It is an entirely standard analysis of the world that the same questions keep arising, and we're better off if we borrow -- steal if you prefer -- the correct answers from those who have already worked them out. Many have wondered why apples fall from trees and nearly everyone uses Newton's Equations, which stem from his (correct) answer as to why they do. To the extent that economics and politics are a science, which I agree is debatable, we should do the same thing.
When an answer has been found elsewhere, let us adopt it.
It is also an entirely standard economic analysis of the world that rich countries are simply those who have implemented those correct answers earlier or faster than countries which are still poor. This is implicit in the idea of "catch-up growth." An economy which is working at a GDP per capita of, say, $60,000 a year, finds growth slow and difficult. Because, the next thing to do has to be worked out from raw principles, through research and experimentation. So, growth is at 2% and 3% a year. A poor place might find growth difficult because of bad policy, certainly. But anywhere that wants to grow can see how the currently richer places have done it. Of course, even that is complex, but as any engineer will tell you, simply knowing is 90% of the problem solved.
Which brings us to this: “Long delays and inconceivable cost overruns have become integrally associated with the implementation of public infrastructure projects in Bangladesh.” This is not a problem exclusive to Bangladesh, of course. Contractors are known the world over for being late and over initial budget. “... many projects have sought and received time extensions and increased budget allocation” -- well, yes. That this happens everywhere (why wouldn't it, when you get paid more for being late and over-priced?) means that many have thought through solutions. Solutions have even been found.
The first thing is to insist that any contract is a fixed-price one. We want this road built. OK, great, so the contract states the road, the time, the budget and that's that. So you build the road you get paid; and if you don't build it you don't get paid. True, it requires courage from a government to allow a contractor to go bankrupt rather than bail it out, but, then, as they claim during every election, we are ruled by those courageous on our behalf, right?
It's possible to go into more detail too: “Similarly, the cost of extended suffering, especially health hazards and traffic congestion of the infrastructure projects, needs to be added to the list.” This is something that my colleagues looked into a few decades back. Sure, upgrading a road, maintaining it, digging sewers underneath, many things in fact, restrict the use of the road while the work is being done. So, charge the contractor rent for the use of the road while the work is being done. Every day this lane of this road is closed then this costs you, the builder, $1,000, or Tk1 crore, or 3,245.19 British Pounds. How we calculate the amount isn't the important part, it's that an amount is charged. Spend more time doing that work and it costs you, the builder, more. Oh, and yes, we allow you to keep the money if you do it faster.
Now, in one sense, this is ridiculous, ludicrous even. Because of course we've got to pay the builder more for that rent, which he will then just pay back to the government anyway. So, our budget for the road goes up, we get the cash back -- what has changed?
Well, what has changed is that the builder now has the incentive to build the road -- or do the work, build the sewer, whatever -- quickly, and so limit the damage done by congestion and not being able to use the road. We are, in some sense, just moving money around on paper. But in another sense we're doing something much more important. We've now provided the incentive for the builder to limit use of the road. To, perhaps, employ overnight crews to get the work done more quickly. Or even just do the work right and get it right the first time too.
The builder, the contractor, is going to be using the road while the work is done. So, charge the contractor rent for the road while the work is being done. Simple as that.
We have seen the effects of this in Britain -- it's now standard for road maintenance contracts. Yes, we still have congestion while the work is being done, but it's amazing how the prospect of greater profit through faster work seems to actually make work get done faster.
This is, of course, just that old economic truism: Incentives matter. But in another sense it's new information. How do we align the incentives of the users of a road, the builders of that road, and the public purse at the same time? And how do we minimize congestion while still getting that work done?
By paying the contractor to minimize the congestion of getting the work done. That's it.
Then there's that grander sense. Some questions have already been answered elsewhere. Economic development is, in part, taking those answers from elsewhere and applying them domestically. Road development, transit, railways, bridges? Deploy fixed-price contracts and also charge the contractors rent for the congestion they cause.
There's a simpler way of putting this too. We're dealing with capitalists here, these contractors. Capitalists are easy to deal with -- grab them by the wallet and they'll do whatever you want. So, charge contractors for congestion and watch as the congestion reduces. This wasn't a simple thing to find out; it took a couple of centuries, in fact. But now that it's known why not implement the solutions that others have gone to all that effort to find out?
Tim Worstall is a senior fellow at the Adam Smith Institute in London.
