Saturday, 12 May 2012

Construction woes

I know it should be blindingly obvious, but the size of construction projects is directly related to their lead time. Something like Crossrail takes twenty years before the first 360 hits the ground. Schemes under £5m can generally start fairly rapidly, and £5m - £10m schemes are the bread and butter of the industry, with skills, plant, materials and construction teams ready 'off the shelf'. The classic value release curve for a scheme is remarkably similar to a tidal curve, and it's the fast-spending middle bit that drives the ONS construction output figures.The lag means that Q1 2012 figures reflect decisions made two or three years ago.

Unlike public 'consumption' spending, which is mainly employing new people on permanent contracts, 'capital' can be turned on and off like a tap. If you pick the right schemes, the economic benefit can hit the economy during the term of a single Parliament. And you'd imagine that this would be attractive to politicians - but no. Even when they decide that investment spending - spending that leaves a tangible asset as well as its economic effect - is a good thing, they prefer to pick the massive, prestige, big-dicked schemes that can't possibly deliver any economic benefit during their own time in office. Sure, they provide plenty of work for construction professionals, lawyers and office staff in the early years, but none where it counts - labour, materials, plant, transport, waste - and indirectly in accommodation and services. Services aren't just the bacon sarnie vans that make a mint adjacent to a construction site; the construction phase of the Melbourne Olympics attracted some 10,000 prostitutes to service the workforce. 

As the London Olympics effect tails out of the construction figures in the next quarters, the sector has the potential to pull GDP down even further. Of course I'll declare an interest here - the order book is looking very thin after this year. And yes, I believe absolutely that public sector consumption spending - spending on civil servants, social workers, quango administrators, Town Hall fat cats - needs urgent and substantial reduction. The cuts are good. Recession isn't.  

3 comments:

G. Tingey said...

Hence my comment elsewhere on the re-doubling of part of the E Suffolk line - can be done relatively quickly, with almost immediate benefit.
Ditto Oxford-Cambridge, even though much bigger, PROVIDED the still road-based "Planners" so-called objections can be got rid of!

cascadian said...

Sigh-it is really dispiriting to hear calls for more public spending as if this is "investment". I would have thought the last binge on PFI would have been enough. While immediate payouts are made to the construction sector the debt is still long-term, and the country is already struggling without additional debt.

Investment is really needed in your energy sector (yes I know these are the big-dicked schemes you are lobbying against)

Sceptical Steve said...

It's no surprise that politicians love to announce schemes that will bear fruit long after they have left office.
1. Capital spending announcements relating to the distant future are gifts that keep on giving. They can be announced and reannounced many times to maximise their political capital long before any serious money is actually expended.
2. As we are all aware, the bad news associated with major projects (cost over-runs, and missed deadlines, failure to deliver the promised benefits), only become obvious later in the cycle, by which time the orignators of the schemes are well out of it.
I'd just like to see a few roads repaired in my locality but, in comparison with a new hospital or an aircraft carrier, basic necessities need payment out of curretn budgets and don't deliver enough poltical capital.