site originally occupied by FEVE, a veritable stake driven through the heart of the vanquished. Yet there is scant evidence that FEVE ever tried to offer a competitive local transport counter-balance. The implication, that the railway was never intended to convey local people: Its plethora of local stations offering localities the mere “presence” of the state. A presence that, for Luarca, completely dominates the skyline with a behemoth of a concrete viaduct that looms over the town – an attempt to dominate nature in a town where nature dominates.

In the north-west of Spain nature is unstable: A pattern most obvious in its changeable Atlantic-driven climate, which is quite unlike the meteorological stability experienced by the rest of Spain. The far west of Britain understands a similar environment through the predictive analytic, but that is not a philosophical model integral to Spain. Instead the people of north-west Spain would seem to de-emphasise time as a continuum, since logically such time offers no stable basis for comparison and therefore no reliable platform for understanding. Perhaps taken to its extreme conclusion, the only time is now, which can only be understood in its moment. The pattern perplexes Castilians, but helps explain why the north-west produces such good managers of chaos. However the north-west is still strongly influenced by the Spanish “family” model of knowing – the intensely known group, not a knowledge that deconstructs the wider whole. But shorn of the implicit stability of environment assumed elsewhere in Spain, the people of the north-west are perhaps more inclined to focus on their immediate environment, narrowing the geographic scope of locality: The Asturias must feel like the biggest small place in the world. Consequently the instability of nature does not just make the theological Spanish state work extra hard to impose itself: It changes how locality is perceived – the geographic proximity at which the familiar becomes unfamiliar – which contributes to the substantial differences between the regions of Spain. Differences which national transport entities are somehow expected to manage fairly. For the national infrastructure provider, the “presence” offered by railway networks can surely never be enough to match the intensity with which locality may be felt. For the national public transport operator, the reduced distance from “home” at which the collective group dynamic fades and the individual survival instinct takes over, makes competition with the private car challenging. Yet here, as often, persistence in the face of the unachievable propagates the counter-balancing tension that sustains Spain.

Continue reading “Saving Ferroviarias”

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On the Wings of Hope

AVE at Sants Station

This essay ponders the interplay of risk, debt and optimism, with specific reference to the expansion of Spain’s high speed railway network. It summarises the renaissance of AVE expansion, reconciling different approaches to risk in the construction of transport infrastructure. The interaction of external finance within the Spanish societal structure is hypothesised as reliance on external debt with no internal counter-balances – a virtual economy characterised as Gross Domestic Optimism. The postscript asks what it means to invest in state, with reference to two evolving models – people and perception.

“On the Wings of Hope” is the final essay in a sequence of four titled, “The Art of Public Competition“, which together explore the competitive model underlying Spanish public transport. An anthropological analysis of the tension between this internal model and that of globalised economics, reveals the distortion of external finance on the internal workings of the art of public competition. The first essay in the sequence establishes the policy context for the liberalisation of public transport in Spain. The second explores the workings of the art of public competition using the example of interurban buses around Barcelona. The third examines how the art of public competition functions when one of its most important competitors is absent, using the case of post-Independència Catalunya.

AVE or Bust

Given all that has so far been described in this sequence of essays, it should be self-evident that grand public infrastructure, of the type Catalans and Spaniards came to expect in the early 2000s, can no longer be funded publicly. That the Generalitat de Catalunya’s post-Independència hiatus merely emphasised a reality first exposed by the 2008 Crisis. There is some evidence that the Generalitat, the regional government of Catalunya, had already shifted policy prior to the Referèndum, for example its 2017 proposal to replace the tolls levied on users of recently built strategic roads (those still under concession), with an annual “vignette” (tariff) paid by motorists for access to all such roads – which would generate a constant revenue stream with which to fund subsequent network development. With half these roads still administered centrally by Spain, Catalan policy would have to be shared with the Spanish government, which is itself deciding whether to maintain tolls when concession periods end. The 131st President of the Generalitat‘s personal commitment to the non-payment of tolls during 2012’s #NoVullPagar campaign, highlights how road tolls are a thorny issue in Spanish politics, not least in the wake of the recent financial failure, and consequent government rescue, of several high-profile highway concessions around Madrid. Funding the construction of new roads via private toll-raising concessionaires is broadly accepted (even if only by historic precedent), while perpetuating tolls on roads that are ostensibly already paid for resembles state taxation (even if the proceeds are hypothecated into transport projects). The resulting shift between private and public sectors has complex, long-term socio-political connotations. In the meantime, the evidence suggests that, unlike the Generalitat de Catalunya, the government of Spain has not accepted the “reality” that grand public infrastructure can no longer be funded publicly, and that it only need better risk management to achieve its pre-Crisis policies, as best illustrated by its current approach to high speed railways:

For several post-Crisis years Spain pursued ugly engineering compromises to maintain the illusion (in its Anglo-Castellano meaning of both ambition and deception) of a high speed railway building programme it could no longer afford. For example, by re-using historic railway alignments, even where those alignments mock “high speed”, as is the case for the ongoing integration of the 30 km/h Loja curves (on the line to Granada) into a network intended to reach 300 km/h. The “AVE” from Valencia to Castellón epitomised the problem: Implemented by dual-gauging (Iberian and International) one of the existing two tracks, (International gauge) AVE trains operated no faster than other trains on the same track, thus offered no additional utility beyond what could have been achieved by simply passing the AVE rolling stock through a gauge-changer. The claim that Castellón had been added to Spain’s high speed railway network was met with a good degree of Valencian cynicism, and did nothing to assuage the view that the government in Madrid ascribed a low priority to the Mediterranean Corridor (along the east coast).

2018 heralded a return to pre-Crisis high speed railway building, particularly in the north of Spain where none of the intended network had been completed beyond Valladolid – the Crisis having left an eclectic mix of disconnected infrastructure in its wake, from stations served by no trains, to depots maintaining no rolling stock. Works agreed in 2018 include Bilbao station, the most expensive railway station project in the history of Spain, a 720 million euro investment that makes the 240 million euros lavished on the temple to AVE that is Zaragoza Delicias, look cheap.

Compared to Castilla, the geology of northern Spain increases construction costs, as the Norte discovered in the 1860s – its route from Madrid to Irun cost around 550 thousand Pesetas per kilometre, compared to 208 thousand Francs per kilometre from Madrid to Zaragoza (the two currencies directly comparable because the Peseta and Franc maintained parity via the Gold Standard – although it should be noted that the Norte was actually dealing in “Reales de Vellón”, in a decade when the Spanish currency changed twice). Modern engineering techniques, such as the New Austrian tunneling method, may make many AVE route alignments possible, but such construction carries increased geological risk, as epitomised by the Pajares tunnels on the route to León and Asturias: Construction costs have more than tripled, to over 3 billion euros, as has construction time, from the five years anticipated in 2003 to perhaps twenty – while water leaks from punctured aquifers, and relentless landslides, raise doubts as to whether the line will ever open to its intended specification.

Risk is not necessarily so visual: For example, in the case of the failed highway concessions around Madrid, land purchases were budgeted on the assumption the land was categorised as rural, however that land was ultimately judged urban, greatly inflating the cost of acquiring it. Similarly, project management, even of relatively unambitious projects such as Girona’s concrete box of an AVE station, can get bogged down in local political disputes – not to mention the equivalent project in Barcelona, which was stalled for several years by anti-corruption audits. That ADIF-AV budgeted half a billion euros in 2017 to deal with litigation by its own construction contractors paints a dismal picture.

In 2017 the Spanish government legislated to moderate risk in public contracting: To spread risk across more contractors by encouraging the participation of smaller contractors through the contesting of more minor contracts, splitting large contracts, and measures such as ensuring prompt payment and improving transparency. And in parallel, to transfer risk to contractors, notably by limiting the modification of contracts with the private sector to no more than 50% of the original bid price. On genuinely risky projects, this dual policy of spread and transfer naturally tends to contradiction, since only larger companies can carry larger risks. Mid-sized construction companies remain unconvinced that the Spanish government’s approach to procuring transport infrastructure has actually changed. That the new legislation is simply patching up the cracks in the original (internal societally structured) model, is borne out by the counsel of the larger Spanish construction companies, who consider risk as a far more fluid, flexible component of project financing than the government: Shifting risk to reflect the capacity of each sector to manage it, adding value through the private sector management of projects over a longer period than the political electoral cycle, and conversely reacting faster than the public sector to offer short term flexibility. Not least because of their temporality, these are unmistakably lessons from the external, globalised environment in which these companies now operate.

Since the Crisis of 2008 Spanish construction companies have learnt to thrive in markets outside of Spain, their global dominance now second only to China: Their technical competence is not in doubt, nor is their ability to work effectively in different societal and administrative environments. Which makes their domestic environment all the more intriguing. Spanish national transport infrastructure is theoretically ripe for the application of externalised risk models:

  • The Spanish construction industry are both willing and able to adjust to more external organisational models. That adjustment does not necessarily suppose a radical change in epistemology. Rather that the internal societal model of knowable groups has the potential to be arranged differently, should it be exposed to a different environment.
  • The existing internal societal model has never worked well at the scale of national transport infrastructure, as described in The Expectations of Competition. Indeed the purpose of such transport infrastructure’s “presence” is precisely to bind groups that cannot know one another through the base societal “family” model.
  • The theological root of infrastructure presence – the boundary at which the state manifests the external (God) in nature – is surely just as capable of delivering alternative external concepts.

The inhibiting factor is elementary: The nation of Spain, by Westphalian definition, cannot be global. Spain, like other sovereign nations, is predicated on its ability to differentiate itself from the global whole. Since every element of the external that Spain accepts weakens itself as an entity, it is crucial that it uses external elements to strengthen itself as an entity. Since losing the European intellectual hegemony to the Dutch Republic, the question of what strengthens itself as an entity has plagued Spain, because its internal strength manifests in a different manner to the way the external (at least northern European) world measures strength. AVE is a contemporary example – its presence strengthens the internal idea of Spain, while its utility strengthens the external notion of economy. In practice a compromise between these internal and external assessments which perhaps satisfies neither adequately. A relentless tension – here between presence and utility – rather than a happy equilibrium be found, with respite ominously implying isolation. Given the stakes, exposure to externalised risk is moderated by the state: Unfettered external finance could weaken Spain more than it strengthens her, or might negatively alter the balance between presence and utility.

Continue reading “On the Wings of Hope”

Public Competition in Post-Independència Catalunya

Camp del Ferro

This essay examines how the art of public competition functions when one of its most important competitors is absent. The suspension of policy-making within the Generalitat de Catalunya, following the region’s failed bid for independence, provided an almost unique opportunity to observe the strategic processes and limitations of the art of public competition. The optimistic finances of metro line 9/10 set the context, followed by analysis of the reactions of the city and metropolitan area of Barcelona to the Generalitat’s hiatus. That analysis exposes vast differences in the funding models of higher and lower tiers of Spanish government, which can be traced to the availability of externally-financed debt.

“Public Competition in Post-Independència Catalunya” is the third in a sequence of four essays titled, “The Art of Public Competition“, which together explore the competitive model underlying Spanish public transport. An anthropological analysis of the tension between this internal model and that of globalised economics, reveals the distortion of external finance on the internal workings of the art of public competition. The first essay in the sequence establishes the policy context for the liberalisation of public transport in Spain. The second explores the workings of the art of public competition using the example of interurban buses around Barcelona. The final essay ponders the strategic interplay of risk, debt and optimism, using the example of Spain’s high speed railway network.

Beyond Line 9/10

Like many of Spain’s regional Autonomous Community governments, the Generalitat de Catalunya’s initial reaction to the 2008 financial crisis was to maintain many prior expenditure commitments by borrowing, with debts rapidly rising from a baseline of around 8% GDP to around 35% of GDP by 2014. Roughly half this borrowing now occurs through the nation of Spain, using a mechanism called the “Fons de Liquiditat Autonòmic” (Autonomous Liquidity Fund, FLA) which allows regional government to borrow on broadly similar terms as the parent country, and thus benefit from Eurozone rates, which in this period were close to 0%. FLA funds come at the cost of fiscal autonomy, since the autonomous community’s plans for debt reduction must be approved by the Spanish government. The other half of the debt is sourced directly, commonly from commercial banks, which in Spain have traditionally had a strong civic investment function. The biggest single debt within the Generalitat’s total is that of Ifercat, the Catalan agency tasked with new public transport infrastructure: 4 billion euros of debt, roughly 5% of the Generalitat total. Half Ifercat’s debt is owned by the European Investment Bank, a non-commercial EU institution.

Aside from a 45 million euro project to rejuvenate the Lleida-Pobla de Segur railway, a line historically notable as the epitome of politicised infrastructure, Ifercat’s only practical project was Barcelona’s Line 9/10 metro route. Over-ambitious from the outset, both technically and financially, the “longest metro line in Europe” followed an all too familiar pattern of costs spiralling out of control in an environment of inadequate risk management. Ifercat pursued increasingly desperate funding mechanisms to keep their project alive in the face of the worst global financial crisis in a generation. Instead of using the private sector to mitigate construction risk, or using the private sector to deliver the desired transport system as a single build-and-operate concession, Ifercat sought short term liquidity simply to keep construction underway. And ultimately the money still ran out, leaving an incompete tunnel right in the middle of the route – a tunnel which is still inhabited by a pair of Tuneladores (TBMs) that haven’t moved since 2011. Such an incremental approach to funding inevitably led to poorly structured debt, notably creating many “hidden” liabilities, above and beyond the headline of 4 billion euros.

In 2014 Independents de Qui attributed Ifercat with another 1.8 billion euros of future guarantees to public companies, but that value transpires to be a fraction of the total additional liabilities: Between 2008 and 2010 batches of Line 9/10 metro stations were sold as 30-year concessions, typically to consortia of those companies building the stations, with the money raised by the sale ostensibly used to keep paying the builders to build those stations. The concessionaires levy an annual charge for providing and maintaining their stations – totalling around 250 million euros annually, an anticipated 7.6 billion euros in total. That figure seems infeasibly high, equivalent to the fare revenue of the entire Barcelona metro system. For context, in 2016 (including the first 10 months of passenger service to the airport) Line 9/10 conveyed just 4% of all metro passengers. The exceptional cost of these concessions is partly explained by concessionaires funding their initial purchases through commercial banking – the rates of such loans were inevitably less favourable than the Generalitat might have achieved itself, had it been able to raise the money through the FLA. This difference was accentuated by the political vacuum in the wake of the Catalan independence process: FLA finance reflected the overall stability of Spain, while the commercial loans of the concessionaires reflected the future ability of the Generalitat to pay the concession fees: Not only was the Generalitat less politically stable (and thus more risky) than Spain overall, but its Line 9/10 concessionary payments were somewhat less integral to the institution of the Generalitat, hence more risky, than Spanish bonds to the nation of Spain. Concessionaires consequently found themselves unable to refinance their debts, adding to the overall precariousness of the Line 9/10 finances.

Operator “Ferrocarril Metropolità de Barcelona”, Transports Metropolitans de Barcelona’s (TMB) metro, also carries a significant burden – in so far as it clearly identifies in its accounts, 75 million euros annually for leasing trains and a further 53 million in Line 9/10 “fees”. The lease presumably includes all the 9000 Series trains built for Line 9/10, in spite of only 28 out of 55 trains currently operating there, so presumably only half of the lease cost should be apportioned to Line 9/10, giving a total of 90 million euros annually. As documented in Interurban Buses in Public Competition, TMB‘s budget is managed through ATM, which is funded from roughly equal parts fares revenue and government support, with about half of that government support coming from the Generalitat. Such accountancy primary serves to shift the Generalitat’s past capital budgetary excesses into the current revenue stream, and in the process makes TMB’s metro look far more dependant on government support than it would be if it hadn’t been saddled with Line 9/10. That arrangement surely serves wider political agendas, but as we shall highlight later, TMB metro’s dependency on the Generalitat is broader than just Line 9/10.

Belatedly Ifercat (as the Generalitat de Catalunya) has been reduced to barter, trading land with the Ajuntament de Barcelona (the city government) to raise the money to complete a handful of stations on the Zona Franca branch. Line 9/10 was the final grand project of Jordi Pujol, who dominated Catalan politics through the “Olympic” Golden Age of the 1980s and 90s. However, post-Crisis, the Pujol agenda of grandiose (“pharaonic”) Catalan ambition evolved into a quite different hope of Catalan Independence, and for Pujol’s successors Line 9/10 became a slightly unnerving ghost from the past – albeit one still pending the traditional Spanish political exorcism called the corruption trial. The post-Referendum political hiatus in the Parlament de Catalunya stalled even the fig leaf of a new bid to the European Investment Bank for another 750 million euros to complete the central section of the line. However judging by his subsequent media appearances the holder of that fig leaf, Ricard Font, who is a common thread between many government transport interests within Catalunya, was not idle following the Generalitat’s fall from grace in November 2017. And he was not alone.

Herein lay the shifting sands of post-Independència Catalunya, an administrative void hitherto controlled regionally by the Generalitat, suddenly contestable, perhaps for the first time since the 1970s. While it is convenient to categorise the exercise of power through discrete organs of state, it is common for leading individuals to serve in many organisations. Indeed it is common for such individuals to shift between political, administrative and academic functions throughout their careers, in a way that, for example, the British civil service would not tolerate. It is therefore more instructive to understand the role of these individuals as an extension of Catalan society. Catalunya’s administrative institutions strongly reflect Catalan society, not least because they require their staff to be able to communicate in Catalá – which is not widely spoken outside Catalunya, so (for better or worse) affords substantial protection. At its higher echelons, Catalan society is virtual – where being seen to, to be in control of, these are the rewards – a monetary salary is almost incidental. The longer the Generalitat remained paralysed, the less important its civil service positions became within Catalan society, regardless of whether wages continued to be paid. And thus perhaps without even analysing their motivation, senior individuals within the Generalitat logically sought somewhat similar roles through other institutions. Given the pre-existing tendencies to switch and accumulate roles, their search was perfectly intuitive. That starts to explain why this sequences of essays is subtitled the art of public competition: For what at first looks like a power battle between institutions is far more subtle, far more human – and that in turn makes it harder to analyse and understand from an external perspective, especially an objective one.

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Scottish Tram Financing

Transforming Travel... or not. Edinburgh Tram's optimistic route plan.
Transforming Travel… or not. Edinburgh Tram’s optimistic route plan.

Some Edinburgh City councillors already privately refer to the city’s tram project as the problem that “cannot be named”. Much as actors refer to Shakespeare’s tragedy as “the Scottish play”, superstitions of bad luck now bedevil the production. A dramatic shift from the optimism that initially characterised the development of the Edinburgh tram, towards pessimism.

That which cannot be named is no longer just the failure of a flagship local transport policy. The issue has engulfed the City of Edinburgh Council, and now risks destroying local politics completely: Not only the existing administration, but public trust in local government decision-making.

Political heavy-weights, who normally shy away from the minutiae of local governance, are now offering parental guidance in public: Alistair Darling (local Member of Parliament, and former United Kingdom Chancellor and Secretary of State for Transport) described the option to borrow £231 million ($370 million) to complete the city centre section of the tram line as “absolute madness” – the local population would be saddled with vast debts. Days later, Graham Birse (chief executive of the influential Edinburgh Chamber of Commerce) called the decision to not complete the city centre section, “bonkers” – far fewer passengers would use a tram that did not serve the city centre adequately. Even Alex Salmond (Scotland’s First Minister) has become directly embroiled, struggling to contain calls for an immediate public inquiry to identify who is responsible.

Burn the witches! This Scottish tragedy is rapidly descending into farce. That would be unfortunate, because this particular local difficulty goes to the heart of the Scottish nationalist agenda: A desire for greater devolution of public funds to local level. More localised independent entities have fewer financial resources, so are less able to manage expensive, risky projects. Consequently policy ambitions also need to be scaled back. Such scale isn’t necessarily a problem – small can be beautiful. The problem lies in pretending to be big, when not.

This article introduces the concept of risk in tram (and similarly large public transportation and infrastructure) projects, chronicles the decisions that lead a relatively small local authority to need to find hundreds of millions of pounds to support a single project, and explores the implications for future policy-making, especially in the context of a more devolved Scotland. Continue reading “Scottish Tram Financing”

Optimism

As I write, the United Kingdom is in the midst of a national election campaign. A month during which politicians vie to confuse the electorate with big numbers. Politics is suddenly ravaged by intangibility, because the national economy is unable to sustain the usual tangible proxies for a better life – “more schools and hospitals” – and because the tangible results of fixing that economy tend to be unattractive – “less schools and hospitals”. So the best political strategy is not explaining the consequence of choices in a language ordinary people can understand.

Do you like the sound of £100 million ($150 million)? Can I tempt you with £160 billion? Expressing these figures per person in the population can be useful. The first figure is one bar of luxury chocolate for everyone. Doesn’t sound so big now, does it? The second figure is like everyone having a £2,500 bank overdraft (loan). Strange that, because indirectly, we do.

Unfortunately, applying the economics of household groceries to major items of government expenditure introduces certainty. The idea that one can visit a store where luxury chocolate bars are sold for precisely £1.70. Yet many large elements of government expenditure are akin to ordering a chocolate bar years before it can be eaten, for a price that transpires to be somewhere between £1 and £5.

Larger businesses will be familiar with this concept. It’s called risk. Such businesses are often far more interested in what “it might cost” (£5) than what “it will cost” (£1.70), because what it might cost might lead the business to bankruptcy.

The national economy is chaotic in its complexity, but overall, things should average out. So long as all the assumptions are broadly reasonable: Ultimately some will earn/cost more, some less. Short-term in-balance can be solved by (basically) printing more money, and then down-grading future assumptions until everything is back in balance.

However, this breeds a form of arrogance. A sense that government doesn’t need to consider the possibilities. That we can deliver a radical new policy – that has never been done before – and, in spite of it never having been done before, we know precisely how much it is going to cost. Just like a bar of chocolate.

Unfortunately, assumptions tend towards optimism. On average, projected costs are less than actual costs. This isn’t just a problem for accountants. It means that decisions are taken which do not reflect reality. Potentially leading to a Disneyland scenario, where everything is affordable until after the decision is taken, when suddenly everything has become too expensive. It ultimately challenges the validity of decisions, and in doing so, the moral authority of those that take them.

This article uses the Edinburgh Tram project to demonstrate the inherent uncertainty of large government infrastructure projects. It discusses the role of optimism in planning, and the methods used to reconcile planned optimism with subsequent reality. The article describes how the involvement of the private sector in public projects has evolved over the last 20 years, and the highlights the different time-scales applied to private investment and public choices. It concludes that optimism is not only unavoidable, but necessary. Rather, the true problem lies in tendency of people to demand certainty from the public sector, while accepting uncertainty in the private sector. Continue reading “Optimism”