Tuesday, 19 July 2011

The Institute of Economic Affairs' HS2 Paper

The IEA have released a paper today which pulls no punches, calling the proposed High-Speed rail link "the next government project disaster", somewhat pathetically adding a question mark despite this being the conclusion of the report.

It's worth looking at this report in some detail, as it's generally well written and ostensibly undermines much of the government's case. It has some major flaws though which I'll set out here.

The report has quite a good executive summary that is an accurate reflection of the paper. I don't propose to go through each of the points raised, but instead to take a few of the key themes that inform these points. Here we go:

There is no business case for HS2 in commercial terms

Page 18 of the report contains these two sentences:

It is clear from the outset that there is no business case for HS2 in commercial terms. The sum of capital and revenue costs, discounted over time, is nearly twice as high (£44.3 billion) as the projected stream of revenues from ticket sales (£27.2 billion)

This is, I'm sure, an accurate reflection of the DfT's case. However this doesn't make the project automatically bad. The armed forces don't make a lot of money from their revenue, and nor do the courts. In fact, surprise surprise, London Underground does not create enough revenue to cover its total costs (or, at the moment, even its operating costs). The Tube is, therefore, a burden on the taxpayer we should get rid of right now, surely?

Except it isn't that simple. We fund the Tube as we believe it provides wider benefits, including to those not using the system. The roads in London are less congested, the business hubs more successful and the pollution less deadly thanks to 4m journeys a day being made on the Underground.

Page 27 does start to get a bit interesting. The report notes that:

The analysis starts with the presumption that ‘time is money’, i.e. if you save time by getting from A to B quicker, you will save money

This isn't quite the innovation that the IEA thinks it is. The DfT themselves considered this problem in a consultation in 2007 (see paragraph 86 - that link took a while to find). It's not an unreasonable point that people can and do work on trains, and leisure users do read or listen to music. However this doesn't undermine the concept of a value of time. People can and do pay more for faster modes of travel. One can travel from London to Birmingham by going from Euston (1 hour 20 ish) or from Marylebone (2 hours 5 ish). The longer journey is cheaper. You can work on the Chiltern trains from Marylebone - it's quite a good service - and one can definitely listen to music or read a book. However the trains from Euston aren't empty because of this. Despite the ability to do some productive activity there are still lots of other activities one can't do while on a train. Consumers value this, as clearly can be seen, and if we're going to go along with the principles of welfare economics then we don't question why people value things, only how much they value them.

Going to Euston is a waste

The report gets quite worked up about this, particularly on page 9, although it uses 'gold-plating' a fair few times, which is a term people like to use for anything when they believe they know best about the value someone else gets from a decision. The IEA argument goes like this (paraphrasing, not quote):

Euston is in central London. It's really expensive in central London. People already use Euston, so there'll be more people using it if HS2 goes there. Why don't we just drop people off in a field somewhere? Fields are generally cheaper than city centres.

This logic would have left us with Eurostar terminating at Ebbsfleet and the Jubilee line running only from Canning Town to Stratford. Of course London is expensive, but that's the prize of the investment. Of course the cost per km is more expensive near London that it is in a field. The time savings are not, as the IEA claim, negligible. Ask yourself this question. You want to go to Birmingham. Your offices are in central London, say Charing Cross (the very centre of London). Would you rather...
  1. Go to Old Oak Common (it's somewhere near Paddington)? 
  2. Go to Euston (it's on the Northern line five stops up from where you are)? 
Number 2? Me too. The key to encouraging people to use alternate modes is making them accessible. Euston is in Central London. Old Oak Common is not. It really is that simple. Of course this doesn't mean we should go there whatever the cost, but Euston is a pragmatic choice - it has the space for expansion, it's near St Pancras and King's Cross and well served by other transport.

The report reveals a bit too much about itself on page 10 by suggesting that HS2 going to Euston might encourage Crossrail 2 to be built, "this economically questionable project". In 1974 the London Rail Study Report described the Crossrail 2 route, and in 1989 the Central London Rail Study suggests the project has a very good case (page 17 if you're still with me). In fact Crossrail 2 (or the Chelsea-Hackney line as it's sometimes known) is such a good project that it likely has a better or at least comparable business case than Crossrail 1. Try the Central line at rush hour if you're unsure of the benefits of Crossrail.

In summary, the IEA's criticisms here seem to be that big projects in the middle of one of the most prestigious cities on Earth cost a lot. Perhaps the only decent point in this section is that on page 11 about the challenge of fitting high-speed services around the busy North London line, although this is the last point raised rather as a footnote (and surely not insurmountable).

Where is the demand for HS2 going to come from?

This is an odd bit, and one that I don't quite follow the IEA's paper on. Page 21 presents a table of long-term demand forecasts. Before all one of you rush to look at this, the first thing to say is that long-term demand forecasts are rubbish. In fact forecasts of demand are so bad they are almost always worse than just guessing a number randomly, because they imply a precision that is totally unearned. Future Babble is an excellent book on this, but for a very quick summary look at this image:

The graphs is from an excellent BBC article about forecasts. The graph shows the forecast number of births at different times. Note that in all cases the forecasters would have been better off just drawing a straight line from the current figure. In short, all the forecasts are terrible.

So it's not a good idea to get hung-up on the exact percentage increase that will occur for each future year. The report, to it's credit, does note this, saying "As the future is inherently unpredictable, long-term predictions are as much an art as a science", but this overstates the science and understates the art. It proposes using scenarios, but these aren't much use either - how should the demand scenarios be picked, and which do I consider the most likely?

Oddly, despite the excitement of the report, page 21 reveals that the growth forecast of HS2 Ltd is 2.0% per annum, which seems pretty middle-of-the-road when looking at the table on the same page that I referenced above. It is surely better to look at some general trends in transport. Have there been many examples of high-speed rail demand in the UK falling? No. What about other modes - are the motorways becoming less busy now we all have e-working opportunities? No. In fact the DfT do publish regular statistics on this - see the first graph of this modal comparison. Note the lack of a drop.

So what we can say is that as incomes have generally improved and the economy grown, transport demand has increased. There are of course blips for individual years, but just as it rains sometimes in July and is sunny sometimes in January, it is in general fair to say that July is warmer and more pleasant than January.

When planning transport the government can only do so much. It can look at current trends, seek to use as sensible-forecast as it can, and then plan on that basis. We know that people want to travel around the UK, and there is no shortage of business leaders who back the plan, sensibly assuming that shortening the time between key UK commercial centres is good for business and good for development outside of London.

HS2 isn't perfect - there's so much more to do in specifying the route and, critically, as the McNulty report stated, the UK needs to get much better value from rail works and prevent the capital costs being so unreasonable when benchmarked against European comparators. HS2 does need to look at how operating costs can be minimised, and frankly the UK rail industry as a whole has a long way to go here - costs are unreasonably high for a host of factors including inflated pay and a franchising system that almost rewards companies for being inefficient (particularly the lack of successful risk transfer). HS2 should be challenges on these and many other points.

It is tempting when reading the IEA report to wonder what the authors would have made of Charles Pearson lobbying in the 1850s for an underground rail line that would link the terminals of major railway stations. No doubt they would have thought that a supposedly private scheme would have eventually relied on public subsidy, caused huge disruption and entrenched the railways in a position of power. They would have been right of course, but I defy anyone to demonstrate that the Metropolitan line was fundamentally a bad idea. Is HS2 perfect? No, but the UK will need to improve its railways and HS2 is a valiant effort to describe a credible proposal for improving UK rail.

Saturday, 16 July 2011

The WATM Podcast Episode 28

The toughest Burmese bandit can never understand it

A noise at the door as a parcel of WATM gets pushed through. Open it up, and see what's inside. Let's see: this week we've got for you:

  • Burma out of the headlines
  • 2012 Olympics ticketing
  • São Tomé and Príncipe presidential election

Listen by:

Or listen through this page:

Saturday, 9 July 2011

Beyond the 38th parallel

That should hold them back

Your author's recent trip to South Korea

"Here you go!"

The woman fumbled in her purse to extract a 10,000 won note, holding it out toward me with a big smile. She was roughly my age, Korean or possibly Korean-American and spoke good English.

"We can't take it: it's fine we'll get money out upstairs"

"Come on - it's really cheap - take it! Please!"

I sheepishly took the note, trying to convey gratitude while looking pathetic. Walking backwards towards the ticket machine so as to continually thank my benefactor I turned round and purchased our tickets from central Seoul to Incheon Airport. The woman looked pleased to have helped and walked towards the platforms.

This was not an uncommon experience in South Korea. I've travelled in Thailand, Japan and China - all largely racially homogeneous countries - and have been used to my wife's and my pasty skin being about the only thing worthy of residents' remarks. I expected the same in Korea, and for perhaps some students to try out their English on me. I'd learnt a few words of Korean - nothing much - but was expecting communication to be limited.

Yet this assumption proved incorrect and unkind. The Koreans I spoke to were friendly, helpful and curious. It always feels ludicrous to attempt to generalise a country's people, even more so to do this having been in the land for two weeks and encountered perhaps a thousandth of a percent of the population. Perhaps all that is possible it to get a sense of some of the ways interactions take place, and to report my experiences without attempting to allude to a grander theme.

As one wanders around Seoul it's hard to believe that until 1987 the country was under an authoritarian regime. The city has its share of gleaming tall buildings, but that is no guarantee of political freedom as any resident of Shanghai will remind you. One incident highlighted the glaring difference between China and South Korea

On May 1st the police obviously expected trouble. They were out in ridiculous numbers throughout downtown Seoul. There were so many that I stopped and asked a red-vested Hi! Seoul (the Seoul tourist campaign) worker. Expecting an inquiry about the location of some tourist hot-spot, they were a little embarrassed to hear my question. However this was not the embarrassment of someone desperate to change the subject; it was more akin to the long-suffering daughter asked to explain her eccentric father's behaviour. The police were ready to manage a demonstration in Seoul Square, a location we had walked through not three minutes earlier which plenty of people going about their humdrum business. Seoul residents seemed to regard the police with bemusement, and certainly not fear.

Waiting for a May Day riot...
Police. Camera. Inaction
Most of the time it's hard to remember that Seoul is less than 40km from the North Korean border. Travel is free, hotel check-in easy, passport-security no more oppressive than in the UK and business is flourishing. However, there are signs hidden beneath this happy exterior. The remaining sections of the fortress wall that once surrounded the city are a beautiful walk surrounded by nature and tremendous views of the city. Yet visitors to the north section must bring their passports and report to a security office manned by the army. Throughout this section of the wall soldiers of the Republic of Korea Army stand guard with ostentatious automatic weaponry. Photography is forbidden, except in infrequent designated locations where guards watch to ensure nothing untoward occurs. Anyone wishing to veer from the ten or so metre wide path will find themselves identified by myriad intrusion detectors.

In many countries this would sound like paranoia. We rightly laugh and scold the Minuteman Project on the United States' southern border or the delusional near-xenophobia that saw Switzerland mine its borders. However it's hard not to understand South Korea's position. They live so close to a country run by highly unpredictable deity that not only threatens violence but delivers. The shelling of Yeonpyeong in November 2010 is enough to remind any South Korean resident that kind words alone will not guarantee their safety.

Travelling by train from Gangneung to Gyeongju offers another reminder. As the slow, seven-hour train journey meanders by the coast there is something that visitors to Blackpool or Southend will not encounter: barbed-wire. Many of the visible beaches had tall chain-link fences, topped with this skin-tearing defence.

And yet for a country so evidently under threat, a country that has no land-access to the rest of the world because of a neighbour that wishes destruction, this is a place where we were greeted with nothing other than welcome and kindness. A restaurant chef acted out the words on the menu to help us decipher. A member of Seoul subway staff paid us out of his own pocket when a ticket machine failed. Tourist information staff took pity on us and desperately called around to find a room when, rain soaked, we arrived late on a Saturday on an impromptu return to Seoul. Waiters across the country smiled and clapped as I destroyed the pronounciation of ma-shiss-ŏss-ŏ-yo to demonstrate my appreciation of their food. And, yes, some students did stop to take a picture of this English couple.

As we hiked up around the wondrously beautiful mountains of Seoraksan National Park we were repeatedly asked choob-ji ahn-uh-saeyo? This meant nothing to us, but was frequently accompanied by tapping of the questioner's arm, or sometimes Jo's bare arm. 'This again', we thought; it must be the familiar observation that our skin is lighter. On the second day a man who spoke both English and Korean happened to overhear this and translated: "aren't you cold?" Amazed that in weather of only 20°C anyone could want to expose their skin, their question was kind. As soon as we understood the meaning (and begun to recognise it in future) and lacking the vocabulary to say 'no, actually it's far from chilly compared to good old Blighty' we were able to mime how hot we felt and receive broad grins and theatrical surprise.

It is an anomaly that a country that is so interesting, beautiful and hospitable is not on more western tourist itineraries. Maybe it is fear of the North that holds them back, or perhaps simply that South Korea is less publicised than its neighbours. Whatever the threats from above the 38th parallel it seems life goes on in the massively more prosperous South. When reunification one day comes the southern half seems in as good a place as possible to repair the disaster to its north.