Monday Blog: Costs and benefits – in hindsight

Posted on January 22, 2017 by Tom Healy

A saying from Lady Windermere’s Fan Image removed.  by Oscar Wilde has sometimes been applied to economists. It runs as follows: ‘A man who knows the price of everything and the value of nothing.’  Now, the context for the quotation is a question posed by a Cecil Graham: ‘What is a cynic?’ to which a Lord Darlington replies: ‘A man who knows the price of everything and the value of nothing.’ Graham goes on to point out: ‘And a sentimentalist, my dear Darlington, is a man who sees an absurd value in everything, and doesn't know the market price of any single thing.’ 

Most economists I know would recoil from any suggestion that they are cynics or, indeed, sentimentalists. When it comes to ‘economics’ the hard graft of ‘cost and benefit analysis’ holds sway. The costs of a service or particular area of economic activity or public support are identified as best and possible and quantified using estimates of monies spent or costs imputed arising from forgone revenue.  The ‘benefits’ of a particular service or good are quantified with regards to measurable returns – individual or collective. In some cases, the benefits are estimated indirectly by calculating how much a person might pay for the same given outcome.

Railways and buses have been in the news in recent times.  The never ending onward march of Efficiency, Cost Reduction and Competition exert pressures on the provision of public transport. The arrival of cheaper and multi-choice alternatives using road transport has put inexorable pressure of some of the main providers of rail and bus transport.  Moreover, the onward march of ever more precarious labour markets and the drive to reduce wages and occupational pension benefits is hollowing out conditions of employment in many sectors.

In a different sphere the regional airports whether in Galway, Belfast, Shannon or Derry have felt the full impact of competition from road transport.  One of the  ‘benefits’ of large scale investment in motorway transport south of the border is that residents in Belfast can avail of multiple flight connections to cities in the UK or mainland Europe more easily than ever. Likewise, a busy company executive can drive to Galway form Dublin in a little over two and a quarter hours by motorway where, formerly, a flight to Galway was an option (that is, when there was a public airport in Galway). Nowadays, a student can get a one-way ticket for €12 from Dublin to Galway. (In former times, the student might have thumbed a lift from the outskirts of Maynooth!).

A complicating factor in the case of public transport has been the gradual shift in funding source. It appears that compared to other European cities, Dublin has high fares and relatively low public subvention [See Michael Taft’s blog Starving Public Transport in Dublin Image removed.  and the analysis by the think-tank public policy –‘Dublin Bus: Funding and Financial Performance’ Image removed. ]

In considering costs and benefits care is needed on many fronts. First of all economists, for understandable reasons, may not be able to estimate all the costs involved especially when the alternatives to a given service are weighed up. For example, a particular railway service from point A to point B costs so much per passenger. ‘Close uneconomic lines’ is the immediate response from some quarter. But, what alternatives are there for passengers?  Might there be long-term implications if car transport became prohibitively expensive?  By all accounts the decision to close a railway line from Harcourt Street to Bray in Dublin in the late 1950s was a sensible one – so it seemed at the time. The one positive aspect of the decision – in hindsight – is that the magnificent bridge by Milltown was not dismantled as large amounts of money were paid to buy back land lost and for the installation of the new Luas line to the south of the city.

The challenges posed for island residents off the coast of Ireland as a result of interruptions or curtailments to private or publicly subvented sea or air transport is another case in point.  Some form of public financial support for transport connections to islands such as the three Aran islands off the cost of Galway is probably unavoidable if community life is to remain sustainable, there. How is it possible to place an economic value on that subsidy in terms of tourism and inward small-scale investment?  More broadly, how does one put a value on cultural heritage and existing community riches?

The decision, in the 1860’s to build a tunnel under the Phoenix Park to accommodate rail traffic (the existence of which was largely unknown to most citizens until very recently when the tunnel was reopened to normal passenger traffic) was a wise one – in hindsight. Whatever the benefits to commercial and passenger use of that tunnel in the late 19th century, its benefits today in the main city are surely clear.

Few would argue with the decision to add a third lane to the M50 motorway around Dublin city some years ago (even if might have helped even more traffic on to the M50). The cost of adding a third rail line to the Dublin-Dundalk-Belfast rail line would be extremely costly. However, would it make sense if done in stages over a decade? It has been suggested that North Dublin has land capacity for an additional 100,000 houses to meet rising population. Yet, it is not clear that North Dublin has the capacity to provide this and at the same time allow commuters to travel to the city centre in current already heavily congested bus, rail and car routes into the city.

Would a bridge across Carlingford Lough linking Warrenpoint with Omeath in the North-East be good investment for money? It might only save an hour or less for some hauliers and motorists. However, the psychological and political impact of such a costly but courageous step could be very considerable. This would be aside from the indirect economic impacts on retail and other businesses including tourism.  The upgrading of the woefully inadequate and hazardous A5 road leading to Derry/L’derry across country Tyrone provides an even more pointed example. One of the best kept secrets is the incredibly beautiful landscape on the rail link along the Northern Coast of Counties Antrim and Derry. Might there be potential to develop tourism and related services aimed at international markets with a focus on this part of the island?

Whether in the domain of environmental pollution or social rural transport economists and those whom they advise need to be cautious. Data on costs and benefits are limited by virtue of the full scale of all relevant impacts and timescales.  Given the pressing urgency of environmental degradation we need to think critically and with an open mind about all the options for public transport including light rail in urban areas as well as local bus services that can have make a dramatic impact on the quality of lives of the elderly in remote areas. An integrated and strategic approach to transport, spatial planning and residential developments ought to take the widest possible range of considerations into account. In this way, we should know both the market price as well as the social and community value of a service. At best, economists can only measure some costs and some benefits in the past. We can only make educated guesses or hazard assumed costs and benefits in the future.

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Tom Healy

Tom Healy was the Director of the Nevin Economic Research Institute (NERI). Tom has previously worked in the Economic and Social Research Institute, the Northern Ireland Economic Research Centre, the Organisation for Economic Cooperation and Development, the National Economic and Social Forum and the Department of Education and Skills.