Euston Quah and the Virtues of Cost-Benefit Analysis

By Ooi Kee Beng in Penang Profile for Penang Monthly May 2022 

OUR EDITOR WAS stuck in Singapore for a few weeks in 2021 during the pandemic, and took the chance to meet up with one of Penang’s many famous sons living in that city state. This was Professor Euston Quah, an old Penang Free School boy, today ranked by Google Scholar Profiler as among the top 10 in the world in Cost-Benefit Analysis.

Euston is Albert Winsemius Chair Professor of Economics, and Director of Economic Growth Centre (EGC) at Singapore’s Nanyang Technological University (NTU), Editor of the Singapore Economic Review, a Social Sciences Citation Indexed journal, and President of the Economic Society of Singapore. As Head of Economics at NTU for 15 years, he transformed the Division of Economics into a globally well-regarded body; Economics in NTU is ranked 41^st in the 2022 Quacquarelli Symonds (QS) World University Rankings by Subject, and 52^nd in Times Higher Education’s 2021 World University Rankings by Subject.

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Ooi Kee Beng: Professor Quah, although you have been away a long time from Penang, I hear that you take trips to Penang whenever you can. What is the draw?

Euston Quah: There are many like me who have settled elsewhere in the world. While they may be far away, at heart and in mind, they never really left Penang. Once a Penang boy or girl, always a Penang boy or girl. For us, a strong affiliation remains for the hometown. Penang exerts a strong influence on us. The older you were when you left Penang, the stronger your ties to it remain.

OKB: What have you missed?

EQ: I miss the food of course. It’s quite incomparable. Also, I guess another main reason for loving Penang is that it has everything: Beautiful sceneries and an easy, stress-free lifestyle. Having grown up there, you sense its long history. It’s many things all at once, hard to pinpoint any detail more than another.

I also think Penang’s relatively small size plays a role. It’s not a very congested place, yet as you move around, the landscape can change very quickly and quite dramatically.

I did my primary schooling at Wellesley Primary School, and then went to Penang Free School. I left for Canada to attend Grade 13 high school, and had my varsity education there as well.

My first job after graduation was in Singapore. That was actually by chance. I really wanted to work at Universiti Malaya or at Universiti Sains Malaysia, but there were no vacancies. This was in 1984, I think. It so happened that the registrar from National University of Singapore was visiting Vancouver and recruiting staff. I thought his offer was quite attractive; I applied and got the job and in fact was attached to NUS for the next 21 years. In 2005, I moved to NTU, where I have now been for 16 years.

OKB: And along the way, you became a very accomplished economist. Did you have trouble settling in, Singapore being a foreign place and all that?

EQ: Not really. I got married here. My wife is Singaporean; my children are Singaporean. Singapore is quite an exciting place to work in, it offers a lot of opportunities. In my line of work, which is in research and university teaching, you get a lot of support, such as funding and conference attendance.

Economics is very much the heart and backbone of Singapore.

OKB: I remember that Dr. Goh Keng Swee often mentioned “the primacy of economics” in nation-building.

EQ: Well, he was an economist trained at London School of Economics; he was a top student, and Singapore benefitted a lot from his understanding of economics and what he thought was required for the country to develop.

I actually studied Law & Economics, and Environmental Economics. In the 1980s, that was not a big deal in Singapore, which doesn’t have a lot of natural resources, unlike countries like Malaysia, Vietnam or Indonesia – forestry, fishery, etc. So, it didn’t occupy the mind of public policymakers. But Lee Kuan Yew was great in the sense that he encouraged the planting of trees; that’s why Singapore has been so green from Day One. So, while we pursue economic growth, the argument was that we must not neglect the environment. I think a lot of the credit for that must go to him.

So, I started Environmental Economics proper at NUS. What they had back then were Resource Economics and Agricultural Economics, and these courses had very few students, almost non-existent in fact. So, I argued, why have Agricultural Economics when there is no agriculture? And Resource Economics is the study of natural resources, isn’t it – forestry, mining, etc. We didn’t have those either.

So, I pushed for Environmental Economics. We started with only 40 students, but that number soon grew and grew, up to 100 at one time. Over time, the issues of environment, sustainable development and climate change all grew and are now a dominant concern.

OKB: I see. This was in the late 1980s. Green issues were not the “in” thing yet, really. Were your students at that time interested in subjects like urban planning perhaps?

EQ: In Environmental Economics, you definitely study urban design, how to factor in environmental greenery and so on. But Environmental Economics has a different approach; it’s about applying economic ideas to the management of the environment. So, this includes pricing issues and non-market goods, you know. Take the tree for example. The traditional way of thinking about a tree is to chop it down for the wood and so on. But a tree is much more than that; it has historical value, aesthetic value, and it provides shade, captures carbon. You can imagine a tree-powered ecosystem. So, we take into account all these things. I find it very fascinating dealing with these non-market goods. We need to put a price on pollution so that people and firms become aware of how their behaviour patterns contribute to carbon emissions.

So, I’m trying to encourage more of such pricing, for example, on noise. Noise is the opposite of quietude, and quietude is of great value to people. So, noise coming from a development project, or even from neighbours, all that should have a price tag. I became very interested in related subjects and their place in decision-making. And so, we come to Cost-Benefit Analysis (CBA).

This tool is very useful to governments. Resources are always limited, and budget allocations have to be efficient. When you propose a public sector project, it is important that you are able to work out its real costs and benefits. You have to systematically value things so that you get a consistent logic in your decision-making process.

In the 1980s, and even the very early 2000s, the primary focus in Singapore was cost effectiveness. Cost effectiveness is not CBA. Cost effectiveness is about finding the cheapest way to attain what you want. That’s different from CBA which requires you to look at the justification for a project: Do the benefits exceed the costs?

By the early 2000s, with budget constraints, how projects were evaluated became very important in justifying them. Also, there was now increasing interest on the part of the general public in environmental matters, and in having a bigger role in decision-making.

Happily, in 2011, the government started a new unit within the Ministry of Finance to assess projects above a certain amount of required funding. These proposals must involve some CBA.

OKB: This is not the same thing as an Environmental Impact Assessment (EIA) then?

EQ: No, no. EIA is concerned about the physical attributes and the environmental impact, not with the monetary side of the environmental impact. CBA goes above that. As a side note, Western countries use CBA all the time.

I am worried that there are so many methods in EIA itself. How do they measure physical attributes? A certain country could do its own EIA, or subcontract to a so-called EIA specialist, and all this affects the justification for the project.

Of course, people do often say that CBA is also open to manipulation. But that’s not true. Why? Because it’s not about what the final answer is, but about the steps leading to that answer. The process has to go through about six steps.

How to avoid double counting? How do we put dollar value on each item? How do you treat costs and benefits over time? There are great uncertainties, so how do you deal with all these things? All these have to be laid out in the steps. If you are aiming to manipulate, people can see through it straight away,

Increasingly, Singapore is accepting more and more academic methodologies. The only problem, as I see it, is how do you handle data? Most governments are protective of data. But if you are overly protective, and everything becomes sensitive, the result is that you get very little analysis done by academicians. So, if you protect data too much, you end up with no analysis. At the same time, researchers must also be responsible as well in how they use data. There is no total freedom.

OKB: During your time in NUS, you focused on Environmental Economics and then moved on to CBA. You then went from heading economics at NUS to heading economics at NTU in 2005.

EQ: NUS, from the late 1990s onwards, was gearing more and more towards theoretical models and paradigms. I was more interested in Applied Economics, and so when the opportunity came to move to NTU to create something different, I took it.

My first love is actually history. I love history very much. I did toy with economic history but I didn’t get much mileage out of that. I was more interested in Roman history, Greek history or even Chinese history. But I didn’t get to do a lot of that in school.

On the whole, I still believe in the market system, and that proper resource allocation brings out the best from people. There are market failures, no doubt; environmental damages, income inequality issues and so on. But these failures should not mean that we scrap the whole market system. The faults can be corrected.

OKB: You grew up in Pulau Tikus, right? Do you plan to retire in Penang?

EQ: No, I don’t think so. I did think about that many years ago. But then I find that it will not be an easy thing to do. I left the country a long time ago, already in 1977. Stayed eight years in Canada, grew to love the place, and made many friends there. The longer you are away, the more you change. Of course, I miss the place, I miss my Penang classmates, many of whom are still there.

Over time, living here for so many years, I begin to think like a Singaporean, I have participated a lot in assisting the government in many things. I have even led a delegation representing Singapore. When you have family, when you spend a greater part of your life here, that change happens naturally. There are many good traits among Singaporeans. They are very driven, but of course that also means that they can’t relax.

OKB: Having been away so long, when you now look at Penang, what do you see? What advice would you give young people there? What advice would you give policymakers there?

EQ: Well, I do think they can take a few cues from Singapore. You need economic progress, you need growth. Penang is also like a city state; it needs talents from outside. Meritocracy is very important in Singapore, and I think that should be inculcated today in Malaysia.

OKB: Any advice for young people?

EQ: I think young people should not let Penang be the be-all and end-all. There is a whole world out there. Young people should explore the world. Education is very important, and therefore, the state should support education as much as possible. In Singapore, there is one big success story, by the way. Through good or bad times, education support from the state does not waver. It just doesn’t waver.

My advice to youngsters is to not just look at the purely academic, but they should instead upgrade their skills. Be aware, don’t just follow the traditional route.

OKB: With that, let me thank you for taking the time to talk to Penang Monthly, Professor Quah.

NOTE: Professor Euston Quah is scheduled to speak at Penang Institute on Cost-Benefit Analysis at 4pm on June 2, 2022. Register for the event here.