Eco­nomic progress can’t hap­pen with­out trial and er­ror

The Daily Telegraph - Business - - Front Page - Juliet Samuel

It’s called the “toast rack”. Heathrow’s ter­mi­nal five, which cost £4.3bn and opened in 2008, con­sists of three, neat rec­tan­gu­lar build­ings. From the 10-storey con­trol tower, which I vis­ited last week, you can see the logic of it. Pas­sen­gers are shut­tled back and forth be­tween the “racks” via an un­der­ground train, so that, around them, planes can come and go with ease. It all seems ob­vi­ous, and yet it wasn’t al­ways like this.

Walk around the tower and you see the older ter­mi­nals, a hor­ri­ble morass of me­tal and tubes. Each sec­tion seems to have been added on hap­haz­ardly. The roofs are cov­ered with vents and pipes, the build­ings jut out at awk­ward an­gles, the cor­ri­dors to the boarding gates form long penin­su­las and bend into kinks to cre­ate cul-de-sacs, where planes col­lect their pas­sen­gers and then turn around, awk­wardly, to go to the run­way. “We hate those cul-de­sacs,” said one air­port of­fi­cial, shud­der­ing.

The con­trast be­tween the old and new is a les­son in pro­duc­tiv­ity im­prove­ments. Most of the time, eco­nomic progress isn’t de­rived from Archimedes mo­ments of in­spired ge­nius. It’s a process of trial and er­ror, ex­per­i­men­ta­tion and re­vi­sion. And this is in­struc­tive when we won­der why Bri­tain’s pro­duc­tiv­ity per­for­mance has been so poor.

Be­cause of our ever-grow­ing stacks of reg­u­la­tions and plan­ning rules, it took Heathrow a decade of pub­lic in­quiries, lob­by­ing and protests to go from a plan­ning proposal to start­ing con­struc­tion on ter­mi­nal five. It only suc­ceeded thanks to its deep pock­ets and im­por­tance to the na­tional econ­omy.

We should be glad it did. The toast rack mat­ters be­cause Heathrow runs 1,300 flights a day. Get­ting planes on and off run­ways ef­fi­ciently, and be­ing able to re-route them quickly in case of de­lays, makes a big dif­fer­ence. The cul-de-sacs worked when the air­port wasn’t so packed, but now, they’re a has­sle. No one could have told you about this prob­lem in ad­vance. The air­port had to find out by ex­pe­ri­enc­ing it. But the speed at which it could fix it is di­rectly re­lated to the in­flex­i­bil­ity of our plan­ning sys­tem.

There’s a strik­ing con­trast be­tween this and the way devel­op­ment once hap­pened in Bri­tain. Last week, Michael Gove gave a speech on cap­i­tal­ism in which he re­told the story of the in­dus­trial rev­o­lu­tion as “the con­se­quence of a rev­o­lu­tion in ideas”.

Cap­i­tal­ism and in­dus­trial so­ci­ety emerged, he ar­gued, be­cause “a set of ideas cap­tured so­ci­ety, a mind­set de­vel­oped”. This is the “mad ge­nius” con­cep­tion of progress, in which sud­den, rev­o­lu­tion­ary in­sights drive change. But if that were the case, pre-plan­ning ev­ery­thing might work.

In fact, his­tory isn’t driven just by ideas, but by ne­ces­sity. It’s only when a need arises that we start in­vent­ing ways to meet it. This is just as true of Heathrow’s cul-de-sac prob­lem as it is of ma­jor devel­op­ments in the his­tory of cap­i­tal­ism and the in­dus­trial rev­o­lu­tion. Take, for ex­am­ple, the burn­ing of coal. One of the rea­sons why Bri­tain’s econ­omy over­took others was that we were the first na­tion to make wide­spread use of coal as a fuel.

This didn’t hap­pen be­cause of an in­spired idea. It hap­pened due to cir­cum­stance, as re­counted by Robert Allen, the eco­nomic his­to­rian, in his anal­y­sis of the in­dus­trial rev­o­lu­tion. He tells how, as Lon­don grew in the 17th cen­tury, de­mand for fuel shot up.

Up to then, Lon­don’s heat­ing de­mand had been ful­filled by wood and char­coal. But be­cause of the city’s growth, all of the eas­ily ac­ces­si­ble wood was pretty soon used up. The cost of trans­port­ing fresh wood to the big smoke rose, so lo­cal fuel prices went sky­ward.

Peo­ple there­fore be­gan to look for al­ter­na­tives. Coal had been used spo­rad­i­cally for a long time. It wasn’t that no­body had the idea of us­ing it, but up to that point, there had been lit­tle need. The ris­ing cost of wood changed the sit­u­a­tion.

Be­fore houses could switch to burn­ing coal, how­ever, they needed re­design­ing. In the tra­di­tional wood-fu­elled house, the fire was in the middle of the room and smoke rose and es­caped through the thatched roof. Coal fumes were far too toxic for that and coal would only burn well when kept bunched to­gether over an air sup­ply. These prob­lems led to the in­ven­tion of the grate and chim­ney.

The chim­ney it­self was a great idea, but it re­quired years of trial and er­ror to work well. For­tu­nately, due to a huge burst of un­reg­u­lated house build­ing, peo­ple could ex­per­i­ment. They tried dif­fer­ent chim­ney breadths, an­gles, ta­pers and po­si­tions for the hood and shaft, new ma­te­ri­als and ar­range­ments for the grate and so on. These “in­ven­tions” were all vi­tal in per­fect­ing the new coal-heated house, but they were driven by a col­lec­tive need and per­fected by an en­tirely de­cen­tralised, col­lec­tive process.

As Allen writes: “Con­sider what did not hap­pen: had a mod­ern econ­omy faced the chal­lenge of shift­ing from wood to coal, there would likely have been a large and co­or­di­nated re­search and devel­op­ment pro­gramme to solve the de­sign prob­lem. Noth­ing of the sort hap­pened in the 16th and 17th cen­turies. De­sign in­no­va­tion was left to the de­cen­tralised mar­ket.”

The prob­lem with repli­cat­ing this now is ob­vi­ous. We sim­ply aren’t will­ing to let the mar­ket con­duct trial and er­ror ex­per­i­ments in the same way, be­cause we aren’t will­ing to tol­er­ate er­ror.

In some cases, we won’t tol­er­ate it for good rea­son, such as pol­lu­tion or safety fail­ures. It was af­ter the 1666 fire of Lon­don, for ex­am­ple, that Bri­tain in­tro­duced its first build­ing reg­u­la­tions. The prob­lem is that with­out er­ror, you can­not have trial.

Heathrow used to have six run­ways. They crossed in the middle, al­low­ing for planes to ad­just their take-off di­rec­tion for the wind. You can see the ghostly out­lines of these old run­ways from the con­trol tower, ra­di­at­ing out in a star shape. For­tu­nately, ad­vances in avi­a­tion have done away with the need for so many run­ways. Planes can now take off at an­gles to the wind.

But when you con­sider how long it has taken to get close to adding a mod­ern, third run­way, the mys­tery isn’t why Bri­tain’s pro­duc­tiv­ity growth has been so slow. The mys­tery is that it grows at all.

‘His­tory isn’t driven just by ideas, but by ne­ces­sity. It’s only when a need arises that we start in­vent­ing ways to meet it’

Heathrow’s ter­mi­nal five, which con­trasts with older build­ings at the air­port and its orig­i­nal lay­out, com­pris­ing of six run­ways

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