Saturday, August 25, 2012

China’s Public Works Disasters

Here is another example of the unintended nasty effects from China’s centrally planned capital-infrastructure spending boom

From the International Business Times

A collapsing bridge in northern China killed three people and injured five others on Friday.

The Yangmingtan Bridge stretched across the Songhua River in the Heilongjiang province, according to the BBC. But the collapsed section, which was about 328 feet long, came from a ramp over dry land. It was about 5:30 a.m. when four loaded trucks spilled onto the ground as the road beneath them fell apart.

The worst part is that nobody is surprised by Friday's tragedy; this was China's sixth major bridge collapse since July of 2011.

Note: This incident has been the SIXTH major bridge collapse since July 2011. This appears to be the result of the 2008-2009 stimulus program, which prompted the Chinese government to rush public works for the sake of keeping up with statistical job growth via Keynesian policies.

Other grand “public work” projects have also experienced accidents. Again from the same article…

The Yangmingtan Bridge, a multi-million-dollar project, was finished just nine months ago. It is one of many infrastructure projects undertaken by the Chinese government in recent years. These include over 4,200 miles of high-speed rail tracks, which may increase to 12,000 miles by 2020; the Three Gorges Dam on the Yangtze River, which is the largest hydroelectric project the world has ever seen; and the rapid construction of new airports that, if all goes according to plan, will bring China's total up to 230 by 2015

But for all their successes, each of these grand projects has been marked by serious failures.

China's high-speed trains, for instance, may be going a bit too fast; there have been several accidents over the last few years. In July of 2011, a two-train collision killed 40 people. In March of this year, a 980-foot stretch of track along the Yangtze River collapsed due to nothing more than heavy rains. And in the Heilongjiang Province on Thursday evening, a minor crash injured 24 people.

The Three Gorges Dam has plenty of issues too, though it generates enough watts to power Switzerland. It has necessitated the relocation of over a million people, and its construction has come at a huge environmental cost. Lately, a change in the reservoir's water level has resulted in dangerous landslides, and Reuters reported this week that another 100,000 people will soon have to head for higher ground.

Man made disasters and accidents account for some of the unintended consequences.

But there is more, many upcoming projects risk underutilization or becoming white elephants

And if all goes to plan, China's planned airport development will put a full 80 percent of the population within 65 miles of an air transport hub. Some argue that this might be a little excessive for a country where, just last year, two-thirds of China's current 180 airports were unprofitable. (Chinese officials argue that air travel is a burgeoning industry, and that an extensive network of transit hubs will generate the traffic needed to make it profitable.)

Japan’s bubble bust legacy of “socialization of investments” from numerous money losing taxpayer funded public airports should be an example.

Assuming the noble intentions of political authorities, central planning implies omniscience and the superiority of knowledge over the marketplace which simply isn’t true. Political authorities cannot know of the individual preferences and values and of the particular circumstances of time and place with respect to individual actions.

Also this also disregards the notion of the incentives guiding policymakers

Virginia Postrel in her 1998 book, The Future and Its Enemies as quoted by Professor Don Boudreaux,

To centralize knowledge for the sake of planning and “efficiency” – the technocratic dream – we have to throw away vast amounts of local knowledge.

Depending on topsight can easily lull us into imagining that we see not only the “big, big, big, big, big, big, big, big picture” but the whole, including the critical details. At a distance, it is easy to think that other people just don’t know what they’re doing – especially when you can override their decisions by decree rather than through persuasion or competition.

Yet most seem to forget that political authorities tend to itch on spending other people’s money.

Politicization of the allocation of resources leads not only to waste, deaths from accidents and corruption, but to systemic fragility from centralization of policy errors—the hemorrhage of resources and capital on unproductive undertaking (capital consumption), of mounting debts to finance political boondoggles (debt crisis) and of the loss of civil liberty.

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