Do large government projects work for the benefit of the economy?

There is a widespread perception that the government has neither sufficient information nor the necessary competencies to make informed business decisions and identify “winners” through industrial policy. At the same time, many believe that government officials responsible for such decisions are more likely to favor outright unsuccessful candidates, because officials are more concerned with power than profit, and they are usually not held accountable for the consequences of their decisions. 

When the state decides to act contrary to market logic by supporting industries that do not match the country's available resources and competencies, the results can be particularly deplorable - as seen in the example of poor quality roads and unnecessary initiatives.

 

The state is able to intervene effectively in the economy

 

Nevertheless, state structures are able to choose successful directions for development, and in some cases even very successfully. If you consider world practice objectively, you can find many examples where state intervention has had a positive result. The argument that the decisions made by the state in relation to the activities of companies are always inferior to the decisions of the firms themselves is unfounded. Having more information does not in itself guarantee better decisions. 

 

In reality, the state is able to intervene effectively in the economy

 

It is often even more difficult for companies to make the right moves under the pressure of market conditions and competition. At the same time, the state has the capacity to gather information on a large scale and improve the quality of its decisions. In addition, choices that benefit individual companies can be harmful to the economy as a whole. Therefore, by deciding in favor of a particular company against market conditions and in close cooperation with the private sector, the state is able to positively affect the economy as a whole.

 

 

Eugene Black, the longest-serving president of the World Bank, criticized developing countries for their excessive worship of three idols: highways, iron and steel mills, and a monument to the head of state. Mr. Black's remark about monuments may not have been entirely fair, but he had reason to be concerned about the widespread tendency to get carried away with prestigious projects such as highways and iron and steel mills, regardless of their economic viability.

 

Palaces in the desert

 

In the mid-twentieth century, many countries sought to emulate the economic success of the United States, based on the ideas of Keynesianism, which actively supported public investment in infrastructure projects and economic stimulus programs. However, attempts to adopt the approaches popular in America often led to negative results, especially in countries with limited resources and unstable economies. The desire to follow the model of the world's major powers often resulted in expensive but useless facilities, for which the expressions “white elephant” and “palace in the desert” were later used. 

 

One of the most famous examples was the construction of numerous highways and railroads in Latin America. Inspired by the success of the U.S. interstate highway network, states in the region began investing heavily in transportation projects, believing that infrastructure development would be the key to economic recovery. However, many of these roads were designed without taking into account the real needs and characteristics of local economies. For example, Brazil and Argentina began building major highways through sparsely populated areas and rugged terrain, making them extremely costly to maintain. Not only have these projects failed to pay for themselves, but they have also diverted substantial resources away from other pressing tasks, burdening countries' budgets with long-term costs.

 

 

An equally telling example was the situation in Africa, where governments also tried to develop infrastructure inspired by Keynesian ideas. Some countries, like Nigeria and Ghana, invested heavily in large factories and export-oriented industrial plants. However, these projects were largely unviable because they did not take into account either the available resources or the market reality. One example was the giant steel factory in Nigeria, which was built for large-scale production but proved unprofitable due to lack of sufficient demand and high costs of importing raw materials. This plant, like many similar projects, soon became infamous as another “white elephant”.

 

Even Asian countries failed

 

Asian countries also often experienced similar problems. In the 1960s, the Philippines and Indonesia, inspired by the U.S. experience, invested huge sums in projects to build new industrial and commercial centers. For example, the Philippines built a modern airport in a remote area with low traffic, expecting that the infrastructure would attract business and tourism. However, the lack of the right infrastructure around it and the country's limited economic resources made this airport unnecessary and extremely expensive to maintain.

 

Examples of similar ambitious and poorly timed projects have spread to the Middle East. Saudi Arabia and Iran have implemented large-scale projects to build industrial complexes in desert regions at great expense. Despite the significant expenditures, most of the facilities were unused, and the maintenance of such complexes required constant cash injections. These projects, as well as many others, were doomed to failure, receiving the status of “palaces in the desert”.

 

Successful examples

 

Despite the many failures, there were also examples of successful public management of infrastructure projects in the mid-twentieth century. In Japan, post-war investments in transportation and energy infrastructure were key factors in the economic recovery. The authorities took a measured approach to each project, analyzing where roads, ports, and power plants would be needed to develop key industrial zones. For example, the construction of the Shinkansen high-speed rail network, which covers major economic centers, has made transportation much faster and more affordable, helping to stimulate economic activity throughout the country.

 

Similarly, France has also used publicly managed investments to support strategic industries. France's nuclear power plant network program, launched in the 1970s, provided the country with energy independence and a steady supply of electricity. The project was carefully calculated and accompanied by considerable scientific research, allowing France to avoid the problems faced by many other countries trying to implement complex technologies without the right competencies. A far-sighted approach and cooperation with scientific institutions made this program one of the most successful infrastructure initiatives.

 

The example of South Korea

 

Inspired by the examples of Japan and France, South Korea created government programs to support industrial production and exports in the 1960s and 1970s, which allowed the country to become one of the world's leading manufacturers of electronics, automobiles, and ships. Unlike many other countries, South Korea did not simply copy external approaches, but adapted them to local conditions. The government worked with private companies to create a favorable environment for their growth and development. This flexible and thoughtful approach has given South Korea a sustainable advantage on the world stage.

 

 

Conclusions

 

The success of public projects in infrastructure and industry depended on the authorities' ability to take into account the country's specific conditions and adapt global approaches to them. Public initiatives that combined strategic planning with close collaboration with the private sector and academics tended to be more sustainable and bring long-term benefits to the country. Importantly, these examples demonstrate that well-designed and tailored governance can not only support but also significantly accelerate economic development.