Investment Objective 491In government economic analysis, it is not always easy to distinguish which investments
promQtethe "general welfare" and which do not.
Consider the case of a dam construction project to provide water, electricity, flood
control, and recreational facilities. Such a project might seem to be advantageous for the
entire population of the region. But on closer inspection, decision makers must consider
that the dam will require the loss of land upstream due to backed up water. Farmers
will lose pasture or crop land, and nature lovers will lose canyon lands. Or perhaps the
land to be lost is a pivotal breeding ground for protected species, and environmentalists
will oppose the project. The project may also have a negative impact on towns, cities,
and states downstream. How will it affect their water supply? Thus, a project initially
deemed to have many benefits, on closer inspection, reveals many conflicting aspects.
Such conflictingaspects are characteristic of investment and decision making in the public
sector.
Public investment decisions are more difficult than those in the private sector owing
to the many people, organizations, and political units potentially affected by investments.
Opposition to a proposal is more likely in public investment decisions than in those made
by private-sectorcompanies because for every group that benefitsfrom a particular project,
there is usually an opposinggroup. Many conflictsin opinionarise whenthe project involves
the use of public lands, including industrial parks, housing projects, business districts,
roadways, sewage and power facilities, and landfills.Opposition may be based on the belief
that development ofanykind is bad or that the proposed development should not be near
"our" homes, schools, or businesses.
Consider the decision that a small town might face when considering whether to es-
tablish a municipal rose garden, seemingly a beneficial public investment with no adverse
consequences. However, an economic analysis of the project must consideralleffects of
the project, including potential unforeseen outcomes. Where will visitors park their vehi-
cles? Will increased auto travel around the park necessitate new traffic lights and signage?
Will traffic and visitors to the park increase noise levels to adjacent homes? Will the gar-
den's special varieties of roses create a disease hazard for local gardens? Will the garden
require concentrated levels of fertilizers and insecticides, and where will these substances
wind up after they have been applied? Clearly, many issues must be addressed. What ap-
peared to be a simple proposal for a city rose garden, in fact, brings up many aspects to be
considered. ..
Our simplerose garden illustrateshow effects onall parties involvedmust be identified,
even for projects that seem very useful. Public decision makers must reach a compromise
between the positive effects enjoyed by some groups and the negative effects on other
groups. The overall objectiveis to make prudent decisions thatpromote the general welfare,
but in the public sector the decision process is not so straightforward as in the private
sector.
The Flood Act of 1936 specifiedthat waterway improvements for flood control could
be made as long as "the benefitsto whomsoever they accrue[italics supplied] are in excess
of the estimatedcosts." Perhaps the overall general objectiveof investmentdecision analysis
in government should be a dual one: to promote the general welfare and to ensure that the
value to those who can potentially benefit exceeds the overall costs to those who do not
benefit.
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