Domenomics is a new and not very well-known branch of economics that I have just invented and which is useful for understanding why the British public sector takes and wastes so much of our money on big projects that nearly always turn out to be catastrophically expensive failures.

Domenomics is named after that great triumph of public-sector profligacy the Millenium Dome. The Dome should have cost us about £399 million. But we ended up with a bill of close to £800 million.

In the private sector, unless you’re a banker, when you spend a few hundred million pounds or even a few billion on a project, you’re expected to get some kind of return on the investment. Moreover, if your costs start shooting stratospherically over your original budget, you would normally be hauled before your boss to explain why you’re eating your way through so much money. Unfortunately for us taxpayers, this is not how things work in the public sector.

Each public-sector project will be slightly different and the excuses for overspending and managerial failure can be both varied and creative. However, in spite of their differences, many will follow a similar sad and predictable trajectory.

Step One: The three Ps – Personal vanity, politics and profiteering. Firstly, many large public-sector investment projects are political decisions based largely on the personal vanity of ministers or the greed of their associates and sponsors rather than being justified by any semblance of economic or social necessity. For example, a prime minister wants to celebrate the millennium in style with his hangers-on, showbiz mates and other cronies; or a minister wants to be seen opening a shiny new hospital; or a minister has been fooled by fee-hungry consultants into believing that an all-singing, all-dancing new billion-pound computer system will magically ‘transform’ the performance of his or her department.

Step Two: The big ‘little cost’ lie. In order to get a project both approved by the cabinet and accepted by the public, ministers will collude with career-focused civil servants to massively underestimate the real likely costs. Usually they will be helped by profit-seeking private contractors all eager for their lucrative bit of the action should the project get the go-ahead. In polite terms this tendency to downplay the real potential cost is called an ‘optimism bias’, because ministers are said to be ‘optimistic’ about the eventual costs. At a conference of suppliers to the public sector, one very senior executive had the audience cracked up with laughter when he explained that they always pitched their public-sector projects at a price they knew would be accepted, because once they had got the deal, they could increase the cost as much as they wanted and none of the civil servants involved would ever complain.

Step Three: Spend, spend, spend. Once a project has started, it doesn’t seem to matter how much is spent. Politicians will never stop a project because this would mean losing face and possibly harm their political advancement. Likewise, a civil servant will never call time on a minister’s pet project however much of our money is being hemorrhaged. If a senior civil servant dared to criticise a minister’s showpiece scheme or was seen to actually be involved in scrapping some disaster or other, then he or she could risk damaging their promotion prospects and even their chances of their OBE or knighthood. Wasting public money never affected a civil servant’s career, but acting to prevent waste can be hugely detrimental. Anyway, many large projects last several years, so with an average of two to three years in each post, most senior civil servants will have been promoted out of trouble by the time a project’s real costs have become apparent. So why rock the boat? On the other hand, if you’ve inherited a disaster from someone else, you just carry on spending as you can blame your predecessor for any problems.

Step Four: Bluff the PACman. With some of the worst projects, usually when it’s far too late to do anything, the toothless, politically-subservient watch-poodle, the National Audit Office (NAO), will make a half-hearted attempt to find out what went wrong and where all our money has gone. Their report will be watered down by the department which has wasted hundreds of millions or even billions and then presented to the Public Accounts Committee (PAC). The MPs on the PAC will then summon a couple of senior civil servants involved, huff and puff in histrionic outrage at the amounts of money that have vanished and try to question those who should have been responsible about why things went so horribly wrong. Knowing they only have to face the PAC for an hour or so, the civil servants will expertly duck and weave denying any responsibility for anything and inventing an extraordinary number of new excuses to absolve themselves of any blame. If things really get tough, and they seldom do, the top civil servants will sometimes go as far as admitting that ‘important lessons have been learnt’. The PAC chairman will then announce that whatever project they are reviewing is the ‘worst example’ of incompetent management the PAC has ever seen. The Child Support Agency IT system was branded one of the ‘worst public administration scandals in modern times’ and we were told ‘the facts beggar belief’; the Department of Transport’s shared services project was implemented with ‘stupendous incompetence’ was ‘one of the worst cases of project management seen by this committee’; the Libra IT system for magistrates courts was called ‘one of the worst PFI deals we have seen’; Building Schools for the Future was ‘perhaps the worst case of using consultants’; and the latest Ministry of Justice C-Nomis project to track offenders was ‘one of the worst reports I have read’. This is just to name a few; there are many more which the PAC has described using various negative superlatives usually including the word ‘worst’. Once this charade is over, everybody will nod sagely and agree that ‘this must never happen again’ and exactly the same procedure will be repeated on the next project and the next one and the next one after that.

At the start of one PAC meeting in 2009, the chairman finally seemed to understand the utter futility of the whole exercise when he said to a senior civil servant: ‘You will come with the classic defence line, that of course you were not there, it is all in hand now, you have learned the lessons, in the sort of school that permanent secretaries learn when they come to this committee. However, I have had all this before and I just do not know whether there is any point really carrying on, frankly.’ But they did carry on with the farce. At the end of the meeting, the chairman summed up: ‘Clearly this project was handled badly, it achieved poor value for money, many of the causes of delays and cost overruns could have been avoided. I could make some grand eloquent statement about how we never expect to see this happen again in the Civil Service, but I suspect I would be wasting my breath’.

Source by David N Craig