Three examples of public-private partnerships screwing up urban transit are on my mind. The Canada Line in Vancouver is not new to me – I was poking around a few years ago. But the other two in this post are. The Maryland Purple Line in the suburbs of Washington was supposed to be the smooth PPP offering low-risk orbital light rail connecting suburbs to other suburbs without having to go through Downtown Washington, and now it is in shambles because the contractor walked away. Milan is not a new example either, but it is new to me, as we’ve discovered it during the construction costs project comparing high American (and British) costs to low Southern European ones; even there, the PPP bug bit, leading not so much to high capital costs but to high future operating charges. In no case is such a PPP program good government; the bulk of construction and risk must always lie in the public sector, and if your public sector is too incompetent to build things itself, as in the United States, then it’s equally incompetent at overseeing a PPP, as we’re seeing in Maryland. Don’t do this.
Washington: the Purple Line
Maryland planned on building two major urban rail projects last decade, stretching into the current one: the Red Line and the Purple Line. The Red Line was to be a conventional public project to build a subway in Baltimore, mostly serving low-income West Baltimore neighborhoods. The Purple Line, a light rail project in the DC suburbs acting as an orbital for Metro, was designed as a PPP. Governor Larry Hogan canceled the Red Line, most likely for racist reasons. The physical construction costs per rider were higher on the Red Line, but the overall disbursement including very high operating charges made the Purple Line more expensive, and yet Hogan kept the more expensive system and tossed the cheaper one.
One might expect that the PPP structure of the Maryland Purple Line would allow it to at least resist cost escalation – the risk was put entirely on the private contractor. And yet, the opposite happened. Costs turned out to be higher than expected, so the contractor just quit. Once the contract is signed, no matter what it says, the risk is in practice public, and this is no exception. The contractor stopped all work and left the region with a linear swath of ripped up roads; eventually the concessionaire and the state came into a settlement in which the state would pay $250 million extra and the concessionaire would hire a new contractor. The cost overrun was $800 million and the state said that the deal was going to save taxpayers $500 million, but what it signals is that even with very high public-sector payouts over decades that intend to put the entirety of the risk on the private concession, the public sector shares a high proportion of the risk, and the private bidders know this. This is a lose-lose situation and under no circumstances should countries put themselves in it.
Vancouver provides another good example of PPPs and operating costs. SkyTrain operates driverless equipment throughout the system, which means that operating costs should be low, and, moreover, should not depend on train size much. The Expo and Millennium Lines, built and operated publicly, cost C$3.20 to run per car-km, cheaper than on any system for which I have data (mostly very large ones plus Oslo) and less than half as expensive as the major European systems. But the Canada Line, operated by a concessionaire as part of a PPP scheme, costs $17.90/car-km, which is considerably worse than any system for which I have data except PATH. Even taking into account that the Canada Line cars are somewhat bigger, this is a difference of a factor of more than 3.
This is not a matter of economies of scale. The Canada Line’s trunk runs every 3.5 minutes most of the day, which is better than the vast majority of non-driverless systems I am familiar with off-peak, so the high costs there cannot be ascribed to poor utilization. In fact, before the Evergreen extension of the Millennium Line opened in 2016, the two systems’ total operating costs were almost identical but the operating costs per car-km were about 3.5 times worse on the Canada Line – economies of scale predict that unit costs should be degressive, not almost flat.
Marco Chitti is busy collecting information and conducting interviews regarding subway construction in Italy as part of our construction costs report. Italian costs are low, which makes it feasible to build metros even in very small cities like Brescia, where per Wikipedia the cost of the metro was around €65 million per km and €15,000 per weekday rider. However, the use of PPPs has not been good in the places where it happened, due to fiscal austerity following the Great Recession.
- What is the impact on the cost of the PPP? The impact on costs of the potential transfer of risk from the Public to the Private is hard to calculate, but it appears to have an impact more on higher gross operational costs (the fee that the Municipality will pay in the 26 years of the concession for the operation and pay back a return to the private operators) than on the actual construction cost. But that is unclear yet. A bit of detail: the municipality will pay to the concessionaire a 1.09 €/passenger as a minimum granted fee up to 84 million passengers/year, 0.45€/passenger for each additional user up to a maximum determined as an increase of the IRR of 2 percentage points more than the “base IRR” of 5.93%. That means that this is basically the rate at which the private investors are de facto borrowing the money to the municipality, with most of the risk from low ridership transferred to the municipality. What makes calculations complicate is that the city is directly a majority stakeholder of the concessionaire Metro M4 S.p.A. and also, indirectly, as the owner of ATM, which will be the “private” operator. It’s very blurred compared to other PPP schemes where the concessionaire is 100% private (like M5).
- PPP emerges as a stratagem to finance the project without increasing the municipal public debt. The PPP schemes is used to compensate for the lack of local public funds matching the national ones, limited due to the debt cap imposed by the so-called “internal Stability Compact”, an austerity measure implemented after the 2011 debt crisis, which strongly limits the capacity of local governments to borrow money for infrastructure projects. It was suspended in 2016.
Note that contra the plan to build the system without public debt, the PPP does in fact include borrowing. It’s opaque, but the payment per rider is a form of borrowing. Driverless metro operating costs are lower than €1.09 per unlinked trip. The Expo and Millennium Lines cost C$1.55, which in PPP terms is about €0.90, and feature much longer trips, as the Expo Line is 36 km long and one-tailed, which means many people ride end-to-end, whereas Milan M4 is to be 15 km and two-tailed, which means few trips are longer than half the total. In effect, this is high-interest borrowing, kept off the books in an atmosphere of strict budgetary austerity
Don’t do this
PPP-built lines do not have to have high construction costs. The Canada Line was cheap to build – it was Canada’s last reasonable-cost subway, and since then costs have exploded around the country. M4 in Milan is inexpensive as well, around €110 million per kilometer at current estimates even while going underneath older subways in city center. The current annual ridership projection of M4, 87 million, means that the current projected cost per weekday trip is €6,000, which represents an enormous social surplus in a region that builds up to around €30,000-40,000 before even pro-transit activists demand cancellation.
But in those cases, the structure of the contract keeps the operating costs artificially high, privatizing what should be public-sector profit from building a very inexpensive-to-operate system. This is especially bad if it is bundled into construction costs as an up-front payment, as in Maryland. In Maryland, the extra operating costs raised the construction cost well above the maximum level that is acceptable to the public transportation community over here, and in the United States too, such lines tend to be under threat of cancellation from fiscally conservative governors if they are not portrayed as pro-market PPPs. But those PPPs then have higher costs and, through poor risk allocation, lead to the worst of both worlds: the private concessionaire increases costs in order to deal with the risk of escalation, but if the risk exceeds prior estimates, then the state remains on the hook.
Don’t do this. One can to some extent understand why Italy was forced into this position at the bottom of the financial crisis. This isn’t such a situation – all countries in Europe are engaging in large discretionary deficit spending nowadays, as the market appears to believe that not only will corona pass, but also the new vaccines developed will help prevent the common cold and the flu in the near future, increasing future health outcomes and improving productivity through less lost sick time. In the United States, a $2 trillion stimulus is sold as just the first of two steps, because there’s fiscal room. You, even as a state or local government, can find money in the budget for more spending – raise taxes or sell bonds, and do so transparently. Don’t take opaque high-interest loans just to tell the public that you haven’t borrowed on the open market. It’s not worth it.
There’s an emerging mentality among left-wing urban planners in the US called “trust before streets.” It’s a terrible idea that should disappear, a culmination of about 50 or 60 years of learned helplessness in the American public sector. Too many people who I otherwise respect adhere to this idea, so I’m dedicating a post to meme-weeding it. The correct way forward is to think in terms of state capacity first, and in particular about using the state to enact tangible change, which includes providing better public transportation and remaking streets to be safer to people who are not driving. Trust follows – in fact, among low-trust people, seeing the state provide meaningful tangible change is what can create trust, and not endless public meetings in which an untrusted state professes its commitment to social justice.
What is trust before streets?
The trust before streets mentality, as currently used, means that the state has to first of all establish buy-in before doing anything. Concretely, if the goal is to make the streets safer for pedestrians, the state must not just build a pop-up bike lane or a pedestrian plaza overnight, the way Janette Sadik-Khan did in New York, because that is insensitive to area residents. Instead, it must conduct extensive public outreach to meet people where they’re at, which involves selling the idea to intermediaries first.
This is always sold as a racial justice or social justice measure, and thus the idea of trust centers low-income areas and majority-minority neighborhoods (and in big American cities they’re usually the same – usually). Thus, the idea of trust before streets is that it is racist to just build a pedestrian plaza or bus lanes – it may not be an improvement, and if it is, it may induce gentrification. I’ve seen people in Boston say trust before streets to caution against the electrification of the Fairmount Line just because of one article asserting there are complaints about gentrification in Dorchester, the low-income diverse neighborhood the line passes through (in reality, the white population share of Dorchester is flat, which is not the case in genuinely gentrifying American neighborhoods like Bushwick).
I’ve equally seen people use the expression generational trauma. In this way, the trust before streets mentality is oppositional to investments in state capacity. The state in a white-majority nation is itself white-majority, and people who think in terms of neighborhood autonomy find it unsettling.
Low trust and tangible results
The reality of low-trust politics is about the opposite of what educated Americans think it is. It is incredibly concrete. Abstract ideas like social justice, rights, democracy, and free speech do not exist in that reality, to the point that authoritarian populists have exploited low-trust societies like those of Eastern Europe to produce democratic backsliding. A Swede or a German may care about the value of their institutions and punish parties that run against them, but an Israeli or a Hungarian or a Pole does not.
In Israel, this is visible in the corona crisis: Netanyahu’s popularity, as expressed in election polls, has recently risen and fallen based on how Israel compares with the Western world when it comes to handling corona. In March, there was a rally-around-the-flag effect in Israel as elsewhere, giving Netanyahu cover to refuse to concede even though parties that pledged to replace him as prime minister with Benny Gantz got 62 out of 120 seats, and giving Gantz cover not to respond to hardball with hardball and instead join as a minister in Netanyahu’s government. Then in April and May, as Israel suppressed the first wave and had far better outcomes than nearly every European country, let alone the US, Netanyahu’s popularity surged while that of Gantz and the opposition cratered. The means did not matter – the entire package including voluntary quarantine hotels, Shin Bet surveillance for contact tracing, and a tight lockdown that Netanyahu, President Rivlin, and several ministers violated nonchalantly, was seen to produce results.
In the summer, this went in reverse. The second wave hit Israel earlier than elsewhere, and by late summer, its infection rate per capita was in the global top ten, and Israel had the largest population among those top ten countries. In late September it reached around 6,000 cases a day, around 650 per million people. The popularity of Netanyahu’s coalition was accordingly shot; Gantz himself is being nearly wiped out in the polls, but the opposition was holding steady, and Yamina, a party to the right of Likud led by Naftali Bennett that is not currently in the coalition and is perceived as more competent, Bennett himself having done a lot to moderate the party’s line, surged from its tradition 5-6 seats to 16.
Today the situation is unclear – Israelis have seen the state fight the second wave but it was not nearly as successful as in the spring, and right now there is a lot of chaos with vaccination. On the other hand, Israel is also the world’s vaccination capital, and eventually people will notice that by March Israel is (most likely) fully vaccinated while Germany is less than 10% vaccinated. Low-trust people notice results. If they’re disaffected with Netanyahu’s conduct, which most people are, they can then vote for a right-wing-light satellite party like New Hope, just as many voted Kulanu in 2015, which advertised itself as center, became kingmaker after the results were announced, and immediately joined under Netanyahu without trying to seriously negotiate.
Streets lead to trust
The story of corona in Israel does not exist in isolation. Low trust in many cases exists because people perceive the state to be hostile to their interests, which happens when it does not provide tangible goods. Many years ago, talking about his own history immigrating from the Soviet Union in the 1970s, Shalom Boguslavsky credited the welfare state for his integration, saying that if he’d immigrated in the 1990s he’d probably have ended up in a housing project in Ashdod and voted for Avigdor Lieberman, who at the time was running on Russian resentment more than anything.
In Northern Europe, perhaps trust is high precisely because the state provides things. My total mistrust of the German state in general and Berlin in particular is tempered by the fact that, at queer meetups, people remind me that Berlin’s center-left coalition has passed universal daycare, on a sliding scale ranging from 0 for poor parents to about €100/month for wealthy ones. This more than anything reminds me and others that the state is good for things other than dithering on corona and negatively stereotyping immigrant neighborhoods.
Such provisions of tangible goods cannot happen in a trust before streets environment. This works when the state takes action, and endless public meetings in which every objection must be taken seriously are the death of the state. It says a lot that in contrast with Northern Europe, in the United States even in wealthy left-wing cities it is unthinkable that the municipality can just raise taxes to pay teachers and social workers better. Low trust is downstream of low state capacity. Build the streets and trust will follow.
A bunch of Americans who should know better tell me that nobody really cares about construction costs – what matters is getting projects built. This post is dedicated to them; if you already believe that efficiency and social return on investment matter then you may find these examples interesting but you probably are not looking for the main argument.
Exhibit 1: North America
I wrote a post focusing on some North American West Coast examples 5 years ago, but costs have since run over and this matters from the point of view of building more in the future. In the 2000s and 10s, Vancouver had the lowest construction costs in North America. The cost estimate for the Broadway subway in the 2010s was C$250 million per kilometer, which is below world median; subsequently, after I wrote the original post, an overrun by a factor of about two was announced, in line with real increases in costs throughout Canada in the same period.
Metro Vancouver has always had to contend with small, finite amounts of money, especially with obligatory political waste. The Broadway subway serves the two largest non-CBD job centers in the region, the City Hall/Central Broadway area and the UBC, but in regional politics it is viewed as a Vancouver project that must be balanced with a suburban project, namely the lower-performing Surrey light rail. Thus, the amount of money that was ever made available was about in line with the original budget, which is currently only enough to build half the line. Owing to the geography of the West Side, half a line is a lot less than half as good as the full line, so Vancouver’s inability to control costs has led to worse public transportation investment.
Like Vancouver, Toronto has gone from having pretty good cost control 20 years ago to having terrible cost control today. Toronto’s situation is in fact worse – its urban rail program today is a contender for the second most expensive per kilometer in the world, next to New York. The question of whether it beats Singapore, Hong Kong, London, Melbourne, Manila, Qatar, and Los Angeles depends on project details, essentially on scoring which of these is geologically and geographically the hardest to build in assuming competent leadership, which is in short supply in all of these cities. I am even tempted to specifically blame the most recent political interference for the rising costs, just as the adoption of design-build in the 2000s as an in-vogue reform must be blamed for the beginning of the cost blowouts.
The result is that Toronto is building less stuff. It’s been planning a U-shaped Downtown Relief Line for decades, since only the Yonge-University-Spadina (“YUS”) line serves downtown proper and is therefore overcrowded. However, it’s not really able to afford the full line, and hence it keeps downgrading it with various iterations, right now to an inverted L for the Ontario Line project.
Los Angeles’s costs, uniquely in the United States, seemed reasonable 15 years ago, and no longer are. This, as in Canada, can be seen in building less stuff. High-ranking officials at Los Angeles Metro explained to me and Eric that the money for capital expansion is bound by formulas decided by referendum; there is a schedule for how to spend the money as far as 2060, which means that anything that is not in the current plan is not planned to be built in the next 40 years. Shifting priorities is not really possible, not with how Metro has to buy off every regional interest group to ensure the tax increases win referendums by the required 2/3 supermajority. And even then, the taxes imposed are rising to become a noticeable fraction of consumer spending – even if California went to majority vote, its tax capacity would remain very finite.
The history of Second Avenue Subway screams “we would have built more had costs been lower.” People with deeper historic grounding than I do have written at length about the problems of the Independent Subway System (“IND”) built in the 1920s and 30s; in short, construction costs were in today’s terms around $140 million per km, which at the time was a lot (London and Paris were building subways for $30-35 million/km), and this doomed the Second System. But the same impact of high costs, scaled to the modern economy, is seen for the current SAS project.
The history of SAS is that it was planned as a single system from 125th Street to Hanover Square. The politician most responsible for funding it, Sheldon Silver, represented the Lower East Side. But spending capacity was limited, and in particular Silver had to trade that horse for East Side Access serving Long Island, which was Governor George Pataki’s base. The package was such that SAS could only get a few billion dollars, whereas at the time the cost estimate for the entire 13-km line was $17 billion. That’s why SAS was chopped into four phases, starting on the Upper East Side. Silver himself signed off on this in the early 2000s even though his district would only be served in phase four: he and the MTA assumed that there would be further statewide infrastructure packages and the entire line would be complete by 2020.
Exhibit 2: Israel
Israel is discussing extending the Tel Aviv Metro. It sounds weird to speak of extensions when the first line is yet to open, but that line, the Red Line, is under construction and close enough to the end that people are believing it will happen; Israelis’ faith that there would ever be a subway in Tel Aviv was until recently comparable to New Yorkers’ faith until the early 2010s that Second Avenue Subway would ever open. The Red Line is a subway-surface Stadtbahn, as is the under-construction Green Line and the planned Purple Line. But metropolitan Tel Aviv keeps growing and is at this point an economic conurbation of about 3-4 million people, with a contiguous urban core of 1.5 million. It needs more. Hence, people keep discussing additions. The Ministry of Finance, having soured on the Stadtbahn idea, bypassed the Ministry of Transport and introduced a complementary three-line underground driverless metro system.
The cost of the system is estimated at 130-150 billion shekels, which is around $39 billion. This is not a sum Israelis are used to seeing for a government project. It’s about two years’ worth of IDF spending, and Israeli is a militarized society. It’s about 10% of annual GDP, which in American or EU-wide terms would be $2 trillion. The state has many competing budget priorities, and there are so many other valid claims on the state coffers. It is therefore likely that the metro project’s construction will stretch over many years, not out of planning latency but out of real resource limits. People in Israel understand that Gush Dan has severe traffic congestion and needs better transportation – this is not a point of political controversy in a society that has many. But this means the public is willing to spend this amount of money over 15-20 years at the shortest. Were costs to double, in line with the costs in most of th Anglosphere, it would take twice as long; were they to fall in half, in line with Mediterranean Europe, it would take half as long.
Exhibit 3: Spain
As the country with the world’s lowest construction costs for infrastructure, Spain builds a lot of it, everywhere. This includes places where nobody else would think to build a metro tunnel or an airport or a high-speed rail line; Spain has the world’s second longest high-speed rail network, behind China. Many of these lines probably don’t even make sense within a Spanish context – RENFE at best operationally breaks even, and the airports were often white elephants built at the peak of the Spanish bubble before the 2008 financial crisis.
One can see this in urban rail length just as in high-speed rail. Madrid Metro is 293 km long, the third longest in Europe behind London and Moscow. This is the result of aggressive expansion in the 1990s and 2000s; new readers are invited to read Manuel Melis Maynar’s writeup of how when he was Madrid Metro’s CEO he built tunnels so cheaply. Expansion slowed down dramatically after the financial crisis, but is starting up again; the Spanish economy is not good, but when one can build subways for €100 million per kilometer, one can build subways that other cities would not. In addition to regular metros, Madrid also has regional rail tunnels – two of them in operation, going north-south, with a third under construction going east-west and a separate mainline rail tunnel for cross-city high-speed rail.
Exhibit 4: Japan
Japan practices economic austerity. It wants to privatize Tokyo Metro, and to get the best price, it needs to keep debt service low. When the Fukutoshin Line opened in 2008, Tokyo Metro said it would be the system’s last line, to limit depreciation and interest costs. The line amounted to around $280 million/km in today’s money, but Tokyo Metro warned that the next line would have to cost $500 million/km, which was too high. The rule in Japan has recently been that the state will fund a subway if it is profitable enough to pay back construction costs within 30 years.
Now, as a matter of politics, on can and should point out that a 30-year payback, or 3.3% annual interest, is ridiculously high. For one, Japan’s natural interest rate is far lower, and corporations borrow at a fraction of that interest; JR Central is expecting to be paying down Chuo Shinkansen debt until the 2090s, for a project that is slated to open in full in the 2040s. However, if the state changes its rule to something else, say 1% interest, all that will change is the frontier of what it will fund; lines will continue to be built up to a budgetary limit, so that the lower the construction costs, the more stuff can be built.
Conclusion: the frontier of construction
In a functioning state, infrastructure is built as it becomes cost-effective based on economic growth, demographic projections, public need, and advances in technology. There can be political or cultural influences on the decisionmaking process, but they don’t lead to huge swings. What this means is that as time goes by, more infrastructure becomes viable – and infrastructure is generally built shortly after it becomes economically beneficial, so that it looks right on the edge of viability.
This is why megaprojects are so controversial. Taiwan High-Speed Rail and Korea Train Express are both very strong systems nowadays. Total KTX ridership stood at 89 million in 2019 and was rising on the eve of corona, thanks to Korea’s ability to build more and more lines, for example the $69 million/km, 82% underground SRT reverse-branch. THSR, which has financial data on Wikipedia, has 67 million annual riders and is financially profitable, returning about 4% on capital after depreciation, before interest. But when KTX and THSR opened, they both came far below ridership projections, which were made in the 1990s when they had much faster economic convergence before the 1997 crisis. They were viewed as white elephants, and THSR could not pay interest and had to refinance at a lower rate. Taiwan and South Korea could have waited 15 years and only opened HSR now that they have almost fully converged to first-world Western incomes. But why would they? In the 2000s, HSR in both countries was a positive value proposition; why skip on 15 years of good infrastructure just because it was controversially good then and only uncontroversially good now?
In a functioning state, there is always a frontier of technology. The more cost-effective construction is, the further away the frontier is and the more infrastructure can be built. It’s likely that a Japan that can build subways for Korean costs is a Japan that keeps expanding the Tokyo rail network, because Japan is not incompetent, just austerian and somewhat high-cost. The way one gets more stuff built is by ensuring costs look like those of Spain and Korea and not like those of Japan and Israel, let alone those of the United States and Canada.
Matt Yglesias has a blog post called Make Blue America Great Again, about governance in rich liberal states like New York and California. He talks about various good government issues, and he pays a lot of attention specifically to TransitMatters and our Regional Rail project for the Boston region, so I feel obliged to comment more on this.
The basic point Matt makes is that the quality of governance in rich liberal American states is poor, and as a result, people do not associate them with wealth very consistently. He brings up examples about the quality of schools and health care, but his main focus is land use and transportation: the transportation infrastructure built in New York, California, etc. is expensive and not of high quality, and tight zoning regulations choke housing production.
That said, I think there’s a really important screwup in those states and cities that Matt misses: the problem isn’t (just) high costs, but mostly total unwillingness to do anything. Do-nothing leaders like Charlie Baker, Andrew Cuomo, Gavin Newsom, and Bill de Blasio aren’t particularly interested in optimizing for costs, even the first two, who project an image of moderation and reason.
The Regional Rail proposal’s political obstacles are not exactly a matter of cost. It’s not that this should cost $4 billion (without the North-South Rail Link) but it was estimated at $15 billion and therefore there’s no will to do it. No: the Baker administration seems completely uninterested in governing, and has published two fraudulent studies making up high costs for both the North-South Rail Link and rail electrification, as well as a more recent piece of fraud making up high costs for Boston-Springfield intercity rail. The no comes first, and the high costs come second.
This history – no first, then high costs – is also the case for New York’s subway accessibility program. The MTA does not want it; the political system does not care either. Therefore, when disability rights advocates do force some investment, the MTA makes up high costs, often through bundling unnecessary investments that it does want, like rebuilding station interiors, and charging these projects to the accessibility account. A judge can force an agency to build something, but not to build it competently and without siphoning money.
I want to emphasize that this does not cover all cases of high American costs. Second Avenue Subway, for example, is not the result of such a sandbag: everyone wants it built, but the people in charge in New York are not competent enough to build it affordably. This does accord with Matt’s explanation of poor Northeastern and West Coast governance. But not everything does, and it’s important to recognize what’s going on.
The other important point is that these do-nothing leaders are popular. Baker is near-tied for the most popular governor in the United States with another do-nothing Northeastern moderate Republican, Maryland’s Larry Hogan. Andrew Cuomo’s approval rate has soared since he got 43,000 people in the state killed in the corona crisis.
People who live in New York may joke that the city has trash on the street and cockroaches in apartments, but they’re pretty desensitized to it. They politically identify as Democrats, and once corona happened they blamed Trump, as did many people elsewhere in the United States, and forgave Democrats who mismanaged the crisis like Cuomo. Baker and Hogan are of course Republicans, but they perform a not-like-the-other-Republicans persona, complete with open opposition to Trump, and therefore Massachusetts Democrats who have a strong partisan identity in federal elections are still okay with do-nothing Republicans. People who really can’t stand the low quality of public services leave.
Construction cost reform is pretty drastic policy, requiring the destruction of pretty powerful political forces – the system of political appointments, state legislators and mayors with a local rather than national-partisan identity, NIMBYs, politically-connected managers, the building trades, various equity consultants (such as many Los Angeles-area urbanists). They are not legally strong, and a governor with a modicum of courage could disempower them, but to be a moderate in the United States means to be extremely timid and technologically conservative. Matt himself understands that last point, and has pointed this out in connection with moderates who hold the balance of power in the Senate, like Joe Manchin and Susan Collins, but use it only to slightly shrink proposed changes and never to push a positive agenda of their own.
So yes, this is a construction cost crisis, but it’s not purely that. A lot of it is a broader crisis of political cowardice, in which non-leftist forces think government doesn’t work and then get elected and prove it (and leftists think real change comes from bottom-up action and the state is purely for sinecures, courtesy of the New Left). I warned in the spring that corona is not WW2 – the crisis is big enough to get people to close ranks behind leaders, but not to get them to change anything important. These states are rich; comfortable people are not going to agitate for the destruction of just about every local political power structure just to get better infrastructure.
Ever since reading Brooks-Liscow on the growth in American road construction costs since the 1960s, I’ve been interested in the surplus extraction theory of costs. The authors call their main theory citizen voice, in which local groups can use litigation to extract the social surplus generated by infrastructure construction. I’d like to go more deeply into what this theory is and what it implies.
What is surplus?
Normally, a competitive market has no surplus. The owner of a restaurant, the developer of a building in an unconstrained area like suburban Texas, the seller of cloth masks on Etsy, the freelance web developer – none of them is making a killing. People enter the market until profits are driven down to levels low enough to essentially be the owner-manager’s wage. Companies can only make a large profit if they operate at enormous scale, which takes a long time to develop – the profit margins on a single Walmart or Carrefour or Lidl are small, but the profit margins on 10,000 stores add up to a couple billion dollars a year.
Infrastructure is not a competitive market, for a number of different reasons:
- The construction of transportation infrastructure has strong positive externalities, through enabling agglomeration. In a country with cars, the construction of public transportation also helps mitigate the negative externalities of cars.
- Infrastructure is not meaningfully competitive. The largest city in the world, Tokyo, has around two competing rail operators per suburban region. In Tokyo, it’s a natural duopoly; in just about every smaller city, it’s a natural monopoly.
- The barriers to entry are so steep that some kind of price regulation is obligatory. The result is extensive consumer surplus for riders who are not poor.
- Government involvement means that regulations that make it easier or harder to build infrastructure have large impact, which can create or destroy social surplus.
The upshot is that at non-New York costs, infrastructure construction in New York generates enormous social surplus. I could break this down by component, but for brevity I won’t, and just cite what looks like the upper limit of what the publics in the United States and Europe are willing to pay for urban and regional rail: around $50,000 per projected weekday trip. Lines teetering on the edge of cancellation, like M18 in Paris, Second Avenue Subway Phase 2 in New York, and Crossrail 2 in London, all cluster around this figure.
If we take $50,000/rider as the lowest possible benefit-cost ratio that gets a project built, around 1.2-1.3 in countries that conduct such analyses, then Second Avenue Subway Phase 2, currently projected around $60,000/rider, is 1. But at the median global cost, which exists in France and Germany, it would cost $700 million, or $7,000/rider, for a benefit-cost ratio of 8.5. At costs that exist in Southern Europe, Scandinavia, Switzerland, and Korea, make it $400 million, or $4,000/rider, for a benefit-cost ratio of 15. That’s a big net profit for New York City Transit (or, it would be if its operating costs were not abnormally high too), and a huge net social surplus for New York. Every group that wants a piece of that surplus then has an incentive to make noise and raise costs.
How can surplus be extracted?
People who wish to seize public resources have a variety of methods with which to do so. Some are net transfers of surplus from society to one special interest, but most are net destruction of value in the sense that the loss of social surplus exceeds the gain to the special interest, usually by a large margin.
The technique for surplus extraction is usually the threat of a lawsuit, but in some cases it can be direct political lobbying. The actual lawsuit is almost never important – in the US and Germany, at least, the state usually wins these suits, and the impact of litigation is to delay and to deny political capital.
However, surplus can also vanish into the ether through poor planning. Consultants who are not under pressure to save money may well propose oversize infrastructure just because that’s what they are used to, or to avoid sharing right-of-way across railroads; this has led to unusual cost premiums in the United States for everything that touches mainline rail, whereas the subway and light rail premiums are, outside New York, bad but less onerous.
The demands made by special interests that extract surplus vary. They include any of the following:
- Gratuitous tunneling instead of above-ground construction. This is usually a demand made of high-speed rail, but there are some gratuitous tunnels in suburban rail as well, for example Crossrail 2. The surplus here is that NIMBYs do not like to see trains from their houses; the emotional value of their views is naturally a fraction of that of the cost of tunneling.
- Compromise alignments that either increase costs or reduce benefits. This is usually about avoiding specific places; Brooks-Liscow give an example of a Detroit highway swerving around a Jewish community center. But sometimes it can be the opposite – in fact, early US freeway builders expected that communities would lobby for highways near them, not far from them. Los Angeles County’s advocacy for a high-speed rail detour through Palmdale is one such example.
- Extortion of community benefits to activists, for example demands for larger stations to act as neighborhood centers. A large degree of the cost explosion of the Green Line Extension in Boston came from the policy of accommodating local demands, leading to oversize stations. But such overbuilding can also occur absent extortion – the surplus can vanish into poor practices, representing incompetence rather than malice, as in the oversize viaducts of California High-Speed Rail.
- Contracts to favored companies. This led to cost explosion in Italy in the 1970s and 80s, especially in Rome but also Milan; unlike the other items on this list, this is generally illegal, and costs in Italy came down after crackdowns on corruption in the 1990s. However, legal versions exist – sometimes the government is just used to doing business with a company with a poor track record, for example the “the devil we know” attitude in California toward Tutor Perini. The surplus in the latter case vanishes not quite into someone’s pockets but more into the state’s unwillingness to oversee contractors more tightly.
- Labor demands. If the demands are purely about wages then the surplus is distributed without being destroyed. However, these demands are in all cases I know of also about other things. For example, the sandhogs in New York opposed the use of more efficient tunnel boring instead of more dangerous but more labor-intensive dynamite. Protectionism also leads to inferior equipment in addition to higher costs.
Who can extract surplus?
Surplus extraction works through informal mechanisms. The purpose of the nuisance lawsuit is not to win, but to extract a settlement. The threat is delay and loss of political favor for the project rather than outright cancellation. The NIMBY lawsuit in Silicon Valley against California High-Speed Rail was right on the technical merit – the Pacheco Pass route, which would pass through the richest suburbs was technically inferior to the Altamont Pass route, which wouldn’t – still lost; Pacheco was favored due to another kind of surplus extraction, namely Rod Diridon’s desire for shorter Los Angeles-San Jose trip times.
Because surplus extraction works through politics and not clear rules, it benefits those with the most political power. In this way, the rise in NIMBYism in the 1960s and 70s, for example the freeway revolts, contrasts with the contemporary free speech movement, which used formal lawsuits with the intent of winning to expand the boundaries of free speech in America.
The free speech movement celebrated protections for communist Berkeley professors and for pornographers; people with normative professions and normative political views were already protected. In contrast, NIMBYism was most powerful in already rich areas, like Jane Jacobs’ Greenwich Village, or Boston’s South End. Baltimore’s racially integrated freeway revolt was exceptional. New York built freeways through working-class neighborhoods easily, and only encountered political obstacles in the Village, which was by the 1950s gentrified (Jacobs was a journalist with some college education, married to an architect, and her father was a doctor), a new development that hadn’t happened in urban history before and thus the city elites had missed it. Moreover, Jacobs’ remedy of creating and empowering community boards has ensured that only powerful people and powerful communities could change city decisions.
Even more recent attempts to create equity have failed. Slowing down the state and empowering community is always bad for equity, because the community is where inegalitarian traditions live. Black leaders now can derail transit plans just as white leaders can; non-leaders have no voice in neighborhood politics, and it’s those non-leaders who work outside the neighborhood who rely on public transit.
Surplus extraction remains the domain of people with political and cultural cachet. One can fight redevelopment in San Francisco on behalf of a mural to Cesar Chavez; fighting it on behalf of pornographers is harder. Similarly, the unions that have been the best at extracting surplus are traditional ones, doing jobs that existed 100 years ago, at productivity levels that remain stuck in that era, mainly the trades.
Conclusion: saying no
Surplus extraction theory does not say it is impossible to reduce costs. Italy’s sharp fall in costs in the 1990s and Turkey’s gentle fall in the 2010s both suggest that cost reduction is possible. What it does say is that the role of the state is to safeguard surplus and keep it socialized, against demands from many special interests, which should be disempowered through legal changes making lawsuits harder and reducing the ability of consultants and unions to drive up costs.
In that sense, the role of the planner is to say no – and moreover, to say no to charismatic groups representing much-romanticized people. No, dear mother with children, we will not build you a noise wall just because you think 140 km/h electric trains will reduce your quality of life. No, dear tradesman much-profiled as a non-college white voter, we will not hire you for $110/hour when there exist people who will do your job better than you can at $35/hour. No, dear third-generation business owner, we will not listen to what you think about traffic as we replace parking spots with bus lanes. No, dear anti-gentrification activist, we will not pay you as an equity consultant, we will just build the subway in the city. No, dear white flight homeowner, we will not build you a tunnel just to avoid taking a few houses through eminent domain. No, dear deindustrialized city leader, we will not require companies to set up factories in your city at high cost when we can get cheaper imports. It’s never going to be no, dear criminal, or no, dear Nazi, because criminals and Nazis are not used to making such requests and having people listen.
It’s optimistic in a sense, because much cost control comes just from knowing that it’s possible and having the nerve to say no to people who are used to hearing yes. The engineering factors that lead to low costs are important, but first of all, it’s necessary to believe that they are feasible, over local objections.
550 new coronavirus cases in Berlin yesterday. 7,000 in Germany. 110,000 in the European Union, which at 240 per million people is even higher than the US, which is at 200/million. French hospitals are flooded with corona patients, and the state expresses its grave concerns but will still not set up quarantine hotels or universalize the use of surgical masks or do anything else that Taiwan did in less time. This is the second wave, and seven months after Taiwan showed the way how to deal with this and ended up being the only country this year to have positive economic growth to boot, Europe (and the US) still stays in its comfort zone of mass death.
It’s worth discussing the excuses, because so many of them port well to the realm of public transportation, where Europe is not so bad (there are even things East Asia can learn from us); Europe’s real disaster compared with rich Asia is in urbanism and its resistance to tall buildings. But the United States is horrific on all matters of transportation and urban redevelopment and the excusemaking there is ensuring no infrastructure can be built.
Excuse #1: the restricted comparison
The Max Planck Society (MPG) put out a statement three weeks ago, with some interesting insights about the need for a multi-pronged strategy, including contact tracing, hygiene, and social distancing. But it kept engaging in these silly intra-European comparisons, praising Germany in contrast with Britain. At no point was there any engagement with East Asia, even though we know that Taiwan has not had community spread since April, and that in Korea and Japan the current rates are about 2 and 4 daily cases per million people respectively.
Excuse #2: bullshit about culture
I’m told that there is general understanding within Germany that Taiwan and South Korea are doing far better. However, people keep making up cultural reasons why Europe can’t have what East and Southeast Asia have. This excuse unfortunately is not restricted to people who are totally unaware: a few months ago, Michel Bauwens, a Belgian degrowth advocate who lives in Thailand, talked up Thailand’s corona suppression, but attributed it to a communitarian, collectivist culture. The Thais are mass-protesting their autocratic government’s state of emergency (while wearing masks, unlike Western anti-regime protesters); what collectivism? The actual policy differences – mandatory centralized quarantine for people who test positive, mask wearing mandates – were not mentioned.
When I bring up the necessity of centralized quarantine, and even the fact that Israel used corona hotels to nearly eradicate the virus in the first wave (the second wave came from mass abandonment of social distancing – MPG is right about multi-pronged strategies), Europeans and Americans keep making a “but freedom” line. It’s strange. Yes, Thailand is autocratic. But Taiwan and South Korea are not – and they had authoritarian governments within living memory, and both are currently run by political parties that emerged out of democratic opposition to autocracy in the 1980s and 90s, and that far from becoming autocrats themselves, ceded power peacefully when they lost reelection in the past.
Excuse #3: the fake tradeoff
Many aspects of policy involve genuine tradeoffs. But many others don’t, and corona protection is one. Taiwan is the only developed country that is projecting positive economic growth in 2020. South Korea is projecting 1% contraction, the smallest contraction in the OECD, of which Taiwan is not a member. There is no economy-death tradeoff. Plowing through with reopening before the virus has been suppressed just means mass closures later and a weaker economy. The only major suppression country that is seeing economic contraction is Thailand, whose economy is based heavily on tourism and therefore more sensitive to crises outside its borders than are the industrial export-based economies of Taiwan and Korea.
Excuse #4: learned helplessness
I write occasionally about the importance of state capacity, but centralized quarantine is not some specialized technique only available to the most advanced states. It was routine in developed countries until the 1960s, when the incidence of infectious disease had fallen to a point that it was no longer necessary. The same is true of social distancing – Nigeria for example has used it and appears to be successful, with semi-decent test positivity rates and lower per capita confirmed infections than Korea.
However, various leaders keep saying “we can’t.” This is not about technical matters. Rather, it’s about political ones: we can’t established corona hotels, we can’t ban indoor dining and drinking, we can’t scale up surgical mask production like Taiwan did 8 months ago and require people to wear surgical masks in public. The only thing Europe seems capable of doing is prohibiting travel from countries that at this point often have less corona than we do.
This is learned helplessness. Risk-averse politicians who know on some level what needs to be done are still too spineless to do it, even knowing very well that successfully suppressing corona is an amazing crowd booster.
The connection with infrastructure
All of the above problems also lead to disastrous infrastructure projects. This is to some extent a problem in Germany, where “we can’t” is a common excuse for surrender to NIMBY opposition; this is why certain key high-speed rail segments have yet to be built. But it’s a truly massive drag on the English-speaking world, especially the United States. I have seen advocates engage in internal-only comparisons within the last 24 hours; the other excuses, I saw earlier this week, and many times in the last few months, with so many different American transit managers incanting “it’s not apples-to-apples” whenever Eric and I ask them about costs. One literally said “we can’t” and “it’s not possible” and is regionally viewed as progressive and forward-thinking.
In the same manner Europeans discount any knowledge produced outside of Europe and the United States, Americans discount everything produced outside their country. Occasionally they’ll glance at Canada and Britain to affirm prior prejudices. They treat foreign language fluency as either dilettantism or immigrant poverty and not as a critical skill in the modern world right next to literacy and numeracy. They’ll flail about as they die of corona and blame one another when, just as the EU flag today is twelve yellow coronaviruses on a field of blue, the US flag is fifty white viruses on a field of blue with red and white stripes.
There’s a number of very big cities in middle-income countries that don’t really have strong public transport, and I’d like to go over some of their features. The archetype for this urban form is Bangkok, but I think this is pretty common in much of Latin America too, it’s ubiquitous in Southeast Asia except in Singapore, and Cairo has it too and I suspect most of the rest of Africa will as it moves into the middle income category. I’m fairly certain in what I am saying as far as Southeast Asia is concerned, following Paul Barter’s thesis; in Turkey I am less certain, and in Latin America and Egypt I am speculating. Of note, while those regions have some shared features, one feature that is not shared is cost: while Southeast Asian construction costs are very high, Latin American ones are not, and Turkish ones are very low. Of course low costs enable Turkey to build more subways, but it’s only doing so right now as it’s converging to the high income category.
Density with cars
Bangkok is a dense city. It is not to be confused with Hong Kong, but it is not to be confused with Atlanta either. That said, the density has not much structure, similar to the situation of Los Angeles – there is no single central business district, just a big central area with sub-districts with high-rise office and residential towers. Private vehicle ownership is high, and as of 2014, the modal split (source, PDF-p. 44) was 58% car and motorcycle (trending up), 37% bus (falling rapidly), 5% metro (trending up).
My understanding is that this pattern is also how cities like Manila, Lahore, Karachi, and Jakarta look, and even São Paulo, which has a decent-size metro system with pretty high ridership but it’s still undersized for how big the region is. Dhaka (which is low- rather than middle-income) and Cairo have especially high residential densities.
Slow metro expansion
All of these cities are building urban rail, but not particularly quickly (except Istanbul, where costs are unusually low). Bangkok is adding a few lines, but even under current plans will keep having an underbuilt system. The same is true for plans in Manila, Jakarta, Lahore, Cairo, and low-income Dhaka. In most of Latin America, too, expansion is pretty slow – the only city where I’ve seen really fast expansion recently relative to size is Santiago, which is both approximately the richest in the region and also has below-average construction costs.
The slow construction is an important feature. Some cities build quickly and can transition toward reliance on public transport. For example, Taipei only began building its MRT network in the 1990s, long after the most similar capital city to it in overall development history, Seoul, had had a multi-line network. It was a city of motorcycles in the 1990s and so were the other Taiwanese cities, but through fast (albeit expensive) construction has become a transit city, developing higher-intensity central business districts at key MRT junctions and turning its older unstructured density into a structured one.
I am also excluding India from this analysis for the same reason. Indian cities are making enormous mistakes in metro construction, chief of which are poor integration with suburban rail and high construction costs, but they are building, and even keep a lid on costs by building mostly elevated systems. The Delhi Metro ridership is flagging, but it’s a big system, about the same size as New York or London, and it’s expanding quickly; the rest of India is still only catching up, but the plan for Mumbai in 10 years is extensive. Tehran is in the same basket as Indian megacities, judging at least by its healthy pace of metro expansion.
Even when most people do not own cars or even motorcycles, as was the case in Thailand until recently, the government prefers cars to public transport. This comes from the fact that unless the public transport is excellent, or only serves where the middle class works, richer people will use cars more than poorer people, and tilt government policy to their preferences. Lagos, for example, was seriously considering banning its jitneys in 2017, called danfos, even as car ownership was 150 per 1,000 people, and has periodically considered such a ban a few times since.
This domination exists even in very poor cities. Years ago, a cousin who was visiting Kampala described its traffic to me as a brutal pecking order in which cars fear trucks and pedestrians fear cars. If 5% of the population owns cars, that’s still the richest 5%, and they get to dictate the rules.
Is it governance?
Something most of those cities I’m describing have in common is a form of government called anocracy. It’s defined as an intermediate form between democracy and autocracy, but really should mean a system in which there is unclear authority – perhaps there are elections but they are not truly free, perhaps there is a deep state, perhaps there is a dictator but the dictator’s power is circumscribed by powerful magnates and norms that do permit some political criticism. Anocracies tend not to have very strong states – a strong state under a dictator rapidly becomes a stable autocracy, for example Russia’s transition to autocracy in the last 20 years under Putin, whereas a strong democratic state evolves enduring norms and institutions of civil liberties and pluralism, like Taiwan and South Korea starting in the 1990s.
I suspect there may be a connection here: anocracies do not really have the state planning ability to restrain local magnates, like these top 10-20% of the population who are drivers. They can build roads, because it takes much less state capacity to incrementally expand roads, often with local sponsorship, than to plan a multi-line metro system, let alone do the clever multimodal design integration between infrastructure and timetabling that Switzerland does.
This is not a perfect correlation. Egypt is autocratic and not anocratic, although its recent military coup suggests it may not be as stable as autocracies with full civilian control of the military like Russia and China. Vietnam appears even more stable, and showcased high state capacity through excellent management of the corona crisis (though coup-ridden Thailand has had an excellent response as well). Moreover, there is no correlation between anocracy and construction costs – even putting my finger on the scales and classifying Turkey as not-anocratic, the correlation between a dummy that takes the value 1 at what I think are non-Turkish anocracies and construction costs is 0.06.
That said, there may be something to the fact that we see rapid expansion of metro systems in a developing country with relatively strong democratic institutions, i.e. India, and saw such expansion in turn-of-the-millennium Taiwan, and likewise we also see rapid expansion in relatively stable autocracies like Iran and China, but we see much less of it in countries without strong governments. And Moscow’s fast metro growth in Russia’s anocratic phase in the 1990s and early 2000s can be excused as having some strong-state planning institutions, inherited from the USSR. Egypt in contrast never had these institutions, with its imperfect state control of the military.
If I have a bad idea and you have a bad idea and we exchange them, we now have two bad ideas.
But more than that. If I have a bad idea and you have a good idea and we exchange them, we should both land on your good idea – but that requires both of us to conceive of the possibility that your idea could in fact be better than mine. This is not always the case. In exchanges between Britain and Australia, both sides think of Britain as the metropole and Australia as the periphery, so ideas flow from Britain outward. The same is true in exchanges between either Britain or the United States and Canada.
We even see this in exchanges between the Anglosphere and the rest of the world. Europe knows what the United States is like. We speak English and read American news to some extent. We have occasional sympathy protests with American causes that we feel are reflected at home; I have never seen Americans do the same with people outside North America except for very small protests concentrated among a particular diaspora, such as small groups of Israeli-Americans protesting Netanyahu’s policies in front of Israeli consulates.
And most of us in Europe look at the United States with a combination of denigration and disgust, but it’s not everyone, and in a pandemic, the least responsible members of society set everyone’s risk levels. There’s been some American influence on the populist right in Europe – people who see Trump and think “we would like to be governed like that”; this is still sporadic, e.g. the Gilets Jaunes used French populist language and had no connections to the United States, but the corona denialist protests in Germany have imported some American language like QAnon symbols. And more broadly, seeing other countries fail emboldens the pro-failure caucus at home: the Israeli immigrant who told me 2 months ago that “800 cases a day is nothing” Germany-wide would probably not have said this if Israel maintained its May infection rates. Of course the vast majority of denialists here are not Israeli or Jewish, and many are even anti-Semitic, but they look up to the failure that is the United States and not to the one that is Israel.
The corona example above is specific to Germany and is a bad idea that remains a minority position in Germany, but good ideas from the United States have made it to Europe elsewhere. For example, France made it easier to start a business, to the point that incorporation takes a few days and 4,000 euros in a corporate account, regulations on small business are very friendly, and there is elite consensus in favor of making hiring more flexible and some movement in that direction in the Macron administration. On handling racial diversity, Europe is sporadically importing ideas from the US, some good, some terrible, but again there is little attempt at learning in the other direction even when our cops kill a few dozen people per year Western Europe-wide and America’s kill 1,000.
I bring this up, because in transportation, one sees a lot of learning of practices both good and bad, if they come from a higher-prestige place. I may even speculate that this is why the most culturally dominant part of the world has the worst institutions when it comes to building infrastructure: if New York were capable of building something for one eighth the cost of Paris or one sixth that of Berlin, instead of the reverse, then Paris and Berlin would be capable of learning to adopt New York’s institutions.
To speculate even further, this may be why the cheapest place to build subways in East Asia is not Japan but Korea – if Japan were the best, South Korea would have learned from it. There are extensive similarities between these two countries’ institutions in general and urbanism and transportation in particular, coming from one-way learning of Japanese ideas in Korea more than from reciprocal learning. Evidently, Korea first of all learned from Japan that the primate city should be rail-oriented rather than car-oriented, and subsequently learned Japan’s extensive integration of urban rail with regional rail, its combination of local and express trains, its interest in rail technologies other than conventional subways, and so on. If Tokyo and Osaka were capable of building $120 million/km subways, Seoul would’ve picked that up. Instead, Seoul can do this but Tokyo and Osaka are evidently not learning.
In Europe, the same pattern holds. None of the most culturally dominant countries here has low costs. France and Germany’s construction costs are very average by global standards and on the high side by Continental European ones, and both have serious problems with how long it takes to build infrastructure projects. The stars of high-quality, low-cost construction in this part of the world are Southern Europe, Turkey, Switzerland, and Scandinavia. The first two are ridden by cultural cringe – nobody there other than a few railfans believes that they’re capable of doing better than Germany. And evidently, where Germany and France outperform Spain, for example in high-speed rail ridership, the Spanish discourse understands this and tries to correct the situation.
Switzerland and the Nordic countries are dicier, since they are rich and well-governed and everyone in Europe knows this. People in France and Germany even reference various Nordic models as examples to learn from, and, in contrast, the Nordic countries’ willingness to learn from non-Nordic examples is limited. However, these are all small countries that import culture more than exporting it. The vast majority of German culture is produced in Germany and not Switzerland; people in Germany are aware that Switzerland exists and is richer, but Germany’s size lets it get away with not learning. The Nordic countries, likewise, are small enough that other countries are not as regularly exposed to their ideas and therefore treat them as exotic more than as examples to learn from.
I bring up the issue of size, because it is so flagrant in the United States especially, and also in Britain. The US philosophy that economic or social might makes right is not done on a per capita basis, and practically every comparison to another country elicits the “we’re way bigger than them” excuse. Britain engages in the same excuse-making at every comparison to a European country smaller than Germany, France, Italy, and Spain, whereas these four it dismisses on a case-by-case basis; the Australian cultural cringe toward Britain is evidently not about per capita living standards, since Australia’s GDP per capita has been higher than Britain’s for most of the last 150-200 years, but rather about Britain’s greater size and historic status as a world power.
You may be wondering, maybe this is just a way to theorize around the fact that it really is easier to build infrastructure in a smaller country? But no. Turkey and South Korea and Italy and Spain are not small. Seoul is the second largest metropolitan area in the developed world, behind Tokyo and ahead of New York. The common factor to the lowest-cost countries in the world is not size, but rather their status on the periphery of the developed world, either economically or culturally.
Of course, peripheral status is not enough. Former colonies tend to have high construction costs, perhaps because they learn the wrong lessons from the developed world or from China. Italian wages and capital costs are by global standards approximately the same as German ones, so Italy can adapt German ideas where they’re superior, but Indian wages are so much lower and capital costs so much higher that it cannot blindly imitate Japan and expect success. In the developed world, too, we see failure, when countries learn from the wrong examples, that is Britain or the United States; Singapore has severe cultural cringe toward the Western world, but it finds it easiest to adapt British ideas out of familiarity rather than better Continental ones, in much the same way that reform proposals in the United States look to Britain and Canada rather than to Continental Europe or democratic East Asia.
The way forward must be to recognize this cringe, and know to look for ideas that do not obey the global social hierarchy. Southern Europe has a lot to teach Germany and France, and the Nordic countries are not exotic far north utopias but countries with real institutions that can be adapted elsewhere, and Turkey has a very efficient construction sector, and Korea has a lot to teach its former colonizer as well as the rest of Asia.
More to the point, the most dominant places in the world have very little left to teach others. Everyone knows what New York is like. There are many good things about New York, but we’ve done a decent job copying them. London, same thing. It’s time for New York and Los Angeles and Toronto and London to stop exchanging bad ideas and start learning from places that do not speak English as a first language, and not just from the world’s next largest language groups either.
I recently heard of state-level American standards for climate resilience that made it clear that, as a concept, it makes climate change worse. The idea of resilience is that catastrophic climate change is inevitable, so might as well make the world’s top per capita emitter among large economies resilient to it through slow retreat from the waterfront. The theory is bad enough – Desmond Tutu calls it climate apartheid – but the practice is even worse. The biggest, densest, and most desirable American cities are close to the coast. Transit-oriented development in and around those cities is the surest way of bringing green prosperity, enabling emissions to go down without compromising living standards. And yet, on a number of occasions I have seen Americans argue against various measures for TOD and transit improvements on resilience grounds.
The worst exhibit is Secaucus Junction. The station is a few kilometers outside Manhattan, on New Jersey Transit’s commuter rail trunk, with excellent service. So close to city center, it doesn’t even matter that the trains are full – the seats are all occupied but there’s standing room, which may not appeal to people living 45 minutes out of Midtown but is fine at a station that is around 10 minutes away today and should be 6 minutes away with better scheduling and equipment.
The land use around Secaucus is also very conducive to TOD. Most of the area around the station is railyards and warehouses, which can pretty easily be cleaned up and replaced with high-density housing, retail, and office development. A small section of the walkshed is wetlands, but the large majority is not and can be built up to be less ecologically disturbing than the truck traffic the current storage development generates.
Politically, this is also far from existing NIMBY suburbia. In North America, the single-family house is held to be sacrosanct, and even very YIMBY regions like Vancouver only redevelop brownfields, not single-family neighborhoods; occasionally there are accessory dwelling units, but never anything that has even medium density or visibly looks like an apartment building. Well, Secaucus Junction is far from the residential areas of Secaucus, so the most common form of NIMBYism would be attenuated.
And yet, there is no concerted effort at TOD. This is not even just a matter of unimaginative politicians. Area advocacy orgs don’t really push for it, and I’m forgetting whether it was ReThinkNYC or the RPA that told me explicitly that their regional rail proposal omits Secaucus TOD on climate adaptation grounds. The area is 2 meters above sea level, and building there is too risky, supposedly, because a 2 meter sea level rise would only flood tens of millions of South Asians, Southeast Asians, and Africans, and those don’t count.
This goes beyond just wasting money on needless infrastructure projects like flood walls, or leaving money on the table that could come from TOD. In the 2000s, New York City was emitting 7 metric tons of CO2 per capita, which was better than Germany and a fraction of the US average. This must have gotten better since – New York had an abnormally high ratio of building emissions (i.e. energy) to transportation emissions (i.e. cars), and in every developed country I’m aware of, only energy emissions have fallen, not car emissions.
A bigger New York, counting very close-in suburbs as New York, is an important part of the American green transition. To have the emissions of the inner parts of the city within the city is a luxury people pay $3,000 a month in rent for; to have it in exurbia means having a smaller car than everyone else in an environment in which accumulating lots of stuff is the only way one can show off status. Breaking the various interests that prevent New York (and Los Angeles, and San Francisco, and Boston, and Washington) from growing denser is a valuable political fight. But here, no such breaking is even needed, because the anti-growth interests think locally, and the only locals around Secaucus Junction live in one high-rise development and would if anything welcome more such buildings in lieu of the warehouses.
And yet, Americans argue from the position of climate resilience against such densification. Normally it’s just a waste of money, but this would not just waste money (through leaving money on the table) but also lead to higher emissions since housing would be built in other metropolitan regions of the US, where there is no public transportation. Once adaptation and resilience became buzzwords, they took over the thinking on this matter so thoroughly that they are now directly counterproductive.
Somehow, the goal of avoiding catastrophic climate change has fallen by the wayside, and the usual American praxis of more layers of red tape before every decisions can be made (about climate resilience, design for equity, etc.) takes over. The means justify the ends: if the plan has the word climate then it must be environmentally progressive and sensitive, because what matters is not outcome (it’s too long-term for populists, and all US discourse is populist) but process: more lawsuits, more red tape, more accretion of special rules that everyone must abide by.
Question. In what ways can a recession be useful for forcing inefficient public-sector agencies to lay off redundant workers and reduce bloat?
Every recession, going at least back to the Great Depression, you get economists and others who are certain that high unemployment can discipline firms into greater productivity. Back in the 1930s, this was Joseph Schumpeter saying that there was no need to fear a depression because it was good, like “a cold douche.” Liquidating unproductive firms and forcing the rest to get leaner was supposed to improve economy-wide efficiency. Today, you can find people arguing the same for inefficient public-sector agencies strapped by budget cuts.
It doesn’t happen. Productivity decreases in bad economic times; labor-saving productivity improvements happen when wages are high, not when sales are low. Cash-strapped firms do not have the ability to invest for the long run – they just sell portions of themselves and shrink to be easier to manage, to limit the loss.
In public-sector public transportation, this really is the same. The best time for converting a metro line to driverless operation is when unemployment is 3%, not when it’s 15%. When unemployment is 3%, it’s possible to place workers in the private sector, which means they’ll work well through the transition. This goes doubly so when the productivity improvement lets one person do a job that previously took three rather than eliminating the job entirely: workers can go on strike if they’re unhappy, and transit as an industry is very amenable to unionization, to the point that unions have succeeded in organizing the tech shuttles in Silicon Valley in an otherwise union-hostile setting. (Of note, American public-sector anti-union successes have mostly been about screwing young workers, who are already the least empowered within the union, rather than doing anything to 20-year veterans who are about to retire with a full pension.)
The issue here is that very, very few workers are redundant on a next-day basis, even in severely overstaffed agencies. New York can eliminate subway conductors but requires some planning in advance to do so, for example to move mirrors around and place CCTV cameras to enable drivers to see the platform and close the doors. American commuter rail agencies can eliminate rail conductors, in what is as close to next-day redundancy as I can think of, but even that requires hiring fare inspectors for proof of payment checks and often also buying ticketing machines at outlying stations where previously passengers bought tickets directly on the train.
More often, eliminating a large amount of waste requires spending a bit more money in the short run. It can be on capital, like more ticketing machines. It can be on labor, like more dispatchers to make the buses run more regularly to reduce delays and bus driver overtime. But it’s usually not something that can be done by the Chainsaw Al school of management. It takes time, and in a lot of cases, the cooperation of the workforce is necessary.
Time and time again, we see transit managers who think in terms of just cutting avoid making long-term investments to improve efficiency. We see hiring freezes, wage freezes, reticence to engage in any long-term hiring and planning even in temporary recessions, and hostility to electrification even among American governors who propose to spend billions of dollars on parking more trains in city center between the morning and afternoon peaks. Even below the top political level, managers who develop a siege mentality never think in terms of long-term improvement. That’s not what will get them ahead; avoiding short-term controversy will, and they adapt to bad practices readily.
The workers adapt, too. If they expect sudden layoffs, their morale will tank and so will their productivity doing anything but the most routinized work. Maintenance workers will skip things – nobody will notice until it’s too late. Cleaners will slack, and if the message sent from the top is that it’s time to retrench, it will be hard to argue for aggressive standards for cleanliness. Even absent unionization, productivity will flounder, and there will not be much room to replace truly lazy workers if there is a hiring slowdown.
So what works for increasing efficiency? The answer is growth. Kopicki-Thompson’s report on best practices for rail privatization has a chapter about the history of the breakup of Japan National Railways in the 1980s, which makes the connection between growth and efficiency clear. Between 1980 and the breakup of JNR into seven constituent JRs in 1987, the company laid off two-thirds of its workforce, after complex negotiations with the unions, some of which were militant socialists. Japanese work culture is that a man is expected to work for the same firm for his entire working life, from age 22 for a university graduate to retirement at 65; JNR had to place these workers in the private sector for a mid-career layoff. This could happen because Japan’s economic growth in that era was famously high, to the point that Americans soon bought business books about how to think like a Japanese manager.
It is best to instead use weak periods to plan for the long term. If there’s stimulus spending, take it and go build things. Even if there isn’t, remember that the recession won’t last forever and plan in advance. Part of the plan should be knowing which workers are supernumerary and making a plan to place them at private-sector jobs as soon as they become available. But don’t expect to be able to send masses of pink slips in a recession; that must be saved for when jobs elsewhere in the economy are plentiful.