“Practical men, who believe themselves to be quite exempt from any intellectual influence, are usually the slaves of some defunct economist” wrote J M Keynes in 1935. I was reminded of this when reading that the new Government is planning another review of transport appraisal guidance, citing concerns over its inherent bias against low-carbon proposals. Welcome though these changes may be, the review starts from the flawed assumption that Cost Benefit Analysis (CBA) is an objective process rather than the distillation of many value judgements.
CBA derives from welfare economics which is based on utility theory, developed by many great economists, living and defunct, on foundations of sand. Phrases like “economic welfare” and “social value” in NATA Refresh point to the crux of the problem. CBA assumes the benefits (or utility) and disbenefits to individuals can be objectively quantified and used to calculate the social value of a project.
Utility is a circular idea: it is the quality of a commodity which makes people willing to pay for it. How do we know the commodity has utility? Because people are willing to pay for it.
To take a transport example, time savings can be valued through a notional willingness to pay for quicker journeys or, as NATA does for business travellers, with reference to earnings. Several of my colleagues have shown how NATA overestimates the value of these savings, because travel time is often used productively, particularly by business travellers. But there is a more fundamental problem. How can private time savings, or any other private benefit, be objectively valued as a benefit in a public calculation?
To illustrate the point, most CBAs used for public purposes try to avoid valuing the time of wealthier people more highly, through some averaging process (although WebTag still values motorists’ time more highly than that of cyclists or bus passengers). This averaging could be viewed as a tactical decision to abandon the principle because we don’t like the outcome, but does it not call into question the principle itself? Are time savings for wealthy people really worth more to society than time savings for the working poor? How can we answer this question without introducing value judgements?
The same is true of the CBA approach to valuing environmental assets. NATA Refresh, following conventional economic thinking, recommends a ‘willingness to pay’ approach to valuing landscapes, for example. Landscape degradation is one of many reasons why people might be willing to pay to avoid or move development elsewhere. Others might include a desire to avoid new residents of a different race or social class, for example, which would never be quantified, because those subjective benefits would never be considered as elements of social value. Decisions to include a particular factor, and assign a particular value to it, will always involve a value judgement, whatever method of calculation is used.
In seeking to justify the overall approach, NATA Refresh states:
“We would only expect to fund proposals where [the positive impacts are greater than the negative ones] as to do otherwise would be supporting proposals which diminish overall social value.”
Non-monetised factors are still presented to decision-makers in the form of a table, but several consultees expressed concern at the lower weight given to these. The DfT’s response will involve monetising more factors using increasingly tenuous methods on the grounds that “this will send a clear and consistent message to decision-makers”.
CBA is sometimes defended on the grounds that without it, decisions would lack coherence and – shock horror – might even be made on cynical political grounds. Readers may form their own opinions about the effectiveness of CBA in preventing this in Britain. The basic techniques are used in many other countries, including some where the pretence of objectivity is not taken so seriously.
Describing a better alternative would take more than this short article, but a brief parallel may be drawn with sustainability appraisal. The Spectrum approach sets out the effects of a decision on a series of factors, rated separately on a five point scale from ‘unacceptable’ – the deal breakers – to ‘excellent’ where the decision would bring significant improvements. Although that also has its problems in practice, it has one key strength: there is no attempt to weight the factors or calculate an overall score, so an ‘excellent’ impact on the urban environment cannot outweigh an ‘unacceptable’ flood risk, nor vice versa. Its main aim is to identify constraints and areas where other changes would be necessary if a particular option is chosen.
In itself, such a system cannot tell decision-makers which schemes to choose, although it can rule some out. The missing element, which has hindered joined-up decision making in many fields, is a coherent long-term strategy: for reducing road traffic, reducing CO2 from transport or integrating different forms of public transport, for example. Once we abandon the pretence that time savings through faster travel represent an objective benefit, new possibilities will emerge. The time saving criterion for by-passes, for example, has discouraged British transport planners from following the approach used in many European cities, where slow urban bypasses deliberately increase travel times by car, to promote modal shift, and improve urban environments.
You may disagree with these priorities, but whatever we want from our transport system, and whatever the budgetary constraints, applying the pseudo-science of Cost Benefit Analysis to the individual elements of any strategy is more likely to hinder than to help achieve it.
Steve Melia is Coordinator of Carfree UK and a Senior Lecturer in Transport and Planning at the University of the West of England