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Comment:
18 May 2010
Mr Rudd’s
unproductive ideas on urban productivity
For urban planners, the compact city is a central dogma. All else
hangs off it. There can be no planning without urban growth
boundaries, the iron curtains beyond which urbanisation must cease.
More to be dreaded than George Orwell’s nightmare vision, in
Nineteen Eighty-Four, of “a boot stamping on a human face -
forever” is the prospect of “a footprint stamped on a patch of earth
- forever”. So much has the concept of “footprint”, in its
“ecological”, “carbon”, “human” and other manifestations come to
pervade the thinking of activists and planners, that all greenfield
development is considered a violation of mother earth. They oppose
it at any cost, endlessly recycling their stock of arguments.
If environmental alarmism starts to pall, they will fret over the
prospect of social alienation. If this falls flat, they turn to an
economic angle. We’re told, increasingly, that compact planning will
boost the economy’s productive capacity.
“To … lift our urban productivity”, proclaimed Kevin Rudd in his
famous “BigAustralia” speech,
“we must establish new frameworks for how the different levels of
government, along with businesses and the community, work together
to build better cities and suburbs.”
The argument runs along familiar lines. Traffic congestion is
costing the economy around $10 billion dollars a year in delays and
inefficiencies. The answer is to shift as many commuters and as much
freight as possible from cars, vans and trucks and onto off-road
modes like rail. In the case of commuters, many more of them should
be using public transport. But the massive capital costs of
constructing rail lines can only be justified if population
densities are high enough to underpin acceptable rates of use. So
people and firms should be concentrated in more compact centres and
corridors serviced by fewer roads and more rail lines. Hey presto!
Productivity gets a boost.
Despite a degree of surface plausibility, the argument wilts
under closer scrutiny.
Let’s consider the version presented by Mr Rudd. His starting
premises are that “road congestion by 2005 was contributing an
avoidable cost of $9.4 billion”, that “if we fail to act, that cost
will double in the next decade”, and, citing Sir Rod Eddington’s
2006
UK Transport Study,
that “cutting travel time in Britain by just 10 per cent could raise
national productivity by as much as 1.2 per cent.”
Having noted that “one of the factors driving the increased reliance
on road usage is the long-term underinvestment in public transport
networks”, Mr Rudd suggests some remedies. “[I]ncreasing density in
cities is part of the solution to urban growth”, he says, and “forms
of development need to be fully integrated with current and future
transport networks.”
So far, so typical. But the resort to Eddington’s study raises
questions about context. Do his findings translate to Australian
conditions? Eddington’s source for the productivity estimate is, in
the words of Mr Rudd, “leading British economist Professor Tony
Venables”. More precisely, an analysis by
Venables and Patricia Rice
of the spatial causes of productivity in “the regions of
Great Britain”. Essentially, they set out to measure how distances
from areas of high “economic mass” (or high economic density)
interrelate with productivity levels. The analysis is static, and
doesn’t address the productivity impacts of measures to raise
densities over time.
Before coming to the estimate, Eddington is at pains to lay the
contextual groundwork. Unlike Mr Rudd, he concedes, on the role
transport can play in lifting productivity, that “the literature has
been largely unsuccessful in answering this question”. In a
footnote, he says the work of Venables and Rice is “usefully
beginning to inform debate”. No more.
Eddington’s most telling observation, from an Australian
perspective, is that “the contribution that transport can make to
productivity is dependent on … the existing density of the area”. He
says “not all firms and areas are equally agglomerated, and will
therefore not benefit equally from a particular transport
improvement”. Eddington explains that “transport alone cannot
generate clusters, it can play an important role in facilitating
their expansion by reducing travel time and costs …”
In other words, the extent to which transport infrastructure can
boost productivity depends on existing densities, not target
densities. This is the crucial point: Australian cities are much
less dense than European, including British, cities. According to
the
City Mayors ranking
of 125 cities by population density, London ranks 43rd with 5,100
people per square kilometre, Leeds/Bradford 57th with 4,050,
Manchester 58th with 4,000 and Birmingham 64th with 3,800. Sydney
ranks 113rd with 2,100 and other Australian cities don’t even make
the list. Our cities also have some of the most dispersed commercial
and industrial structures in the world, with relatively small CBDs
accounting for around 12 to 20 per cent of urban jobs.
British cities are denser for several reasons: a more compact land
mass, a colder climate, a longer history of settlement stretching
deep into the era before modern transportation, and, particularly in
the case of South-East England and London, an economy dominated by
business services and information technology, which thrive on
“agglomeration effects”. These do feature prominently in Sydney’s
economic mix, but nowhere near the scale of London, the world’s
mecca of banking, finance and investment. Until recently, the London
Stock Exchange was the largest in the world, accounting for 32 per
cent of global turnover.
The contrasts between British and Australian conditions are
manifest, even if Sir Rod has lost sight of them since his
appointment as Mr Rudd’s infrastructure czar in 2008.
Still, the heralded boosts to national productivity aren’t likely to
materialise. In low density environments, transport projects have
limited economy-wide impacts. A smaller proportion of individuals
and firms are placed to exploit them. This is especially so in the
case of rail infrastructure (of course, freight rail lines servicing
particular port and production facilities warrant special
consideration). At the same time, measures to raise densities could
wipe out such productivity gains as there are. Zoning controls and
urban growth boundaries, for instance, raise land values and rents,
with knock-on effects for prices, the cost of capital, and wage and
salary expectations.
It makes little sense to trumpet new efficiencies in transport, if
other costs have been jacked up to achieve them. That’s why the key
concept in economic thinking about productivity is “total factor
productivity” (TFP), the portion of output not explained by all the
inputs used in production. Mr Rudd wrongly isolates transport costs
from the myriad other costs bearing on urban productivity, and
accords them overblown status.
The true path to urban productivity lies in empowering firms to
choose their optimal location, taking account of their individual
mix of costs and benefits. This means watering down regulations
which restrict these choices, and improving access to as many points
on the urban landscape as possible. Rail infrastructure is the least
flexible option. There’s no way that planning bureaucrats,
brandishing a few large-scale projects, can make better location
decisions for thousands of businesses than the firms themselves.
Perhaps Mr Rudd should imitate one of his own team. Out of a
soundly-based concern for the impact of planning and zoning laws on
competition, particularly in the retail sector, small business
minister Craig Emerson has launched an enquiry by the
Productivity Commission.
They can be expected to know what they’re talking about.
This comment was republished by
the urbanist blog
New Geography.
