Should the Government Proceed with the Alternative Cross Island MRT Route?

Question

The proposed Cross Island MRT line would run through the Central Catchment Nature Reserve. An alternative route going round the reserve’s southern edge would preserve Singapore’s natural heritage and serve a much larger number of residents. The Land Transport Authority, LTA, says that the alternative route would entail longer travelling time, higher costs, more land acquisition and possibly bigger engineering challenges.

Discuss whether the government should proceed with the proposed alternative route for the Cross Island MRT. [15]

Answer

A government is a rational economic agent whose goal is to maximise social welfare, and the rational decision-making framework directs it to weigh the expected benefits of the alternative route against its costs, subject to its constraints and the perspectives of those affected. I argue that, on balance and in the Singapore context, the government should proceed: the welfare benefits outweigh the costs once constraints and perspectives are accounted for.

The case for proceeding. The first benefit is actual growth. Constructing the alternative route requires the government to raise its expenditure (G), an injection that raises aggregate demand and, through the multiplier effect, raises real national income by a multiple of the initial injection as induced consumption rises — a rise in current output that constitutes actual growth. Second, the project reduces unemployment: construction and materials firms expand output to meet the new demand and employ more factors of production, including labour, so demand-deficient unemployment falls. Third, by serving many more residents the route reduces workers’ geographical immobility; more workers become willing and able to work, raising the size of the labour force and hence productive capacity, which is potential growth. Fourth, routing around rather than through the Central Catchment Nature Reserve avoids degrading Singapore’s flora and fauna, supporting sustainable growth — growth maintained without significant environmental harm.

The case against. Set against these benefits are substantial costs. The government incurs higher explicit costs — greater construction and land-acquisition costs — which strain its budget and, if the budget is insufficient, impose a budget constraint on the decision. There is also a large opportunity cost: the funds committed to the longer route could instead have financed education, healthcare or other merit goods, and the social welfare those would have generated is forgone. From the perspective of consumers, expanded land acquisition forces some residents to relocate, costing them money and the time and productivity lost in finding and moving to new housing — a fall in both material and non-material standard of living. From the perspective of producers, the longer route lengthens commutes, raising disamenity and cutting time spent at work, which may lower firms’ productivity and profit.

Evaluation and judgement. The government should proceed, because once Singapore’s specific circumstances are weighed, the benefits outweigh the costs. The budget constraint and opportunity-cost objections are overstated in context: as a developed economy with high tax revenue and a typical budget surplus, Singapore faces little real budget constraint, so the opportunity cost of these funds is smaller than it would be for a fiscally tight economy. The costs are also concentrated in the short run — the producers’ lost productivity, consumers’ relocation costs and the immediate budgetary outlay — whereas the benefits of sustained and sustainable growth accrue over the long run and, by raising standards of living, profits and hence future tax revenue, are likely to dominate. Finally, the decision need not be taken in isolation: to contain any budget pressure the government can pair the project with mild austerity elsewhere — trimming other expenditure and modestly raising taxes — reducing the opportunity cost and the budget constraint while still capturing the route’s benefits. On this reasoning the alternative route maximises long-run social welfare, and the government should proceed.