Optimizing Infrastructure Stewardship (1 of 2)

Happy Friday,

Public agencies are not optimized to serve as stewards of the public's investment in infrastructure. Not as they exist today. As the cost and complexity of infrastructure have increased, most agencies lack the depth and breadth of knowledge to recognize their options or even know what questions to ask.

About 75% of all public agencies in the US serve fewer than 10,000 people. Ninety percent serve fewer than 50,000. The installed value of infrastructure for a community of 10,000 people (including water, wastewater, stormwater, streets, and streetlights) is approximately $230,000,000. How many people in a town of 10,000 have the expertise to optimally manage a $230,000,000 asset?

But public agencies of all sizes struggle due to systemic issues rooted in their structure, incentives, and governance. Below is a breakdown of the key factors working against them. Unfortunately, the list is long, so today I’ll lay out the problem, and next week, respond with the first-principles approach that offers the most logical, if not inevitable, solution.

Key Factors Compromising Public Agencies' Ability to Deliver Excellent Infrastructure Stewardship

1. Monopoly Structure with No Competition: Public agencies operate as monopolies, facing no market pressure to innovate or improve efficiency. Without competition, there’s little incentive to adopt best practices or optimize resource use, leading to stagnation and inefficiency.
2. Low Hiring and Performance Standards: Public agencies often have less rigorous hiring criteria and performance expectations compared to private firms. And, performance metrics are rarely enforced, allowing underperformers to persist without accountability.
3. Difficulty Removing Underperformers: Bureaucratic protections, often reinforced by unionization, make it nearly impossible to terminate low-performing employees, entrenching mediocrity and discouraging or driving away high performers.
4. Cost-Driven vs. Value-Driven Operations: Public agencies often prioritize low upfront costs over long-term value, resulting in poor-quality and inadequately maintained, and ultimately more costly infrastructure that requires more frequent repairs. Short-term thinking ignores lifecycle cost optimization.
5. Governance by Inexperienced Leaders: Public agency oversight is entrusted to elected officials (e.g., retired bureaucrats, hairdressers, insurance salesmen), often with little or no understanding, appreciation, or interest in infrastructure stewardship.
6. Resistance to Technological Advancement: Public agencies are the last to adopt and benefit from transformative technologies. Their resistance stems from a risk-averse culture and the absence of competitive pressure to act. As a result, the gap has steadily widened between public stagnation and private sector innovation.
7. Bureaucratic Inertia and Risk Aversion: Bureaucracies prioritize stability over innovation, leading to slow decision-making and resistance to change. I.e., a pervasive fear of being second-guessed.
8. Loss of Institutional Knowledge: High agency turnover due to retirements, combined with sparse knowledge-sharing and retention systems, exacerbates the loss of institutional knowledge and expertise.
9. Political Pressures Over Technical Merit: Public agencies are subject to political influences that prioritize short-term, politically beneficial projects over long-term, strategic, or more prudent public investments.
10. Inefficient Resource Allocation: Public agencies often lack the tools or expertise to allocate resources effectively. Studies show governments waste about one-third of infrastructure spending due to their own poor governance and mismanagement.
11. Don't Know What They Don't Know: Self-explanatory.

Collectively, these factors severely compromise a public agency's ability to deliver excellent infrastructure stewardship. Next week, I'll lay out what may be the natural and inevitable change, coalescing just over the horizon.

Till then, have a great weekend!

Dave

Attention remains firmly focused on the macroeconomy and AI

Feedback and blowback are always welcome: dave@goodnewsfriday.com

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