Category: Construction Costs
Project Delivery and Overengineering are the Same Problem
I have not been posting much lately. The proximate reason is that I spent most of October finalizing with Borners the text of the London construction costs report; there’s still another round of edits but they’re quite small. I don’t want to preview the argument in the report yet, but I do want to talk about one thing that jumped to me while looking at the cost history of London. In New York, we broke down the cost premium into three components, each stacking on the others: labor (primarily overstaffing) raised overall costs by a factor of 1.5, project delivery problems by a factor of a bit more than 2, overdesign of systems and stations combined to a factor of almost 3. Ever since then, almost four years ago, we have tried tackling procurement and poor design separately, having some successes on the latter while nothing has gotten better and much has gotten worse on the former. But what’s emerging out of what we’re seeing in London is that really, the procurement and design premiums are the same problem.
To be clear, “the same problem” should not be taken literally. Stations can be designed to be twice as large as they need to be even under a system of solid project delivery, and vice versa. However, their causes are deeply intertwined, and historically, in London (but not New York), they emerged at the same time.
New York’s cost history is unique, in the sense that high New York costs go back to the IND era of the 1930s. Already then, there was a cost premium of a factor of about 4 over London and Paris. The cost premium over Paris has further increased then, though that over London has not, London itself having a rapid increase in costs starting in the 1990s. The IND’s project delivery did not to our knowledge have any special problems, but it was severely overdesigned, with full-length mezzanines, underground flying junctions, and wide curves under streets requiring demolishing corner buildings; Sixth Avenue Line was particularly expensive as it had to be built around and under PATH and carve a new avenue through the already gentrifying Greenwich Village.
But elsewhere in the Anglosphere, even to some extent in the United States, costs exploded later. British costs were lower than Continental European costs in the era of the Victoria and Jubilee lines, and Canadian costs were similarly low. And in the UK and as far as we can tell also in Canada, the procurement and design cost premiums increased at the same time. The Jubilee line extension was already showing the procurement problems and frictions that would later come to a head on Crossrail, and also had if anything even more oversize stations than Crossrail relative to train size. Then at Crossrail, both of the problems that we thought separate were fully exhibited. On the project delivery side, there were extreme contingencies (all used up), premiums due to different parts of the project not talking to each other, and general issues with fragmentation. And on the design side, the station dig volumes were enormous: the central Crossrail stations excavated 150,000-200,000 cubic meters each, compared with 85,000 for Odenplan on Citybanan, serving trains only 10% shorter than the eventual plan for the Elizabeth line.
Some of this can be readily explained by the same causes. Crossrail, like the American projects for which we have data, has an atypically high share of systems costs relative to civils. Normally the ratio of systems to civils, in France, Italy, and Sweden, is around 1:2.5; Second Avenue Subway and Crossrail were both nearly 1:1. In London, there was an obvious problem of difficult systems integration, as different project requirements set by different organizations that didn’t talk to one another enough and didn’t prioritize value engineering forced ever more expensive solutions. The same problem of fragmentation and lack of coordination also leads to project delivery issues, as there is insufficient supervision of the contracts, which are increasingly obscured behind design-build mechanisms.
But station sizing is harder to explain except through a push and pull among different organizations that want their own requirements. London and New York both have the same topline results of stations being too large (though this is less true in New York going forward than it was for Second Avenue Subway Phase 1), but the exact set of departments and requirements varies – New York had a problem with back office space for different departments, London likes to excavate big digs for architectural purposes so while the stations are equally overpriced they at least look somewhat nice.
(You may wonder what about labor. The answer is that we never tried to seriously tackle it. It’s an extremely localized problem to the Northeastern United States, and even California, otherwise fully New Yorkized in its costs relative to urban construction difficulties, doesn’t have it.)
One cause for pessimism here is that evidently, while we did manage to pressure New York into saving some money on Second Avenue Subway Phase 2, the savings did not stick with the 125th Street subway proposal, which costs twice as much, makes the procurement problems worse by doubling down on design-build and similar privatization of project delivery (design-build being particularly important to MTA President Janno Lieber), and swaps the overly long station digs of Phase 1 for overly deep ones instead without resolving the underlying problem.
Electrification Costs and Confounders
A presentation by the Bavarian Ministry of Housing, Construction, and Transport (StMB) about expansion plans for the Nuremberg S-Bahn includes several branches to be electrified. Naturally, the presentation includes costs and distances. However, dividing the cost by the distance has little hope of giving us the normal electrification costs in Germany, because all of these projects include other things as well. This is typical of line-by-line electrification: it comes as part of a modernization plan, and the headline cost will include other items, which may be signaling, double-tracking, station upgrades, bridge and tunnel modification, and junction upgrades.
The lines in question are as follows:
- Neustadt an der Aisch to Steinach bei Rothenburg ob der Tauber, a 30 km line. The cost of the project is 142 million €, including electrification, 8.3 km of noise barriers, and alignment modifications at the two ends of the section. This is expected to reduce trip times by 14 minutes and raise ridership by 2,000 riders/day, for a cost per new rider of 71,000€ and a benefit-cost ratio of 1.1.
- Forchheim-Ebermannstadt, a 16 km line. The cost of the project is 72 million €, including electrification, signal modification, and new platforms at six stations. This is expected to raise ridership by 600 riders/day, reducing trip times by 2 minutes, for a cost per new rider of 120,000€ and, despite the high cost, a benefit-cost ratio of 1.1 as well.
- Bamberg-Ebern, an 18 km line. The cost of the project is 89 million €, including electrification, 1.6 km of noise barriers, a new interlocking system, and new platforms at a station and extensions at two others. This is expected to shortern trip times by 8 minutes and raise ridership by 1,100 riders/day, for a cost per new rider of 81,000€ and a benefit-cost ratio of 2.5.
- Express S-Bahn to Markt Erlbach. This 165 million € project involves electrifying and speeding up 18 km of route, double-tracking about 7 km of the route, 4.6 km of noise barriers, interlocking improvements, and train platform improvements. Expected benefits include a trip time reduction of 20 minutes and 2,000 new riders, for a benefit-cost ratio of 1.2.
It’s worth noting that the benefit-cost ratios vary widely relative to costs per rider. This is partly about distance traveled – the third project is expected to reduce car traffic by somewhat more than the others relative to the number of new riders; that said, the factor is not 2 but rather 1.2, and the first two projects have rather similar projected reductions in car traffic per new rider to each other.
I bring these numbers up not to argue that electrification in Germany costs 5 million €/km, but rather than electrification in Germany is usually bundled with other projects that end up costing that in total. When lines are electrified one at a time, the reason one might electrify in a country where half the network is already wired is that one might want to upgrade specific lines, and then usually the upgrades include multiple things at once.
In that sense, it’s not too different from some past electrification projects, some going back to the invention of the modern S-Bahn in Munich and Paris, as I recounted in the history sections in this post. The Ligne de Vincennes was unelectrified when it ran to Bastille, and first ran electric service at the same time it opened as a partly tunneled line to Nation. Similarly, in Munich, most of the S-Bahn branch network was unelectrified, and was wired as part of the suite of projects completed within the seven-year span that it took to build the system. And yet, one should never apportion the cost of the RER or Stammstrecke tunnels to the cost of surface electrification. It’s important to understand the costs of these projects separately, in order to be able to benchmark them for future urban S-Bahn projects and project costs based on the exact amounts of new tunnel and surface electrification required.
The difference is that in these cases, the costs available to us are already bundled. This is because electrifying an 18 km branch line in the Nuremberg suburbs is not a sufficiently large project to merit extensive debate all by itself. The goal of improving the line is important enough to be mentioned as a line item in a presentation about investment plans, and will include the total bundled costs, but there’s no real sense that one can disaggregate these costs to try to cut some secondary scope, not at this scale.
For benchmarking, it is therefore better to look at much larger electrification schemes, precisely because they’re large enough by themselves to be disaggregated from others. Israel and Denmark are both good case studies for this, because they’re electrifying large sections of their intercity and regional rail networks all at once, as part of a program of investment in the national network rather than in specific lines, and therefore disaggregated costs are available. In Israeli discourse, the contract with the electrification contractor is a point of controversy in the media (in fact, acrimony led the state to fire the contractor, each side blaming the other for delays), because it’s a big contract and can be discussed separately from other contracts, for rolling stock, resignaling, the Haifa trenching project, and other elements. In German discourse, no such thing can happen, because there is no large-scale effort to electrify hundreds of kilometers all at once, and instead people are interested in studying the upgrade program line by line or region by region, in which discourse the aggregated costs per line are more important than the overall cost of multi-line electrification versus those of other elements.
IFP’s Transit Abundance Playbook
Two weeks ago, the Institute for Progress published a playbook called Transit Abundance, comprising 15 policy briefs about reducing construction costs. One of them was my own, about itemization of costs. Eric has a good one about phasing funding to prevent the situation of the Boston Green Line Extension in which the planning for the project was funded from the same grant that funded construction, leading to rushed pre-planning to get that money in the first place. And unfortunately, many of the rest are questionable. There’s a mix of good, meh, and downright counterproductive, and unfortunately, I’m seeing people I know and respect from elsewhere say things that are wrong or barely relevant.
My first filter for pieces like this is “is this even close to correct?”. There are some pieces that fail the test right there, praising projects that were extremely expensive as examples to emulate rather than avoid (for example, the reliably incompetent Stephanie Pollack is saying that of the Green Line Extension).
But beyond that, for things that at least get what the problem is, I look at what they cite. If they only cite the Transit Costs Project, then they don’t know enough to play. If they cite things I wasn’t aware of, then it’s more interesting. A positive highlight is Anthony Potts’ piece calling for technical scoring of proposals, which relies on literature about the exact weighting required for technical scoring to matter. We knew from interviews that California’s 30% technical score, 70% cost weighting produced identical results to lowest-bid. This piece actually went and found published results on this issue and found that if the cost is weighted at 57% or more then it’s the same as lowest-bid, and that this produces higher final costs both in general and in California case studies. This piece, I encourage everyone to read for a more complete discussion than we wrote of technical scoring and its merits.
And if this piece is a highlight, a lowlight is a piece on AI, by Lizzie Speed and Bennett Capozzi, panned across social media for calling for using more AI for transit planning, from a background of trying to sell AI technology rather than from that of transit planners; the authors cite the Transit Costs Project’s review of planning and other soft costs to argue the unique Anglosphere problem is data limitation (we say no such thing in our report) for which the solution is more AI, and seem not to know where those high costs come from. This compounds a criticism I’ve seen across social media for IFP’s use of generated images, to the point that the lead image for the playbook was noted for having errors in how the trains look (it’s hung on bus-like wheels rather than on bogies).
And regrettably, I’d like to also highlight Jackson Moore-Otto’s piece, which says that federal loans can stabilize transit funding to prevent a feast-or-famine problem. I respect Jackson and have seen him do and lead good work on matters of commuter rail and Boston-area advocacy, and am honestly surprised he’d write such a thing, which is just wrong.
The specific problem with Jackon’s argument is that it relies on a chain of citations, each introducing some errors to the point that the final claims are just wrong. A central claim is that the first electrification project costs more than subsequent ones, which is manifestly untrue (for example, compare Amtrak’s Northeast Corridor electrification in the 1990s with its struggles to install autotensioners now). This is based on a claim sourced to Momentum (which doesn’t quite say that), which sources it to the RIA Electrification Cost Challenge (which gets some Continental costs wrong); to get there, Jackson is saying the New Haven-Boston electrification was not a first line but a subsequent line, when in fact Amtrak had literally never electrified a railroad before and its forerunners on the Northeast Corridor had last done so in the Great Depression. The British costs are meanwhile compromised by repeated project cancellations that lead to sunk planning costs and make internal comparisons difficult, since the surviving lines are by definition the easiest ones. In truth, rather rapid electrification projects, without decade-by-decade continuity, exist outside the UK and are often quite reasonable in their costs, as in Denmark, Israel, and especially India.
The upshot is that because there is no feast-or-famine problem with electrification, any program to reduce its cost in the US (or UK) needs to understand what works and not talk about making it easier to apply for federal loans. On the Northeast Corridor, for example, a senior engineer since removed for incompetence and potential embezzlement of Amtrak funds unilaterally decided to tighten the required catenary pole spacing, driving up costs for reelectrification since the existing poles are not compatible with the new standard (but are compatible with high-speed electrification systems sold by international vendors). This is not a feast-or-famine problem, and to the extent there may be a specific federal policy solution, it’s to require planners to attend international industry fairs and conferences like InnoTrans and make it clear that ones who don’t will have stalled careers.
Meme Weeding: Regular Funding
American and British discourses on public transportation are too obsessed with getting regular funding. In the United States, it’s a commonplace among advocates that what the mode really needs is a regular source of funding protected from the usual political process. American thinktanks trying to talk about construction costs, such as Eno, even spoke with fascination about the bipartisan consensus in favor of expanding the Madrid Metro, in contrast with the American situation. In the United Kingdom, it’s specialized to some aspects and their construction costs, but the “feast or famine” line on electrification is particularly common. In truth, there’s quite a lot of funding regularity and political consensus in parts of the United States and United Kingdom that nonetheless cannot build anything, and conversely, some of the most prolific, lowest-cost builders in the world do so in an environment of funding uncertainty, especially when we consider the effect of the Great Recession.
Spain in the 21st century
The very low-cost metro construction program in Madrid under Manuel Melis Maynar in 1995-2003 is well-known to both academic researchers and advocates, and Melis’s own writeup on how this was achieved is a starting point for the entire discourse. This program, going back earlier in the 1990s and continuing right up until the 2008 financial crisis and the onset of the Great Recession, was marked by political competition between the left and the right over who could deliver more metro construction, and consistent commitment to building more infrastructure across Spain. At national scale the later part of this period is characterized by rapid, low-cost construction of high-speed rail building upon the success of the Madrid-Seville line (opened 1992). This was not a purely rail-based system – airports were expanded rapidly in the 2000s to accommodate the growing economy and growing international travel market.
And then all of this crashed after 2008. Some lines were still built if funded before – close to half of Spanish high-speed rail by funding is lines that opened post-2008, nearly all well underway when the recession set in. Other lines were canceled, some of which have not been restored, such as Madrid-Lisbon. Barcelona kept building L9 and L10, the most expensive in Spain, but Madrid’s construction program broadly wrapped up. I encourage readers to go to Alexander Rapp’s visualization and compare the rapid growth in 1995-2010 with the almost total lack of new lines in 2010-2025. If there’s one place that meets the definition of feast-or-famine, it must be Spain.
And downstream of the famine, construction costs are still very low. The high-speed rail built through the famine is more expensive, but only because it’s the Basque Y, majority in tunnel due to topography. The metro lines Madrid has built recently are still cheap: the Line 11 extension to Conde de Casal to open next year costs 84 million €/km, only mildly more than the Melis-era program in real terms, the difference largely attributable to the fully-underground character of the extension whereas the Melis-era program was only 73% underground. Feast-or-famine hasn’t dented Madrid’s ability to build cheaply, and so the plan as the economy is finally recovering from the crisis is to resume building rapidly, the entire 33.5 km Line 11 plan budgeted at the same low cost.
Italy and the reset button
Italy’s period of regular construction in the 1960s, 70s, and 80s was initially characterized by low costs for the first Milan lines from the 1950s and early 60s, but these grew quickly, and by 1970 they were if anything higher than in Britain and not much lower than Germany’s, due to the extensive corruption of the First Italian Republic. The 1990s process of mani pulite was such a transformative change that people periodize Italy since then as the Second Italian Republic, with rather different politics from the First, with far less corruption and far more left-right polarization.
In the interim, there was a famine in metro construction as rules were changed to require more transparency. The system that emerged from the famine had lower real costs than that of the 1980s with its corruption. A second famine occurred, to some extent, in the Great Recession, albeit nothing as drastic as in Spain; the Spanish economy was characterized by high growth with a housing bubble in the years leading up to the Great Recession, where Italy in the 1990s and 2000s up to 2008 already had the weakest economic growth in Europe, so in effect there weren’t such massive infrastructure projects to be canceled. The famine is over, and the Italian economy has exceeded its 2007 peak and returned to healthy growth, with further construction of metro lines. Costs broadly remain low – Turin’s Line 2 has a high projected cost by Italian standards, but the extensions in Milan don’t appear any more expensive than the ones built 15 years ago.
Nordic costs
Stockholm built its three-line metro from the 1950s to the 1990s, with most construction complete by 1978. That feast, driving up Stockholm’s modal split by the 2000s and 10s to Parisian levels despite not being a particularly large city, was followed by famine, with only two short extensions opened thereafter, in 1985 and 1994. Since then, only one urban rail tunnel has opened, Citybanan, opening in 2017. Nya Tunnelbanan has proceeded, with the 19 km extension to open in stages beginning next year.
Swedish costs are sharply up. The original T-bana was among the cheapest metro systems built in history, not much more expensive than lines built in the 1900s-10s in New York, Paris, and London. Relative to Sweden’s GDP per capita, it is, I believe, unsurpassed in its low costs. Madrid’s costs were higher than this. Citybanan is harder to compare, as a commuter rail tunnel with mined stations beneath older T-bana stations, on two levels in the case of Stockholm City/T-Centralen. But Nya Tunnelbanan is definitively more expensive, its costs still below the global average but no longer so Earth-shatteringly cheap.
And yet, this is not too different from the evolution of construction costs in Norway and Finland, where construction has been more gradual. We know why Stockholm’s costs have risen, a combination of mid-project regulatory changes that led to cost overruns and a general increase in real Nordic costs due to the adoption of more privatized project delivery and loss of state capacity. Copenhagen, which built its metro based on these more privatized ideas from the start since it only started building in the 1990s when those ideas were in vogue, has had these higher costs from the start (again, meaning “somewhat lower than 2020s global average” as opposed to “setting world records for GDP per capita divided by per-km metro costs”).
On the narrow matter of electrification, it’s notable also that the Danish program, a concentrated feast rather than a gradual multi-generational program as in Italy, is not particularly expensive. As it is recent and intensive, I if anything encourage English-speaking countries to study it and benchmark their programs to it, precisely because it gives us a snapshot of electrification of many different main lines. (This is also true of Israel.) In contrast, the more gradual rolling electrification programs of Italy and France are harder to benchmark to, because at this point the lines being wired are selective, for a combination of low traffic (the higher-traffic lines having been wired generations ago) but also ease of electrification (the more difficult lines being deferred due to failing a cost-benefit analysis).
Consensus in the United Kingdom
In Madrid, PP and PSOE both politically supported metro expansion and made that an election theme. The same can be said of a number of Continental European comparanda, such as Paris. However, London (on rail in general) and the UK (on High Speed 2 and electrification) are no different. HS2 and Crossrail were both matters of bipartisan consensus in the 2010 election, just as Grand Paris Express was a point of consensus in 2012. If anything, HS2 and Crossrail were thus less politicized than GPE, on which the Socialists and Republicans differed on which exact lines to build within the concept of inner-suburban Paris orbitals; a closer British comparison to GPE is the electrification program, which too was a point of agreement between Labour and the New Tories but then after the 2010 election the Coalition modified the program to prioritize secondary-city commuter lines over the Midland and Great Western Main Lines.
Moreover, physical construction in London, unlike British rail electrification, has shown remarkable consistency. The current period after the opening of Crossrail might be the first famine in a generation. However, the famine is not the cause of high costs but rather is caused by them: Crossrail 2 was being planned in the 2010s, but canceled due to outrageously high costs, and yet it is likely a scaled down version of it will go back to the planning board and be approved soon. An extension of the Bakerloo line to Lewisham is in the pipeline as well, at much higher per-km costs than those of the Northern line extension to Battersea and the Jubilee line extension, and the question of whether to build it at all is again downstream of the high costs, not upstream of them.
Despite relative consistency in funding and politics, British projects do not have any consistent planning regime. Every project is delivered as a single purpose vehicle (SPV/SPDV; D stands for delivery). The Jubilee line extension was in theory designed in-house, but because it was clear the model was giving way to privatized project delivery, the in-house team was treated as an SPDV and its expertise withered away after the line opened. The same has happened with subsequent megaprojects, the lessons of Crossrail now existing only as a Learning Legacy report; in contrast, GPE, initially planned as an SPDV under British influence, is transitioning to a permanent bureaucracy for building metro and commuter rail tunnels across France.
Consensus in New York and California
The United States since 2010-11 has been characterized by almost total unwillingness by the Republican Party to assent to major public transportation and intercity rail projects. Chris Christie set the stage by canceling the ARC tunnel between New Jersey and New York without replacement; as the project has high benefits matching its outrageous costs, it was rebooted by Amtrak, at even higher costs. Subsequently, governors elected in the 2010 wave returned federal money for intercity rail, in Ohio, Wisconsin, and Florida.
And yet beneath this national picture, one finds remarkable consistency in funding in New York and California. In New York, the Metropolitan Transportation Authority has planned its capital spending in five-year cycles going back to reforms in the 1980s under Richard Ravitch to discourage maintenance deferral, with regular funding in these cycles and little partisan controversy thereover. Expansion projects used to be a matter of bipartisan deals, with Republicans like Governor George Pataki (r. 1995-2006) dealing with Democrats like Assembly Speaker Sheldon Silver (r. 1994-2015) to agree on funding for their constituencies, respectively the suburbs and the city. The more recent Republican Party has been less convivial, but also far less electable, and the state is by now run by a single party, with consistent funding and a regular cursus honorum for the political appointees overseeing the MTA. There’s no feast-famine cycle, nor is there any siege mentality over what if the Republicans will defund the MTA, because the state money for the MTA is still there and nothing electable in the state is canceling that.
California is largely the same. California Republicans do not have the same history of bipartisan moderation as New York Republicans, but the state moved on from them a generation ago already. In this century, the only Republican who was even mildly competitive in a statewide election, Arnold Schwarzenegger, was already in the 2003 election noted as atypically moderate, and after winning pursued a broad consensus in transportation and supported California High-Speed Rail. Below the statewide level, the form of mandatory referendums in the state has led to rather consistent funding with specific sales taxes deeded to transportation, to the point that the Los Angeles County MTA has capital funding projections through 2060 with a list of priorities to be funded in each period telegraphed decades in advance.
And neither New York nor California is capable of building. Consistency in funding has not led to the formation of a consistent civil service. Single party dominance, with the Republicans choosing to nominate sacrificial lambs like Larry Elder rather than to moderate enough to win the median voter in a wave election, means that there is no need for political appointments, as professionals know in advance what the state’s ideological direction is going to be, and yet agency upper echelons are stacked with politicals and expect subject matter experts to be silent when the politicals and their staff are in the room. Costs in California are not only high but meteorically rising, in San Francisco, in San Jose, and in Los Angeles. In New York, despite real savings from our advocacy for shrinking station size, the projected costs of IBX are unreal and those of the 125th Street extension are full of lard, the savings wasted on deeper stations and ever higher soft cost charges.
American activists keep talking about the need for consistent funding. But where funding in the United States is the most consistent, outcomes are consistently bad, just as they are in the parts of the United States that are one election away from cancellation. This is not just a bad inheritance – the MTA let its in-house expertise go in favor of a consultant-centric system, and MTA CEO Janno Lieber takes credit for having implemented the globally-failed design-build system locally, with essentially all discourse that isn’t coming from us at the Transit Costs Project backing further privatization and SPDVization of project delivery out of a false belief that London and the knowledge of global English-only consultants are worth imitating.
This way, the MTA, with a capital budget of $13 billion a year and no real fear of large cuts, delivers subway extensions at a rate of about one new underground station per 5 years, 9 stations equipped with elevator access per year, and sporadic commuter rail interventions that never actually improve speed or convenience. Consistent funding is not going to make it better, because its funding is already consistent and yet it is run by politicals who look down on subject matter experts and who have New York solipsism and react acerbically to being told they need to learn, and so it can’t build, only manage its own decline.
How Much Community Outreach Does the Urban Institute Think Italy and Turkey Do?
The Urban Institute just published a brief about community outreach for public transportation construction projects. The authors are Yonah Freemark, Gabe Samuels, and Christina Plerhoples Stacy; I don’t know the latter two but I know Yonah well and respect him and his expertise and global curiosity. So I honestly don’t understand why the brief concludes that the US’s problem is “inefficient community engagement” and the solution is to do more community engagement early in the process. Worse, the brief for some reason cites Italy and Turkey, via our transit costs reports, as places that do earlier, more effective community engagement, rather than as places with rather top-down decisionmaking and limited citizen voice. It’s sad, because the brief does go over the problems of the American process but can’t bring itself to the right conclusion, namely that community engagement should be curtailed; its only response to the problems of engagement are to suggest earlier engagement rather than less of it.
The brief is, well, brief. I recommend people read it in full. It quickly goes over the usual critiques of the American community engagement process: it is skewed toward higher-income residents, who are likelier to own a car; public meetings attract people with the leisure to attend during business hours; it leads to defensive design such as the reluctance to engage in surface disruption when building subway stations. All of these are real problems. But the brief tries to rescue the idea that public engagement should inform decisions, by criticizing the “decide, announce, defend” mentality of infrastructure project managers and by demanding early engagement.
Then the solutions proposed are a mixed bag. Some are good, and are lumped in with community outreach even when they’re not about any such thing. The invocation of our Italy and Turkey cases is about the public itemization of costs for infrastructure contracts, but this is not about any outreach but rather about contracting transparency for anti-corruption purposes, and the database is not easily legible to the general public. The same is true of in-house expertise, of simplifying project homologation, and of limiting contingencies; unfortunately, the brief frames the latter in the language of “create contingency budget limits” rather than stating the real problem, which is that federal regulations in the last decade began requiring much higher contingency than is normal, 40% rather than the 20% used in Turkey, and these are mirrored in the UK as an ersatz attempt to deal with cost overruns without addressing the underlying cost problems.
In contrast, the invocation of early and representative community engagement is awkward on the same list. The list tries to coast on the reputation of Italy and Turkey among parts of American transit advocacy for low-cost construction in order to justify more involved outreach laws. But neither Italy nor Turkey is a state with strong civil society empowerment in community engagement. Italian infrastructure construction heavily involves different administrative bureaucracies, for protection of labor, the environment, and historical monuments, but not the community. The community does not have the expertise to judge whether some construction technique is a risk to a Renaissance cathedral. Among our low-cost cases, Sweden has higher citizen voice empowerment and even permits some litigation, but far less than the United States or, as of late, the United Kingdom; it too relies extensively on bureaucratic legalism, and the outreach there tends to be done to large collective groups, for example umbrella unions on matters of labor, or a feminist bureaucracy on matters of gender equality.
What makes me bitter about this entire concept is that the good proposals the brief is trying to wed to outreach are about empowering bureaucrats, not civil society. Civil society does not build infrastructure. The administrative state does. Civil society extracts money and betterments from the administrative state whenever it is empowered to do so, because budgets that are third-order for the state are massive wins for petty actors. But 10 third-order items are a second-order item and 10 second-order items are a first-order one, and the costs of veto points and community actors mount. The solution isn’t to involve any such groups early; it is to not involve them at all.
Learning from Many Places is Better than Learning from One
An article from last week about a cost saving push in Seattle made me think again about how learning from lower-cost examples works. As the costs of the majority-above-ground Ballard extension are careening toward the $2 billion/km mark, the agency and civil society are looking for cost savings. Scott Kubly, the former head of the Seattle Department of Transportation, is proposing to reduce the costs of stations by shortening the platforms, citing Copenhagen’s combination of driverless operations and very short trains as a cost saver. Kubly says,
They built it at about a quarter cost. How they did that was shorter, more frequent trains, which leads to smaller stations, which leads to less excavation, which leads to faster delivery and a better passenger experience.
This, to be clear, is at best a second-order saving. The issue is that Copenhagen’s short trains and driverless operations are more or less unique to it, but its medium-low costs aren’t. An honest program of learning from Scandinavia ought to learn from all of the Nordic capitals at once, as much as possible, and focusing on what’s common to them and not on the differences. Stockholm in particular has lower construction costs than Copenhagen these days and has longer trains than Seattle: Stockholm T-bana trains are 140 m long (and Citybanan, with 200 m trains, cost $400 million/km in 2025 prices, less than a quarter as much as Ballard), Link trains are designed up to 116, Copenhagen Metro trains only 39. Nya Tunnelbanan manages lower construction costs than Copenhagen these days, so learning from low-ish Nordic costs should not center the combination of driverless trains and short platforms.
More broadly, this proposal by Kubly (and by the generally good Robert Cruickshank, formerly of California HSR Blog) is convincing me that the real strength of the Transit Costs Project is that we’ve done deep dives into more than one success case. We technically have three low-cost cases: Stockholm, Istanbul, and a selection of Italian cities. But in Stockholm, too, the case looked at trends common to the Nordic countries, namely, the unfortunate tendency in all four to privatize project planning to international design-build consortia. Our conclusion also uses some medium-cost Parisian examples to check itself as well as a few German and Spanish specifics, and we’ve increasingly looked at some Chinese examples, though well short of a full case like our main three. We’re blinder than we’d like to be in East Asia, especially low-cost Korea, but our coverage in Europe is fairly good and we have at least some idea of what’s going on in Latin America. Our ideology is always that it’s most important to look at the commonalities of the places that work when distilling the best practices, rather than on the differences.
This matters, because the average Continental European (or Chinese) just doesn’t think about the United States when doing transportation engineering. A Swede, asked about the features of their transportation program, will focus not on what makes the difference between Scandinavia and the United States, but on the differences between Sweden and the other Nordic countries. The literature I saw when I wrote the Sweden case was replete with intra-Nordic comparisons, on every conceivable measure. Most of the literature came from the country I was researching, but some came from the other three Nordic countries. All of them are like this. Ask a Swedish planner about what makes Nya Tunnelbana work and they’ll cite pertinent features like the drill-and-blast construction method and why it’s superior to tunnel-boring machines, where Copenhagen in fact uses TBMs just fine; ask a Danish one and they’ll talk about the driverless operations and extremely high frequencies.
And this generalizes. Italy has used very short stations and driverless operations to keep down the costs in very small cities like Brescia, and somewhat longer but still short stations in Milan, but Rome Metro Line B1 uses 110 m long trains and was built for $300 million/km in 2025 prices. While Italians talk about this as a cost saver, Manuel Melis Maynar wrote positively of Madrid’s rejection of driverless operations as an example of cost saving through technological conservatism. I don’t doubt that in both cases they were right under the circumstances (Melis having written of extensions built 25 years ago), but just as the medium-low costs of the Nordic countries have to be properly attributed to shared features, the even lower costs in Southern Europe have to be properly attributed.
Far more important than looking at a Copenhagen-specific feature is answering all of the following questions, in increasing order of abstraction:
- How large are the underground stations compared with the train length? How standardized are their designs?
- How standardized are the RFPs for station finishes, signals, and electrical and mechanical systems?
- Is there a single point of homologation for the system, or can a single suburban fire department demand construction in excess of code because the fire department head objects (as happened in Bellevue across Lake Washington)?
- Does contracting follow good practices (i.e. the traditional system as used in Scandinavia until about 15 years ago), or is everything done with layers of consultants managing other consultants with opaque design-build contracts? Are contracts itemized or fixed-price? Is there technical scoring to ensure contractors race to the top and not the bottom?
- How large is the in-house planning and supervision team? Does it have the capacity to manage a project the size of ST3, or even a single subway line like the combination of Ballard and West Seattle?
- Are priorities decided by professionals or by political appointees? Does funding follow the Acquis or possibly another similar system governed by rule of law? Is a cost-benefit analysis mandatory, and do project designers expect that a poor cost-benefit analysis will lead to project cancellation?
Each of these questions, by itself, represents a cost saving larger than anything that could come from shrinking the stations based on driverless operations, a tradeoff that reduces station dig costs but increases systems costs and works in many places but is never going to turn American costs into Southern European or Nordic costs. In contrast, relying on one simple trick like Copenhagen’s requires deep understanding of why each of Copenhagen and Stockholm does what it does, which understanding is unlikely to exist in anyone who doesn’t know that these cities have comparable costs, both a fraction of the United States’.
Against Land Value Capture
An otherwise-good video by the Joint Transit Association about A Better Billion criticizes us for not proposing value capture to fund the scheme. I’ve seen other otherwise-good American transit advocates back this, and I’ve seen many a thinktank propose it and similar nonconventional schemes to fund public transit, in lieu of taxes. Taxes are political. Taxes annoy voters. So why not get around them by taxing development behind the scenes? It’s attractive on the surface, but in truth, broad taxes are the only way to fund government and expect it to perform as expected; value capture is so opaque that it is very easily wasted, to the point that 100% of the funds it provides can sometimes be wasted on excess construction costs, as has been the case in Hong Kong. Good transit advocates should reject this scheme and demand that funding be as straightforward as possible, with the understanding that the part about taxes that annoys voters is what ensures the money is spent well.
What is value capture?
Value capture is the name for any of a set of programs aiming to fund infrastructure by taxing the development that it would unlock – in other words, to capture some of the value gained by the private sector. This contrasts with broad-based taxes, which capture value from the entire economy and not just from specific developments or developments in specific areas. The idea is that the infrastructure generates value not just for the broad economy but also specifically in the area it serves, so it’s right to tax that area.
In practice, value capture schemes are most common when there’s perception that raising broad taxes is too difficult politically, or undesirable otherwise. Hong Kong extensively uses value capture to fund MTR expansion, not because its taxes are too high but because it wishes to keep its taxes very low. American cities have begun looking into such schemes in much higher-tax environments, with limited willingness to fund things out of the general budget; the 7 extension in New York was built with bonds tied to tax increment financing (TIF), which promised that the higher property taxes generated by Hudson Yards development would pay the bonds back.
Which projects are funded by value capture?
Naturally, value capture and TIF systems favor projects that have the most real estate value to capture. In New York, this meant the 7 extension but not Second Avenue Subway, which the real estate advisors to Bloomberg denigrated on the grounds that the Upper East Side was already developed.
This already creates biases, in favor of not just wealthier areas (the Upper East Side is after all rather rich) but also ones with high redevelopment potential, for example because they are underbuilt. This, in turn, favors worse projects, because they serve lower preexisting density.
The dominant benefit of public transportation in benefit-cost analyses, which are not undertaken in the United States, is the benefit to passengers, representing social surplus. For an example that was just sent to me, a study from last month analyzing a further Nuremberg U-Bahn extension classifies the total benefits of the chosen alternative on p. 30 as 5.73 million €/year in passenger benefits, plus about 3 million €/year in various externalities of which the biggest are reduced accident costs and reduced traffic congestion. Similarly, Börjesson et al’s ex post analysis of the T-bana, finding a benefit-cost ratio of 6, has consumer surplus dominating the benefits of the system. Land use changes are helpful, but the main purpose of a subway is to be ridden rather than to stimulate real estate development. A Better Billion looks at the possibilities of development unlocked by new lines, but not for nothing, we also look at existing bus ridership and subway capacity problems in analyzing which projects to recommend; development-oriented transit can work but only as a secondary option, and value capture overemphasizes it in preference to other needs.
Value capture and costs
Hong Kong is famous in the core English-speaking world for linking development with MTR construction. It’s also a very good example of what not to do. I complained mightily about value capture in 2017, but if anything I pulled punches, because while I did talk about Hong Kong’s use of MTR value capture as a corrupt slush fund, I didn’t know enough to connect this with Hong Kong’s other problems:
- Very high infrastructure construction costs. They are so high that value capture only covers about half the project costs, and the other half, funded directly by the government, is still more per kilometer than the world average cost. Hong Kong, moreover, has been ground zero for the adoption of the consultant-centric globalized system of procurement – British consultants who were there in the 1980s and 90s workshopped the system and then brought it home, leading to a cost explosion that rendered first London, then Australian and Canadian cities, incapable of building urban rail. In this sense, value capture is an attempt to paper over the inability to build by using a tool perfected in the city that has extreme construction costs and can only build anything because, with car ownership suppressed by taxes, it has atypically high demand.
- Overcrowding, likely the worst in the developed world. The data out of Hong Kong isn’t quite comparable to the most overcrowded cities in the democratic world (Paris averages 31 m^2/capita). Hong Kong reports median rather than mean housing size: its median is 16 m^2, and while it has a lot of inequality, it doesn’t produce nearly a factor of 2 of a mean-median spread. Hong Kong has atypically high inequality, but even that only produces a mean-to-median income ratio of 0.67, and housing surface area is distributed more equally than income. So it’s almost certain Hong Kong is the first world’s overcrowding capital, all because the state doesn’t develop enough land or housing (net annual housing growth is 3.8 dwellings/1,000 people, low for East Asia) in order to create more profits for the MTR to fund ever growing construction costs.
The way forward
Value capture and other nonconventional funding strategies should be categorically rejected. They lead to poor project selection, high construction costs through opacity, and, in the most extreme cases, other governance problems including Hong Kong’s legendarily bad overcrowding. The only legitimate way to fund public transportation and other infrastructure project is through broad-based taxes, either directly as in some dedicated payroll and sales taxes found in both the United States and Europe or, better yet, through the general budget, debated at the highest responsible level of government (municipal, provincial, or national), itself funded largely by broad taxes.
A Better Billion and the Cost Model versus the 125th Street Subway Extension
We released a new report called A Better Billion. It was covered rather positively in the New York Times yesterday, with quotes from other transit advocacy groups. The idea for our report is that Zohran Mamdani promised free buses in his successful primary campaign, and promised free and fast buses in his successful general election campaign for mayor, so let’s take the $1 billion a year this could cost in forgone revenue and see how to spend it on subway expansion instead.
There’s been a lot of discussion in the article and on social media about the idea of free buses, but instead I want to talk about our proposal’s cost model, in the context of a rather incompetent plan the MTA released recently for a subway extension of Second Avenue Subway under 125th Street, at twice the per-km cost of Second Avenue Subway Phases 1 and 2, and twice the cost we project. Our model is not based on non-Anglo costs, but rather on real New York costs, modified to incorporate the one major cost saving coming from our previous reports, namely, shrinking station size. Based on everything combined, we came up with the following medium cost model:
| Item | Cost (2025 prices) |
| Tunnel (1 km) | $530 million |
| Tunnel, underwater (1 km) | $1,050 million |
| El or trench (1 km) | $260 million |
| Station, cut-and-cover | $510 million |
| Station, mined | $770 million |
| Station, el or trench | $240 million |
These costs include apportioned soft costs and not just hard costs. Altogether, an extension of Second Avenue Subway from Park Avenue to Broadway, a distance of 2 km with three mined stations at the intersections with the north-south subway lines, should cost $3.4 billion. This is not much less per kilometer than Second Avenue Subway Phases 1 and 2, which can be explained by the denser stop spacing and the need for mined stations at the undercrossings. If everything else were done in the right way rather than the American way, the low cost model would apply and costs would be reduced further by a factor of about 3, but the per-km cost would remain one of the highest outside the Anglosphere for those geotechnical reasons.
But the MTA and its consultants, in this case AECOM, project $7.7 billion, not $3.4 billion. Why?
Worse project delivery
We’ve assumed the existing project delivery systems the MTA is familiar with. However, what doesn’t move forward moves backward, and the procurement strategy at the MTA is moving backward rapidly, for which the primary culprit is Janno Lieber, first in his role at MTA Capital Construction (now Construction and Development), and then in his role as MTA head, pushing alternative delivery methods, especially design-build and increasingly progressive design-build (unfortunately legalized in New York last year). Such methods add to the procurement costs and especially to the soft costs. Second Avenue Subway Phase 1 had an overall soft cost multiplier of about 1.5: the total cost including soft costs was 1.5 times the hard costs (Italy: 1.2-1.25 times). This proposal, in contrast, has a multiplier of 1.75: the hard costs are estimated at $4.4 billion, and the total costs are 75% higher, technically including rolling stock except rolling stock at current New York costs is $80 million.
Contingency
The soft costs include a federally mandated 40% contingency. The FTA mandates excessive contingencies – the norm in low-cost countries is 10-20%, and anything more than that is just wasted. The contingency figure varies by phase of design and decreases as it advances, but in the earliest phase it is 40%, and it’s in that phase that budgeting is done. However, 40% is only required over hard costs based on standardized cost categories (SCCs), and not over past ex post costs that incorporated contingency themselves. In effect, the estimation method the MTA and AECOM prefer bakes in a 40% overrun at each stage, letting project delivery get worse over time as the globalized system of procurement takes deeper roots in New York.
Overdesign and overbuilding
Based on our recommendations, the MTA shrank the station overages in Second Avenue Subway Phase 2. Phase 1 had station digs 100% longer than the platforms, based on standards that were both extravagant to the taxpayer and spartan to the end user – the extra space is not usable by passengers but instead for unnecessary break rooms, separated by department. By Phase 2, this was reduced to a 50% overage, and we hoped that proactive design around best practices would reduce this further.
Unfortunately, the overages are still substantial, 50% at St. Nicholas and 25% at the other two stations (Italy, Sweden, France, Germany, China: 3-20%). Moreover, the stations still have full-length mezzanines. This a longstanding New York tradition, going back to the 1930s with the opening of the IND lines starting with the A on Eighth Avenue in 1933. And like all other New York subway building traditions that conflict with how things are done in more advanced, non-English speaking countries, it belongs in the ashbin of history. Mined stations’ costs are sensitive to dig volume, and there is little need for such additional circulation space, for passenger comfort or fire safety. Mezzanines are essentially free if the stations are built cut-and-cover, in which case they are used for back-of-the-house space in advanced countries, but not if the stations are mined, in which case the best place for break rooms is under stairs and escalators.
Moreover, as we will explain soon at the Effective Transit Alliance, mined stations and bored tunnel require a minimum spacing from the street and from other tunnels – but the proposal includes much more space than necessary, forcing the stations to be deeper, more expensive, and less convenient as it takes a full five minutes to transfer between platforms or to get from the platform to the street. It’s possible to ge even shallower with shoring techniques used in China to reduce tunnel and station depth in complex urban undergrounds.
Proactive and reactive cost control
When the MTA announced cost savings and station size shrinkage in Phase 2, we were excited. But on hindsight, costs in effect fell from $7 billion to $7 billion. The savings were entirely reactive, designed to limit further cost overruns, and are not proactively incorporated into further projects.
No doubt, if a $7.7 billion project is approved against any honest benefit-cost analysis (which is not required in American law), then shrinkage in station footprint and reduction in mezzanine length will be found to be saving money in 2032, and the successor of Lieber, hired from the same pipeline of people whose takes on other countries are “I had a kid who did a semester abroad in Stockholm,” will be proud of reducing costs from $7.7 billion to $7.7 billion.
The path forward must instead incorporate cost savings proactively. There’s a way of building subway stations cost-effectively, and instead of quarter-measures, the MTA should adopt it; we have blueprints from a growing selection of examples, all in places that have avoided the destruction of subway building capacity infecting the entire English-dominant world in the last 25 years. The MTA can even hire people with direct transport official-to-transport official communication with peers at other agencies (for example, through COMET) and with the language skills to read documents produced in lower-cost countries, instead of people whose best skill is giving interviews to softball interviewers and talking about sports.
British Construction Costs and Centralization
There’s an ongoing conversation in the United Kingdom right about state capacity and centralization. The United Kingdom is notable for how centralized it is compared with peer first-world democracies of similar size. It also has weak state capacity on matters including infrastructure construction, which quite a lot of analysts and thinktanks assume is connected. Most recently, I’ve seen conversations on Bluesky in British media, talking about how the loss of state capacity in the UK in the last 45 years has really been about centralization of functions that local and county governments used to do and therefore the solution is to devolve some functions in England to counties or regions. Much of this discourse is by people I deeply respect, like the Financial Times’ Stephen Bush, pointing out sundry services Greater London ran before Margaret Thatcher’s anti-local government reforms in the 1980s. And yet none of this is relevant to infrastructure construction costs and the country’s inability to build more than a half-phase high-speed line at costs that would be high for a subway.
English centralization…
England has been very centralized for a long time, since the Early Middle Ages. It never really had anything like the German or Italian states, or even French provinces, not have its reforms to local government established anything like the French regions. Scotland, Wales, and Northern Ireland have extensive devolution, but 85% of the population lives in England, and the overall character of the state is never driven by peripheral regions comprising 15% of it. Indeed, in the OECD, by one measure, the United Kingdom has the single largest share of taxes going to the central government, and the second largest share of spending decided by the central government behind New Zealand. The other reasonable measure of centralization would be to do the same but assign social security to the central government, since it invariably either is national or comes with extensive equalization payments; then a few small countries like Israel and Ireland end up more centralized, but none of the European countries of comparable population.
How to fund and what to devolve to local government in England has been a complex issue over the last few generations. Local taxation is weak, and there is nothing like the German system in which the federal government, which collects 95% of taxes, distributes the taxes to the states by formula to do with as they please. The succession of local council tax programs to fund such governments culminated in Margaret Thatcher’s community charge, better known as the poll tax, which was so unpopular it led to her overthrow in a palace coup; at the time, Labour was polling 20% ahead due to backlash against the proposal.
Thatcher herself worked to disempower regional governance that had been established in the two decades before she took office. She aimed to destroy three institutions that she believed were keeping Britain socialist and thus backward: unions, public-sector bureaucracies, and regional governments. On the last point, she led a reform that eliminated regional governance in the Metropolitan Counties, creating a unique situation in which the constituent municipalities of these counties are single-tier municipalities with no level of governance between them and the state. Anything else would permit powerful Labour regions to challenge state privatization and deunionization schemes. Indeed, reforms by the New Tories to undo this and devolve some functions to the Met Counties created elected mayors, and now the mayor of Greater Manchester, Andy Burnham, has arisen as a powerful Labour politician who is mooted by many (including the Green Party) as a potential replacement for Keir Starmer in an intra-party palace coup.
…is not the reason for high costs
The truth is that while the United Kingdom is atypically centralized, at least in England, the exact same problems are seen across the Anglosphere, with roughly the same origin (except in the United States, whose problems have a different origin). British costs exploded in the 1990s, and Canadian and Australian costs followed suit in the 2000s and 2010s, imitating bad British practices. Australia and Canada both have some of the fiscally strongest states/provinces in the OECD, the exact opposite of the United Kingdom.
Across Europe, subtracting the United Kingdom, there isn’t an obvious relationship between centralization and poor state capacity. The Nordic countries are both rather devolved for small unitary states, managing health care and education subnationally. For example, in Finland it’s done in 21 health care regions, with ongoing debates over reducing the number of regions, but no attempt to eliminate devolution and make it a national system, in a country that after all has about the same population as Scotland. On the other hand, Italy is not much less centralized than the United Kingdom, and its infrastructure construction program is excellent, limited by money and uncertain growth prospects but perfectly capable of building a national high-speed rail network for less than half the budget of the 225 km High Speed 2. In democratic Europe, the strongest correlate of high costs is exposure to the United Kingdom and its way of doing things, with the Netherlands having the worst costs and most compromised infrastructure construction.
The privatization of state planning
At the Transit Costs Project, we are putting together a cost report on London, largely about Crossrail but also other recent urban rail expansion including the Docklands Light Railway and the Northern line extension. And what comes out of this history is that it’s not really about centralization. Rather, the United Kingdom invented what I called in the Stockholm report the globalized system, in which planning functions are privatized to large consultant firms while the role of the state is reduced to at most light oversight.
The explosion in costs in the 1990s, producing the Jubilee line extension at nearly four times the real per-km cost of the original Jubilee line, was part of this transition. It was easy to miss the first time we looked because the telltale signs of the globalized system, like design-build contracts, weren’t there yet. If anything, DLR was more privatized in its project delivery, and had reasonable costs until the Bank extension. And yet, delving more deeply, we (by which I mean Borners) found that beneath the surface it did have quite a lot of those negative features.
For example, while the Jubilee line extension was designed with in-house planning, it was understood that future projects would transition to more privatized planning. Thus, there was no expectation that the knowledge gained while building the extension would stick around, and at any rate, there was pressure to build like in Hong Kong, where pro-privatization British consultants cut their teeth in the 1980s and early 1990s. In effect, while the extension was designed in-house, it had all the features of a special purpose delivery vehicle (SPDV, or SPV), the preferred British and increasingly pan-Anglosphere way of delivering large projects: each project’s team is specific to the project itself and after completion the employees, drawn from a mix of private consultancies and public agencies, scatter and are not reassembled as a team for future projects. DLR was if anything the opposite: it was nominally private in its delivery but the same designers were involved throughout, moving between private employers and functions, so it was not de facto an SPDV, whereas the Jubilee line extension de facto was one.
Why do Brits blame centralization?
High costs in the United Kingdom cannot have much to do with the extent of devolution. Australia and Canada have adopted the same way of planning, after all. The British system in which big decisions can only be made by the minister and not by senior, let alone mid-level, civil servants, can be implemented regardless of scale, and Canadian provinces and Australian states are thus without exception not capable of building infrastructure for costs that were routine as late as 20 years ago.
But it can look like centralization, for all of the following reasons:
- The United Kingdom really does have issues with overcentralization and underempowerment of regional governments, though the latter is being fixed to some extent, at least for the Met Counties. It is natural to see two governance problems that cooccur and assume they’re related.
- The origin of the British cost explosion is, ideologically, the same process that also disempowered regional governments. It took some work to figure out the exact process, which was not at all the same as the conversion of the Met Counties to single-tier authorities. Indeed, in Canada the disempowerment of local or regional authorities never happened, but the transition to privatized planning with political rather than civil service oversight did happen, with large design-build contracts with more consultant involvement.
- The implementation of centralization in the United Kingdom has relied on ministerial approvals, and those genuinely bottleneck the state. A better system of centralization, such as in Italy, relies on trust in the civil service. But a prime minister whose favorite television show was Yes, Minister would never have produced such a system.
But that it may be reasonable for a Brit who doesn’t look too closely at how Canada and Australia fail in parallel ways to assume that it’s about centralization does not mean that it is in fact about centralization. Centralized states that don’t speak English routinely build infrastructure efficiently and highly devolved ones that do are incapable of relieving the most important bottlenecks in their city centers.
It’s not the Baumol Effect
The Baumol effect is an observation that wages in an economy rise based on its average productivity, and therefore the wages also rise in sectors with low or no productivity growth, increasing their real costs. The classical example is that it takes the same number of people to play an opera today as in the 19th century, but wages have to be competitive with the 21st-century economy, and therefore opera tickets cost in real terms more than they did in the 19th century. People from time to time invoke this effect to explain rising infrastructure construction costs in the United States, relating it to a broader cost disease affecting health care and education. But it’s not really a correct explanation for what’s going on at global scale. High American construction costs are not downstream of high incomes, but rather of poor governance leading to low labor efficiency, poor procurement practices, nonstandard systems, and overbuilding.
At global scale, there is no significant correlation between GDP per capita and tunneling construction costs. There’s a significant but weak correlation between GDP per capita and metro construction costs, but it comes from the fact that developing countries like India build mostly elevated systems. Adjusted for the ratio between subway and elevated cost, which is about 2 in both India and China, the correlation is reduced to insignificance.
There is extensive temporal correlation between GDP per capita and costs, in the sense that the US, UK, and France were all capable of tunneling for around $40 million/km in today’s prices in the early 1900s, and aren’t capable of doing so today. But then countries with the GDP per capita of early-1900s America, like India, build subways for maybe $400 million/km. The techniques used in the early 1900s were labor-intensive, with workers digging up streets by hand. These techniques are not used today in low-income countries, which instead use capital-intensive techniques learned from Western countries, Japan, or increasingly China, and which rarely have the mass industrial working class that characterized rich cities around 1900. That is not Baumol; that is a transition to capital-intensive techniques that are then applied where it’s inappropriate.
Nor has there been an explosion of costs since the 1970s globally. The US has gone from high to very high costs, and the UK from medium to very high ones. But German construction costs are barely higher now than then. Italian ones have if anything fallen a bit, due to anti-corruption laws in the 1990s. If anything, Germany is seeing an increase in construction costs now, with rather high NBS construction costs even without tunneling, at a time in which economic growth is weak. The weak economic growth here – Germany’s GDP per capita has been essentially constant since 2019 – combined with fast economic growth in the United States means that German elites are starting to imitate American procurement practices, with Deutsche Bahn starting to use previously unheard of design-build contracts and public-private partnerships, with the attendant costs.
In the UK, similarly, high costs interact with weak growth, in that weak growth leads to cancellation of infrastructure projects like High Speed 2 north of Birmingham, which cancellation then leads to orphaned designs. There’s been growing discourse in the UK about the problem of feast-or-famine projects, with rail electrification proceeding in waves rather than at a constant rate as at Continental European comparanda like Italy. Italy is hardly posting Polish economic growth rates, but in the UK the origin of the feast-or-famine problem is in the cycle of top-down infrastructure plans and cancellations.
In truth, while the US has had higher economic growth than nearly all of Western Europe since 2019, GDP per hour remains barely above the weighted average of the Germanic-majority Continental countries and France. This is not why the US is expensive; poor project delivery is.
