Transport economics: the root of many's of economic evil?

We do not live in a free market economy, neither have I ever lived in a planned economy although they called it so. Both economic systems are radical extrema that never occur in a pure form.

We all live in a mixed economy. Economy, that is a mixture of free market and state planning. Where state creates frameworks for market economy. But what if it defines border of its framework in a wrong place? Can everything go wrong? And what if it did? What if most aspects of our life: the question where we live, where we shop, how we travel, whom we met, is determined by an economic process that went out of control? What if most of the world could look completely different if…If only one small piece of economics would be put to its place.

If only.

I was born in Zielona Góra - a pre-war garden city at the Polish-German border. When I was small, there was only one car- the cab with a number one on its side. But soon the whole communist system collapsed and new reality begun. Rail lines and busses, once dominant modes, radically reduced their service. Within a decade an idyllic garden city turned into a typical car-based drive-through city with roundabouts and dual carriage ways. As the town is properly planned, I still do not need a car: the centre to fringe distance takes only 15 minutes walk. Such well designed towns are exceptional around the world, but even they also fade away quickly. Everywhere cities sprawl. Even Zielona Góra has to grow, and the dense ring of surrounding forests that encapsulated the growth of the city for several decades has to go. Such things happen everywhere around the world, the only difference is that people treat it differently.

In 2005 I started to do my research on urban economics. I thought that some research was done earlier in this area and I would have some starting points, but there was nearly nothing. No one earlier tried to ask, what would occur if road users would have to pay for the land take in central urban areas. I cannot name one town around the world, where any sound economic rules would determine the transport system, and also the city growth that results from the pattern of transport.

Assume we can do two things with a piece of land. We can either turn it to a road, or use it commercially. We have to create a basic network of roads to assure basic needs, but what happens if we provide too much of road space? Well, someone has to pay for the land rent, that otherwise would be earned if this piece of land would be used commercially.

Wrocław, a large town in Bas Silesia, Poland. The only vacant piece of land in its medieval city centre is priced at 29 thousand zloty per square meter. If car users would like to use the Wroclaw’s medieval centre to commute to a workplace and occupy the land there, they would have to pay approx. 7 zloty per each square meter used, 4 zloty per each hour spent by car in the centre and roughly 50 zloty for a daily commute. Tram fare is 2 zloty. You could probably dispute with how I apportioned the costs, but imagine that in Wroclaw city centre car users do not face any charges for the use of so precious space. Excessive demand for road space is so high, that city authorities demolish beautiful art-nouveau housing in order to make road widening possible, for example to bypass of an older, already congested bypass. And they follow a pattern that we know from overseas.

What happened in the United States? As the motor car era appeared in early 1920-ies, it was not bounded to any economic rationale except for taxing income. As taxpayers paid, authorities got the funds to widen the roads. Unfortunately, it was the public authority who owned the road, and not the private owner. If roads were private, owner would ask the users to pay, so that he could outbid the commercial use of land. Especially in the city centres, where the demand for roads is the greatest and the land the most scarce, they would have to pay a lot. If state authorities invested, they were not bounded by any rationale. So they invested more and more, as users demanded more roads. In Europe such policy was not possible for example because of heritage considerations, or because of delay in the spread of mass motorization, that entered Europe half a century later than in USA.

If You looked on road infrastructure of cities around the world, You would observe billions of badly invested state funds. Roads were built, that under normal conditions could not emerge due to high costs needed to outbid commercial land use. Car users, if faced the real costs of land they consume for their commute, could have diverted to other, land-efficient transport modes instead of using expensive mass motorization.

All over the world the word “development” is understood as building roads, and giving more urban space for private cars. I was told that You won’t find nowadays anymore bicycles in China’s central cities. You look for reasons of global warming, but look on You, what kind of pattern to follow You give to other developing countries? To countries, where democracy and freedom of speech is rare, and where it is mostly not possible to dispute with such a vision of development? In countries, that have other problems than some new economic process in which economic activity diverts from city centres and explodes in the suburbs, often ruining the domestic enterpreneurs. Some retail multinationals know exactly when to arrive into a developing country: when the car ownership reached a certain level.

Congestion pricing, an anathem in contemporary transport economics, interestingly is not at all linked to land costs, and it is disappointingly only a small part of the problem. Congestion pricing looks only at private costs that users face when cueing in a traffic jam. It is a pity, that no one paid sufficient amount of attention to the most important factor that shapes the cities: land values. In a new, less imperfect economic system, people would have to pay for the public space they use for moving around, as for every scarce resource. In the suburbs the infrastructure would cost very little, as the land values there are low, but this cost would be rising significantly as the distance to the city centre goes down.

If we assume pricing systems that are more efficient in economic terms, users would not have to pay anything for the use of roads until this infrastructure gets saturated. Then, they would have to pay compensation to the users that can reschedule their trip or not travel at all. The road could be widened only if users will outbid commercial use of space in particular place. Given the financial stream needed to outbid commercial use of land in central areas (even in Wrocław it adds up to 278 thousand zloty daily for a kilometer of single lane), it is very improbable that cities would develop in the way they do nowadays. I would say that given the real costs of car usage, we would speak of a completely different world: of world based on trains, trams, busses, cabs, bikes. And… walking. Human scale of cities, gone in the 1960-ties, would return. If only…

I would blame the rampant state interventionism of 20-th century governments for the whole evil of 20-th century transport systems. “Economic dictators” that decided on transport investments mostly missed the fact that cars are not zero-sized. That they consume space, and this space causes the cities to grow even more to make place for them. Each car needs even four parking lots daily (one at home, and three at other destinations). It all adds up. Our car can consume more space than we do. And he does it for free, at least it seems so, even if such free lunch does not exist.

I have not finished my research. However, I would like to warn, that we move along a path that in my opinion already decades ago missed the proper way of development. You should have asked US car users to pay already 80 or 90 years ago. Now it is not a decade too late, it is a whole century. But there is still a lot to do in countries that just enter this path of development.
Believe me, the world would look differently. If we paid for the road use as much as it really costs.