The Economist's Absurd Proposal on Construction Productivity
Does the construction industry need more huge contractors?
When I was in college in the 1970s, my senior project involved designing affordable modular housing that could be transported to sites requiring minimal foundation and utility work. Our modules had to be acceptable in all 48 contiguous states, made of concrete and include crushed glass and other recycled materials.
That forced us to make other decisions. One state had a maximum width for road transport, so that measurement became each module’s maximum; one state had a minimum width for a stairway, so that measurement became our minimum width, reducing the usable floor space. The use of glass aggregate reduced the strength of the concrete, requiring thicker walls, further cutting floor space. Our estimate for a livable unit was less than the national average for new, stick-built housing. But who would ever want to live in the concrete boxes we designed?
I thought of the assignment after reading “The Construction Industry’s Productivity Problem,” a recent article in The Economist. The article takes a reasonable question, but it proposes an absurd solution.
The Economist bemoans the dismal levels of productivity—and lack of improvements over the past half century—in the construction industry as compared to manufacturing. Since 1995, the global average value added per hour has grown at about a quarter of manufacturing’s rate, it states; according to McKinsey, “no industry has done worse.” Fragmented into many small firms that are reluctant to invest in new technology because of the industry’s frequent ups and downs, construction firms fail to adopt the project software and mass-production techniques “that have revolutionized” other industries.
The article proposes that owners promote consolidation so that demand for construction work will level out as business cycles rise and fall. Only the government can “mitigate … by smoothing out their spending on construction projects.”
Let me understand this. When new factories, office buildings and housing developments are being built, we should hold back on government spending for infrastructure. When the boom ends, factories ramp down, office buildings sit vacant, and no new homes are being built, that should be the time for a government to spend on highways, hospital and wastewater treatment plants?
As far as fragmentation, I understand that a few large contractors may be more productive on megaprojects and especially on repeat megaprojects. But the megafirms still rely on local firms for delivery. Under The Economist’s concept, a local contractor doing work at up to a $200-million level of “at-risk,” “lowest bid” public projects would become a subcontractor to one of the very few national firms chosen to manage—not build—a $10-billion public program. When that contractor wins, it must finish on time or face penalties.
Multiple Megaprojects Usually Run Late
But programs of multiple megaprojects rarely finish on time or on budget. I do not see as helpful further government encouragement to move our construction industry from at-risk private contractors of finite capacity to at-no-risk, quasi-government-owned behemoths where employees 10 levels below the “leader” would not know which end of a hammer to hold.
The Economist dislikes the large number of local building codes, stating that “building codes differ not just between countries but within them.” I assume the The Economist would prefer all codes to be promulgated by a Master Building Code Directorate in Brussels.
The Economist has it backward. Big factories will churn out widgets at a higher rate of productivity than an individual artisan. But other than for the largest of megaprojects, the nimbleness of small firms, which may start and complete a job while a larger entity is still entering details into a database, is usually better. There is a reason why, as The Economist states, Europe has 3.3 million contractors with an average of just four workers. So, while The Economist may hope for an industry in which four-person teams can be pulled in at a big firm at the last minute to finish a project, governments know that, to win votes, the best policy is to provide steady paychecks to a stable workforce—even if they come from tiny companies.