The Swedish Model I: Why the Stockholm underground is so great

During the two years I lived in Sweden I lost count of the number of times ex-pat friends extolled the virtue of Swedish public transport and compared it favourably to its British counterpart.

The Stockholm underground, as every resident and visitor knows, is clean, cool, on time, and runs until 3am on Fridays and Saturdays. What is more, one can get a mobile phone signal deep in the underground stations (not surprisingly, one might think).

My friends were right of course. The Stockholm underground is far superior to London’s and it is about to get even better. The reason for this, however, is probably quite the opposite of what they would have guessed. As Fraser Nelson explains:

Stockholm’s privately-run underground is about to go 24 hours, the latest
innovation from Connex (now renamed Veolia). Privatising the underground is seen
as too right wing for Britain , but not Sweden which is perhaps the most
socialistic country in the world... If London Underground ran all night, I
imagine that night time attacks on women would go down dramatically. Ken
Livingstone jacked up black cab fares in the evening so more drivers now work,
but while there are now more taxis on the street few can afford them. Every
night in London , you can see women ushered into the cars of strangers shouting
‘minicab’. If Boris could get London ’s tube running till 3am, never mind 24
hours, he’d score a great victory for street safety.

Indeed. Perhaps he’d best start by privatising the Tube.

Privatising the roads? - why roads are not a public good

At the special Manifesto Conference on Saturday, I muttered to a colleague that rather than continue with the congestion charge, we might be better off simply privatising the roads. While this was meant to be deliberately controversial, his response was quite surprising. “They are a public good” he replied, to which I responded “No they’re not.” It being a whispered conversation in the margins of a meeting, it could only continue along the lines of “Yes they are”/”No they’re not” until there was a real danger that the audience were going start joining in or we were going to be joined on stage by a pantomime dame.

Not being one to let things drop, however, I find myself needing to explain why roads are not a public good, both because it highlights errors about transport policy and because it highlights misunderstandings about other public goods.

Before we look at what a public good is, we need first to dispel one myth and so clear up what a public good is not. Public goods are not merely goods from which we all benefit. After all, as Adam Smith made clear, we all benefit from the activities of a baker (he provides us with bread thus obviating the need for us to learn to bake, build an oven etc.), but baking is not a public good. In the same vein, just because the economic activity that roads facilitate benefits us all does not make them public goods. Neither does the fact that they are free at the point of use make them a public good, for this would be to put the cart before the horse; just because things are provided in the manner of a public good does not mean that this is the right or best means of doing so.

The Economist defines a Public good as one which is available to all or to none: they are non-rival, non-excludable and not-rejectable. Dr. Paul M. Johnson adds that they “cannot practically be withheld from one individual consumer without withholding them from all … and … the marginal cost of an additional person consuming them, once they have been produced, is zero”.

Tellingly, none of these applies to roads. Indeed, the first highlights the key problem facing road-users today: roads are extremely rivalrous. There is a very limited amount of space, and so use by any one individual is at the expense of others (expressed through traffic congestion and so loss of both time and temper). This is of course the logic behind the congestion charge.

Roads are also excludable, though in practice this option is not often exercised. Users of the M6 will be well aware that it is possible to exclude drivers from sections of the road dependent upon whether they pay a fee. The template for road privatisation is the service provided by Dulwich College: in 1789 John Morgan built a road from the top of the hill to fields he rented from Dulwich College, charging a toll on people who passed through his land, and on their animals.

Roads are also rejectable, in that one does not have to drive. One may walk or take trains; I know of many environmentally-minded people who have chosen to forgo the car, as well as urban residents that cannot face the horrors of road travel. Yet they are still taxed to pay for a commodity that they do not use.

Dr. Johnson’s points are actually covered by the above: tolls do enable one to withhold the service from some but not others, while congestion means that the marginal cost of an additional road-user is not zero; it is merely defrayed across other road-users by increasing their journey times and frustration, as well as on the general citizenry through pollution and eventually demands for extra roads. And so the cycle continues.

Nonetheless, the arguments that Adam Smith and others used to justify the funding of public goods through taxation are often applied to roads. This is most easily described as the “free rider problem”: to wit, everybody benefits from the building of roads yet without taxation individuals cannot be forced to pay. This is patently not true: not every taxpayer benefits from the building of a road from Henley to Oxford, and through the use of tolls free-riders can be excluded.

In fact, the arguments for funding even some classic public goods are flawed. Adam Smith himself used the example of the lighthouse, arguing that because all shipping would benefit from being warned of the reefs but no private lighthouse keeper could exclude those who did not pay from receiving the warning, nor force them to pay a toll, those who built lighthouses would bear all the costs individually while the benefits would be spread broadly. Yet this does not mean that no private interest will build a lighthouse. One or two shipping magnates may decide that their own losses from shipwrecks are so great that they would personally benefit to such a degree from the building of a lighthouse that they are willing to bear all the costs even though others might benefit. This logic was applied by the Roman and British empires which, in suppressing piracy, gained so much from facilitating trade that they did not mind the fact that others benefited from safer seas without contributing. Similarly, rich burghers who wish to live in beautiful cities may choose to build great public works at their own expense. Thus, depending on one’s viewpoint, there is either a fine line between enlightened self-interest and philanthropy, or Smith’s “Invisible Hand” was a better guide to individual action than even he realised.

This might apply equally to roads, for two reasons. Firstly, because the benefits of road-use are not equal, those who benefit most may wish to build roads from which others may benefit. An example from Hong Kong is instructive: when business leaders approached Sir John Cowperthwaite, Financial Secretary, to argue that the government should build a bridge linking Hong Kong island to Kowloon Bay on the grounds that it would boost business in the colony by billions of pounds, he responded that if it was so valuable to them then they should build it themselves. After a long and hopeless battle they eventually did, to their own and everybody else’s benefit. Similarly, one might expect freight hauliers and other big businesses to pay for improved roads so as to reduce the costs of transporting goods.

The real value from infrastructure, however, lies in the boost they give land values. A (less happy) story from London is equally instructive: when Canary Wharf was being built, the developers offered to spend £300 million to build a brand new railway line linking Waterloo and London Bridge to the Isle of Dogs and then gift it to the nation, because they knew that by making it easier for commuters to reach their offices, the rental values of those offices (which they were building) would be raised by billions of pounds. Instead, a combination of rent-seeking by Members of Parliament (who wanted stations in their constituencies) and bureaucratic protectionism (as London Transport sought to protect its monopoly on the building and managing of tubes in the capital) led the Conservative government to look this gift horse in the mouth and instead build the Jubilee Line extension entirely at the expense of taxpayers, many of whom have never used it but have paid vast sums to help wealthy bankers to get to work more easily.

Thus roads, like railways, are best funded not through general taxation but through a combination of land-values and user pricing. This could be achieved in either of two ways: one would be to levy a general land value tax to pay for infrastructure, and to introduce road-user pricing to pay for upkeep and to control congestion; this would maintain the government’s road monopoly (which those who distrust private markets might prefer). Alternatively, we might allow private investors to build and maintain roads, which they would do in the hope of gaining profits from the land they own, the charges they levy and the reduction in costs of other business activities.

I actually remain quite agnostic about these two choices (though as Tristan Mills has pointed out, the latter avoids the increasingly apparent problem that Government cannot be trusted with the vast amount of information that nationwide road-user charging would generate about individuals private movement). What is clear is that the current habit of treating roads as though they are a public good that must be funded from general taxation is not only theoretically incorrect but also leads to a “tragedy of the commons” expressed through congestion and pollution, causes roads to be built where political forces rather than demand dictate, and raises levels of economically-damaging taxation. Whether the shift is from state to private or merely from taxing the general public to making the beneficiaries pay, it is time to start treating roads as a very private good.

Government’s good intentions encourage greed and criminality

This interesting article in today’s Times caught my eye. On the face of it, it is a simple case of fraud that should stir the ire of any right-thinking person. But it nonetheless highlights the inherent problems that result from government meddling.

I was not aware of the fact, but apparently the government has exempted disabled drivers from paying VAT on new cars. This immediately strikes me as odd, in that there is no inherent reason why a disabled person – even one with mobility difficulties – would have greater need for a car than any particular other person. For one thing, it smacks of lumping all disabled people together and assuming that their needs are identical, whereas in fact the need for motorised transport probably varies as widely among disabled people as it does among the general population. Secondly, there are plenty of non-disabled people who desperately need a car – perhaps to convey their children to school, to go to work or attend hospital. They do not get tax breaks to buy one, however. One might also question why the benefit is not being channelled into public transport, as the government claims to want to encourage us out of cars.

More to the point, it is an excellent example of where it would be better to give people money rather than perks. In this case, rather than give disabled people a tax break on buying a car, why not give them money to contribute to the car, or if they prefer a rail ticket, a mobility scooter, their heating bill, entertainment or whatever they consider to be their priority.

The paternalism is only half of the problem, however. The other half is that, unsurprisingly, enterprising people have learnt to game the system. Firstly, the VAT exemption does not appear to be capped. Thus it applies not only to a Nissan Micra, on which the VAT might be just over £1,000. It appears it also applies to “top-of-the-range Land Rovers, Bentleys, Maseratis and Lamborghinis, costing up to £70,000. That means that [disabled drivers] could save as much as £12,250 on each transaction in VAT.”

Now, I think it is pretty clear that the government never intended to give a tax break to those buying luxury cars that cost almost two and a half times the average household income. But there is more to come.

Some of these disabled drivers are so enterprising that they have taken to selling their un-driven cars on at a cost that is higher than the VAT-exempt price that they paid, but not as high as the VAT-included price that a typical dealer would charge. On a luxury car, that difference could be as much as £10,000. Even if the buyer and the disabled re-seller split that difference equally, that means that the disabled driver is able to turn his government perk into a £5,000 cash profit.

Unethical it may be (and very possibly illegal too), but it is also a fine example of how government intervention creates moral hazard and ultimately generates immorality and criminality where previously there was none. As ever with government, the intentions are all fine and dandy, but the outcomes are very different from what was intended.

It’s a sad world in which we live

For most of my life, at least until my late-20s, the news that private jets are becoming so cheap that they are increasingly usable by middle-class people as air taxis would have been cause for rejoicing. It would be a sign that yet another play-thing of the elite was becoming more accessible, just as motor cars and mobile phones are no longer rich men’s toys but considered to be the bare necessities of life.

Not now. I see a green-eyed monster on the horizon, hurling abuse and opprobrium at this new scourge of the airways. I’ve not seen them yet, but sooner or later somebody is going to start bleating about the amount of carbon they pump out and how they’re contributing to global warming.

Oh, I know I ought to be more sympathetic to such concerns. Believe me, I do care. It’s just that I miss the days when progress was something to be welcomed.

Sigh! At least global warming should hasten the return of my other favoured form of air transport.

An amusing conversation

Tom and a colleague are chatting by the kettle. Tom’s colleague is complaining that she has just received a parking ticket.

Colleague: I was only there for 10 minutes.

Tom: The problem is, there’s just so many of them these days. You can’t get away with it even for a moment.

Colleague: The vultures!

Tom: Admit it – we’d be in gridlock without them.

Colleague: They’re just revenue raisers for the Council.

Tom: Maybe we should retrain them all as plumbers.

Colleague: We can’t even get a plumber round my way.

Tom: You want to find a nice Pole to do the job.

Colleague: I’d rather give the money to an English person. [As an afterthought] If they were better at the job.

Tom: Ah, but that’s the thing, you see. The Poles are excellently well trained. They’ve still got decent vocational education over there, unlike here. Polish workers are very skilled.

Colleague: Yeah, but they charge half as much as our workers.

Tom: So you get a quality plumber for half price, and they get a better income than they’d get in Poland. Sounds like a win-win to me.

Colleague: But I hear they’ve got a skills shortage over there. Nobody’s left to do the jobs.

Tom: But that’s okay, ‘cos they’re getting loads of money in remittances, as the Polish plumber sends money home to the family.

Colleague: Yeah, but they’re not getting enough taxes because all the work is being done over here and the money comes in but nobody pays tax on it.

Tom: Perhaps, but they don’t need so many public services if they have the money to provide for themselves.

Colleague: That’s Tory talk! I thought you were a Liberal.

Tom: That is liberal. Just a different kind of liberal.

So the battle goes on.

Spoilsports undermine the silent motorbike

Ask people what the two worst things are about road transport and they’ll probably tell you that they are noise and pollution. We have turned our cities into loud, dirty places, spitting climate-changing gasses into the atmosphere while the air below causes respiratory diseases among our children. A few loons derive from this a loathing for modern society and a desire to return to a more Arcadian existence. The saner elements accept this as the grudging price of progress and hope that a combination of moderation (aka. conservation) and innovation can make the future brighter. Or even, brighter still.

So one would have thought that the development of a silent, pollution-free vehicle would be greeted with universal joy. The bicycle is such a device, but is not suitable for all – those with a long commute or no showers at their destination, for example. It is also reviled by drivers and pedestrians alike. But if a motorised vehicle could be made both whisper-quiet and carbon neutral, that would be a miracle of modern science, wouldn’t it?

Apparently, not.

The hydrogen powered motorcycle is now a reality. It is a matter of opinion whether it looks sleek and shiny like a freshly-pressed cyberman, or plastic and boxy like a glorified Sinclair C5, but the designers of the Emissions Neutral Vehicle or ENV bike claim it has the running noise of a PC and produces waste that is drinkable. It’s a miracle of modern science.

Unless you are a killjoy. So when it was launched last year, the killjoys crawled out of the woodwork. The bike, they complained, was too quiet. It will confuse unsuspecting motorists and pedestrians who are – they fear – too stupid to stop and look, as well as listen. So instead it is being suggested that the ENVs be fitted with a false engine noise, a synthesised “vroom” to alert other people that it is comingh.

This has disturbing echoes the Locomotives on the Highway Act that required men with red flags walk in front of every motor car. That piece of meddling legislation was eventually repealed once it was realised that both drivers and other road users could be trusted to use the road responsibly, and a few accidents could not be allowed to stymie progress.

Similarly, adding an unnecessary whine to the silent motorbike would be as counter-productive as adding smoke to the exhaust to make a visible plume. The potential benefits to quality of life from reducing the high levels of noise in busy urban areas is incalculable. The ENV may not itself be the vehicle of the future, but it may prove to be the antecedent of generations of silent, pollution-free vehicles that will transform our cities into cleaner, quieter but still lively places to live.

If you listen very carefully, you can hear the future.

Brown’s retrospective taxes are affront to the rule of law

I’ve been stung!

I’d better declare my interest now, as I believe one should be open about one’s interests. A few weeks ago my wife and I bought two airline tickets to Cape Town. Gordon Brown has since announced that people like me – airline passengers who bought their tickets before this month’s pre-budget report – will be taxed. This gives us no option to change our behaviour to avoid the tax – unless we sacrifice the £450 ticket to avoid the £20 fee – so not only is it unfair and arbitrary, it will not in any way reduce carbon emissions.

The Times reports that “Airline passengers face long delays at airports from February because check-in staff will be required to collect the increase in departure tax announced last week. More than seven million people had already booked flights before the announcement in the Pre-Budget Report that Air Passenger Duty will double from February 1. Those passengers will have to pay the extra tax when they check in for their flights.”

This is a blatant violation of the legal principle that laws must be prospective. By applying this new tax ex post facto to airline tickets bought before the pre-budget report, it has denied purchasers to ability to make informed decisions knowing in advance how the Government would tax their activity. Those who have bought airline tickets in all innocence prior to the pre-budget report are now landed with extra fees that they could not predict – indeed, that they had every reason to assume would not apply, as ex post facto taxation violates the principle of the rule of law.

It is an excellent example both of the Chancellor’s lack of principle and of his mendaciousness. The alleged justification for this tax hike is to reduce pollution caused by rising air travel. But those who bought their ticket prior to the pre-budget report could not predict the new tax and so it can have had no impact upon their decision. Thus, in its retrospective application, it is merely another arbitrary expropriation of private wealth without justification on either environmental grounds or on the principle that taxes are applied generally.

Applying this new tax retrospectively is another example of the Chancellor’s arbitrary seizure of private wealth.It is an entirely unprincipled effort to make a seemingly randomly selected group of citizens help finance his public spending profligacy. That I am one of those caught in his web is my bad luck. I hope those more fortunate than I will nonetheless share my disgust.

Pre-Budget report is final nail in Stern coffin

Just weeks after the publication of the Stern Review into the economics of climate change, the author has quit the Treasury. Sir Nicholas Stern, Second Permanent Secretary and a former head of the Government Economic Service, will leave in March for a new job at the London School of Economics.

Sir Nicholas was brought into the Treasury in 2003 as part of an effort to wean Gordon Brown off political advisers. It was hoped that he would add some genuine, impartial economic advice. But this entailed a few too many home truths; Treasury insiders have said that Sir Nicolas’s long-term growth predictions were not as rosy as Mr. Brown’s.

On Wednesday the Chancellor gave his pre-budget report to the House. The environmental measures were weak – road transport is still the cheapest it has been for a quarter of a century – and it is believed that Sir Nicholas had to fight hard even for these.

The pre-budget report is the final nail in the coffin of Sir Nicolas’s efforts to inject some greenery into this Government. Brown’s unwillingness to move from taxing work to taxing pollution shows him to be unimaginative and unconcerned with environmental issues.

Sir Nicolas’s departure also highlights the Chancellor’s dislike of advice from beyond his inner circle of acolytes. Any hopes that the era of sofa government will end with Tony Blair’s retirement look sadly misplaced.

The tyranny of the majority may condemn us all to gridlock

The Number 10 petitions website continues to fascinate me. I have resisted further temptation to sign up to stuff, even the delightful suggestion that we replace our stolid national anthem with Gold by Spandau Ballet.

Since my earlier criticism, which was picked up by Peter Riddell in The Times, I continue to be concerned that petitions imply apparent support for opinions with no opportunity to register dissent. However, this is not the end of the story. The petitions page could, in theory, garner in excess of 30m signatures for a particular policy. Would the Government then be compelled to legislate? If so, could this usher in the tyranny of the masses?

As a liberal I am concerned that democracy not excuse tyranny. The fact that a majority want something does not automatically justify it, especially if it is detrimental to others.

The petition that is concerning me at the moment is the most popular by far, out-polling even the repeal of the Hunting Act. An impressive 15,493 signatures have so far been appended to a petition calling upon the Government to Scrap the planned vehicle tracking and road pricing policy.

The thinking behind this petition is confused and wrong. The text of the full petition states that “Road pricing is already here with the high level of taxation on fuel. The more you travel - the more tax you pay.” While this does address the global environmental cost in the form of the carbon and other pollutants produced, it does not address the other main environmental concern – congestion. It is as expensive for me to drive a mile across the Highlands as it is across Piccadilly, yet roads in the Highlands are far more costly per mile facilitated as they are rarely used, while urban driving causes more lethal pollution (it is concentrated and hovers around pedestrians and residential properties) and slows other traffic, costing time and thus money.

Then, in a startling example of counter logic, the petitioners conclude “Please Mr Blair - forget about road pricing and concentrate on improving our roads to reduce congestion.” In fact, only road pricing can reduce congestion, because congestion is a natural by-product of free access; consumption unlimited by cost will expand until the consumer can gorge no more. Compare two other commodities: Britain has been awash with food since the Corn Laws were abolished (a bout of ill-conceived war-rationing aside) because we pay per loaf, but every year we are issued with hose-pipe bans because we pay a flat fee for unlimited water. As long as we can use the road without having to pay for it, we will use it without constraint.

An what about road improvements? Transport policy has always been a shambles as it has failed to compete for tax-money with more immediate concerns (health, education, war). To forestall one traditional liberal comment, Land Value Taxation would go part way to convincing those who benefit to fund infrastructure. But there is still a compelling case for the user to pay, at lest for the running costs if not for building in the first place (in fact, few infrastructure projects and no railways can be built if they rely on recouping their costs from users, as the stories of Railtrack and the Channel Tunnel both amply demonstrate).

Sadly, this argument has yet to be broadly accepted. Too many people in Britain have become used to free and unlimited road use. Thus, as with so many other “free” services, we are bedazzled by the joy of unlimited consumption to the point of being blind to the real costs that appear in the gap between our gross and net salaries.

Thus I fear Number 10’s petitions page. Government has a duty to lead, and with its decision to consider road user pricing, this Government has shown uncharacteristic leadership. Yet it has form for caving in to populism. I would love to sign a counter-petition to debunk the growing impression that people oppose road user pricing. But if I am in the minority I hope the Government still presses ahead. It is effective, it is efficient and it is fair.