Do you like the sound of £100 million ($150 million)? Can I tempt you with £160 billion? Expressing these figures per person in the population can be useful. The first figure is one bar of luxury chocolate for everyone. Doesn’t sound so big now, does it? The second figure is like everyone having a £2,500 bank overdraft (loan). Strange that, because indirectly, we do.

Unfortunately, applying the economics of household groceries to major items of government expenditure introduces certainty. The idea that one can visit a store where luxury chocolate bars are sold for precisely £1.70. Yet many large elements of government expenditure are akin to ordering a chocolate bar years before it can be eaten, for a price that transpires to be somewhere between £1 and £5.

Larger businesses will be familiar with this concept. It’s called risk. Such businesses are often far more interested in what “it might cost” (£5) than what “it will cost” (£1.70), because what it might cost might lead the business to bankruptcy.

The national economy is chaotic in its complexity, but overall, things should average out. So long as all the assumptions are broadly reasonable: Ultimately some will earn/cost more, some less. Short-term in-balance can be solved by (basically) printing more money, and then down-grading future assumptions until everything is back in balance.

However, this breeds a form of arrogance. A sense that government doesn’t need to consider the possibilities. That we can deliver a radical new policy – that has never been done before – and, in spite of it never having been done before, we know precisely how much it is going to cost. Just like a bar of chocolate.

Unfortunately, assumptions tend towards optimism. On average, projected costs are less than actual costs. This isn’t just a problem for accountants. It means that decisions are taken which do not reflect reality. Potentially leading to a Disneyland scenario, where everything is affordable until after the decision is taken, when suddenly everything has become too expensive. It ultimately challenges the validity of decisions, and in doing so, the moral authority of those that take them.

This article uses the Edinburgh Tram project to demonstrate the inherent uncertainty of large government infrastructure projects. It discusses the role of optimism in planning, and the methods used to reconcile planned optimism with subsequent reality. The article describes how the involvement of the private sector in public projects has evolved over the last 20 years, and the highlights the different time-scales applied to private investment and public choices. It concludes that optimism is not only unavoidable, but necessary. Rather, the true problem lies in tendency of people to demand certainty from the public sector, while accepting uncertainty in the private sector. On this page:

• Digging Holes
• Optimism Bias
• The Downside of Up
• Evolution of Public-Private
• Paradoxes of Uncertainty

Digging Holes

Edinburgh’s Haymarket used to be one the busiest transport junctions in the city. Used to, because for the last 2 years, the highway has played host to a unusual urban art form: Holes.

The exact location of these holes changes from month to month. An elaborate game to confuse pedestrians and drivers, as they fail to navigate the shortest path to their destination. Like the best urban art, the artist is rarely seen – although the presence of various pieces of mechanical digging equipment indicate that the work is somehow still incomplete. Yet the most intriguing part of this sculpture is it’s name, “Edinburgh Trams“. Because in spite of the preponderance of construction activity in the locality, the only track to be seen at Haymarket is the same mainline railway that has run under the road junction for the last 170 years. No new stations, no over-head power cables, and certainly no trams.

“Light rail” requires slightly heavier engineering than road traffic. So laying tram tracks often involves rebuilding almost everything underneath the road surface before the rails can be laid. In a large British city, this means modernising about 200 years worth of poorly (that is, not) planned subterranean infrastructure. A maze of pipes carrying all those important things that normally remain unseen – water, power, communications.

That doesn’t just cause the appearance of a lot of track-free holes. It means that we aren’t entirely sure what’s down there until we start digging. This is one example of what makes the construction planning process especially uncertain for trams: How many holes should we plan to dig, and, hence expect to pay for?

Now that most of the utility work is complete, we know that almost 50 kilometres of utilities were diverted, almost double the 27km originally estimated. Estimation which appears to be fairly typical of the way the rest of the project is progressing:

The Edinburgh tram project was originally conceived as part of a package of transport measures, funded by a new road pricing scheme. The road pricing was abandoned by popular vote, but the tram scheme proceeded anyway.

Before construction had started, a perceived shortage of funds reduced the 3 proposed tram lines (and some extensions), to 2 core routes. Yet by the time the first hole had been dug, the estimated cost of this (smaller) network had already risen above £500 million. That’s a thousand pounds for every city resident – including those that don’t have £1000. By the start of 2010, the (generally accepted) estimated cost had risen to £600 million, with some private estimates closer to £1 billion.

This in a period when (money) inflation has been almost stationary, especially in an otherwise recession-hit construction industry. And all the while, the completion date continues to slip backwards – curiously, always 3 years from now. The Edinburgh Evening News provides a timeline.

This inherent uncertainty doesn’t just make a mockery of announcing something “will cost £375 million”, when the only thing we can be reasonably sure of, is that it won’t cost precisely that much. It creates scope for optimism in planning: To bias all the cost assumptions down. Nobody can convincingly dispute an estimate, because nobody has accurate figures about the cost of building trams through Edinburgh. Estimates are biased down because securing popular (specifically political) approval for a project is easiest when the cost is lowest. Naturally, once a proposal has political support, there is considerable reluctance to abandon it. So everyone keeps digging.

Optimism Bias

The tendency for costs to be under-estimated has been apparent for several decades. Indeed, it has been formalised in the planning process as “optimism bias“. Literally, add n% to the projected cost, because, on average, past infrastructure projects have cost n% more to finish than originally estimated.

For light rail schemes, n is at least 40%. That’s quite a big error for a sector that claims to employ professional people for forecasting and planning.

Of course, adding n% still doesn’t solve the problem: We merely proceed to make even more optimistic assumptions. Claim that that much optimism bias shouldn’t apply to us. Like a gambler, convinced that their luck is somehow above average. Yet (unfortunately) secure in the knowledge that British government doesn’t “go bankrupt”: However bad the bet, those gambling debts will always be funded from somewhere. And you’d be amazed how few people working in government can explain where somewhere actually is.

This isn’t a grand conspiracy. It’s the same kind of optimism that concludes parents to believe their children are somehow “better” than they actually are at school. It’s inbred in planners and politicians alike: They’re fundamentally the kind of people that want to affect change. To get things done. They have a natural disinclination to believe proposals are unachievable.

Extend the planning horizon over (often) decades, and, frankly, almost anything can be made plausible.

Consider an operational, rather than construction example: Optimism fills our new trams with people that were previously causing road traffic congestion (policy objective), and who happily pay a premium over bus fares (operational objective). Yet pessimism would fill our new trams with former bus passengers (minimal policy impact), and who are paying bus fares (unfortunately trams have higher operating costs than buses). Only a couple of inherently uncertain assumptions separate these 2 scenarios. Separate success from failure.

The Downside of Up

There are several methods of managing the financial crisis that (invariably) occurs once reality challenges optimism.

For example, we can always do less. Build 1 tram line now, and another one “later”, maybe. Commission a single aircraft carrier, rather than a pair. It’s a terrible fix:

• 1 tram line clearly delivers less benefit than 2 lines. If the prime objective is perception, not transport (as I contend), then running trams past the Royal Bank of Scotland headquarters and on through the city centre, may be sufficient. But it is not always so easy to scale back. A single aircraft carrier reduces the solution to farce: If one wishes to maintain an active sea-based air capability, then you can’t do it with one ship: Wars rarely adhere to maintenance schedules. Strategically, the choice is between 2 ships or no ships.
• An initial decision to build 2 tram lines triggers an immense amount of preparatory work, the cost of which tends to be lost. Even if no work has been done, contracts have been signed, organisations have been scaled up to deal with the initial (larger) proposal. In defense procurement, the naval architecture associated with a one-ship fleet is rather similar to a 2-ship fleet.

We can also try and pass costs on to commercial contractors. Transfer the risk from government to the private sector. When the price doubles, it is the private contractor that picks up the bill. Sounds great, except:

• Short term, relations between contractor and client can become exceedingly unpleasant. Not least because government is a less aggressive environment than (most) commerce, so public officials often aren’t prepared for unpleasantness. In Edinburgh, work has been stopped completely by disputes with the main contractor, Bilfinger Berger. Disputes that rumble on.
• Medium term, a commercial contractor may default on the contract. The largest businesses struggle to manage hundreds of millions of pounds of unexpected cost. The result can be a half-finished thing, eventually completed late, by a far less optimistic contractor – who has inflated the cost still further.
• Long term, the risk associated with all government contracts rises. Potential contractors increasingly regard public sectors clients as liabilities. Or more likely, greater liabilities.

Evolution of Public-Private

That final observation contributes to the view that it is more cost-effective for the private sector to do everything, with the public sector reduced to buying the result like a service. That the private sector is better at managing risk, and the public sector can only be trusted to purchase at fixed prices – like chocolate bars. It’s one of the logics behind the 1990s-era Public Finance Initiative, Design-Build-Finance-Operate, Public Private Partnerships, and. There’s another problem:

The public sector isn’t sure what kind of chocolate bar it wants. Not just that difficult choice between Almond and Toffee. Rather, today it is buying luxury chocolate, but at some point in the near future its political objectives will change, and the public appetite will be for… somewhat cheaper milk chocolate. Or maybe… biscuits. Feeling hungry yet?

The private sector process is akin to trying to order groceries a decade in advance. A nonsense to consumers that expect to decide while standing in the store, seconds before they buy.

The catch is that, unlike chocolate bars, physical infrastructure lasts decades. The private sector can only invest in, and fund, such infrastructure over decades. Faced with the certainty of political uncertainty – whatever it builds likely won’t be wanted for some of its lifetime – the only sensible solution is not to build.

Box: Over the Sea to Skye
The Skye Bridge connects the Isle of Skye, in Western Scotland, to the mainland. Although technically sea, the crossing traverses a narrow channel of water, about a mile wide. The bridge was constructed as a “Public Finance Initiative” project. The contractor both built and then continued to own the bridge, charging road users a toll. The bridge had replaced a ferry crossing, so rational (economist) planning assumed that bridge crossings could be priced much like the old ferry. Unfortunately people perceive a ferry more like a “cruise”, while a road bridge is considered more like a (“free”) road. A situation that was further confused by the economics of the original ferry operation: In the best tradition of public sector transport operation, the Skye (Kyle) ferry had been cross-subsidising other ferry routes in the Western Isles. So where paid, the Skye ferry fare had been excessive for the distance travelled, and hence bridge tolls became rather excessive. Where paid, because local people had tended not to pay to use the ferry, yet found the privately owned toll-booth less accommodating. Opposition to the toll was initially small (the area is sparsely populated), but intensely passionate. As Scotland gained devolved government (including transport responsibilities) in the late 1990s, the toll was subjected to increased political pressure. Under the previous Conservative administration, Scotland was governed much like an imperial province – devolved government was a very dramatic change to the political landscape. Tolls were first subsidised by government – at significant public cost – until complete capitulation occurred: The bridge was bought (effectively at the price of the contractor’s lost future earnings, not the price of construction), and tolls removed. This political climate then spread beyond Skye – a belief that any Scottish bridge toll was unacceptable, apparent in current discussion about the Forth Bridge. In less than 20 years, the politics of bridge tolls have been inverted. The legacy of the Skye Bridge is not just funding inefficiency (George Monbiot calculated that the bridge should have cost no more than £25 million, but actually cost over £90 million). It also clearly demonstrates how the commercial construction/investment time-scales (in this case, originally a 27-year operating contract) can be completely at odds with far shorter public/political timescales.

Uncertainty can be reduced by what civil servants used to nervously refer to as “the P word”: Partnership. By close communication, shared understanding of each others’ problems, and, ultimately, strong personal relationships between the individuals involved, both the public and private sectors can better predict and adjust to future changes in objectives. Demands that might otherwise appear “from nowhere”. In a stable political environment, this can work – that is, one with rather limited democracy. But it rarely survives the sudden and dramatic shocks to the political system, that are associated with elective democracy: 15 years of gradually evolving, but broadly similar policy by one government, may be completely reversed by a newly elected government. In the British system, literally overnight.

This big uncertainty – the risk of a sudden change in direction – makes everyone cautious. Government officials are reluctant to commit to processes their future political masters may not be committed to. Commercial organisations become reluctant to invest in a process that might be “taken away” at a later date.

The result is a move back to formal contracts, as a way of protecting everyone against this big uncertainty. Except that a “partnership-contract” looks rather too cosy. At best uncompetitive. At worst outright corrupt. And, as the Skye Bridge box above shows, contracts still won’t stop a determined politician. Such contracts merely confuse the strategy, and inflate the final cost.

Now consider that, having merged public and private into one almost seamless project-completing entity, we logically start to wonder why we ever bothered to maintain any distinction? Why not just let government do everything itself?

Why – well, among other things, because the public is too optimistic. Yes, that again. We’re back where we started.

Paradoxes of Uncertainty

The underlying problem is one of time. The paradox, that people excel at evolving and adapting from day-to-day, but struggle to predict their own evolution and adaptation. They cannot conceive in the future, what they can do in the present.

Of course, people tend to live in the present. This isn’t just reflected in the inherent difficulty of trying to order groceries a decade before they are consumed. There’s a fundamental disconnection between the present self and the future self, even though the 2 states of being are logically related.

William Hazlitt is attributed with the observation that our present self views our future self the same way as it views other people. This starts to explain why we tend towards future optimism – we’re applying the same sense of optimism to the future, that we do to other people. That hints at how deep optimism runs through the human condition.

(Optimism could be equally well described as empathy. Which, in turn, probably reveals why depression – arguably a lose of human empathy – tends to make people more rational.)

So:

• Clearly, we are not going to solve the problem by solving optimism. It’s a part of what it is to be human.
• Indeed, managing optimism is no easier than managing people – a largely empathic process that tends to fail when applied rationally, or into the future.
• Meanwhile, optimism appears fundamental to the types of decisions that push society forward. Optimism is what biases human endeavour away from the currently accepted average. Possibly a necessary condition of “trial-and-error” evolution.

I reluctantly conclude that optimism is not only unavoidable, but entirely necessary.

So why is it such a problem for the public sector? Simple: Government doesn’t do uncertainty. Much as it doesn’t make mistakes. Of course it does, it just has terrible difficulty acknowledging that it does.

An investor in a commercial business accepts that some of the money they invest will be spent on unprofitable activities. They judge the success of their investment on the overall return of the entire business. In contrast, public investors in a government enterprise – or taxpayers, as they are called – expect every penny (cent) to be “well spent”. Anything the population deems to be “waste” can approximate to a moral right to “demand their money back”, with almost no consideration of overall performance.

Culturally this makes it hard for the public sector to acknowledge misjudgements, consequently harder to learn from them, and hence, exceptionally hard to learn from them while they are happening – at the time when something still might be done to improve the situation. In practice, either the situation gets so bad that it dissolves into scandal and farce, or once the dust has settled, the National Audit Office (or Scottish equivalent) reports about the woes of British tram procurement. The current generation of local politicians and officials will learn not to try that again (I suspect they already know). But nobody will address the underlying structural problem.

Which leaves an important question: Why do people demand financial certainty from the public sector, while simultaneously accepting uncertainty from the private sector?

It didn’t happen. Neither the threat to prosperity, nor the policy:

• Environmentalists rallied against the few early projects (famously turning the Newbury Bypass and Twyford Down into civil battlegrounds) – road-building became politically negative, rather than positive.
• There was never really enough money in national budget to fund the policy – increasingly obvious as the UK economy dipped into the recession of the early 1990s.
• Even with the policy, roads would still be built slower that road traffic was growing – it was not possible to “build your way out” of the problem. It’s worse than it first seems, because new roads generate additional traffic growth, requiring more road capacity, generating more traffic…

The legacy was apparent in Tony Blair’s first Labour administration (or more accurately, John Prescott’s, the minister who led the transport and environmental agendas in the late 1990s): Much greater emphasis on sustainability, local projects, and use of forgotten modes, like buses and shoes.

Now, step forward 20 years to 2010.

The Secretary of State for railways and other transport, Lord Adonis, announces plans for a new high-speed rail line between London and Birmingham. At least £15 billion ($23 billion) for the first phase, rising to £30 billion with extensions further north. (Read those figures with caution – the costs of the previous West Coast Mainline upgrade project increased so much that nobody could remember how low the initial estimate was.) Inflation means that the cost of this latest rail project is only about half the (real terms) cost of Roads for Prosperity. But Roads for Prosperity proposed thousands of miles of highway, across many different locations, compared to a few hundred miles of railway track between a few large cities. And “Railways for Prosperity”, as I’ve corrupted the latest proposal, doesn’t have the pretence of strategy.

Politically it’s work of genius – the benefits flow to the political class (who tend to use trains), especially those living in increasingly marginal electoral territories in the West Midlands and North-West of England. Meanwhile, the Peoples’ Republic of Great Missenden (and soon likely every other other community near the route) is up in arms because the totalitarian regime they likely never voted for, has decided to build a railway – without the local station necessary for them to commute to London. I exaggerate, but only slightly.

Forget the “high-speed” aspect of the title. Operationally, the need is to increase capacity (see the box below). Make space for more trains on one of the busiest railway lines in Britain. More capacity creates more redundancy in the system, which makes it easier to recover from operational problems, and so makes trains more reliable. From bitter personal experience as a passenger, I suspect reliability is worth more than speed here. Of course, “better reliability” sounds a lot vaguer than “30 minutes faster”.

Read beyond the concrete, and the talk is all about “economic growth”, and “jobs”, and.

It’s at times like this that I want to pick up a shotgun and blow my brains out. 20 years later we’re back where we started. And nobody seems to have noticed.

This article uses historic examples to question the strength of the relationship between transport and the economy. It highlights the political biases towards railways, and their funding. The article explains why grand transport projects remain popular, when their overall impact on problems is often minimal. Rough analysis is presented that demonstrates the futility of building new railways – the 21st century reality, that we simply cannot afford to continue enlarging our transport networks in response to increased passenger demand. Finally, a stark comparison is made between communications and “transport” policy, which questions the validity of spending 15 times more on a new railway, than on a core element of “digital” inclusion. Along the way, the article clarifies a few popular misconceptions, from the influence of Unionism, to the impact of “integration”. On this page:

• Transport and Economy
• The Allure of Railways
• Train Sets
• Sorry, We Can’t Afford It
• Digital Britain

The title illustration is of a life-size Thomas the Tank Engine, at Kidderminster, by Mike Warren (with apologies to Chris Haynes).

Box: How Empty Tracks can be Full
The West Coast Mainline is the busiest (long-distance) inter-city route in Britain. It links the 3 largest cities in the country (London, Birmingham, Manchester), as well as serving their hinterlands. And Liverpool. The southern section, from Birmingham to London, is especially busy. Yet someone observing the track would spend most of their time doing just that – mostly, the track would not be occupied by a train. A road under the same conditions would be considered “empty”. It is unrealistic to operate a high-speed train at intervals smaller than about 5 minutes, because safe distances need to be maintained between trains moving on the same tracks – especially those slowing down to stop at stations. Unlike cars, trains moving at over 100 miles per hour take rather a long time to stop. It’s probably unrealistic to operate trains along the West Coast Mainline every 5 minutes reliably, because of the complexity of the railway: Trains from many different cities have to seamlessly fall into a timed “paths” along the southern section of the route. That sounds easy, until you realize that long-distance trains often use the same tracks as local and freight trains, any one of which can cause delay. For example, a late-running local train at Coventry delays an inter-city train from Wolverhampton, delays another from Glasgow… and the whole schedule starts to collapse like a “house of cards”. Junction improvements and faster train acceleration (the previous “Virgin Trains” upgrade) can help. But eventually more trains just require more track to run them on, even if everything still seems rather empty and under-utilised.

Transport and Economy

The “Highway Development Survey 1937 (Greater London)” is a fascinating read. Not because you can clearly see the route of London main orbital motorway, the M25 – a road that wouldn’t open for another 50 years. Nor for sections like “Access to Aerodromes”, which notes the “unsatisfactory character of the surface communication between towns and their aerodromes” – something London Heathrow is still struggling with. It’s that the strategy is built on the analysis of burgeoning road traffic growth. Between 1922 and 1936 the number of motor vehicles per mile of road in Great Britain tripled. Tripled! In little more than a decade. Probably would have quadrupled were it not for the Great Depression. 15 vehicles per mile of road won’t have caused many traffic jams. But it surely indicates what is to come…

Post-war, US-style, multi-lane urban freeways (motorways) were proposed, which by the late 1960s had simply proved too expensive to construct. London’s drivers were destined to struggle through endless traffic jams. It’s public transport users doomed to rely on much the same railway network as their Edwardian ancestors.

So surely the economy of London collapsed as a result? Erm. It transpires not. London’s economy generally leads UK’s economic growth, in spite of (by popular agreement) having the worst “traffic problems” of any British city.

Curiously, Birmingham, which did build an urban motorway round its city centre, has spent the last 20 years trying to get rid it again. Why? The inner ringway constrained the geographical size of city centre, which actually inhibited economic growth. By making it more desirable for pedestrians to cross the ring-road (by diverting traffic, or demolishing the road entirely), people and businesses were prepared to use space outside the traditional centre, and the (tertiary) economy bloomed: The result is most visible in the old Bull Ring area of the city, where former light-industrial land is now covered in expensive retail and office development. Ironically enough, this is close to the location of new (technically, reopened) Curzon Street railway station – the proposed terminus of the new railway.

That economies thrive in spite of imperfect transport systems should not be a surprise. For a few decades prior to the 1880s, influential London residents (in particular) were worried about the rapid expansion of their city, and the growing need to transport goods (in particular) across that city. Remember, an urban population, by definition, are not growing the food they eat – freight transport is absolutely fundamental. “Solving transport” is seen through a very similar prism as previous improvements to water supply and sewers: An essential part a modern city. Many of the engineers involved with water schemes, such as Joseph Bazalgette, later became involved in transport projects. While the early development of the London Underground (a passenger system) tends to dominate popular history, there were many freight-based proposals, some of which were even built – Pneumatic Dispatch (wagons propelled by air through underground tunnels), Hydraulic Power (distributing hydraulic power to industries, instead of moving raw coal), networks of pipes conveying telegram messages.

The 1866 financial crisis dampened enthusiasm for funding these marvels of modern engineering. Those networks that did exist, failed to expand as fast as the city. Yet people didn’t starve. In fact, London became one of the most (financially) successful cities on the planet. Freight was largely forgotten, even though freight transport remains far more important to a modern human’s survival than most humans realise. Meanwhile, passengers complain when travel impedes their lives, because they (generally) didn’t even want to travel, so lose patience rather quickly. Add the mixed public-private ownership of most transport systems (for example, government provides the roads, individuals provide the cars) – and the general confusion over “who is responsible” this causes – and passenger transport became a political issue.

My examples are all urban, because the impact of local transport is altogether easier to understand than long distance (inter-regional) transport. For example, a cynic might conclude that long-distance transport simply makes it easier for economic activity to be located somewhere else. Consequently specific transport improvements just move the same economic activity round the country, on balance, gaining nothing. I’m not that cynical, but you can see how complex this debate can become.

Transport clearly does have an influence on economic activity. Modern freight distribution systems are fundamental to the existence of urban society. Passenger railways made it possible for European cities to extend into suburbs, much as mass-ownership of automobiles in North America fuelled “endless” suburbia. Modern academic studies tend to support the idea that transport fosters and supports economic development – The Eddington Transport Study provides a lot of fairly recent “economic” evidence. Indeed, rudimentary economics states that transport is a derived demand (you move in order to perform some other economic activity, the movement itself is wasteful economically), so there has to be a link, otherwise we wouldn’t bother moving.

But looking back through history, 2 conclusions emerge:

• Transport has a relatively unimportant influence on economic activity, compared to other activities within the economy.
• The impact of transport on the economy always seems more important to decision-makers at the time, than it actually transpires to be.

Ah. But. No. I’m not going write a thesis on transport and economic development.

But you should start to question “motherhood and apple pie” statements made about the impact on the economy of expensive “train sets”. History suggests that investment in big transport projects isn’t half as important as anyone promoting it thinks.

The Allure of Railways

One of the most fundamental misunderstandings in British public transport policy is that all modes are not created equal. A bus and train are not inter-changeable units of carriage, even though both appear to do the same thing – move lots of people from one place to another.

People that travel by train tend to avoid buses, and vice-versa. Rail tends to be a more expensive method of travel, more likely to serve wealthier suburban areas, while buses pick up passengers from deprived inner cities or estates. Issues of social status and “class” lurk. This doesn’t apply to everyone, and there are local variations: For example, in parts of Hampshire, rail and bus fares can be very similar. In a city like Edinburgh, professional “middle class” people happily ride around on buses. But overall, the situation looks like this:

Data is from the Great Britain National Travel Survey, 2006, Table 5.4. Travel behaviour is divided into 5 household income “quintiles”, the poorest people on the left, wealthiest on the right. Annual miles travelled by bus (and coach) is shown on as a dotted line, rail as a solid line. The poorer your household, the greater the reliance on buses. The wealthier, the more use of trains.

This is important for 2 reasons:

1. Biasing government investment towards rail is a bias towards the wealthy members of society. The opposite of just about every social policy agenda (concerns about income inequalities).
2. Those with higher incomes tend to form the “political class” – people that will let their politicians know when they’re unhappy. Naturally, the political class tend to use trains. So political policy tends to favour trains, especially in the absence of a clearer strategy.

The best evidence for the second point can be found in industrial relations. The box explains how the travel preferences of the political class have influenced the pay of their drivers. The second box explores why we still seem so emotionally attached to a mode of transport we mostly don’t use.

Box: The Raven
Britain’s train driver now earn about twice as much as bus drivers. My figures are approximate, un-sourced, but I doubt anyone would dispute that there is a large gap, nor that the gap has widened over the last 25 years. Both jobs are similar: Safety critical, yet rather dull and repetitive. Skilled work but, not, I would argue, as skilled as professional roles like teaching or management. Yet train drivers often earn far more than those 2 groups. How have train drivers managed to inflate their earnings so high? One word: Strikes. No rail operator can survive its drivers (in particular) withdrawing their labour for a long period. Training a railway driver takes upwards of a year. The operator is probably already employing everyone that knows how to drive their trains along of their routes. The political classes travel on trains, and suddenly not being able to travel on trains, annoys these people. Rail services are (almost always) operated as government-let franchises, so politicians have genuine leverage over operators that are “upsetting” their customers. And since staff costs are still less than third of total operating costs, drivers can be paid even more, without immediately bankrupting the business. In contrast, when bus drivers strike, misery tends to be inflicted upon the people that don’t complain loudly. Alternatives like “just walking” are more viable, because buses tend to serve shorter distance journeys. New drivers can be trained in a matter of weeks, or imported from other operations, or Poland – presenting many more negotiating options. Staff turnover (churn) is much greater among bus operators – the constant arrival of new staff makes new working practices easier to introduce. And, perhaps most importantly, wages are already at least two thirds of total costs, so managers have almost no flexibility to increase wages without increasing the fares charged to passengers. So while labour relations are also rather poor in the bus industry, the same escalation of wages hasn’t happened. Bus driver wages are much more closely linked to prevailing wages for similarly skilled work.

Box: A Curious Love Affair
This British “love affair” with trains may seem curious, given that they account for under 2% of all journeys and only 6% of all miles travelled [NTS]. Travel is fairly unpleasant, so historically, “glamour marketing” has been used to offset the unpleasantness of the reality. This works especially well for a new mode of transport, that only the wealthy can aspire to travel upon. For example, flight involves being suspended high in the air, with only some rather flimsy-looking engineering separating you from certain death. Why would anyone want to do that? Yet until the arrival of low-budget airlines, aviation maintained much of the glamour that had been associated with flight in the earlier part of the 20th century. And much the same was true of railways. There was nothing terribly pleasant about bumping along behind a hot water tank on wheels, that would occasionally deposit hot embers and sooty ash upon you. Yet we still continue to romanticise “the age of steam” – even a population that (mostly) never experienced it. Perhaps it provides a subtle reminder to Empire – a time when “Britain was Great”? Not that most people are old enough to remember that either.

Train Sets

I attribute the phrase “train set” to a director of one of the large public transportation operating groups. But sadly, almost anyone working in local public transport at a strategic level, could have said it.

The term is typically applied to “pet projects” of government, planners, politicians, and other interest groups, such as local business organisations. These proposals can pre-occupy their supporters for decades, even though their net contribution to overall problems and issues is relatively minor. The unspoken parallel is to a child playing with a scale model/toy train. I think train sets have 3 defining characteristics:

• Organisational problem solving prioritised ahead of user problem solving. For example:
  • Local government often pursued tram (light rail) projects during the 1990s, even when very few were being funded. A common reason was that they could exercise political control over the operation of trams, while bus services had been de-regulated – in some cases, literally “taken away” from local politicians and sold to commercial businesses.
  • Commonly a project will solve a problem that has been really annoying certain people for a very long time. Maybe every good idea they have seems to falter because of this problem. Or it’s on their route to work each morning. Their bias is not intentional, but it will build up over years. The problem may be real, but solving it might not have such a huge impact. Which leads us to:
• Single project prioritised ahead of area-wide schemes. A major project like a railway will only ever be routinely used by a fraction of the people living in the places it serves. And most people don’t live anywhere near. It’s simply inevitable that one grandiose project will fail to influence the travel patterns of most people. In contrast, area-wide strategies can have much a broader impact, potentially affecting far more people. “Train set” projects are focused because they are grand, expensive creatures, which are consequently far too expensive, requiring too many specialist resources (such as railway signalling engineers) to build everywhere at the same time. As I will explain later, they are actually too expensive to ever build everywhere, which is a far more fundamental problem. So why propose such single projects? There are “spill-over benefits”: For example, businessman now commutes to Birmingham more often, does more business, employs more people. But the real explanation lies in:
• Perception prioritised ahead of effectiveness. Most major transport projects have almost nothing to do with transport. Really. They’re built to convey image. Change perceptions. The fact they happen to be useful for travel is almost secondary. The people being influenced may not even use the new transport service. This marketing function is very important: Cities and countries thrive (or not) on their ability to attract certain people, businesses, and so on. But understanding that we’re buying prestige is important, because other methods may be more cost-effective. The box compares the perception of trams in Manchester and Birmingham. (I could equally have selected Edinburgh’s trams, the development of which was influenced by the local business community’s desire to look a little bit more like London – more trains, less buses. Or just picked on my favourite sacrifice on the altar of “better than you”, North Korea’s Ryugyong Hotel.) Ironically, given the tendency of perception projects to contribute little to transport, such projects are increasingly used by politicians as physical evidence that “something is being done”. As I discussed in Valuing Nothing, effective government policy often addresses intangible problems, yet the political arena is still structured around tangible things.

Box: Tram Spotting
Birmingham has a tram line. Manchester has a tram line. Manchester’s tram line runs through the city centre, physically apparent to anyone that visits. Birmingham’s tram line terminates at the edge of the city centre, physically invisible to anyone that isn’t already riding. Both lines provide an adequate transportation function (for those that are travelling along the route). But Manchester is the clear winner in terms of perception. Such is the rivalry between Britain’s “second” largest cities, that it became inevitable that Birmingham’s tram should be extended through the city centre. And sadly for Birmingham, almost 15 years after the first detailed public consultation on the extension, the project is still “being planned“. I can only assume that Birmingham’s politicians will have been cheered by the news that Manchester’s high-speed link has been relegated to a sometime-maybe-never second phase of construction…

I’m not privy to all the politics surrounding the latest railway announcement, but it isn’t hard to fit the “train set” analogy:

• The lack of spare track capacity on the southern section of the West Coast Mainline has been the bane of railway planners and schedulers since as long as anyone can remember. While there is a genuine issue here, it might not be as important as, say, access of pensioners to Post Offices.
• Rail travel accounts for a tiny proportion of all journeys nationally, and one line simply doesn’t have the capacity to grow that share significantly. Not the mention that the vast majority of those journeys aren’t anywhere near the route. Anyone expecting to see measurable changes to wider national travel behaviour will be disappointed.
• Not only is it a train, beloved of the British political classes, but it goes really fast too! Which has to be a good thing, right? I mean, Britain invented this stuff, even if France, Germany, Japan, China (I could go on) boast far more extensive high-speed networks. But does it help me get to school/work/hospital/shops? Probably not. Travel to some-place I can’t already travel to? Doubt it. Or maybe it helps lower-income groups that don’t travel much and certainly don’t travel much on expensive trains? Or did you just answer your own question… Only by assisting the higher-income groups first (that rather curious modern Socialist logic).

Not everyone has been busy “playing with train sets”. The box tells the recent history of the other London to Birmingham railway.

Box: Counterpoint – Chiltern Railways
Since the Beeching era (1960s), there has only been one mainline railway between London and Birmingham (that’s the same one that has the capacity constraints). Remnants of the former Great Western/Great Central route from London to Birmingham were retained, but only for local services. By the mid-1990s, these local services from London Marylebone to Banbury had been extended to Birmingham, but merely for the convenience of local passengers: Trains were infrequent (from memory, every other hour, compared to every 30 minutes on the main route), and slow (over an hour longer than the main route). Following “privatisation”, the commercial franchisee – Chiltern Railways (originally management-owned, now part of Deutsche Bahn) – exploited the opportunity to capture some of the long-distance market – especially potential passengers in the poorly-served southern hinterland of Birmingham (Warwick, Kidderminster). Track was improved, new trains purchased, stations built or rebuilt. City-to-city journey-times came down to 2 hours, with a train every 30 minutes. Still about 40 minutes slower than the main route, but normally more reliable, and better serving certain parts of the West Midlands region. While Chiltern Railways’ initiative wasn’t merely as grand or fast as the new high-speed railway, it also cost about £15 billion less. The example contrasts pragmatic commercial business development, with “predict and provide”, government-led projects.

Sorry, We Can’t Afford It

After generations of year-on-year increases in both the average annual distance travelled per person, and number of journeys made, the last decade saw no overall increases [NTS again]. That change coincided with both the rising importance of substitute communications technology (“the internet”), and the fact we had stopped building major new transport infrastructure. Shrewd observers will note that economic growth continued to rise through most of the 2000s, apparently unrelated. How curious!

Within this overall flat trend, one mode continued to grow patronage: Railways. The box below explains why I think rail travel continued to grow, while overall, other public transport patronage remained static – in spite of policies intended to encourage both bus and rail usage.

Box: Crippling Integration
The late-1990s “Integrated Transport Policy” caused much confusion. Was it aiming to integrate transport modes with one another, or integrate transport with non-transport activities? The answer was “yes”, but tended to focus on the first. Unfortunately, integration within public transport remains a rather poor replacement for good land-use planning – any requirement for interchange represents a significant barrier to “multi-stage” public transport journeys. In practice, “integration” strived to make all public transport modes equal, when they are not: The Allure of Railways demonstrated the income differentiation between bus and rail. Within local networks, differentiation can also occur – such as setting fares by geography (socio-demographic variations) or time-of-day. Yet this became increasingly difficult to develop in a political environment where “everything is the same”. (London (somehow) managed to buck the trend, by clearly differentiating Underground trains and buses by fare – bus travel became roughly half the price of the Underground, increasing bus patronage, and easing “Tube” overcrowding.) Meanwhile, society is getting richer. Whether they’re actually getting richer, or the intangible economy (“house prices”) are merely making them think they are, is moot. Travel behaviour gradually shifted towards modes of transport favoured by the wealthy, such as trains. Bus operators that have sustained real growth in patronage through this period (places like Brighton or Edinburgh) are those that still convey people from the middle of society: Their “product” kept pace with the rising aspirations of their markets. The needs of local markets for travel differ, so a “one size fits all” mentality can easily alienate potential passengers, and reduces the flexibility of business development. Differentiation is hard to achieve in transportation, and clearly somewhat harder when government is simultaneously trying to sell a unified, generic network to the travelling public.

More railway passengers inevitably need more trains, which eventually require more track to run them along, which finally results in proposals to build new railways. It seems to make sense, but much like Roads for Prosperity, it’s all rather futile, as the following rough analysis highlights.

Let’s make a few assumptions:

• The distance travelled by rail passengers increases by 50% every 10 years. That was approximately the trend prior to the recent recession (rail is especially income-sensitive, so recessions have a significant impact on rail patronage).
• The current railway network is operating at capacity. Clearly untrue, however many of the busiest routes, junctions and stations are constraining future growth.
• Half of all subsequent growth in distance travelled will require entirely new railway infrastructure. This half is an arbitrary estimate – it’s going to require some new railways to accommodate 50% growth each decade, but there’s also under-used track, and other methods of managing increased patronage.
• There are no technical or administrative constraints on railway building. For example, an infinite number of skilled railway signalling engineers are available.

The estimated cost of construction of the 190 kilometres from London to Birmingham is £80 million per km. The Channel Tunnel rail link (“High Speed 1″) cost over £50 million per km. Light rail (trams) typically cost £10-15 million per km. For now, let’s assume an estimate of £30 million per kilometre of new “heavy” railway built.

The current UK railway (route) network is about 17,000 km in length. Following our assumptions, in the next 10 years, we’re going to have to build an extra 50% x 50% x 17,000 = 4,250 km of railway. At £30 million per km, that’s £128 billion over 10 years, £13 billion per year.

Too many big numbers. For context, £13 billion ($20 billion) per year is:

• £400 from every taxpayer.
• £10 supplement on price of every rail journey (based on 1.2 billion rail journeys per year).
• 160% increase in total government funding for railways (which was already the biggest single component of state transport expenditure).

The logical commercial solution, that £10 supplement on the price of every rail journey, simply exposes deep flaws in “railway economics”. The box below will help explain why the public sector tends to fund railways.

Box: Public and Private Funding of Railways
Like most British railways, the original 1830s London-Birmingham line was funded by private capital. While London to Birmingham was profitable, many of the later railways were built on little more than financial market speculation. The First and Second World Wars brought the fragile finances of commercial railway operation into focus – the First resulting in the “grouping” of railways into 4 large operations, the Second leading to full nationalisation (public ownership). Infrastructure investment on the nationalised railway was limited to half-hearted attempts at modernisation, such as electrification (infrastructure allowing the use of more trains powered by electricity). Operational finances lurched from one crisis to the next. The 1990s saw the private sector make forays back onto the railways. Often successful where delivering something the public sector was ultimately still paying for – such as leasing rolling stock (carriages), or as a franchised train operator. But often unsuccessful where unsupported by government – notably the Channel Tunnel (debts bought that company to the verge of bankruptcy), and Railtrack (the stock-market listed provider of track/stations, subsequently reclaimed by the state as “Network Rail”). The unfortunate truth is that railways aren’t terribly commercial. For example, David Serpell’s 1983 analysis showed that just 16% of the network could be operated commercially, without government support. It therefore appears inevitable that the public – that is, government – will end up paying for new railways.

But nothing is so simple: In subsequent decades, the cost of our railway-building programme will rise above inflation, costing an ever-greater amount year-on-year, because:

• Land prices are a significant part of overall construction cost, and land (property) prices consistently rise above inflation (this modern-day feudalism isn’t just a social problem).
• We are building a percentage of an ever-larger network – always building 25% more new railway kilometres than the previous decade.
• We can assume that new railways generate traffic growth, just like new roads. The more we build, the greater the increases in patronage, the more new railways are needed.

Now consider that:

• State support of railways transfers tax revenues back to the richest members of society. Social policy, what social policy?
• Railways have no direct benefit to 98% of the populations’ journeys. A proportion that won’t be changed dramatically by the first few decades of railway-building. Minimal impact on conventional transport policy and (for those that think trains will “save the planet”) environmental policy.
• The reliance of the economy on railways is questionable, and, consequently, so is the effectiveness of the new railway’s return on investment (returned as additional growth in the wider economy). Specifically, other forms of investment may contribute more – example below. Unconvincing net long-term contribution to the national treasury.

Yes, my assumptions are very vague. And there will still be cases where a modest improvement can unlock a lot of potential. But the sheer magnitude of the figures must make us question just how strategically sensible, or even possible, building extra railway capacity is.

Yet this analysis is only the “tip of the iceberg”: The problem applies to all conventional transport networks. Briefly assume that railways account for 5% of domestic transport, and that supporting unfettered growth in transport capacity across all modes would (in the first year) cost 20 x £13 billion. £260 billion each year. That figure won’t be accurate, but it’s still more than the cost of the entire welfare state. Over twice expenditure on the beloved National Health Service. 10 times current government expenditure on transport. It’s “a lot of money” to be throwing at problem that then continues to perpetuate itself.

So it appears that we simply can’t afford to continue enlarging our transport networks. It’s a defining reality that separates 20th and 21st century approaches to the topic. I’m not yet certain what the “21st century approach” is. But I suspect it won’t rely quite so much on wheels:

Digital Britain

Digital Britain outlines the UK’s current policy on communications infrastructure, media, and internet. At best, it’s 10 years too late. At worst, it risks the creation of “bad law” relating to rights ownership. Regardless, it allows a fascinating comparison of approaches to the same thing.

Same thing? Yes.

Given the correct application of technology, many socio-economic activities can occur through communications infrastructure. Forget tele-conferencing. Think recreational fishing. I reckon if that can transfer seemlessly from a physical to a virtual environment, almost anything can. As with previous technological revolutions, we won’t completely abandon what went before, but it’s likely that the vast majority of economic growth and social change will be built around the new technology, not the old.

One of the headlines from the policy was a proposed monthly tax of 50 pence ($0.75), levied on fixed phone lines. The tax would raise somewhere between £200 million and £1 billion (later sources tend to cite the higher figure), to be used to provide every household with a 2Mbps “broadband” connection. It’s the virtual equivalent of surfacing a dirt track with tarmac. While South Korea is busy building virtual freeways. But Britain is as least trying to ensure equality of access to the modern-day printing press.

Just not trying terribly hard: That a government should invest at least 15 times more in a single railway line, than at the core of its digital inclusion strategy, is rather revealing of that government’s priorities.

I might forgive the lack of foresight, if the West Midlands’ economy was 15 times larger than the digital economy. But it isn’t. Definitions vary but the “digital economy” already represents about 10% of the national economy – rather similar to the whole of the West Midlands region. And a “broadband tax” that directly benefits about 10% of households nationwide, would seem to have much greater economic and social potential than a railway line that will likely be used by 1%.

The method of funding is also revealing. The “broadband tax” at least tries to spread the burden among users – even if ultimately it’s still “unfair“. Yet nobody in political office would dare to try and fund a railway by raising the fares paid by those travelling on it. At least, not since the darkest days of the 1970s. What kind of madness is this?

In the final analysis, digital communications are a fundamentally cheaper method of transport to provide than railways. And since it transpires that we can’t afford to keep expanding our conventional transport networks, perhaps digital communications deserve a little more emphasis?

Of course, that rational argument rather assumes that large transportation projects have anything much to do with transport. You can “cut the ribbon” on a shiny new high-speed railway line, and everyone immediately appreciates where all the money went. But a bunch of fibre-optic cables can’t even be seen – things on the internet surely just happen… So perhaps first we need to solve the politics of the intangible?