Some Edinburgh City councillors already privately refer to the city’s tram project as the problem that “cannot be named”. Much as actors refer to Shakespeare’s tragedy as “the Scottish play”, superstitions of bad luck now bedevil the production. A dramatic shift from the optimism that initially characterised the development of the Edinburgh tram, towards pessimism.

That which cannot be named is no longer just the failure of a flagship local transport policy. The issue has engulfed the City of Edinburgh Council, and now risks destroying local politics completely: Not only the existing administration, but public trust in local government decision-making.

Political heavy-weights, who normally shy away from the minutiae of local governance, are now offering parental guidance in public: Alistair Darling (local Member of Parliament, and former United Kingdom Chancellor and Secretary of State for Transport) described the option to borrow £231 million ($370 million) to complete the city centre section of the tram line as “absolute madness” – the local population would be saddled with vast debts. Days later, Graham Birse (chief executive of the influential Edinburgh Chamber of Commerce) called the decision to not complete the city centre section, “bonkers” – far fewer passengers would use a tram that did not serve the city centre adequately. Even Alex Salmond (Scotland’s First Minister) has become directly embroiled, struggling to contain calls for an immediate public inquiry to identify who is responsible.

Burn the witches! This Scottish tragedy is rapidly descending into farce. That would be unfortunate, because this particular local difficulty goes to the heart of the Scottish nationalist agenda: A desire for greater devolution of public funds to local level. More localised independent entities have fewer financial resources, so are less able to manage expensive, risky projects. Consequently policy ambitions also need to be scaled back. Such scale isn’t necessarily a problem – small can be beautiful. The problem lies in pretending to be big, when not.

This article introduces the concept of risk in tram (and similarly large public transportation and infrastructure) projects, chronicles the decisions that lead a relatively small local authority to need to find hundreds of millions of pounds to support a single project, and explores the implications for future policy-making, especially in the context of a more devolved Scotland. On this page:

• Tram Cost Uncertainty
• Devolution of Chaos
• Scaling Ambition
• Appendix: Policy History of Edinburgh Trams

Tram Cost Uncertainty

I have previously discussed why estimations of the cost of large transportation infrastructure projects (especially light rail) are both inherently inaccurate, and tend towards optimism. Edinburgh Trams transpire to be an extreme example: From £375 million estimated for the original 3-line network, via £545 million for a more pragmatic 2-line network, to over £1 billion for today’s single line (which is still far from completion).

However, this uncertainty was somewhat predictable: The graph below is taken from Bent Flyvbjerg’s 2004 Procedures for Dealing with Optimism Bias in Transport Planning, guidance issued to central government alongside HM Treasury’s Green Book. It shows the probability that the cost of rail projects (including trams) will exceed the estimated budget.

Distribution of Rail Cost Overruns (Bent Flyvbjerg, 2004)

(Data is based on analysis of 46 rail projects from across Europe and North America – UK has few recent rail schemes, however comparison of road schemes suggests patterns are very similar for all regions.)

The average cost overrun is about 40%. In the planning/appraisal process 40% is literally added to the estimated cost of a project as “optimism bias”. Optimism bias is part of Scottish Transport Appraisal Guidance, to which the Edinburgh Tram was subjected, although the original tram analysis pre-dates formalised optimism bias.

The 40% value should protect the UK treasury:

• Over many separate projects, cost overruns will average to zero. Broadly, in the long-term, the treasury will remain balanced, without requiring individual projects to be micro-managed from the top of government.
• Individual project costs are in the hundreds of millions (£). These are still a tiny proportion of UK Gross Domestic Product, taxes collected, or ability for the UK government to take loans. The national economy will not be thrown into a crisis if one specific project goes badly wrong.

Unfortunately, merely adding 40% adds a sense of certainty to an individual project which remains uncertain. For the immediate funders of a project, the important question is, can we fund a cost overrun of 80%? For the City of Edinburgh Council, the answer to that question was effectively, “we cannot”.

A quick glance at the council’s budget puts the tram in perspective: The council’s total annual capital budget (for investment in everything) is only £235 million, less than a quarter of the capital cost of one tram line. Typically transport accounts for 20% of local government capital expenditure, so we might expect a local authority like Edinburgh to be investing around £50 million each year in transport projects. Placing over 10 or 20 years worth of investment into just one project suggests a tram scheme was far too ambitious to ever be a local government responsibility.

Not only do councillors appear to be losing a high-stakes casino game, but they seem to be playing with all theirs chips on the table.

However, the tragedy is not so simple, because while the City of Edinburgh Council are responsible for the tram project, they are not the only funder:

Devolution of Chaos

Conventionally in Britain, higher tiers of government act as financial guarantors for low tiers. A local authority has statutory (in law) responsibilities, and hence cannot “go bankrupt”, however badly it manages its budget. This hierarchical structure is not accidental: It is rooted in currency (money itself), for which central government is solely responsible. In practice central government imposes strict financial controls on local government, which limit the scope for mis-management. Historically important cities, such as Edinburgh, also tend to own a lot of local assets (like property), which can be sold in a crisis.

1990s Scottish devolution did not devolve money, it just altered the hierarchy slightly, with an extra decision-making tier (the Scottish Parliament and their civil service, the Scottish Executive) in between Edinburgh’s council and the United Kingdom’s central government.

In addition to keeping a watchful eye on how the council manages its budgets, the Scottish Parliament is part-funding the Edinburgh Tram – providing extra money beyond normal budgets or spending approvals. The Scottish Parliament’s contribution (currently via Transport Scotland) is limited to £500 million [PDF]. And herein lies the problem: When that funding package was agreed, the local council’s contribution was the remainder, just £45 million, a value broadly attainable by the local authority. But since Scotland’s contribution is fixed, every time the estimated price rises, the City of Edinburgh Council’s contribution rises out of proportion: Without other sources of funding, a doubling of project cost to £1 billion is actually a ten-folded increase in the cost to the council…

By attempting limit the Scottish Parliament’s exposure to the tram project, all the risk has been transferred down the hierarchy, towards the tier of government least able to raise large amounts of cash in a crisis.

Brinkmanship of the worst kind? In the interim, the council’s response is to control escalating costs by reducing the length of the route to be completed, with apparent disregard for whether the resulting tram track connects places large numbers of passengers might want to travel between. Underpinning their decision appears to be one of the worst assumptions of “modern” accountancy: That the asset value of a (tram) service is defined by the cost of constructing the infrastructure on which that service operates. Strategically, the value of the (tram) service to the city of Edinburgh is linked to the number of passengers that use it. Cynically, to the number that see it. Even commercial assets that are technically transferable (like land and tram vehicles) tend to sell for a lot less than they were bought. Scottish government’s reaction to the council’s decision was to withhold part of Scotland’s funding contribution, effectively forcing the council to reach a different decision [the following Friday, 2 September, the city centre section was added again].

With Scottish national government substantially funding the Edinburgh tram, and the project appearing too risky for local government, perhaps the Scottish level of government should have conceived and manage the project from the outset? The appendix at the bottom, Policy History of Edinburgh Trams, will help explain.

Haymarket Tram Terminus? Existing bus to Edinburgh Airport, with new tram station “under construction” on the left (August 2011)

Scaling Ambition

Broadly, there are 2 viable methods of containing risks on the scale of the Edinburgh tram:

• As a Scotland-level public project: Even £1 billion is only around 1% of Scotland’s Gross Domestic Product, a magnitude of (over-) spending that should be manageable by a truly devolved Scottish government. The Scottish Parliament has subsequently established an organisation (theoretically) capable of managing transport projects at this level, Transport Scotland.
• As a primarily private project: Most modern tram systems built in England transferred risk to the private sector (rather than Edinburgh’s model of merely contracting private sector suppliers). Scotland’s past record on private sector transport projects is poor (most obviously on the Skye Bridge), because policy changes too fast.

Unfortunately neither of these methods complement good local public governance: Decision-making and responsibility becomes remote from local politicians. Ultimately, this would dilute the role of local authorities: Logically to organisations that deliver (statutory) local services and act as “community council” talking shops, with no ability to actively shape or invest in the long-term future of their own areas.

That may be where Scotland is heading: Far greater centralisation of powers at Holyrood (the Scottish Parliament), drawn simultaneously from both Westminster (UK government) and Scottish local authorities. Such a structure might even work, and would address one of the major post-devolution issues – “too much democracy”.

However, the most important lesson of the Edinburgh tram is not that such projects should be managed more centrally. Rather, that capital investments should be scaled to match the scale of the government trying to deliver them: The tram’s fundamental failing is that it is too expensive (and consequently risky) a mode for a local public transport project. If an inherently local policy can only be enacted by a non-local government, then (I argue) it is the wrong policy. Local policy ambitions need to be scaled down to what is reliably achievable at local level.

The issue will become critical for a future Scottish government with financial independence from the rest of the United Kingdom (a distinct possibility, given the current dominance of the Scottish National Party). Scotland represents approximately 10% of the UK population and economy. This implies that a truly independent Scottish government could only safely manage 1/10 the amount of risk that the UK government is capable of managing. Meaning, the most ambitious project an independent Scotland could achieve would be 90% less ambitious than a UK-backed project.

Scotland’s current transport projects are still reasonably modest, like reopening short sections of old railway line. But it is easy to imagine the Scottish Parliament’s ever-increasing ambition proposing grandiose projects that the UK might contemplate, but which could bankrupt Scotland – like a new high speed rail network: A core route serving Scotland’s largest 5 or 6 cities, with an under-sea tunnel to Lerwick in phase 2…

The challenge for Scotland is not to pretend to be big, to still be part of the British Empire, or a modern-day China. Quite the opposite: To deliver the same (or better) policy impact, while the maximum cost of individual projects is limited to a tenth what the population has learnt to expect. Overall expenditure would not be reduced – there would simply be far more, smaller, projects. Fortunately, there’s a lot more scope to improve the humble bus stop than you might think!

I suspect Scotland’s history already contains the best example of what can happen when a nation stops pretending to be big, and instead focuses on itself: The original Acts of Union (with England) removed colonial and military distractions, allowing Scotland to develop domestically as an intellectual and commercial 18th century power-house.

The management of chaos (of which financial risk is a part), may become one of the great challenges for structured 21st century government, regardless of size. Paradoxically, the easiest way to manage chaos is not to have to: To foster a system where no one part is too important to fail.

Appendix: Policy History of Edinburgh Trams

The idea for the Edinburgh tram was originally developed by the Scottish Office (the pre-devolution civil service responsible for administering Scotland), as part of a package of transport measures for south-east Scotland, to be funded by road pricing (tolls on car journeys within Edinburgh).

3 conditions made Edinburgh a perfect target for such ambitious transport policy initiatives:

1. Transport was (is) a constant source of annoyance for many city residents – a “political hot topic”.
2. Edinburgh’s geography – densely populated, but hilly – historically lead to above-average local public transport use, with bus travel remaining socially acceptable among Edinburgh’s “middle classes”.
3. Minimal democratic interference (the Thatcher/Major governments contained almost no Scottish Members of Parliament) allowed Scotland’s civil servants to focus.

The first Blairite UK government (1994) heralded both devolution in Scotland, and a shift in transport policy towards public transport. That combination should have been perfect for Edinburgh, except that the Scottish Executive (the devolved equivalent of the Scottish Office) became considerably more focused on managing opinions. Which in transport, has a tendency to result in nothing…

Instead, policy momentum was picked up by the recently liberated (from Lothian Regional Council during local government reorganisation) City of Edinburgh Council: Local ambition steadily grew, from “Greenways” (networks of bus lanes) in the early 1990s, through guided busways and radical parking policies, to strategies based around trams and road charging.

Charging proved too radical: Scottish government compelled Edinburgh to hold a referendum – but only on road pricing, not the trams that pricing had originally been intended to fund. Edinburgh’s population naturally rejected road pricing in isolation – Turkeys don’t vote for Christmas – and the tram project proceeded with traditional forms of funding.

In spite of (initially) primarily being funded by Scotland, the trams were local in scope (with no tangible benefit to anyone outside Edinburgh), and hence construction was “managed” by the council. This was done through Transport Initiatives Edinburgh, a council-owned company established to deliver Edinburgh’s light rail scheme – something which it has since struggled to achieve.

The utopian ideals of some of the early internet pioneers are long since forgotten. More recent debates about the rights of avatars have been steam-rollered under “the tyranny of the End User Licence Agreement” (quoting Andrés Guadamuz – although perhaps such an agreement is still more democratic than a unsigned contract with society). So who cares?

Virtual Policy Structure

Who is important:

• Who is no longer dominated by a group of well-educated early adopters. Casual games and similar online services are attracting a far more mainstream audience. Ordinary people live day-to-day based on “common sense”, with almost no awareness of formal statute or the wording of contracts. For example, virtual goods are sold as a highly limited license, but the purchaser generally assumes they own these goods, just like they own other stuff they buy. So there’s a disconnect between “the law” as it is, and the law as it is popularly expected to be. That might be fixed by education (marketing, propaganda), but virtual goods are popular precisely because of the status they convey about the individual purchaser, so such goods have to “feel owned”. Instead this disconnection between law and common expectation risks becoming a governance issue.
• Who is no longer entirely dominated by “players” and hobbyists. Serious socio-economic activity is starting to occur in and around environments which are legally little more than a piece of software, owned by the programmer or publisher. That poses some serious challenges, because now unresolved issues involve significant value (and money). Creative reuse issues become even more poignant, because almost everything is a reflection on the creatvity of more than one thing (individual, organisation, work). Meanwhile, rights that you assumed you had evaporate, because either you signed them away in a contract, or they relate to an abstract concept which isn’t clearly recognised in law. That sounds trivial until, for example, you discover that your online persona has greater economic value than your physical persona, and that the only person that can exploit this value is someone other than you.

Who is important now because who changes the scenario from “some kid in their bedroom”, to anyone and everyone. That brings previously abstract problems into the mainstream, and will rapidly start making the debate less academic and more, erm, real.

Pragmatically, we may seamlessly adjust to the new order. For example, instead of viewing a provider like Facebook as a service, ultimately we will see them as our corporate employer: Implicity accepting their right to make profits out of our work, with only limited regulation controlling the extremes of exploitation. Subtle adjustments to the existing legal structure – especially via case-law precidents and reactionary changes to contracts. In the interim, there will surely be blood: Service providers that previously just had to deal with an irrate “I quit!” forum post, risk finding themselves hauled into court, because that’s what some people in “the real world” do when they get upset. In Jas Purewal‘s “little old lady doomsday scenario”, the defendant can not only hire lawyers to defend themselves, but is likely to be treated far more sympathetically by a judge due to their age. Especially likely where the provider’s internal dispute resolution system is biased by the arrogance associated with the absolute control of their software. Most of the legal profession, service providers, and ordinary people will probably end up here.

Politically, this raises a lot of familiar issues. The fear of a few dominant owners profiting from the labor of the social collective sounds rather Marxist. There are certainly some serious equality issues lurking, even if you reject the notion of collective property. Likewise some of the rights issues feel hauntingly familiar. Why is the physical ownership of another person so abhorrent, while ownership of another’s virtual presence so acceptable? Or to use Peter Yu‘s example, why is fine to impersonate Elvis in the street, but not in certain online worlds? Eventually such discussion turns to fundamental philosophical questions about the role of the individual, and their relationship to other individuals. But this isn’t a Utopian agenda. Rather, it seeks to carry existing social norms and balance forward into a slightly different environment. Good policy makers should find themselves here, biasing the pragmatic free-for-all (above) so that balance is maintained and the infamous 2027 “WeeMee Riots” (in which “we demand our clothes back”) never happen.

But there is a third approach, one better optimised for the virtual environment itself. That’s not as radical as it sounds, because we are still dealing with humans, who are mostly still satisfying primordial needs. Not much changes. But there are facets of the online environment that are important to its success, yet are already difficult terrain for Old World law: Mass-collaboration, creative reuse, emergent outcomes (not known at the start), constant product evolution, many linked identities. The logical structure is one that is natively multiplicitous [from multiplicity] – optimised for many, rather than one. This doesn’t just mean better systems for joint ownership; or devolution of specific laws to specific spaces, without universality: It implies a further re-balancing of governance, away from god-given sovereignity, in favour of emergent chaos. Maybe. Abstract, even idealistic, such a broad approach helps us understand the core issues.

Cynically, foresight is rare in governance, while protectionism of the past is rampant. Meanwhile, the technology may itself enable a solution.

Flaming Postscript

The text above was originally written last year (including the “WeeMee Riots”), in response to the 3rd Digital Interactive Symposium Edinburgh (27 August 2010), but left unpublished.

Today I started to grow incensed about England’s current wave of youth riots. Not incensed about the riots, but about “popular” (especially political) reactions to them. I’m loathed to write about what I don’t fully understand. But if I hear another, “if looters were protesting against the society, they’d burn town halls and police stations, not high street shops”, I may turn violent myself: Is there no appreciation that the stuff sold in stores is the basis of the society? The aidas® riots…

One unattributed radio commentator casually remarked that many kids were being taught to behave socially by “computer games”. But I doubt they understood why this might be relevant: Not just a proxy for a generational gap or poor parenting. Not just for biasing an individual’s expectations towards winning, when the physical world mostly teaches us how to lose. But also by providing a deep, cynical education in owning nothing – how the things you value most can never legally be owned by you. Combine that with a wider society structured around property, especially owned consumerist property, and confusion abounds. Naturally, if your society is structured around the individual ownership of stuff, and it transpires that the stuff that’s important to individuals isn’t owned by individuals, then your society isn’t structured.

This is commonly expressed as a generational inequality. For example, older generations appearing to price younger generations out of owning their own homes. A very physical case, easily understood by anyone aged over 30. But the intrinsic problem is deeper – that outlined above: A historic social-legal structure that doesn’t natively match the new environment, but is largely being forced upon it. Many un-physical things, that are increasingly important to living – important to the fabric of structured “individual ownership” society, but yet aren’t owned by individuals – from your WeeMee’s cloths to the electronic data generated by your interaction with others.

I have previously mused that generations born into this sort of technology might learn to use it better, by not instinctively applying prior techniques. But if the formal socio-legal structure first demands they learn everything prior does not fit that model, conflict becomes likely. Knee-jerk reactions to that conflict are highly pragmatic – “water cannon and rubber bullets”. Good political policy-making will attempt to smooth a transition. Optimising for the new environment is more logical, but profoundly challenging. Challenging because it requires the “governance of chaos” – the ultimate oxymoron? Challenging because it requires a way of thinking, knowing, even being, among humans that is not familiar to modern Westerners.

The third case suggests the divorce of the individual from property. A fundamental reassessment of Locke‘s, “though the earth … be common to all men, every man has a property in his own person,” and everything built around that.

(And that final sentiment has been stalling me for the last 3 years…)