Just imagine if Jerome Kern had written a musical called Dredgeboat instead of Showboat:
Fish gotta swim and birds gotta fly
The Corps just gotta build dams till they die.
Can’t stop damming those rivers up!
My apologies to Kern, but those lines came to mind when I read news accounts of the latest controversy about U.S. Army Corps of Engineers cost-benefit studies.
One headline—”Insider claims corps altered river study”—pretty much told the story. An Army Corps of Engineers analyst had filed a whistle-blower complaint alleging that he had been pressured to manipulate data in a study of the costs and benefits of rebuilding several Mississippi River locks.
Many economists and environmentalists may ask, “So what else is new?” Political pressures and what the military terms “undue command influence” have been a part of Corps of Engineers projects for as long as anyone can remember. Politicians want to bring home highly visible public works projects for their districts, and the corps, that most politically responsive of government agencies, is happy to oblige whenever it can.
But if cooked books in an Army Corps cost-benefit study don’t exactly shock anyone, this incident does provide an opportunity to reflect on how democratic societies allocate resources to public goods. How does a society decide how much tax money to spend on socially beneficial goods or services that would not be produced by the private sector in a free-market economy?
These “public goods” include education, police and fire protection, national defense and transportation infrastructure. Private individuals or companies will not produce these goods in a free market because their benefits spill over to many people. Perhaps everyone in society, but it is hard to charge for such benefits. Economists agree that government action is necessary for their production.
Economics differ on what government should do. Historically, many economists accepted the fact that government should produce such public goods directly. Others argue that some of the incentives for efficiency inherent in the private sector should be harnessed through government contracting with private firms. This option is on the rise in local government.
The mix of public and private enterprises varies from city to city and state to state. Most systems are mixed. Private firms perform highway building or renovation on contract, but government workers perform day-to-day snow removal, pothole filling and other maintenance.
It’s difficult to determine how much of a public good to produce, and which public goods have greatest societal returns. Traditionally it is done through the political process. Citizens call their mayors or council members to complain about poor streets, schools or police protection. Local governments adjust their spending according to elected officials’ perceptions of what citizens want, and what they are willing to pay for.
This works pretty well on the local level, but it is fraught with difficulty at the national level. The benefits of flood control on the Red River of the North go primarily to Minnesotans and North Dakotans. Businesses in the Northeast gain from improvements to Boston harbor. Midwest farmers and U.S.-based grain traders benefit from improved navigation on the Mississippi River. There are costs to the environment with most projects, which are an important factor to some citizens, but neglected by others.
Using the traditional method of political responses to citizens’ voiced concerns resulted in obvious waste at the national level. Influential congressmen with seniority on important committees naturally reward their districts and their contributors. Visible projects, such as bridges, locks and dams, tend to be more popular than ones with a higher payoff but less visibility, such as new radars for air traffic control. Repeated attempts to reform the system have included requiring detailed cost-benefit studies for public works projects.
But hey, fish gotta swim and the Corps of Engineers gotta move dirt. If politically skilled constituencies and influential congressmen want a project, agencies such as the Bureau of Reclamation or the Corps of Engineers will try to give them what they want. If that means cooking the books in a cost-benefit study, it may happen.
For example, the Tennessee-Tombigbee river navigation project was approved after the cost-benefit study requirement was instituted. But independent studies carried out after completion show that it is returning about 9 cents on the dollar to taxpayers, compared to the $1.25 or so estimated by the corps beforehand. What happened?
This problem, driven by human nature and by the nature of the political process, is not going to go away. But we can take incremental steps to implement more rational use of public funds.
One option might be to create a separate state and federal agencies to conduct cost-benefit and cost-effectiveness studies, rather than having them done by the agency that will carry out the project if approved.
Such an independent project evaluation body could be governed somewhat like the Federal Reserve System, with a board of directors appointed by the president and confirmed by the Senate, but with long terms of service and statutory autonomy to ensure insulation from political pressures.
© 2000 Edward Lotterman
Chanarambie Consulting, Inc.