The ESRI's evaluation of the fourth National Development Plan for investment is compelling in its analysis and, if its recommendations are implemented, it would ensure that the Government avoided serious dangers to the smooth and successful evolution of our economy.
Basically, this report authoritatively advises the Government that, in its understandable concern to modernise and expand our grossly inadequate infrastructure rapidly, the fourth National Development Plan is attempting to do too much, too quickly. However, by spreading the proposed increased level of public investment over perhaps eight rather than seven years, the danger of further inflating our economy and damaging our economic growth could be avoided.
The ESRI's second major point is that when taking decisions about particular capital projects it is essential that - as the Government has accepted in principle - the costs and benefits of each of these schemes be professionally evaluated to avoid the kind of mistakes made in the past.
On the first point, the ESRI explains that an inevitable consequence of the fact that construction has in recent years outrun our supply capacity has been higher inflation, which has already damaged the competitiveness of other sectors of our economy. If the proposed public capital programme for 2007-2013 is not spread over a longer period, a continuing rise in building employment would be likely to push up wage rates by an extra 20 per cent, crowding out employment in manufacturing and causing an estimated drop of over 50,000 jobs in that sector, which could not easily be recovered in the event of an inevitable eventual decline in construction activity. No government will want to ignore such an authoritative warning of a potential danger to industrial employment.
So during the period of this new programme the average annual volume of capital spending will need to be restrained to a level which the ESRI believes should be almost one-sixth below the level proposed by the Government - viz €8.4 billion a year at this year's price level, as against the Government's proposed average annual figure of €10 billion a year. Such an annual volume of investment would still be well above this year's figure of € 7.6 billion, and it recommends an average volume increase of one-quarter above this year's spending level for health as well as even greater increases of one-third for both education and transport. Such substantial increases would be achieved by holding spending close to its current level in some other areas and by reducing the Government's proposed allocations to environmental investment, and to investment in the enterprise sector and agriculture, for which it gives cogent reasons.
The other main concern of the report is the need to ensure that all significant capital projects be subjected to cost-benefit analysis to determine whether they will be justified in the return they will yield. Our record in this respect is remarkably poor.
The ESRI's concern that the benefits of major public investment projects should be measured against their cost, by what are now well-tried economic analysis methods, was well-signalled in last December's ESRI Medium-Term Review.
And when the somewhat controversial Transport 21 framework document was issued by the Government earlier this year Minister for Finance Brian Cowen announced that "all projects in the framework will be appraised and implemented in line with my department's capital appraisal guidelines" - issued on February 21st last.
The ESRI points out that the National Roads Authority's roads programme has, despite some departures from what cost-benefit analysis would have suggested, been largely underpinned by a systematic analysis of road needs, using clearly-defined criteria. And they add that this analysis was carried out within a framework that took into account systemwide effects of individual projects. In striking contrast, those public bodies dealing with aspects of rail projects individually and collectively avoided any such objective assessments.
The Luas project was undertaken by a team of engineers without any apparent economic input, as a result of which they failed to take account of the huge impact of the Celtic Tiger on employment and car ownership in Dublin. This led them to persist with installing an inadequate tram service from Stillorgan, instead of a full metro on this line, running underground through the city-centre - a major error that will be costly to retrieve.
In its medium-term review and in this report the ESRI has pointed to the poor return to our inter-urban rail investment undertaken without cost-benefit analysis, and it recommends that no further "mainline track renewal be approved without proper economic cost-benefit analysis". Nor was the Dublin Transportation Authority's 2001 Platform for Change subjected to such analysis. And the ESRI points to the incoherence of urban rail planning in Dublin, given that the Dublin Metro Project Revised Proposal and the Greater Dublin Integrated Rail Network Business Case 2004 were prepared by two different bodies - the Rail Procurement Authority and Iarnród Éireann. These bodies "do not appear to have analysed how the different elements of the transport network would interact with" each other.
Moreover, even where cost-benefit analyses of individual elements have been undertaken, it is not clear whether these bodies have used a consistent approach. And, crucially, the ESRI adds that "as of today there is no comprehensive cost-benefit analysis using a consistent model of all the latest proposals in Transport 21". Finally, the institute is concerned that Dublin rail transport projects have hitherto simply compared a projected investment with a "do nothing" strategy, and have failed to compare the cost and effectiveness of bus against rail.
This is a remarkable indictment of an extraordinary absence of public administration oversight in this whole area. Yet another example of the absence of an effective public administration role cited by the ESRI is the total failure over many years to impose an integrated ticketing system on warring public transport rivals in our capital city.
One is prompted to ask whether the Department of Finance has yet been able to initiate cost-benefit analysis of a Greater Dublin transport system - or have that department and its minister been defeated by the absence of any coherent worked-out project to which their skills in this area could be applied.