Home > Economics - General, Environment > We’ll all be rooned

We’ll all be rooned

November 21st, 2006

Today’s Courier-Mail has a report pushing the Beattie Government’s plans for new dams, and threatening financial ruin if they aren’t built. Crucial quote:

As its efforts to win approval for the controversial Traveston Crossing Dam in the Mary River Valley move into top gear, the Government has used a consultant’s report on possible economic losses to the region to push its case for the project.

The lack of new water sources could end up costing southeast Queensland at least $55 billion and perhaps as much as $110 billion by 2020, according to the consultants ACIL Tasman.

Even before this episode, the name ACIL Tasman wasn’t one that filled me with confidence. All consultants like to produce reports that support their client’s preferred position, and my experience of ACIL Tasman is that the approach to this outcome is “whatever it takes”.

I haven’t been able to find the report yet, but the numbers seem way off-beam to me. This report says that the total revenue for SEQ Water and sewerage businesses was about $1.4 billion in 2005/06, growing at about 6 per cent a year. ACIL Tasman wants us to believe that limits on additional supplies could cost between $5 billion and $10 billion a year.

I find this implausible, at least as an economically meaningful cost estimate. A doubling of water prices would be enough to reduce demand significantly over time (even allowing for underlying growth in population and income), and make all sorts of supply options, such as desalination, economically feasible, without any need for new dams. The welfare cost of this would be around 0.5 billion a year (I’ll do a proper check on this number later). So, I’d say ACIL Tasman is out by a factor of 10 to 20.

I haven’t seen enough information to determine whether the proposed dams pass the cost-benefit test. But this report makes me think the case must be pretty weak.

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  1. November 21st, 2006 at 14:08 | #1

    I noticed this story myself. Apart from the dubious basis of the report that Professor Quiggin has drawn our attention to, surely we must question why South East Queensland’s population must grow by another 1.25 million by 2026 as planned for in the SEQ Regional plan if we aren’t able to meet the needs of the current populaton with the water that we have.

    Desaliation and recycling, Professor Quiggin’s sugested alternatives to more dams, also incur an environmental cost, that is in greenhouse gas emissions and the consumption of more of our finite endowment of fossil fuels.

    We must, instead, simply begin to live within the limits of our environment.

  2. Bingo Bango Boingo
    November 21st, 2006 at 14:37 | #2

    Fair points, James. However, it seems clear that depletion of fossil fuels in and of itself is not a cost (environmental or otherwise), since fossil fuels are of virtually no benefit to anyone or anything when they are in the ground. The same could be said of other resources such as iron ore.

    BBB

  3. Tom N.
    November 21st, 2006 at 16:00 | #3

    ACIL Tasman put together the g*mbling industry’s submission to the 1999 PC Gambl*ng inquiry, in which they drew on Becker’s “rational addiction” model to argue for consumer sovereignty and against intervention. The submission was otherwise pretty rigorous, but it was almost cringe-worthy to see the ACIL Consultants trying to argue the rational addiction case in the face of over-whelming evidence of widespread cognitive limitations among problem gamblers. That was when my respect for the outfit first started going south.

  4. November 21st, 2006 at 16:45 | #4

    I don’t know anything about ACIL-Tasman but it seems to me civil servants (and I guess ultimately pollies) are the cause of many of the consulting problems you mention. On the one hand they want the facts but on the other they want their priors confirmed. If you are running a consulting business it must be hard to know which way to jump. Its a real problem.

  5. jquiggin
    November 21st, 2006 at 20:14 | #5

    The g*mbling submission was the one I had in mind also, and for the same reasons. I’ve never taken them seriously after that.

  6. SJ
    November 21st, 2006 at 20:20 | #6

    Sounds about right to me Harry. Civil servants obviously caused ACIL Tasman to commit cybercrime. Makes perfect sense if you think about it a certain way.

  7. SJ
    November 21st, 2006 at 20:36 | #7

    I’ll also give more serious response to Harry, having had some experience in this area, albeit a few years ago.

    The way it usually operated was this. Government department makes recommendation to Minister. Minister wants external confirmation. McKinsey gets hired at $x/hour. McKinsey sends a couple of fresh graduates who look about thirteen years old, and who get paid 0.01 x $x/hour. Thirteen year olds put together glossy version of department’s advice, often making it “punchier” by omitting things, making stuff up, etc. Everyone’s happy, right? Especially the Minister and the friendly folk at McKinsey.

  8. SJ
    November 21st, 2006 at 20:59 | #8

    OK, here we go.

    The story in the Courier Mail (BTW, John, your link to the story is broken) seems to be based on the document Water for South East Queensland – A long-term solution

    The gross regional product of South East Queensland is currently around $100 billion (ACIL Tasman
    2006). This is around 60% of the state’s gross state product or 11% of Australia’s gross domestic product (OESR 2005; ABS 1999). The region also accounts for approximately 36% of the state’s exports (OESR 2004). The region generates 70% of all of the state’s employment in the services sector, and 67% of the state’s employment in the manufacturing sector. If Queensland is to continue to grow, South East Queensland will require significant quantities of additional highly reliable water supplies. It has been estimated that if South East Queensland has sufficient water to meet expected growth, its GRP could double by 2020 (ACIL Tasman 2006). The bulk of this growth will be driven by the services and manufacturing sectors. Without the provision of extra water for South East Queensland this growth will not be possible. The cumulative impact for the period from 2010 to 2020 of not providing extra water has been estimated, depending on assumptions, as a loss of between $55 billion and $110 billion to the regional economy (ACIL Tasman 2006).

    IOW, the analysis is crap, regardless of whether ACIL or the Depeartment of Natural Resources Mines and Water was responsible for it.

  9. November 21st, 2006 at 21:29 | #9

    In a way, SJ raises an interesting point. Why does the Government often require the public service to get external support for their analysis and recommendations in the form of reports from the various consulting companies? As a general rule, the intellectual quality of the public service is at least as high as the consulting companies. Indeed, many of the economic consulting companies in Australia have a number of staff members who used to work for places like the PC and the ACCC (or their various predecessors).

    Discloisure: I have worked for a variety of Australian Public Service agencies and an economic consulting company.

  10. jquiggin
    November 21st, 2006 at 21:51 | #10

    SJ, this is even worse than I expected. Water as the only input to production. Give me a break!

  11. Paul
    November 22nd, 2006 at 00:56 | #11

    So that means that the Brinkerhoff report Beattie commissioned into Toowoomba’s Water Futures project and other options earlier this year was similar because “consultants like to produce reports that support their client’s preferred position”. Makes sense.

  12. derrida derider
    November 22nd, 2006 at 09:39 | #12

    What SJ said (#7) – I’ve had a lot of experience in this area, too.

    A consultant’s report can also be about publicly saying things that would rightly carry no credibility if said by Minister or Department. But the irony is that on technical issues public credibility is pretty orthogonal to the quality of what is being said – sometimes a consultancy is the only way to get *good* advice in to the public arena, as well as politically convenient crap. So you sometimes see the opposite case – a pollie wants an inconvenient truth told but is not willing to “make a gaffe” themselves. It’s actually relatively rare for a consultant to be hired to tell government something it doesn’t already know.

    The choice of consultant can often tell you all you need to know about the motivation behind the consultancy.

  13. wilful
    November 22nd, 2006 at 11:00 | #13

    I too have had to commission external consultants, in order to satisfy a Minister (and the general public, I guess), regarding ‘authoritative’ advice. Most of the consultants I’ve dealt with haven’t been much chop intellectually, we give them the boring stuff we haven’t got the workload capacity to handle. They tend to regurgitate our facts and figures and opinions, we heavily edit their stuff to get it right, then they charge us a motza for the service. The worst times have been when they’ve developed a spine and insisted on their independence.

    Of course they’re not always like that, they can add significant value. But that’s rare.

  14. Hal9000
    November 22nd, 2006 at 16:52 | #14

    Consultants do however know how to make a boring report look just great. Lots of very fashionable fonts, graphics and bright colours. Makes them look worth the money.

  15. SJ
    November 22nd, 2006 at 19:39 | #15

    Damien Eldridge Says:

    As a general rule, the intellectual quality of the public service is at least as high as the consulting companies. Indeed, many of the economic consulting companies in Australia have a number of staff members who used to work for places like the PC and the ACCC (or their various predecessors).

    wilful Says:

    Of course they’re not always like that, they can add significant value.

    I wouldn’t disagree with these statements. Most successful organisations know what they’re good at, and are able to recognise situations where external help is required. An analogy: few companies have either plumbers or QCs on staff, but the ones that don’t are quickly able to recognise when a plumber or a QC is required.

    These situations are different, though, from the ones where a consultant’s advice, independent or otherwise, is used as a public justification for a course of action. derrida derider makes a similar point above.

  16. serge
    November 24th, 2006 at 13:18 | #16

    I have worked on the Government side and the consulting side. I found in the former people didn’t do much, didn’t get paid much and didn’t know much. At least on the private side people were using their brains. The Consulting firms were formed by senior Government employees who were sick of not doing much and not getting paid much. Unfortunately Government employees these days don’t understand economics and are puppets for their ministers. Most of the Consullting jobs I’ve worked on, the Govt client had no idea what too think or what they were doing, let alone required someone to validate their position. I found that public servants go through a few phases – they start out hating consultants because consultants get paid more and do the interesting jobs. Then the Public Servant decides they want to be one – the very best actually get in. Most don’t cut it and realise they can’t cut it, and then they go back to hating consultants. The motto for consulting goes something like: “If you’re smart enough to make a quid out out of dumb people, do it”. The most ardent critics of consultants are couch-laden sideshow spectators who can’t get into the debate, can’t get into the private sector and can’t get anyone in an official forum to listen to their (personal) opinions

  17. wilful
    November 25th, 2006 at 16:19 | #17

    Obviously serge, you worked in a very different public service to the one I do – because nothing of what you says rings true at all.

  18. serge
    November 25th, 2006 at 16:38 | #18

    Obviously not. Or to respond at wilful’s level – No, it does ring true! it does it does! Your wrong!!! I’m not going to add anything to back up my argument….hmpfff

    My experience with the public service relates to multiple state and commonwealth departments/agencies. All the same dead wood supported by the taxes of the private sector – the main function of the public service is a welfare source for its employees.

    I can recall many years back when I left uni – everyone tried to get into the private sector, those that couldn’t fell back on the Government. I look at the quality of staff at the 5 or 6 main economics consulting firms and I see a collection of the best and brightest – the accas like quiggo dabble in it too. All the firms were put together by fast risers in the public service who realised that the latter was a waste of time

    You can’t get anything intelligent and meaningful done in the public service. Plus the reputation of the public service, among the industries and people it’s supposed to be serving, is horrendous – it must be soul destroying these days.

    In summary, Quiggo started with a fairly direct and specific complaint about one report and the associated firm, others couldn’t really comment on the specific case but addressed the issue – whereas willy introduced a deap seated and irrational generic hatred of consulting firms. If it’s any consolation I understand while you feel disgruntled in terms of your context.

    You’ll find if you look at consulting firms you’ll notice that most of the work is undertaken for private sector clients – if the advice is not worth money to them they won’t pay for it. IMA that most of the work is trying to untangle and subsequently correct ill-founded and poorly based policies

  19. serge
    November 25th, 2006 at 16:45 | #19

    However, most PS departments are good with formatting and spellchecker. They can make reports look quite pretty

  20. derrida derider
    November 25th, 2006 at 22:18 | #20

    Utter bulldust, serge. I can show you crap consultant report after crap consultant report – all in beautiful folders, delivered along with a Powerpoint presentation with vibrant colours and animation, and all with impressive but vague words and irrelevant numbers in a desperate attempt to give the appearance of solidity to pure wind. Mind you, I think a lot of consultants deliver crap to us because they think we can’t tell the difference – we can, though.

    It’s true that the public sector is much less likely to refuse to pay than the private one. There are several reasons for that, some of them indeed not creditable – but one reason is that impressive-sounding nonsense is often just what the Department wanted from the consultant.

    I’m a public service economist, and I’d back my technical expertise against consultants in my professional area any day. I could probably make more money in consultancies, but some of us like to work in jobs where we think we can make a difference. Public choice theorists may not believe it, but the occasional case where your work slightly improves the lives of millions of people makes up for an awful lot of crap.

    Most non-academic economic consultancies were put together by energetic people who were not willing to put up with that crap. I don’t think that those who stay and go upwards are any less competent at all – just differently motivated. And wilful is right – private consultancy principals usually hire far less experienced (and renumerated) people than themselves to actually do the work.

    If we do need to know something we don’t already know we generally hire academics, not a private consultancy.

  21. November 25th, 2006 at 23:17 | #21

    DD, any anarchist would deplore your reasoning. Go on, ask one. (If he doesn’t, he’s no true Scotsman – sorry, anarchist.)

    But now I’m really worried. I’ve been here over seventeen years and I fear I may be becoming affected. I think I understand what “accas like quiggo” means.

  22. serge
    November 26th, 2006 at 08:18 | #22

    I’ll qualify the below by saying that my experience is mainly associated with the main 5-6 economic consulting firms – not your backyard “Shitzitski and associates” etc etc

    DD said

    “If we do need to know something we don’t already know we generally hire academics, not a private consultancy”

    No difference – most of the time they’re the same people. A lot of people in the private consulting firms are academics – the majority of academics are also private consultants.

    “the occasional case where your work slightly improves the lives of millions of people makes up for an awful lot of crap”

    Rubbish – it was a consultant’s report that did that, not your work

    “private consultancy principals usually hire far less experienced (and renumerated) people than themselves to actually do the work”

    I’ll finish the sentence for DD “and teach them themselves. Therefore You’ll learn in 6 months what would take 6 years to learn in the public service learning from some low level/life manager and never interacting with the top brass”. In a consultancy, the best qualified staff are hired and interact 100% of the time with top brass

    “Utter bulldust, serge. I can show you crap consultant report after crap consultant report – all in beautiful folders, delivered along with a Powerpoint presentation with vibrant colours and animation, and all with impressive but vague words and irrelevant numbers in a desperate attempt to give the appearance of solidity to pure wind.”

    By your logit, can you please also show me all the shite public service reports and poor policy advice from public service departments over the years. I’m sorry but the latter outweights your “crap consulting reports” 10000000:1. The issue there is you hired the wrong one – hire the right consultant next time.

    “I’m a public service economist, and I’d back my technical expertise against consultants in my professional area any day. I could probably make more money in consultancies, but some of us like to work in jobs where we think we can make a difference”

    That is utter crap DD, I only worked in a consultancy because I saw I couldn’t make a difference in the PS – rather subsumed within the political machine and become an infinitessimally small cog in a mssive machine. I can’t say for sure that you’d make money in consulting

  23. serge
    November 26th, 2006 at 08:18 | #23

    I’ll qualify the below by saying that my experience is mainly associated with the main 5-6 economic consulting firms – not your backyard operators

    DD said

    “If we do need to know something we don’t already know we generally hire academics, not a private consultancy”

    No difference – most of the time they’re the same people. A lot of people in the private consulting firms are academics – the majority of academics are also private consultants.

    “the occasional case where your work slightly improves the lives of millions of people makes up for an awful lot of crap”

    Rubbish – it was a consultant’s report that did that, not your work

    “private consultancy principals usually hire far less experienced (and renumerated) people than themselves to actually do the work”

    I’ll finish the sentence for DD “and teach them themselves. Therefore You’ll learn in 6 months what would take 6 years to learn in the public service learning from some low level/life manager and never interacting with the top brass”. In a consultancy, the best qualified staff are hired and interact 100% of the time with top brass

    “Utter bulldust, serge. I can show you crap consultant report after crap consultant report – all in beautiful folders, delivered along with a Powerpoint presentation with vibrant colours and animation, and all with impressive but vague words and irrelevant numbers in a desperate attempt to give the appearance of solidity to pure wind.”

    By your logit, can you please also show me all the shite public service reports and poor policy advice from public service departments over the years. I’m sorry but the latter outweights your “crap consulting reports” 10000000:1. The issue there is you hired the wrong one – hire the right consultant next time.

    “I’m a public service economist, and I’d back my technical expertise against consultants in my professional area any day. I could probably make more money in consultancies, but some of us like to work in jobs where we think we can make a difference”

    That is utter crap DD, I only worked in a consultancy because I saw I couldn’t make a difference in the PS – rather subsumed within the political machine and become an infinitessimally small cog in a mssive machine. I can’t say for sure that you’d make money in consulting

  24. serge
    November 26th, 2006 at 09:35 | #24

    Petty arguing aside – in response to Quiggo’s original point

    Quiggo said:

    “A doubling of water prices would be enough to reduce demand significantly over time (even allowing for underlying growth in population and income)”

    I thought most estimates were that water demand, particularly by urban users, is pretty price inelastic. What is also important to note is that most urban users (and other users of water such as power and mining I might add) value water by more than double what current water prices are and would therefore be willing to pay more. The shadow price of water where marginal value product of water among different users is equalised is much higher than the current price of water and perhaps more than double.

    If you double water prices in a scarce resource environment, what happens is trade facilitates movement of water from low value uses to high – and actual water demand will probably fall a little amount (if at all).

  25. wilful
    November 27th, 2006 at 08:34 | #25

    Obviously not. Or to respond at wilful’s level – No, it does ring true! it does it does! Your wrong!!! I’m not going to add anything to back up my argument….hmpfff

    Hey d***d, I provided precisely as much evidence in my post as you did yours. Mind you, I now understand why you failed to get anywhere in the public sector and resigned as a failure (as you indicate in your last post) – you had to actually justify your recommendations and there was a chance they may be implemented, so the middle management wouldn’t let you near anyone to make a fool of yourself.

    Edited by JQ for coarse language

  26. serge
    November 27th, 2006 at 09:32 | #26

    I think you know where you can quite solidly jam that opinion wilful – if you’re struggling I can provide some assistance……..there you go. I’m more interested to hear what Quiggo has to say about the economics than a petty scuffle with frustrated pubes

  27. SJ
    November 27th, 2006 at 18:56 | #27

    serge Says:

    I thought most estimates were that water demand, particularly by urban users, is pretty price inelastic.

    Well, here’s a recent estimate dealing with precisely the urban market JQ is talking about:

    Hoffmann, M. Worthington, A. and Higgs, H. (2006). Urban water demand with fixed volumetric charging in a large municipality: the case of Brisbane, Australia. Australian Journal of Agricultural and Resource Economics 50, 347-359.

    The short-run price elasticity of demand across all households is -0.507 indicating that a ten percent increase in the price of water is associated with a 5.07 percent decrease in the quantity of water demanded, while the long-run price elasticity of demand is -1.167 suggesting a ten percent increase in price is associated with a 11.67 percent decrease in the quantity of water demanded.

    So, in the short run, demand for water is certainly inelastic wrt price. Maybe it’s “pretty inelastic”, whatever that means. But you seem to think that “pretty inelastic” means perfectly inelastic, which is obviously wrong.

    Given the above, forgive me if I choose to ignore your public v private sector analysis.

  28. November 27th, 2006 at 23:12 | #28

    Does “edited for coarse language” mean something like Borat’s comments about antisemitism, that after reflection the censor decided that there was just enough?

  29. serge
    November 28th, 2006 at 08:38 | #29

    SJ, I read the article, and I’m not convinced that the periferal points you’ve highlighted for argument substantiate your knob-nibbler comments. I’ve chosen to ignore all of your comments because of this

  30. SJ
    November 28th, 2006 at 19:04 | #30

    C’mon, wilful, it’s time to fess up. “serge” is just a sock-puppet that you made up to demonstrate your point. I mean, serge claims to be a consultant but doesn’t know anything, can’t spell (“consullting”, “periferal”, fer chrissake), and can’t hang two sentences together in a meaningful way. Good one! ;)

  31. serge
    November 29th, 2006 at 12:51 | #31

    Righto, get back to work woozers, I’ve had enough of your sh##

  32. serge
    January 7th, 2007 at 18:26 | #32

    PS I notice that Bryan Fisher, most recent ex boss of ABARE, and one of the Government’s best and brightest, has moved on (and up) from ABARE and been appointed at consulting firm CRAI. Throws your crap theories about economic consulting firms out the window, I would suggest.

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