Wednesday, 31 December 2014

Subsidies and social engineering: or why we build roads.

This blog has looked at the business of building:
Futures Forum: How sustainable is the construction industry? ... 'Concrete is responsible for 7-10% of CO2 emissions' ... 'The industry must shift its emphasis beyond recycling and towards reuse'

It has also looked at the business of councils making money out of parking fees whilst withdrawing from the business of looking after infrastructure:
Futures Forum: Volunteers in the community: 'doing jobs for free' or 'empowering communities to take local action'?
Futures Forum: An alternative to councils simply making money out of parking charges: "mixed development"

Recently, it considered how the well-to-do cyclists lobby from a century ago ensured the upgrading of the road network:
Futures Forum: Councils 'take note' >>> “The future could be one where bikes rule the road, just as they did in the 1890s."

And it has considered the question of where the funding comes from for such infrastructure:
Futures Forum: Investing in roads in East Devon: who pays ... and who benefits?

But why do we build roads?

The question was raised on BBC Radio 4 last night:

The Victorians famously built wildly ambitious infrastructure projects, like roads, railways, sewers and tunnels. David Wighton asks whether we should copy their example.

The Victorians and their predecessors have been celebrated for their forward thinking, building assets which are continuing to benefit the British economy.
Yet some of their grandest projects left investors broke or actually created headaches for later generations.
So - which is more important: cost-benefit reports or sheer boldness of vision? 

David Wighton finds that the lessons from the past turn out to more complex than they first appear.

BBC Radio 4 - Build and Be Damned

Here are some of the notions covered - from visionary projects to vanity projects:


It is generally assumed that more infrastructure will bring more prosperity - and politicians seem always ready to reinforce that link - as if by spending on roads will 'bring jobs':
Hugo Swire: New infrastructure investment will mean more jobs and growth in East Devon | Exeter Express and Echo

Here's a little piece from the New Zealand government:

Why roads were built

Hopes and mixed success

Roads were viewed as an economic and social cure-all. Early newspapers and correspondence from isolated areas were full of hopes that roads would be built and prosperity would follow once an area was opened up.
But this did not always happen – or not immediately. After a road was built over Arthur’s Pass in 1866–67, linking Christchurch with the West Coast, only 80 to 90 people crossed the pass each week. Washouts were common, and maintenance costs were high. Gold did not flow over the pass – it was shipped directly to Melbourne. West Coast settlements dealt mainly with Melbourne from the late 1860s, as shipping costs were a fifth of the cost of dray delivery from Christchurch. The Press commented that the only thing the road levelled was the provincial treasury. Yet in the road’s first year 40,000 sheep and 25,000 cattle were driven over it to feed the gold miners.

Economic catalysts

However, on the whole, roads were crucial to the development of towns, farming, and other industries. Many of the roads built by public works in the 1870s proved their worth in the 1890s when the boom caused by refrigerated shipping led to more intensive farming, such as dairying. Farmers needed good access to dairy factories, railheads and ports. Roads were catalysts for economic development. Some proved their worth later – especially when tourism became a major industry in the 1980s. For example the Haast Pass road, completed in 1965, allowed tourists to do a loop trip of the South Island.
2. Why roads were built – Roads – Te Ara Encyclopedia of New Zealand

Of course, roads open up areas to more than just gold miners, cattle and tourists: 
Roads for Prosperity - Wikipedia, the free encyclopedia
It’s Time to Build Roads to Prosperity, Literally, IMF Says - Real Time Economics - WSJ

Indeed, it seemed a great idea at the time - as mapped out recently by the historian Jo Guldi in her analysis Roads to Power, featured on the Radio 4 programme:
Around 1780 a group of Scottish and Irish landlords started to think hard about what they were reading in this new economist, Adam Smith. And what they realized was that a system of infrastructure on a national level could break down local monopolies, and it could mean that they too could participate in the wealth of the industrial revolution being then experienced in England. And so they set about trying to persuade Parliament to give them sufficient cash to build roads out – an inter-kingdom highway system connecting London with her former colonial capitals of Dublin and Edinburgh. They were successful, and the inter-kingdom highway system was built over the course of thirty years. Thousands of miles of perfectly paved roads: the first expert-built infrastructure system of its kind in the world. Infrastructure on a national scale, connecting all sorts of grids of streets on the local and national level.
It was utopian thinking in 1780. Nobody had ever come up with such an idea. It was a new idea about how capitalism could work, if capitalism were going to defuse the wealth from the few guilds and few metropolises where people were enjoying the industrial revolution to everyone. So, a new idea of capitalism that worked for everybody.
From British Infrastructure to Net Neutrality - Harvard University Press Blog


And yet, by building more roads, we just create more demand for yet more roads:

Induced demand, or latent demand, is the phenomenon that after supply increases, more of a good is consumed. This is entirely consistent with the economic theory of supply and demand; however, this idea has become important in the debate over the expansion of transportation systems, and is often used as an argument against widening roads, such as major commuter roads. It is considered by some to be a contributing factor to urban sprawl.

Induced demand - Wikipedia, the free encyclopedia

This is now generally understood and widely accepted:
What's Up With That: Building Bigger Roads Actually Makes Traffic Worse | WIRED
The "fundamental rule" of traffic: building new roads just makes people drive more - Vox
A study: Building roads to cure congestion is an exercise in futility | PERC – The Property and Environment Research Center
New roads create new traffic | Campaign For Better Transport

... although the likes of the RAC will not agree:
INDUSTRY OPINION >> Busting the road-building myths - Traffic Technology Today

In fact, it is a little more nuanced:


As traffic levels decline nationally in defiance of the usual state DOT forecasts projecting major increases, a number of commentators have claimed that we’ve reached “peak car” – the point at which the seemingly inexorable rise in vehicle miles traveled in America finally comes to an end.   But while this has been celebrated, with some justification in the urbanist world as vitiating plans for more roads, the implications for public policy haven’t been fully faced up to.
Indeed, the “peak car” is antithetical to the reigning urbanist paradigm of highways known as “induced demand.”  Induced demand is Say’s Law for roads: supply of lanes creates its own demand by drivers to fill them. Hence building more roads to reduce congestion is pointless. But if we’ve really reached peak car, maybe we really can build our way out of congestion after all.
Traffic levels have stabilized or even fallen in recent years. According to analysis by economist Doug Short featured in Streetsblog, aggregate auto travel peaked on a per capita basis in 2005 and has fallen since. Per capita traffic levels are now back to 1994 levels, a two decade rollback in traffic increases.
Urbanists Need to Face the Full Implications of Peak Car | Newgeography.com
The Irony of ‘Peak Car’ and the End of Induced Demand | Price Tags

And yet the issues around 'urban sprawl' are not going to go away:
Futures Forum: For community and against sprawl ..... 'Strong Towns' and 'the end of the suburbs'
Futures Forum: The End of Suburbia: ten years on


It's not just the problem of congestion, but of petrol/diesel-powered vehicles creating a stink, as the smogs of last February made clear:
Futures Forum: What to do about car emissions: from Paris to London...
Futures Forum: What to do about car emissions: the West Country

An article in the Independent last month looked at the government's targets for cutting carbon emissions:

Building roads is not necessarily a good idea

STEPHEN PLOWDEN Monday 10 November 2014

The action required to cut carbon for motor traffic would still be required if the problem of carbon did not exist

It is ironic the Government’s plan for massive spending on roads comes at the same time the UK is at risk of missing its target for cutting carbon emissions.
Transport is the sector for which carbon emissions remain stubbornly high.
More ironic still, the action required to cut carbon for motor traffic would still be required if the problem of carbon did not exist.
Of course, modern economies needs good roads, but we already have a large road network and are not making the best use of it. There should be no thought of adding to it until that has been put right. In addition, as everyone should know by now, road building does not ease congestion except in the very short-term.
Better traffic restraint in towns through parking controls, reallocation of road space and lower speed limits, is needed to improve transport efficiency. A nationwide system of road pricing for lorries, combined with better regulation, should have been instituted years ago. Reducing and enforcing speed limits on roads outside towns would check and reverse the tendency for road journeys to increase in number and length.
There are danger spots and bottlenecks that should be dealt with and road maintenance is in a poor state. But building roads simply to add capacity is not a good idea, even if, which there is some reason to doubt, road traffic is still growing.
Stephen Plowden is a transport planner 

Building roads is not necessarily a good idea - Comment - Voices - The Independent

And there is the wider impact on the environment of the oil industry which feeds our need for petrol and roads and infrastructure:
Futures Forum: Climate change: asphalt and urban heat islands
Futures Forum: Lewis Mumford: "The physical design of cities and their economic functions are secondary to their relationship to the natural environment."


Politicians and the public seem to have an insatiable demand for more 'infrastructure':
Public infrastructure - Wikipedia, the free encyclopedia

Looking at the history of building roads, it has a lot to do with 'social engineering':

'In the seventeenth century, city-states began organizing their collective wealth around the provision of canals, the first government-built corridors for carrying commodities rather than soldiers. 
By the nineteenth century, infrastructure had taken the form of state-designed sewers and slum-clearance projects, tools of social as well as civil engineering.'

Whose Streets?

This brings us back to Jo Guldi and her book exploring the revolution in roads:

Roads to Power

Britain Invents the Infrastructure State

Roads to Power tells the story of how Britain built the first nation connected by infrastructure, how a libertarian revolution destroyed a national economy, and how technology caused strangers to stop speaking.
In early eighteenth-century Britain, nothing but dirt track ran between most towns. By 1848 the primitive roads were transformed into a network of highways connecting every village and island in the nation—and also dividing them in unforeseen ways. The highway network led to contests for control over everything from road management to market access. Peripheries like the Highlands demanded that centralized government pay for roads they could not afford, while English counties wanted to be spared the cost of underwriting roads to Scotland. 
The new network also transformed social relationships. Although travelers moved along the same routes, they occupied increasingly isolated spheres. The roads were the product of a new form of government, the infrastructure state, marked by the unprecedented control bureaucrats wielded over decisions relating to everyday life.
Roads to Power — Jo Guldi | Harvard University Press
Hague on Guldi, 'Roads to Power: Britain Invents the Infrastructure State' | H-War | H-Net

In other words, infrastructure is about the exercise of power.

For example, in seventeenth century France, Chandra Mukerji writes that the ‘transformation of the French landscape – with the construction of fortresses, factories, garrisons, canals, roads, and port cities – imprinted the political order onto the earth, making it seem almost an extension of the natural order’.
Mukerji, C.: Impossible Engineering: Technology and Territoriality on the Canal du Midi.

Meanwhile, the future is being haled in China - which has engaged in "the largest and fastest urbanisation project in the history of the world"
As Thomas J. Campanella observes, 'Over the last twenty years, the People’s Republic has undergone the greatest period of urban growth and transformation in history. Since the 1980s, China has built more skyscrapers; more office buildings; more shopping malls and hotels; more housing estates and gated communities; more highways, bridges, subways, and tunnels; more public parks, playgrounds, squares, and plazas; more golf courses and resorts and theme parks than any other nation on earth – indeed, than probably all other nations combined.'
The Concrete Dragon :: Princeton Architectural Press

To conclude, this faith in infrastructure has brought us to accept subsidising massive projects in social engineering. 

Kevin Carson has written a substantial piece in the 'Freeman' asking who the building of roads actually benefits:
The Distorting Effects of Transportation Subsidies : The Freeman : Foundation for Economic Education

He provides a summary:

Corporate capitalism is built on subsidized inputs, and profitable in large part because of them. It achieved growth in the 20th century through the extensive addition of subsidized inputs, like subsidized fossil fuels and large tracts of cheap land previously preempted (stolen) by the state, rather than the intensive approach of using existing inputs more efficiently.

A basic law of economics is that when you subsidize an input, people tend to use more of it. And businesses will tend to substitute that artificially cheap input for other inputs. The distorted price system gives an artificial advantage to firms most heavily dependent on that input. For example, subsidies to long-distance shipping infrastructure tend to benefit the firms with the largest market areas and the largest-scale production facilities shipping their output the furthest distance. It makes them artificially competitive against smaller, more localized — and more efficient — forms of production. It creates artificial economies of scale at levels where they would otherwise have leveled off, leading to an economy of artificially large firms serving centralized markets.

Center for a Stateless Society » Capitalism’s Running Out Of Water — And Everything Else

And last month he returned to the subject, by way of China, focussing on the United States, but of much wider interest:

But Who Will Build the Roads? 
China just announced a regional infrastructure plan to promote the integration of Asian markets under Chinese leadership — sparking predictably hypocritical outrage from the United States (“China’s Pouring $40 Billion Into a New ‘Silk Road,'” The Blaze, November 9). Chinese President Xi unveiled the Silk Road Fund to leaders of Bangladesh, Cambodia, Laos, Mongolia, Myanmar, Pakistan and Tajikistan as they prepared for a summit on Asian-Pacific affairs. The announcement follows the creation of a $50 billion bank last month by China and twenty other governments to finance regional infrastructure.

According to unnamed US officials, Silk Road is an unnecessary duplication of existing World Bank efforts. The subtext, of course, is that the World Bank and other Bretton Woods institutions, along with Western foreign aid programs, were created to integrate the world economy under the control of Western capital (primarily that of the US and its trilateral junior partners in Western Europe and Japan). China, as a rising regional power and the second largest economy in the world, challenges the hegemony of global economic governance institutions created to serve American interests — much as the rising power of imperial Germany a hundred years ago challenged Britain’s unrivaled naval and colonial domination.

The hypocrisy comes in when you consider the sheer scale of US government global infrastructure financing since World War II, and its pretense that the goal of this financing is service to the neutral interests of some “international community.”

Some people (especially liberals) frame state-funded infrastructure as a neutral good that benefits everyone. It is no such thing. Depending on its scale, structure, and degree of overlap between its funders and its beneficiaries, it benefits some economic actors at the expense of others like any other state-funded input. One stereotypical question we anarchists like to attribute to liberals — usually delivered in a whiny, quavering voice — is “but who will build the roooaaads?”

In fact, despite the lionization of “infrastructure” as “progressive,” every major, centralized, nationally funded infrastructure project in American history has had politically organized business interests as its main constituency, serving primarily to subsidize their business models. In early US history it was mainly the Federalists and Whigs, parties of the national commercial interests, who promoted federally-funded “internal improvements.” The massively subsidized national railroad system, with its high-capacity central trunk lines and reliable schedule, gave rise to a nationwide wholesale and retail ecosystem, which in turn enabled giant industrial corporations to produce on a continental scale. Like the railroad system, the federally subsidized civil aviation and Interstate Highway systems made large nationwide corporations artificially competitive against local producers by enabling them to externalize increased distribution costs onto the taxpayer.

Some right-leaning libertarians whose hearts bleed for corporate interests adopt a pose of ignorance, echoing liberal arguments that “the roads benefit anyone who wants to use them,” or disingenuously twisting left-libertarian arguments that subsidized roads benefit some business interests at everyone else’s expense as a condemnation of large corporations for “driving on public roads.”

Some use similar chicanery on a global scale, asking how libertarians could object on principled grounds to obviously “neutral” activities like the US Navy keeping world sea lanes open for commerce. This is just a larger-scale libertarian equivalent of “but who will build the roooaaads?” For an answer we need only consult Adam Smith, who argued that public infrastructure should be financed by its beneficiaries: That public bridges be financed by tolls based on the weight of vehicles passing over them, and that navies be financed based on the value of merchant cargo shipped under their protection.

The single largest component of US “defense” spending is the US Navy, due to the enormous capital outlays embodied in its ships. And the main purpose of all those carrier groups in the Indian Ocean and western Pacific is to keep maritime choke points open and suppress piracy. Absent a state with the ability to tax society at large for the benefit of particular economic interests, merchant shipping (including oil tankers) would necessarily bear the full cost of this policing activity, adding significantly (to say the least) to shipping costs.

It’s hard to deny — unless one is economically illiterate — that this is a massively distorting subsidy, or that the provision of maritime protection on free market principles would result in a powerful shift of incentives toward supply chain relocalization and energy conservation.

Center for a Stateless Society » But Who Will Build the Roads? (Maritime Edition)

So, then, to summarise, it's all about subsidies:

... subsidies for 'big oil' and energy companies:
Futures Forum: Peak Oil... and EROEI... or Energy Return on Energy Investment
Futures Forum: "Levies, Damned Levies, and Statistics": Green levies and energy bills: What are the figures and what do people think?
Futures Forum: "... a reckless use of public money at a time when people are very concerned about energy costs.”
Futures Forum: Climate Change... from the bottom up... or... "Libertarianism – An Ecological Consideration"
Futures Forum: Green levies and the cost of energy... the Energy Companies Obligation, the warm homes discount scheme and the Green Deal
Futures Forum: What are the most efficient forms of energy? another look at nuclear...
Futures Forum: "Allowing fracking companies to drill on private land without first requiring a landowner’s permission."... or... "Neighborhood Environmentalism: Toward Democratic Energy"
Futures Forum: The growing economic cost of fossil fuels
Futures Forum: Climate change: Ralph Nader and the 'Kingpins of Carbon'
Futures Forum: The Global Warming Policy Foundation
Futures Forum: The $88bn fossil fuel bailout

... subsidies for 'big business' interests to the cost of small and local business:
Futures Forum: Lobbying: big business and big government in East Devon
Futures Forum: "Sustainable Growth"... and the Transatlantic Trade and Investment Partnership
Futures Forum: The Transatlantic Trade and Investment Partnership and the Transition Town movement
Futures Forum: A look at the Transatlantic Trade and Investment Partnership: Sidmouth Market Square: Saturday 11th Oct
Futures Forum: Crony capitalism and lemon socialism in East Devon........ The costs of "substantial growth and expanding business"
Futures Forum: Localism: The uses and abuses of power: "No politician willingly surrenders control downwards."
Futures Forum: "Smart growth for conservatives" at Resilience
Futures Forum: Small government and big banks........ "Small is Powerful: Why the era of big business, big government and big culture is over"

... and even subsidies for 'big agriculture' at the expense of the smaller farmer:
Futures Forum: Norman Borlaug and the “Green Revolution”: a centenary


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