Friday, 29 May 2015

Labour and Infrastructure: Flogging the dead horse before you've even built the racecourse?

The Productivity Commission, at the government's request, is seeking to identify improvements in the workplace relations framework through a public inquiry. In the meantime, Australia's competition ranking in IMD World Competitiveness Yearbook has slipped from 17 to 18 with New Zealand jumping ahead of Australia for the first time in 18 years. Is this a case of flogging a dead horse before you've even built the racecourse?

In his 2013 election speech, Prime Minister Tony Abbott said "I hope to be an infrastructure prime minister who puts bulldozers on the ground and cranes into our skies". Infrastructure is essential to ensure Australia's future standard of living and has long been identified as a source of poor performance in national productivity.

But the extent of the problem is now becoming obvious. 

CEDA headed up the IMD survey in Australia and, according to CEDA chief Professor Stephen Martin, the survey results suggest that "we just don't have any movement on any major infrastructure projects... There doesn't seem to be an infrastructure prime minister".

This follows the release last week of an Infrastructure Australia report that warned the cost of road congestion "would quadruple by 2031 to $53 billion". The impact of inadequate infrastructure on labour productivity could see traffic congestion (rather than an apparent lack of flexibility in the workplace relations framework) responsible for one of the biggest drags on Australia's economy.

Despite the poor performance of infrastructure, Australia's labour productivity continues to perform well in the short to medium term. But labour productivity is not so good when viewed over the longer term. Indeed, recent growth is still well below the levels achieved in the 1990s. But is that sufficient grounds to continue to focus on workplace reform when infrastructure efficiency is inadequate?

Of course, workplace reform is important as lifestyles - and markets - do change. But with infrastructure - and transport infrastructure in particular - so out of whack, is it not a case of flogging a dead horse when you haven't even built the racecourse?

Well, not exactly. The analogy is more accurately put as a case of flogging a dead horse at a race where nobody paid the price to enter the racecourse in the first place. Australia's infrastructure problems are less about building more infrastructure, and more about using the infrastructure we do have more efficiently.

In politics, the efficiency of infrastructure, in particular, the issue of road pricing, is trying but is not quite getting on to the policy radar. Instead, we seem keen to build more roads that will need to be maintained out of unidentified funding somewhere in the future.

To be sure, Transurban CEO Scott Charlton has launched a major campaign to introduce road pricing in Australia. The OECD, Productivity Commission, the Harper Review, the Henry Review and now IMD all point to the need to address the inefficiency of transport infrastructure. But this is in the face of the "infrastructure prime minister" who said of road pricing, "I think it’s not one that’s ever likely to be accepted by any government".

And the resistance is not likely to go away any time soon. In today's Australian Financial Review, the NRMA is calling for toll road prices to be regulated in line with inflation, rather than on purely a market demand basis.

The point is that when it comes to labour productivity, we are all about defending our pay and conditions while employers and governments try to reduce pay and conditions - often under the guise of flexibility - in a bid to grow labour productivity. But when it comes to paying for the roads we use every day, consumers and governments seem to be happy with the status quo.

As American economist Anthony Downs suggests, the solution to traffic congestion is more likely to remain that people will simply line-up to use roads at peak times because nobody wants to work at different hours or catch public transport or pay to use roads. Lining-up, then, is how we deal with transport infrastructure inefficiency.
This is much like the massive Boxing Day sales where people gave up their dignity to buy a microwave for $5. I'd rather pay the full price and keep my dignity.

So to come back to my dead horse analogy, it would seem that people are willing to flog the dead horse because nobody wants to pay for going to the race. How we solve this problem is anybody's guess, but until we do, labour productivity measures will force down pay and conditions all so that we can line-up to wait for access to our free roads. It is all very irrational. But then again, and despite what economists might like to tell us, so is human behaviour.

Tuesday, 21 April 2015

High Speed Rail: Roads to Ruin

Proposals for new high speed rail projects inevitably affect property owners and businesses along the proposed route, not to mention the myriad interests that new construction projects excite. What is less obvious is that interested parties supporting other modes of transport infrastructure, such as roads, can actively de-rail major projects that tick all the boxes in terms of safety, efficiency and environmental friendliness.

Where corridors for high speed rail projects have been identified and protected for some time, or will replace existing transport corridors, things are certainly much easier. If tight government budgets can be removed from the equation, then the success of high speed rail projects getting off the ground in the first instance are more likely. But if either the corridor is yet to be established, or government funds are needed for the project, the problems can drag on interminably.

We've seen the impact of budgets in the ongoing debate over high speed rail in Australia. Trade and Investment Minister Andrew Robb told The Australian that it was not a question of wanting high speed rail, but of how it will be funded. For  head of the Prime Minister's Business Advisory Council, Maurice Newman: "it's not a question of being convinced... it's a question of how we pay for it".

Clearly, the corridor is not the big obstacle for high speed rail in Australia.

But in Texas, the exact opposite is the case. A proposal by Texas Central Railway to link Houston and Dallas by high speed rail would move commuters in 90 minutes. Direct flights between the two cities run more than 30 times per day and take just over one hour. But of course, boarding and disembarking times would make the two modes comparable and in direct competition.

Texas Central's proposal is to deploy the "N700-I Bullet based on the Tokaido Shinkansen", the "oldest and busiest Shinkansen line" in Japan. This system is owned by the Central Japan Railway Company that recently hosted Maurice Newman's visit to Japan.

And the project will be funded entirely by the private sector. Unless its opponents can stop it from happening in the first place.

Two groups are spearheading the opposition to high speed rail: No Texas Central Railway and Texans Against High Speed Rail.

To be sure, there are many factors to consider when any network infrastructure is deployed. And liberal democracies carry the extra burden of property rights that are not so easily remedied for major infrastructure projects as in command economies.

However, it becomes really bizarre when the arguments put forward by the project's opponents are brought to light.

Eric Jaffe from The Atlantic's CityLab points out some of the more disturbing arguments by Texas House of Reps member Will Metcalf: "We need more roads for citizens to travel to ease our existing roadways... We do not need a high-speed railway in Texas that will only benefit a few, while at the same time disturbing thousands of citizens within its path". Others suggest that because 18 million people already choose to drive, it is unlikely that enough people will switch to high speed rail to justify the project.

It is interesting that rail's golden era in Australia was in large part due to legislation protecting the industry from competition from road carriers. It was not until the Hughes and Vale case that State laws were overturned in 1954 and our present day reliance on road transport was spawned. Today, roads have taken some of the steam out of rail, so to speak.

What is clear is that transport infrastructure debates are much more complex than simply debunking the myths. It may well be that crafty legislation is necessary to enable major infrastructure projects to get off the ground. Certainly, there is mounting evidence to suggest that procrastination will lead to lower living standards in the long term.

Previously, I was concerned about the ACT Government's attempt to limit appeals about planning approvals for the Capital Metro project. But if elected representatives can propose laws to stop major projects like Texas Central Railways, why shouldn't elected representatives make laws to enable major projects like Capital Metro?

I have been thinking about the merits of the command economies' approach to transport infrastructure and whether a form of bipartisanship, through Quangos or statutory authorities or other governance mechanisms, can overcome the limitations of day-to-day politics. Of course, there are many problems with this approach such as:
Obviously, I don't have all the answers. But what is obvious is that decades of delay on transport infrastructure we should already have and the embedded cultures related to old modes of transportation - the car - do nothing for the future of our standard of living. There is an urgent need to shift and inform transport infrastructure policy debates to prevent procrastination. Mass transit is one feasible solution, but the road to ruin is already in our collective wind-shields.

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