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Infrastructure to the rescue

Updated Thursday 12th July 2012

Philip Dilley, chairman of the Arup group, looks at infrastructure as a driver of UK economic growth

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Arup group chairman Philip Dilley was talking to Leslie Budd after the 12th July 2012 recording of The Bottom Line.

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Leslie Budd

Philip, with the world economy in the doldrums, there’s been claims that infrastructure spending and investment should come to its rescue.  What are your views on this and how to fund it?

Philip Dilley, Chairman of the Arup Group

Well I share the view that infrastructure can play a part in the very needed growth, and I often say and have been quoted as saying that infrastructure’s a win-win-win.  And what I mean by that is that if government or encouragement to private industry looks to create infrastructure, there’s an immediate win in the creation of jobs in people building the infrastructure.  There’s a win in the sense that the spend that comes from somewhere, probably not government these days in this country, the spend actually is creating an asset, so the balance sheet is not devalued by the infrastructure, and of course the ultimate product adds efficiency and value to the country.  So there’s a short term gain and there’s a long term gain, and it doesn’t actually cost balance sheet spend, it only costs cash.  So I think it’s a very important part of the growth agenda.

Leslie Budd

But in terms of the distribution of funding, because of budget deficits and government spending, is there an institutional way of investing in infrastructure, do you think?

Philip Dilley

Well this is quite tough, and of course what I've just said, I'm quite sure government understands very well, and we've heard George Osborne talk about infrastructure as one of the drivers of growth, and he’s spoken about sovereign wealth funds and he’s spoken about pension fund money for example being available for infrastructure.  There’s a couple of impediments to that that need to be got out the way.  I think that those kinds of investors are looking for steady, reliable long term income.  They're not looking to make lots of money to begin with, they're looking for this steady return, and therefore there’s certain risk avoidance that they need to consider.

One of those is construction risk, so generally speaking those kinds of investors aren’t interested in taking on projects that could cost a lot more than they're predicted to cost, but there’s also the long term income stream risk, which might be to do with regulated industry, if it’s for example a toll road it might be to do with the estimates of how many cars are going to use the road at the end of the day, and I think that there’s possibly a mechanism for government to in some way underwrite those risks.  Rather as they’ve done recently for example with first time buyer mortgages, this idea of underwriting the risk of first time buyer mortgages below a certain level, so that those first time buyers can take a larger percentage mortgage than they'd otherwise get.  That will cost government very little, if anything, and it frees up the market.  If government could find a way of in some way underwriting those very front end or very rear end risks, then I think we could attract more of that money into the economy.

Leslie Budd

And focusing on your own company, Arup has moved from being an innovative consulting company, still is, employing around 200 people in the late 1960s to over 10,000 worldwide, and is now one of the leading global design companies in the world.  What are the challenges of managing that trajectory?

Philip Dilley

Well we are, we’re effectively an employee owned firm.  We’re owned in trust.  We’re rather like John Lewis Partnership.  And what that means of course is that we, there are no human shareholders taking funds off the top, we reinvest in the company, but we also have a regime where we attract good people and we give them space.  That’s partly because we don’t have growth drivers.  So we've never said we want to be 5,000 people by whatever date.  We've always said let’s get good people, give them space, attract good work and do it well, and as a consequence we grow.  So it’s a rather upside down model compared with most shareholder driven companies.

Now what that’s meant for us, the downside of course is that we don’t have access to significant funds, we don’t have stockholder funds, but, and we've had to reinvest in ourselves with our own reserves, but, so our growth’s been quite steady, but it has been very steady and it’s been steady as I say primarily because of that philosophy of taking on good people.

Leslie Budd

And finally what are the challenges of managing the environmental impacts of creating and producing the built environment, in your view?

Philip Dilley

Well, your question might be inferring, you know, in these difficult economic times are we throwing out sustainability and just doing things in a cheaper way, and I don’t think we are, and I don’t think we should.  I think there’s a misunderstanding quite often of sustainability.  So many people relate it to carbon or relate it to energy saving, and to me and to Arup sustainability is the much broader picture than that.  It’s to do with social sustainability, it’s to do with the stakeholders benefitting from and affected by a project, and of course it’s to do of course with commodities and material sustainability, and financial sustainability.  So all of those things create quite a big picture, most of which should be pursued on every project.  In Arup some time ago when this was very much in vogue, a lot of our competitors had directors of sustainability and sustainability departments even, we didn’t, we said sustainability is like quality or it’s like safety, it should be endemic across the organisation, and that’s how we've got to where we are.  Now are there pressures to ignore that or to not look for low energy solutions and so on?  I would say very few, and if there are any, those are clients that tend not to come to us.

Leslie Budd

Philip Dilley, thank you very much.

Philip Dilley

Thank you.

(5’59”)

 

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