Quotulatiousness

April 22, 2018

How to begin solving the common problems of big cities

Filed under: Australia, Bureaucracy, Economics, Government — Tags: , , , , , — Nicholas @ 05:00

Vladimir “Zeev” Vinokurov is writing about Australian cities in particular, but the same general analysis applies to many Canadian, American, and British urban areas as well:

… our economy and population are growing, and the resulting congestion is costing us thousands of dollars per year individually, and billions to the economy. It isolates us from family, friends and work. But cities can still grow without getting us stuck in traffic, missing increasingly overcrowded and delayed trains, or left unable to afford property. All this is happening because workplaces are too far from residents living in the suburbs, which effectively funnels residents into the inner city for work. It must change.

First, we must unwind planning laws that prevent offices, homes and apartments from being constructed alongside each other and throughout the city. These laws also raise housing prices by hundreds of thousands of dollars. Second, instead of banning cars, charge commuters for using congested roads and trains. Third, stop supporting taxpayer funded ‘road to nowhere’ infrastructure projects. These reforms will cut congestion, grow the economy, cut living costs and reconnect us to family, friends and local communities.

Planning laws cause congestion and social isolation by preventing people from building apartments and commercial offices throughout our city. As a result, rents and property prices become dearer because not enough housing is built to accommodate demand from population growth. Indeed, Reserve Bank economists estimate that planning laws increase average property prices by hundreds of thousands of dollars. This drives residents into the outer suburbs to look for cheaper housing, even as they commute into the inner city for work. If more people lived close-by to their workplaces, commutes would be shorter.

We need multiple CBDs, not just one. Unwinding planning laws that prevent commercial growth outside the CBD will cut housing costs and rents, cut congestion and promote tightly knit, thriving urban communities.

Congestion also occurs because we pay for using roads and public transport with thousands of dollars of time every year, rather than money. Congested public roads or trains cost us no more money to use in peak times, and busier routes cost no more to use than empty ones. As a result, the Grattan Institute think tank estimates that the average Melbournian’s commute to the city is twice as long in peak time. By contrast, Sydney’s trains are less congested, but are used more widely compared to Melbourne’s because its tickets are dearer in rush hour. Congestion charges that reflect market demand for infrastructure will also encourage businesses to open in commercial districts outside the CBD. Reconnecting local commuters with local workplaces will save us time and money overall.

Congestion charges are also a fairer and cheaper way of funding infrastructure projects compared to taxes like fuel tax or stamp duty. Scrapping these two taxes could save property purchasers tens of thousands of dollars or more, and reduce petrol bills by at least a third. If we pay for congested roads and trains with money rather than time and taxes, we may end up paying less.

April 18, 2018

QotD: The United Nations

Filed under: Africa, Asia, Bureaucracy, Quotations — Tags: , , , — Nicholas @ 01:00

It’s a good basic axiom that if you take a quart of ice-cream and a quart of dog faeces and mix ’em together the result will taste more like the latter than the former. That’s the problem with the UN. If you make the free nations and the thug states members of the same club, the danger isn’t that they’ll meet each other half-way but that the free world winds up going three-quarters, seven-eighths of the way. Thus the Oil-for-Fraud scandal: in the end, Saddam Hussein had a much shrewder understanding of the way the UN works than Bush and Blair did.

And, of course, corrupt organisations rarely stop at just one kind. If you don’t want to bulk up your pension by skimming the Oil-for-Food programme, don’t worry, whatever your bag, the UN can find somewhere that suits — in West Africa, it’s Sex-for-Food, with aid workers demanding sexual services from locals as young as four; in Cambodia, it’s drug dealing; in Kenya, it’s the refugee extortion racket; in the Balkans, sex slaves.

Mark Steyn, “UN forces — just a bunch of thugs?”, Telegraph Online 2005-02-15

April 8, 2018

Brexit: Why Britain Left the European Union

Filed under: Britain, Bureaucracy, Europe, Government — Tags: , — Nicholas @ 02:00

PragerU
Published on 12 Mar 2018

Is the European Union good for Europe? Or would Europeans be better off without it? Nigel Farage, a leader of the United Kingdom’s Brexit movement, shares his view.

Script:

If one big government is bad, imagine how much worse two big governments would be. But that’s what people living in Europe have had to deal with: their own nation’s bloated government and the super-national government of Europe, now known as the European Union. Bureaucracy times two! How’s that for a horror show?

Well, actually, you’ve no idea. It’s worse than you think. Believe me — I know, because for seventeen years, I’ve represented South East England as a member of the European Parliament, the EU’s legislative body. I was also leader of the UK Independence Party, or UKIP, where I lead Britain’s efforts to leave the European Union. To their everlasting credit, that’s just what happened on June the 23rd, 2016: The United Kingdom left the European Union. The world knows it as “Brexit.”

Brexit is a statement of national sovereignty. Don’t misunderstand me: I like nations. I like borders. I like the people that live within those borders making their own laws. But I don’t like it when faceless bureaucrats make laws for nations they don’t even live in.

But that’s what they do in the European Union.

Imagine a Belgian telling a Brit how much he can charge his customers — or the reverse. The EU bureaucrats do this in a myriad of different ways, all day, every day. It is a conspiracy of the elites.

Who are those elites? Well, they’re a bunch of self-important, overpaid, social engineers with useless college degrees who have never done a proper day’s work in their lives and have no connection with ordinary, decent people. I’ll take the good sense of an Italian farmer or a French baker over the arid intellectualism of an EU bureaucrat any day.

And I say these things not as an anti-European; I love Europe! It’s a fantastic, exciting, great continent: different peoples, languages, and cultures. But these peoples, with their languages and cultures, have effectively been hijacked by a giant, ever-expanding bureaucracy: the European Union.

People will say, “but isn’t there a parliament, a European parliament, that represents the people of Europe?” Well, yes, but this body has got no real power; it can’t make its own laws. Rather, the power resides with the European Commission. They’re unelected and they can’t be removed, and that’s how absurd the whole thing is.

The European Parliament meets in Brussels. At least, that’s what I thought when I was elected there. But once a month, do you know what happens? They load the contents of our offices and papers into big, plastic trunks, and they put those trunks on lorries, and they drive them nearly 400 miles down Europe’s motorways to a French city called Strasbourg where, for four days, the contents of our offices, and our papers, are put into a new office, and the parliament then sits there. Twelve times a year this back-and-forth happens, and this from an organization who say they want to reduce their level of carbon footprint! This, from an organization whose accounts have not been given a clean bill of health by the auditors for the last twenty years!

This…a parliament? It’s more like a traveling circus.

For the complete script, visit https://www.prageru.com/videos/brexit-why-britain-left-european-union

April 6, 2018

QotD: Bordertown, USA

Filed under: Bureaucracy, Quotations, USA — Tags: , , , , — Nicholas @ 01:00

Welcome to Bordertown, USA. Population: 200 million. Expect occasional temporary population increases from travelers arriving from other countries. Your rights as a US citizen are indeterminate within 100 miles of US borders. They may be respected. They may be ignored. But courts have decided that the “right” to do national security stuff — as useless as most its efforts are — trumps the rights of US citizens.

Tim Cushing, “Wall Street Journal Reporter Hassled At LA Airport; Successfully Prevents DHS From Searching Her Phones”, Techdirt, 2016-07-22.

March 31, 2018

QotD: Workshops and how to avoid them

Filed under: Bureaucracy, Business, Education, Quotations — Tags: , — Nicholas @ 01:00

Kingsley Amis, a man whom, for reasons neither interesting nor publishable, I did not much admire, once said that the word “workshop” summed up all that was wrong with the modern world. He was right, and his comment was both shrewd and prescient. Courses, conferences, away-days, workshops, team-building weekends – they’re all part of the same pathology, and they’ve spread like bacteria on agar gel.

With a regularity bordering on the boring, from many sources, I receive flyers offering me courses to improve myself. I am far from supposing that I cannot improve or be improved, but most of these courses seem more designed to relieve me of money than anything else. They come with pictures of the course leaders (or trainers), happy and smiling and, to my eyes at least, deeply crooked.

A learned journal to which I subscribe always arrives with invitations to courses and conferences. Some, naturally, are of interest: those given by people who are acknowledged experts in their field, and who will provide a convenient digest of the latest research in it. But a high proportion of them are about what one might call para-work: activity that has nothing, or something only very tangential, to do with the ostensible aims of one’s profession.

Theodore Dalrymple, “Workshops and why you must avoid them”, The Social Affairs Unit, 2009-11-18.

March 22, 2018

Unaccountable federal agency refuses to answer to the senator who wanted it to be unaccountable in the first place

Filed under: Bureaucracy, Government, Politics, USA — Tags: , — Nicholas @ 05:00

Perhaps this is a teaching moment for Senator Elizabeth Warren, says A. Barton Hinkle:

If Massachusetts Sen. Elizabeth Warren had taken a page out of Virginia Delegate Nick Freitas’ book, she might not be in the pickle she is today.

Warren is spitting mad at Mick Mulvaney, the Office of Management and Budget director who does double duty heading up an agency whose creation Warren championed: the Consumer Financial Protection Bureau (CFPB). The CFPB’s previous director was an ideological ally of Warren. Since Mulvaney took over, Warren has ripped the agency’s decisions. Warren said Mulvaney is giving “the middle finger” to consumers, and she railed at Mulvaney’s indifferent response to the 10 (!) letters she has sent him demanding answers to more than 100 questions.

The other day she tweeted that she is giving Mulvaney “one last chance.” Yet as The Wall Street Journal points out, she has only herself to blame for her apparent impotence.

Time and again during debate over the CFPB, conservatives and libertarians warned that its powers were too great and that its accountability to the other branches of government was too limited. But that was just the way Warren and other supporters wanted things. Neither Congress nor other political forces could influence an unaccountable regulatory agency. Now Warren finds herself thwarted by the very lack of oversight she championed.

Be careful what you wish for.

[…]

Philosopher John Rawls famously invented a mechanism for doing just that: the “veil of ignorance”: If you are designing the rules for a society, you should assume that you know nothing about your place in that society. If your race, age, physical abilities, mental prowess, and so forth are all a complete mystery, then you are likely to design a political-economic system that is fair to all. Just in case you wind up at the bottom of the social pile.

Having a president who makes policy through signing statements, his “pen and phone,” and other forms of executive action, for example, seems brilliant when the opposing party controls Congress. It seems less so when the opposing party controls the White House.

Should intelligence agencies keep tabs on Islamists who might pose a threat of domestic terrorism? Then don’t be surprised if a different administration turns the focus to right-wing militias.

March 13, 2018

Trump Is ‘Destroying’ Regulations

Filed under: Bureaucracy, Government, USA — Tags: , — Nicholas @ 06:00

ReasonTV
Published on 12 Mar 2018

The president’s first year of slowing down regulations shattered previous records. But will politics and legislative inaction stall things from here?
—–
With his tariffs on aluminum and steel, family-separating crackdowns on nonviolent illegal immigrants, and authoritarian musings about executing drug dealers, President Donald Trump can be a libertarian’s nightmare.

Except when it comes to regulatory reform.

The Competitive Enterprise Institute (CEI), a Washington, D.C.-based free market think tank that focuses on the administrative state, tallied up the number of regulations in Trump’s first year in office and found, “This is the lowest count since records began being kept in the mid-1970s.” CEI Vice President for Policy Clyde Wayne Crews told Reason that, “I haven’t seen personally anything like the regulatory reductions that have taken place.”

What’s producing these results? In part, the president’s early executive orders mandating that with every new regulation two old ones get killed, and that the net imposed regulatory cost of each agency and department be zero. Trump has also appointed some real reformers to change the way the executive branch does business: Scott Gottlieb at the Food and Drug Administration (FDA), Ajit Pai at the Federal Communications Commission, Betsy DeVos at the Department of Education, and Rick Perry at the Department of Energy.

Chief among the anti-bureaucratic bureaucrats is Neomi Rao, administrator of the obscure-sounding but important Office for Regulatory Affairs (OIRA), which applies cost-benefit analyses to proposed regulation while making sure it still aligns with legislative intent. Rao, who came to the administration after founding the Center for the Study of the Administrative State at George Mason University’s Antonin Scalia Law School, tells Reason that, “We have done more in our first year than any president since we’ve been keeping records, which is back to Reagan.”

President Trump appears genuinely enthusiastic about this push, talking up FDA reforms in both of his State of the Union addresses, and crowing at a December red-tape-cutting ceremony that, “The never-ending growth of red tape in America has come to a sudden screeching and beautiful halt.”

But Crews warns that a midterm will be much harder for Trump to navigate than the comparative honeymoon of 2017. “I think in 2018, he’s going to have a much tougher time meeting the goal,” Crews said. “When you’re acting alone as president and you can’t make law on your own, the barrier that you run into is you run out of low-hanging fruit.”

Produced by Matt Welch and Alexis Garcia. Camera by Todd Krainin, Ian Keyser, Mark McDaniel, and Jim Epstein.

February 21, 2018

QotD: Regulation

Filed under: Bureaucracy, Economics, Quotations — Tags: , , — Nicholas @ 01:00

… “regulation” could also be described as high-handed and ignorant interference in the mutually advantageous deals contracted voluntarily among the miserable serfs of the state, interference at best inspired by antique theories of natural monopoly and using antique policies appropriate to obsolete technologies, and at worst by conspiracies to benefit existing rich people, backed by state violence. Much of regulation, looked at coldly, would fall under such a definition, if not immediately on its passage, then after a few years of technological change or regulatory capture.

Deirdre N. McCloskey, Bourgeois Equality, 2016.

February 18, 2018

The legal loophole that allows profiteering scumbags like Martin Shkreli to gouge the public

Filed under: Bureaucracy, Business, Government, Health, USA — Tags: , , — Nicholas @ 03:00

The US pharmaceutical market is a long way from a freely competitive environment, largely due to the amount of regulatory oversight required by lawmakers and enforced by the Food and Drug Administration (FDA). Among all the regulatory checks and balances, there’s one weird trick that allows predatory companies to reap excess profits legally — the “restricted distribution” loophole:

For immunocompromised adult patients who have the toxoplasmosis parasite, the FDA recommends taking 50 to 75 milligrams of Daraprim a day for up to three weeks, followed by half that dosage for an additional four to five weeks. So at the high end, an adult course of Daraprim therapy for a U.S. patient used to cost around $1,350 total.

While that might not seem cheap, it was a drop in the bucket compared to the cost after Turing Pharmaceuticals, Shkreli’s company, bought the rights to Daraprim and jacked the price up to $750 per pill in 2015. That move increased the cost of one course of treatment to around $75,000.

At that point you might have expected another company to jump in and start offering a generic version of the drug. But Shkreli used a regulatory loophole to keep that from happening.

You see, when a generic manufacturer wants to create a cheap version of a branded drug, it has to buy thousands of doses from the manufacturer in order to run comparison tests. Generic manufacturers use the results of these tests to prove to the FDA that their version is identical to the branded drug that the agency has already approved.

More often than not, the company that holds the marketing and distribution rights to a branded drug will sell those comparison doses to the generic manufacturer without being obstructionist, because that’s the trade-off for receiving a 20-year monopoly by way of a drug patent: The branded manufacturer gets to charge whatever they want for years and years without facing competition, and in exchange for that government-backed monopoly, it’s supposed to sell equivalency samples to generic companies.

But what if the company is run by an unscrupulous asshole like Martin Shkreli? Then it might opt to put the drug into what’s called “restricted distribution,” which means no distributor anywhere can sell comparison samples to a generic manufacturer.

The FDA originally created the concept of restricted distribution to limit the availability of drugs that might be dangerous. Methadone, for instance, was first approved in the 1940s as a painkiller. In the 1970s, the FDA restricted its availability because regulators didn’t want the opioid used for anything other than the treatment of opioid dependence. Even today, methadone can be dispensed only in highly regulated settings and only for one approved reason.

In 2007, Congress empowered the FDA to create an entire system of safety controls beyond restricted distribution, and the agency now requires the manufacturers of certain substances to develop Risk Evaluation and Mitigation Strategies (REMS) to prevent misuse and abuse of potentially problematic compounds.

The list of approved drugs that the FDA says must have an REMS is here. Daraprim is not on that list. You can’t get high off it. It’s not habit forming. Yes, the FDA label says it can be carcinogenic after long periods of use, and that it might cause birth defects if used in high doses by pregnant women. These potential effects are serious, but there is no post-market data suggesting that Daraprim is causing more harm than benefit in the intended patient population. Shkreli’s company put Daraprim into restricted distribution to boost their profits, not protect patients.

February 2, 2018

QotD: Infrastructural sclerosis

Filed under: Bureaucracy, Government, Quotations, USA — Tags: , , — Nicholas @ 01:00

I have an op-ed in the Boston Globe today on infrastructure, addressing the issue of quality rather than quantity of investment. Rachel Lipson, a graduate student at Harvard, and I describe the fiasco that has emerged from what should have been a routine maintenance project on the Anderson Memorial Bridge over the Charles River next to my office in Cambridge. Though the bridge took only 11 months to build in 1912, it will take close to five years to repair today at a huge cost in dollars and mass delays.

Investigating the reasons behind the bridge blunders have helped to illuminate an aspect of American sclerosis — a gaggle of regulators and veto players, each with the power to block or to delay, and each with their own parochial concerns. All the actors — the historical commission, the contractor, the environmental agencies, the advocacy groups, the state transportation department — are reasonable in their own terms, but the final result is wildly unreasonable.

At one level this explains why, despite the overwhelming case for infrastructure investment, there is so much resistance from those who think it will be carried out ineptly. The right response is to advocate for reforms in procurement policies, regulatory policies and government procedures to make the investment process more efficient and effective. This is all clear enough.

At another level, though, our story may illustrate phenomena that go way beyond infrastructure. I’m a progressive, but it seems plausible to wonder if government can build a nation abroad, fight social decay, run schools, mandate the design of cars, run health insurance exchanges, or set proper sexual harassment policies on college campuses, if it can’t even fix a 232-foot bridge competently. Waiting in traffic over the Anderson Bridge, I’ve empathized with the two-thirds of Americans who distrust government.

Larry Summers, “Why Americans don’t trust government”, Washington Post, 2016-05-26.

February 1, 2018

The Government is Going to Shut Down Again (And That’s Bad)

Filed under: Bureaucracy, Government, Humour, Politics, USA — Tags: , , — Nicholas @ 06:00

ReasonTV
Published on 31 Jan 2018

System failures are a false path to limited government.

——–

Libertarians want to shrink the government, but a shutdown is little cause for celebration. Hitting a giant “pause” button on federal agencies won’t end the drug war or reform entitlements. A government shutdown doesn’t even save money. Back pay to furloughed federal employees ensures that taxpayers pay just as much as they would have if the government had proceeded as normal. But during a shutdown taxpayers don’t receive the government services they’re paying for, and the economy takes a hit from the disruption.

In the latest “Mostly Weekly,” Andrew Heaton explains why libertarians should be against the next government shutdown.

Mostly Weekly is hosted by Andrew Heaton with headwriter Sarah Rose Siskind. Special appearance by Brian Sack.

Script by Andrew Heaton with writing assistance from Sarah Rose Siskind and Brian Sack
Edited by Austin Bragg and Sarah Rose Siskind.
Produced by Meredith and Austin Bragg.
Theme Song: “Frozen” by Surfer Blood.

January 30, 2018

QotD: Worstall’s Law of Organizations

Filed under: Bureaucracy, Business, Government, Humour, Quotations — Tags: — Nicholas @ 01:00

I would, and do, argue that this is, in fact, the inevitable fate of all and any organizations, so much so that we might call it Worstall’s Law of Organizations, perhaps a minor corollary to Parkinson’s Laws. All and any organizations will in the end be run by those who stay awake in committee. A brief survey of the world around us will show that this is a simple and obvious truth.

Tim Worstall, “‘Any Organization Will, In the End, Be Run By Those Who Stay Awake in Committee'”, Ideas in Action, 2005-06-23.

January 13, 2018

The common factor of the Net Neutrality fight and the EpiPen price gouging scandal

Filed under: Bureaucracy, Economics, Government, Health, Technology, USA — Tags: , , , , — Nicholas @ 05:00

Lili Carneglia explains what these two examples of “capitalist excess” are actually the result of regulatory failures:

Without net neutrality, regulations that prevent internet service providers (ISPs) from charging more for priority speeds and higher bandwidth-use sites would disappear. Most Americans are pretty confused by the revised rules but highly skeptical that this action could have any benefits. Many people, especially those living in the rural south where choices are limited, feel like these companies have been taking advantage of their customers for years, and loosening regulatory constraints on these companies seems like a terrible idea.

Net neutrality was a regulatory policy set under the Obama administration in 2015 that mandated ISPs to treat the internet like other utilities, such as highways and railroads, under laws established before most people had TVs. Under these rules, companies must act as neutral gateways to the internet without controlling the content or the speed of the content that passes through that gateway. Supporters of the rule argue that these regulations ensure the free flow of information, while those against the policy see net neutrality as a misapplication that stifles an industry that is more dynamic than other public utilities.

[…]

Yes, a handful of industry giants can and have abused their market power. Most consumers have limited ISPs to choose from in a given area, and options are more limited outside of big cities, where “three-quarters of American homes have no competitive choice for the essential infrastructure for 21st-century economics and democracy,” according to the former FCC chairman Tom Wheeler. It is important to consider how these circumstances came about before deciding that federal regulation might help consumers.

Governments, by and large, prefer to have fewer players in a given market as it makes that market easier to regulate, and the easiest market to regulate is a monopoly. When cable networks were beginning to spread across North America, many local governments were persuaded that a single cable provider would be the best option for their jurisdiction and the broadband internet market that came later was heavily shaped by the already carved-up markets for cable TV. For many, there were no competitive options because the local government had precluded the chance of competition for their already entrenched cable monopoly (or, in a few cases, tight oligopoly).

Competition is the best answer to monopolistic abuse of customers … if you get shitty service from the Blue Cable Company, you’ll be more likely to switch to the Red Cable Company. If you only have Red and Blue to choose from, your leverage is small, but if you have a full rainbow of competing options, Red and Blue are forced to make their services at least comparable to what Orange and Pink and Magenta are offering, or they lose too many customers. If there’s no threat of a competitor scooping up unhappy customers, there’s no incentive for the existing company to do more than the absolute minimum to keep customer complaints down to a dull roar. The customer’s only recourse — other than giving up the service or moving to a different jurisdiction — is to complain to the regulator.

The base problem with Mylan’s EpiPen price gouging is the same: an effective monopoly supported by the government:

The arguments against net neutrality repeals center around fears about what producers will do without regulation since they have significant market power and the ability to raise prices to levels that would not be sustainable under more competitive conditions. The concern about increased internet prices is similar to what happened in 2016 when a pharmaceutical company with market power, Mylan, increased the price of life-saving EpiPens by about 400 percent.

The “greedy” pharmaceutical companies were hung out to dry as Congress berated Mylan representatives in hearing after hearing. There were similar cries of outrage and demands that the federal government do something to prevent such selfish price-gouging, similar to what many consumers fear ISPs will do absent regulations.

Even (supposed) free-market advocates started supporting further regulation during the EpiPen debate. Most notably, then fiscal hawk representative and now Trump budget director Mick Mulvaney, defended further market intervention on the condition that, “If you want to come to the state capitols and lobby us to make us buy your stuff, this is what you get. You get a level of scrutiny and a level of treatment that would ordinarily curl my hair.”

However, in all of those hearings, almost no one bothered to unearth the problem that Mulvaney hinted at: Why was Mylan able to increase that price in the first place? Government intervention. Burdensome FDA regulations and other laws pressuring public schools to buy the drug essentially granted Mylan a monopoly. It was as misguided then as it is now to think that these same institutions can be trusted to clean up the mess they created.

Mylan had no effective competition, so there was nothing to stop the price gouging until it got so bad that even the regulator had to pay attention. If there were other pharmaceutical companies allowed to compete, do you think Mylan would have risked jacking up the price only to watch their competitors gaining market share?

Scott Alexander explained the Mylan monopoly quite expansively in 2016.

QotD: Occupational licensing

Filed under: Bureaucracy, Business, Quotations, USA — Tags: , — Nicholas @ 01:00

When my mother retired from selling real estate, she toyed with the idea that she — a talented cook who had long made her own croissants — might make a little money on the side by selling homemade baked goods. It’s the sort of business that people have started from time immemorial, letting them share what they love with someone willing to pay for it.

A quick investigation, however, revealed that the thing was impossible. You can’t just bake a little stuff at home and sell it, for fear that you might poison people. If you want to poison people with your deliciously flaky homemade croissants, it must be done on a strictly ad-hoc, volunteer basis.

Welcome to the modern economy, where increasingly, everything not compulsory is forbidden. We are hedged around with rules to protect us, to protect other people, to protect some theoretical victim who exists only in the minds of regulators and judges. And there’s reason to worry that this red tape is getting wrapped so tight that it risks rendering us immobile.

I’m not talking about environmental regulations, or even the labor regulations that make it increasingly expensive and burdensome to employ people. Today I’m talking about occupational licensing, and the burden it places on people who want to build a career.

Megan McArdle, “You’re Gonna Need a License for That”, Bloomberg View, 2016-05-17.

January 9, 2018

The ongoing financial catastrophe that is the National Shipbuilding Procurement Strategy

Filed under: Australia, Bureaucracy, Business, Cancon, Military — Tags: , , , , , , — Nicholas @ 03:00

Ted Campbell rounds up recent discussions of the Canadian government’s farcical National Shipbuilding Procurement Strategy (NSPS):

There is a somewhat biased but still very useful look at the successes of the National Shipbuilding Procurement Strategy (NSPS) in the Ottawa Citizen by Howie Smith who is the Past President of the Naval Association of Canada. Mr Smith is a retired Canadian naval officer who has provided consultancy services to several firms pursuing opportunities within the projects of the National Shipbuilding Strategy, which is why his article is somewhat biased. Mr Smith is responding to a recent report by Professor Michael Byers of the University of British Columbia, who is also a biased commentator on defence issues, which said that the NSPS “was flawed from the outset” and “According to Byers, the Liberal government should open-up the non-contractually-binding umbrella agreements with Irving and Seaspan, then cancel and restart the Canadian Surface Combatant and the Joint Support Ship procurement programs with fixed-price competitions involving completely ‘off the shelf’ designs.”

It is important, I believe, to understand why Canada needed something like the NSPS in the first place. The notion came in about the middle of the Harper government’s term in office – in around 2010. I think that two problems confronted the government:

  • The Canadian shipbuilding industry was, once again, “on the ropes;” Davie, Canada’s largest shipyard was in bankruptcy and the other yards were too reliant on government contracts; and
  • Both of the major federal fleets (the Royal Canadian Navy and the Canadian Coast Guard) were approaching “rust out,” again.

The solution to the first problem was to modernize the yards and make them internationally competitive … but that would cost money and private investment money is scarce ~ especially for shipbuilding, plus under the international trade rules to which Canada has agreed direct government subsidies to commercial shipyards are prohibited. The solution to shipyards that are too reliant on government contracts was ~ wait for it ~ another big government contract that would allow them to modernize themselves.

That indirect government subsidy is perfectly legal if the contracts are for navy and coast guard ships because “national security” is a big loophole in international trade law.

Both Professor Byers and Mr Smith have some good points … but neither is 100% correct. The NSPS was and remains a sound idea … the costs, which is the real crux of Professor Byers’ complaint, are not relevant because the defence and coast guard budgets are being (mis)used for industrial development ~ those are not the real costs of warships: they are the real costs of warships PLUS the cost of yard modernization.

The new surface combatant project is, as Mr Smith says, the biggest and costliest peacetime military procurement ever … and the NSPS is working just about a well as any “system” would at bringing it to fruition. At some point in the future a government will have to decide if Canada gets fewer ships than it needs or spends more more money than it wants … or, most likely, both.

That last sentence has always been the most likely outcome: the RCN will get fewer ships than it needs, and those ships will be significantly more expensive per hull than they need to be. The need for modern naval vessels isn’t the top priority … it’s probably not even in the top three priorities as far as the government is concerned (directing money to the “right” recipients, pandering to provincial sensibilities, lots of photo ops, and then maybe the actual needs of the RCN and CCG).

Update: Of course, it’s not like Canada is unique in the problems we have in military procurement … Australia is also struggling in a similar way:

The [Royal Australian] Navy’s program to replace the Collins Class submarines is known as SEA 1000. It involves modification of a French Barracuda Class submarine from nuclear to diesel-electric propulsion, plus other changes specific to Australia.

The 12 new submarines, to be known as Shortfin Barracudas, are intended to begin entering service in the early 2030s with construction extending to 2050. The program is estimated to cost $50 billion and will be the largest and most complex defence acquisition project in Australian history.

[…]

Then there’s the decision to build them in Australia. The Abbott government’s 2016 Defence White Paper only committed to building them in Australia if it could be done without compromising capability, cost or project schedule. That changed because of South Australian politics, and the new submarines could now be more appropriately described as the Xenophon class.

Even if all goes well, the cost of building warships in Australia will be 30 to 40 per cent more than if they were built overseas. However, the plan to build them in Adelaide at the Australian Submarine Corporation, the same group currently building the Air Warfare Destroyer, years late and a billion dollars over budget, adds to a sense of foreboding.

This follows the prize fiasco of the Collins Class submarine project. Their construction by the Australian Submarine Corporation ran years behind schedule, many millions over budget, and finally delivered a platform that the Navy has struggled to even keep operational.

And then there is the question of whether the new submarines will arrive before the Collins Class subs are retired, scheduled for 2026 to 2033. Even if delivery occurs on schedule, the first will not enter service until 2033. At best there will be one new submarine in service and a nine year gap between the retirement of the Collins Class and the introduction into service of the first six of the twelve new submarines.

Given this, the government has apparently committed an additional $15 billion to keep the 30 year old Collins submarines bobbing in the water. It’s like refurbishing a World War 2 German U-Boat for the mid-1990s.

The elements are all there for the submarine replacement program to become the procurement scandal of the century. Our Shortfin Barracudas will probably be the most expensive submarines ever built anywhere in the world.

For a lot less money, we could achieve a far more potent submarine capability. For example, off-the-shelf Japanese Soryu submarines cost only US$540 million. Modified to meet additional Navy requirements, they were quoted as costing A$750 million. If we simply bought twelve of those, the total cost to the taxpayer would be less than A$10 billion.

Equally, the existing nuclear Barracudas only cost $2 billion each, so we could get twelve of those for $24 billion.

For such an important defence capability, the government’s failure to guarantee Australia is protected by submarines is nothing less than gross negligence.

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