Public enterprises, guided by “mean-wellers”, are prone to disaster

In his recently published book They Meant Well: Government Project Disasters, D.R. Myddelton describes why well-meaning politicians and government officials so often get involved in grandiose projects, make a hash of them, and cost taxpayers huge amounts of money. He gives a detailed description of six British government project disasters, the massive cost overruns, and the reluctance of politicians to pull the plug on their mistakes.

The author, because currency debasement makes comparisons of money amounts over time inexact, provides a best attempt at comparing the costs of the projects over the 85 years of their implementation by using the Retail Price Index. He points out that comparing costs of projects during the 250 years between 1660 to 1914 would have been comparatively simple: the purchasing power of the pound, except for a brief period during the Napoleonic wars, remained relatively stable. The currency debasement ‘commenced almost precisely from [John Maynard] Keynes’s foolish comment’ …’A preference for gold currency is no longer more than a relic of a time when governments were less trustworthy in these matters than they are now …’

Currency debasement caused the pound’s purchasing power to halve between 1945 and 1965, halve again between 1965 and 1975, again between 1975 and 1980, and yet again between 1987 and 2007. The conversion rate used in the book equates the purchasing power of one pound spent on the government airship programme in 1922-30 to 44 pounds in 2007 and descending rates for the projects undertaken in between. In effect, Myddelton inadvertently describes seven project disasters in his book, the seventh being government currency mismanagement.

Two airships were built in a 1924 “Government Research, Experiment and Development’ programme intended to pave the way for commercial passenger transport across continents. The R.100 was to be built by the private Vickers company, the R.101 by the Air Ministry’s Royal Airship Works. The R.100, after seven test flights totalling 150 hours covering 7,000 miles, successfully flew over the Atlantic to Canada and back at the end of July 1930, despite serious problems experienced with the ship’s outer covers.

The political pressure for the R.101 to demonstrate its capabilities then became intense. Problems with its outer covers were even worse and it was not adequately tested or flown at full speed in bad weather. It left for India on 4 October 1930 with 54 people on board, including Lord Thomson, the Secretary of State for Air. The ship encountered bad weather over France, crash-landed and burst into flames, with only six crewmembers surviving the disaster. The programme was terminated, having cost £100 million (R1.35bn), two-thirds more than the original budget of £60 million (all costs in 2007 pounds).

The Tanganyika (now Tanzania) groundnut scheme, begun in 1946, was supposed to supply Britain with 600,000 tons of groundnuts per annum and produce a saving of £250 million in the nation’s food bill. Politicians and planners ignored inadequate rainfall data, the absence of a pilot project, transport and supply deficiencies, the difficulties related to bush clearing and many other practical problems. The scheme envisaged clearing 3.25 million acres of bush of which half would be planted to groundnuts every year on a rotation basis. After numerous attempts to salvage the project, which had produced a relatively small quantity of groundnuts, the Overseas Food Corporation, the responsible government agency, was dissolved. National prestige delayed the termination of a project that ended up costing the taxpayers an estimated £1,150 million (R15.53bn).

The most costly of the six project disasters was the use of nuclear plants to generate electricity. A nationalistic decision to build Advanced Gas-cooled Reactor (AGR) nuclear power stations, developed by British scientists, in preference to the American-built Light Water Reactor added an estimated extra cost of £12,500 million (R168.75bn). Not only did they cost more, their total output was 40 per cent below target capacity. The cost of electricity produced with nuclear power was at least 25 per cent more than that produced using fossil fuel. With the cost of a prototype Fast Breeder Reactor, developed at a cost of £7,500 million and closed down, and £12,000 million in unforeseen decommissioning costs, the total estimated ‘losses’ on the nuclear programme amounted to a staggering £32,000 million (R432bn).

Britain’s decision to partner France in building the Concorde supersonic aircraft had more to do with national prestige than economics. It was never a real commercial venture and no airline other than Air France and British Airways purchased the aircraft. It took 13 years to design and build, twice as long as planned. Put into service in July 1972, the last flight of this beautiful, fast, but uneconomic aircraft took place in October 2003. The venture cost English and French taxpayers an estimated £9,600 million (R129.6bn).

Thanks to Margaret Thatcher and François Mitterand, the channel tunnel between France and England was privately constructed and owned. The cost was £9,350 million; £4,350 million over budget but the total cost was borne by shareholders. However, the parties to the agreement neglected to incorporate a high-speed rail link between London and the tunnel, an omission that negatively affected channel tunnel traffic. Thirteen years late, on 14 November 2007, the first Eurostar high-speed passenger trains will roll out of St Pancras station on a 2hr15min trip to Paris or 1hr 50min journey to Brussels. The cost to British taxpayers of subsidising the rail track was an estimated £3,000 million (R10.5bn).

London’s Millennium Dome, originally budgeted to cost taxpayers £500 million, finally cost double that amount, depriving charities of £725 million in lottery money (in 2007 pounds) utilised by government to pay the costs of the Dome. Instead of the expected 15 million visitors, there were 5.5 million in the year 2000. Tickets sold brought in £54 million instead of the budgeted £136 million. Total cost to taxpayers, £200 million (R2.7bn).

These British experiences demonstrate why governments should not attempt to run businesses. One of SA’s bottomless pit ventures, SAA, would long ago have been out of business but for the ‘prestige’ of its backers. SA citizens would be far better served if all public enterprises, including health care and education, were to become private entities in one massive give-away by the state, which could utilise the opportunity to transfer the assets or their proceeds to citizens in a broad-based programme to “right the wrongs of the past”. Whether or not this is done, productivity and service delivery could be improved in all areas of activity in which public enterprises operate by opening them to free competition without prior discretionary approval.

Sir Frank Lee, Permanent Secretary of Britain’s Ministry of Food wrote about the groundnut scheme: ‘Our standing as an imperial power in Africa is to a substantial extent tied up with the future of this scheme. To abandon it would be a humiliating blow to our prestige everywhere.’ Sir Frank obviously did not realise that the only way to stop Africans from laughing at the madness of the ‘imperial power’ was to abandon the scheme forthwith.

Author: Eustace Davie is a director of the Free Market Foundation. This article may be republished without prior consent but with acknowledgement to the author. The views expressed in the article are the author’s and are not necessarily shared by the members of the Foundation.

FMF Feature Article/ 13 November 2007 - Policy Bulletin 17 June 2009

Note: They Meant Well: Government Project Disasters by D.R. Myddelton is available from the Institute of Economic Affairs, London - price £12.50 at
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