Economic development – big versus small

In previous posts I covered part of the energy crisis of the 1970s, as it affected New Zealand. The key part was that a large offshore gas field was found, and to use it, an offshore platform had to be built, and that meant using large amounts of gas. The government of the time had decided that large-scale projects would get the country out of its bind. This strategy was criticized heavily by many who kept saying, “small is beautiful”. As it turned out, the big projects did not solve the country’s woes, so the question is, why not? The debate, in my opinion, was wrongly based. The problem is that for any project, you have to select the right project, choose the right way to go about it, then follow General Wesley Clark’s dictum: choose a plan that might work and make it work.

Let’s consider the two options. The advantage of “small is beautiful” is that, because a small project failing does not seriously reverse your fortunes, you can afford some mistakes. On the other side of the coin, each success makes a relatively small impact, so you have to get it right many more times. At the personal level, where “small” is relative to your net assets, this may seem highly desirable to those of a nervous or conservative nature, but the fact remains, those who stay working at the “small” level, stay small. The problem is, a small project can take up an inordinate amount of management time.

The advantage of the “big” project is that, if it works, it solves problems. At the personal level, you will find that everyone who gets really wealthy (neglecting those who inherit) at some early stage in their career “take a risk”. If you look more closely at those who make it, though, I believe you will find that they did their very best to minimize risk, and while you hear a lot about those who were successful, and you hear many of them argue you should take risks, what you do not hear about are those who took the risk and failed. My view is, luck plays a big part in such success. When you are really young, of course, you can afford a wipe out, after which you start again, hopefully somewhat wiser.

What the New Zealand government of the 70s did was to adopt “big” projects, because only big projects would solve their problems. They realized that within the public service there was a very limited pool of people capable of delivering, so they wanted their efforts to get the maximum benefit. What they did not recognize was that that pool was very much smaller than they believed, and worse, only too many of those the politicians recognized as being capable, were being recognized largely through their own promotional skills. The politicians overlooked the fact that their advisers, top public servants, had no particular experience in this area, except possibly in defending positions that were subsequently shown to be poor. As I noted in a previous post, they could not even work out what exactly they were quoted on regarding the synthetic fuels plant. But then the worse part came to light. When the synfuels plant was up and running, nobody stopped to ask, what had they built? They might have thought it was a synthetic fuels plant, but it should have been viewed as a chemical plant. One of the sillier aspects was that they made methanol and converted that to hydrocarbons, the weight of hydrocarbon being less than 50% that of the methanol (because they also made water). Since at the time methanol was selling for about 20% more than petrol, they could have received about two and a half times the income by just selling the methanol. But this would have forced the ex-public servants to admit they had been wrong in the first place, and they were not going to do that! As noted in the previous post, the first rule of a mediocre organization is, do not revisit the past. They do not want to improve; they want to avoid confessing to error. Unfortunately, everybody makes mistakes; the successful learn from them while the incompetent persist with them.

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s