The fantasy of development planning

by David Week on 27 April 2014

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Bent Flyvberg is a brilliant analyst of big-money infrastructure projects. He’s shown through his work how large public investment projects are systematically under-estimated; he’s uncovered corruption; and he’s written a nice tract on why social science, ever since it became involved with physics envy, has failed to produce anything all that worthwhile. I like his work.

Recently, he posted the following question on LinkedIn:

Is ignorance necessary to get development started?

Some argue that if people knew in advance the real costs and challenges involved in delivering a project, nothing would ever get started. So it is better not to know, because ignorance helps get projects started, according to this argument. The following is a recent and particularly candid articulation of the nothing-would-ever-get-built argument, by former California State Assembly speaker and mayor of San Francisco, Willie Brown, discussing a large cost overrun on the San Francisco Transbay Terminal megaproject in the San Francisco Chronicle:

“News that the Transbay Terminal is something like $300 million over budget should not come as a shock to anyone. We always knew the initial estimate was way under the real cost. Just like we never had a real cost for the [San Francisco] Central Subway or the [San Francisco-Oakland] Bay Bridge or any other massive construction project. So get off it. In the world of civic projects, the first budget is really just a down payment. If people knew the real cost from the start, nothing would ever be approved. The idea is to get going. Start digging a hole and make it so big, there’s no alternative to coming up with the money to fill it in.”

It seems to me that in the broader sense (in which the question is pitched) then ignorance certainly is necessary for development. The key concepts here are innovation and risk.

The shape of future development is not known in the present. Thank goodness. Otherwise, we would be living in a present which had been foreseen by the planners of the 1950s, who themselves would have been living in a time foreseen by the planners of the 1920s, whose activities would have been known by the luminaries of the 1880s. And I would hate to live in the future as envisaged by people in the 1880s.

One version of this argument was given by Karl Popper in The Open Society and Its Enemies, which is that to predict the future state of society one must know the future state of knowledge (upon which society depends), which in turn would involve knowing future knowledge now. A neater aphoristic version of this comes from Paul Valéry: “The trouble with our times is that the future is not what it used to be.”

If we look at how the future is really made, it’s much messier than the process touted by planners—whether expert or otherwise. I take my cue on how to invest in the future from professionals, who I take it are not planners, but venture capitalists. VCs live or die by their activities, whereas planners continue to draw their government or corporate stipends regardless. This, to me, makes VCs inherently more trustworthy sources of knowledge in how to invest in the future.

In the VC body of knowledge, it’s accepted that most investments will fail. That’s the price of innovation. Without innovation, there is no development, so that’s the price of development. The failure ratio I’ve seen touted is 90%: VCs count on 9 in 10 of their investments failing. The 10th pays for the rest, plus a big payday on top.

Also in the VC body of knowledge is that rarely is the form of the payoff foreseeable at the beginning. People start these ventures thinking that they will be one thing, and only later figuring out that they will need to be something else. This shift in direction is called a “pivot”. Studies show that the average successful startup undergoes 2.5 pivots before it succeeds.

We all know Google as a search engine firm. It was incorporated in 1998. But Google’s insane wealth is based not on search (as good as it is) but on AdWords, which was not invented within Google, but by Bill Gross of IdeaLab. Google tried to buy the idea, and failed, but ended up copying it in 2000, and then settling with Gross.

Thank goodness Google was not subject to any 1998 planners wanting to know firm and correct figures for their cost-benefit analyses before green lighting Google. There would be no Google. The future was not yet known. And in general, if initiatives like google were dependent on planners, there would be no development. Because planners are creatures of government, and development is not produced by government (though government can foster or hinder it.)

Foreign aid is funded by governments. Governments are risk-averse. Since they are risk averse, they abhor ignorance about future returns on investment. (At least in theory: in practice politicians are most interested in the electoral returns in this election cycle, than the economic returns in 20 years.) But the future is built through innovation. Innovation involves creation of uncharted territory about which no firm knowledge—on either the cost or the benefit side—exists today.

I agree with Bent’s general drift: the cost of big government-funded infrastructure project should not be understated. But to extend that principle to development in general would be disastrous, or perhaps just plain silly.

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