This essay is based on the forthcoming Niskanen Center white paper “The problem factory: Pre-emptive risk aversion in infrastructure planning and the role of professional services.”
The USA, UK, Australia, and Canada all seem to have similar problems with infrastructure procurement. Railways, electricity generation systems, and other large projects – particularly “linear” projects which cover multiple local government areas and engage a variety of interest groups – take much longer to complete, at significantly higher cost than in economies outside the Anglosphere. Why is this?
A common analysis blames it entirely on NIMBYs and the excessive number of veto points and litigation opportunities in the common law countries. The argument runs that environmental protections have been extended too far, and that property owners have too much ability to block entire developments on relatively trivial grounds. And so the YIMBY movement tends to proliferate examples of egregious bad practices, often with humorous names – the “bat shed”, the ”fish disco,” and so on.
But if it was as simple as this, the problem would most likely have been solved already. The “NIMBY” acronym was coined and the problem noticed back in the 1980s. Since then, although habitat protection and environmental regulations have been introduced, there have also been several attempts to deregulate and speed up the planning process. None of them have worked; planning submissions have steadily increased in size and cost and the consultation process has taken longer and longer.
It is this constant growth that we need to look at. Where does it come from? The answer is that the problem of the Anglosphere’s infrastructure procurement is linked to one of its great sources of economic strength – the vibrant and active legal and professional services sector.
Planning objections do not fall from the sky – they are manufactured objects, the output of an industry. Realising this can reshape our approach to the problem in a number of ways.
If you read the websites of law firms and environmental consultancies, you will find numerous white papers, case reports and opinion pieces, all setting out different kinds of problems and objections to infrastructure planning projects. But it quickly becomes obvious that they are not aimed at protestors or environmental groups. They are “content marketing,” for firms that work primarily in a business-to-business market. And the main customers of the industry are the developers of infrastructure projects themselves.
Why is it such an effective marketing tactic to scaremonger about all the possible ways that NIMBYs could derail a project? This is the real issue at the heart of the Anglosphere infrastructure planning problem. The way that the system is organized encourages developers to engage in “preemptive risk aversion.” Rather than operating on the basis of maximising expected net present value, they try to eliminate the risk of failure. Consequently, the reason that planning applications have grown in scope and cost every year is that they are trying to cover every possible ground of objection, and the “risk surface” grows every year with the accumulation of legal precedents and scientific discoveries.
This explanation is consistent with the observable facts. Although most proposals for planning reform are aimed at reducing opportunities for judicial review, or removing grounds for objections to be made, at present the success rate for proposals is actually very high. In the UK, for example, proposals for Nationally Significant Infrastructure Projects have a failure rate of less than 5 percent. The cost and slowness of the system is not because it is too easy to block projects; it is because they are absurdly over-engineered to prevent blockers. And thinking about the industry in this way also provides some clues as to why slow and expensive infrastructure seems to be specifically an Anglosphere problem.
In the common-law economies, the planning process is quasi-judicial. Examining authorities are small, and work by considering submissions and reports. They are not set up to commission their own analyses, or to enter into a dialogue and provide feedback, and they operate “in the shadow of the law,” needing to be seen as unbiased and neutral arbiters in case of future litigation.
This compares to a model seen elsewhere in the world that might be described as “corporatist,” in the sense that the dividing line between infrastructure developers and state policy is more blurred. As well as placing more capacity within the perimeter of the planning authority, this system generates more stable two-way relationships between developers and examiners, allowing for richer channels of communication.
In a quasi-judicial system, outcomes are “all or nothing.” There are few opportunities to cure an application once it has been refused; the entire project has failed, and needs to start again.There is extremely limited ability to communicate with the process and get a sense of which objections are potentially show-stopping and which are trivial, strategic, or malicious, and so every possible objection has to be planned for. Spending millions of dollars on placating a small group of objectors is cheap at the price if it buys insurance for a billion-dollar project. And as the number of small groups proliferates, the billion-dollar project becomes a two-billion dollar project.
The problem is systemic. Lawyers and professional advisors have a duty to make their clients aware of all the risks, and developers understandably want to maximize the chances of ending up with a piece of infrastructure rather than an embarrassing defeat. The actual role of NIMBYs is surprisingly nugatory; they only exist in the background, providing the basis of the overhanging risk that drives the rest of the system. And it is a risk that is very hard to eliminate – as long as there are any environmental or other protections, including extremely important ones that few would be comfortable with getting rid of, the risk surface will continue to exist.
Any solution needs to address the means by which the risk is created, which is, unfortunately, the quasi-judicial planning arrangements themselves. Planning issues do not fall from the sky; they are created, generally by intelligent people who believe themselves to be doing their jobs. We need to change their incentives and information environments, to get everyone pulling in the same direction.
How might we change our analysis to make this possible?
First, we need to stop believing in a fixed quantity of regulatory barriers and blockages. The size and cost of the planning process is not determined to any meaningful extent by the size and shape of the environmental or other regulations. It is driven by the size of the budget devoted to creating objections. The only real constraint is the energy and ingenuity of the consultants and lawyers.
Second, only a relatively small contribution to that budget is made by NIMBY local residents and environmental protestors themselves. The industry which proliferates planning risks exists because preemptive, risk-averse over-engineering is the only way for developers to be acceptably certain of the outcome of the planning process in an Anglosphere system; unlike in the corporatist system, they have very few other ways to understand the decision-making process.
In other words, at present, the “problem factory” is a subsidiary of the “solution factory.” The objectors in a very real sense are being paid (well) by the people proposing the project. To escape this straitjacket, the problem factory needs to be replaced by a genuine “planning” function, one in which the word “planning” has something closer to its ordinary-language meaning. We need to find a way to put more capacity into the examination process, and to allow for three-way communication (including informal channels) between developers, the authorities, and affected parties.
Doing this is likely to be uncomfortable, because the corporatist alternative is rather alien to a common-law culture, particularly in having a much more active role for the state. But, unlike taking one more heave at streamlining the rulebook, this approach starts from a position of respect for the problem. It is not a question of “builders” versus “blockers”; what we have a need for is “planners.”
Dan Davies is the author of Lying For Money: How Legendary Frauds Reveal the Workings of the World and The Unaccountability Machine: Why Big Systems Make Terrible Decisions and How the World Lost Its Mind.