The Transport Productivity Puzzle
How to prove that transformative transport investment increases productivity?
Did you know that when it rains you get wet?
Intuitively, it makes sense that water falling from the sky would cause wetness.
But can I prove that the wetness is caused by the rain?
Yes, I can test it. By stepping into the rain, I can see if wetness occurs.
It does.
While stepping out of the rain causes the wetness to stop.
Excellent, now I can make decisions about my response to rain based on whether I want more or less wetness in my life.
PRODUCTIVITY
Did you know that transport investment increases productivity?
Intuitively, it makes sense that reducing commutes, increasing firms’ access to labour markets and reducing distances between companies and their investors/partners/suppliers/customers would improve productivity
But it’s almost impossible to test.
And that’s a problem.
CRISIS
Britain has a productivity crisis.
Despite not suffering the lag effect of Communist dictatorship, most of Britain has productivity rates equivalent to Eastern Europe.
Britain has four of the world’s top ten universities, a well-educated population, the physical and financial capital from having been a global superpower in some peoples’ living memory and a location midway between European and Asian time zones.
So why does productivity lag?
And why is that the productivity lag so geographically marked?
While London’s productivity is up there alongside Paris, Frankfurt and the Netherlands, productivity in most of Britain is below the European average. Why such a stark difference?
Part of the problem, I suspect, is that although transport investment will increase productivity, we haven’t been able to prove it - and so don’t act on it.
Part of one of the most productive cities in Europe
WHICH CANARY LAID THE GOLDEN EGG?
The problem is that productivity is part of the economy, and the economy is fiendishly complex.
Obviously all forms of human interaction are complex, but some effects are easier to isolate.
If you open a new cancer treatment centre serving Cornwall and then rates of cancer in Cornwall start to fall faster than in the rest of the country, you can make a good assumption that the new treatment centre made the difference.
But transformational transport investments tend to be both big and unique, which makes it hard to assess their impact.
If we look at Canary Wharf, which employs more than 100,000 people in high-productivity services, we can make the assumption that had the DLR and Jubilee line not been built, then those jobs would not be there.
But does that mean we can simply credit those investments with the 100,000 jobs? No, of course not. Some of the jobs would have occurred in the City of London. Maybe some of them would have been located in an expanded City fringe? But, almost certainly, the absence of a purpose-built financial district would have meant that London would have been a lower productivity city overall.
So does that mean we can chalk up a proportion of the productivity gains to the DLR and Jubilee line?
Well, even that’s very hard.
After all, if we’re looking at the incremental productivity gains, we’re looking at the difference between what did happen and what would have happened had the DLR and Jubilee line not been built.
But how on earth can we figure that out? It would be like playing Sim City (90s reference there!). We’d have to model an entirely different London for a different future, starting back in 1987 when the DLR didn’t open.
And even if that were possible, we’d have another issue.
Yes, we (the transport tribe) can say that Canary Wharf would not have happened without the DLR and Jubilee line. Which is obviously true.
But the spatial planning crew will say that it wouldn’t have happened without the Development Corporation, which transformed the land use possibilities in the area.
The financial folk, meanwhile, will credit the whole thing to the Big Bang financial deregulation of 1986 which liberalised banking.
All these things happened in the 1980s.
As did the creation of the Single Market, also in 1986, which enabled Canary Wharf to become the European centre for euro trading. And free movement of people in the EU. And the start of a genuine transformation in London school standards. And a reduction in crime in the inner cities.
Which of these interventions should be credited with enabling Canary Wharf? Well, all of them, obviously. Like the Murder on the Orient Express, [spoiler coming up] they all did it.
But they cannot all be credited with the whole productivity improvement so, as a next-best alternative, none of them will be.
ALL THE COST, NOT ALL OF THE BENEFIT
The problem with this is that these transformational productivity gains are a big part of the benefits of transformational transport schemes.
And as transformational transport schemes are expensive, we have a problem.
We saw this with HS2.
HS2 had a BCR (benefit-cost ratio) that was persistently not very good (sometimes it was positive, sometimes negative: at no point did the BCR suggest it was worth all the fuss). But HS2 was a transformational scheme, seeking to rebalance the UK economy. With capacity more than doubling and Manchester, Leeds and Birmingham all becoming closer to London by journey time, than Worthing, the agglomeration effects of the capital would have become near national.
But how to prove it?
Might it rain under the umbrella?
I HAVE NO UMBRELLA
If we couldn’t prove that rain makes you wet, maybe we’d go out without an umbrella.
Certainly, the fact we can’t prove productivity improvement is driven by public transport seems to have affected our willingness to invest in public transport. In effect, Manchester, Liverpool, Leeds, Birmingham (etc) are being sent out into the global economy without the umbrella of transport investment.
Paris has built five RER lines (Crossrail equivalents) and is now building new metro lines with a total route length longer than the DLR, Crossrail tunnels, Overground extensions and Jubilee line combined.
But London has done pretty well for transport investment by European standards, and its productivity reflects it (though boroughs like Sutton and Bexley that are not served by the tube and have seen little investment in the last century continue to lag behind).
The big difference is in cities outside London.
BCRs that can’t quantify transformational impacts mean that cities like Leeds are not transformed.
If Leeds, Bradford and the many surrounding towns were all considered one urban area (in the way that Watford, Woking and Slough are part of London economically, even if not in Greater London), then Leeds would be a global city.
Frankfurt is a city about the same size as Leeds: it is the hinterland of the wider area that makes it into a powerhouse. Hanau is a city of 100,000 people around 15 miles away from Frankfurt. It is connected by high-frequency S-bahn trains every few minutes taking 30 mins or fast trains taking 20 mins. Huddersfield is the equivalent. It has fast trains (Transpennine Express) but no S-bahn. But it is the S-bahn that drives the productivity by connecting Hanau not just to the central station but to the whole city. It makes Hanau part of Frankfurt. But the Transpennine Express route has neither the capacity or the resilience to support both.
But it is by making small places part of big ones that we create the agglomeration effects that both theory and experience tell us drive up productivity.
A LITTLE BIT OF KNOWLEDGE IS A DANGEROUS THING
I wonder if we’ve become too good at transport appraisals.
When it was created, the Transport Analysis Guidance (TAG) was considered pretty world-leading.
But maybe that’s not always such a good thing.
Once a number exists, it becomes gospel.
Look at this paragraph from .gov.uk about HS2:
The BCR range for the scheme is between 0.5 and 1.2, with a reference case BCR of 0.7 over a 60-year appraisal period and based on DfT’s common analytical scenario. Using a 100-year appraisal period, the reference case BCR is 0.9. The VfM of the Crewe to Manchester scheme without the Golborne Link will therefore fall within the ‘poor’ to ‘low’ DfT VfM categories.
“Using a 100-year appraisal period”!
I mean, this is obviously nonsense.
One of the primary uses of the Central line in East London is connectivity to Stratford station for interchange with the Jubilee line for the offices of Canary Wharf. How on earth could anyone have done a 100-year appraisal of this extension when it was proposed in the 1930s that would have captured these benefits, given that the idea of converting the London docks into offices was not going to occur for another fifty years and the idea of extending the Jubilee line to Stratford for another sixty?
Well, they couldn’t, so they didn’t.
But, back in the 1930s, they didn’t have WebTAG either, so they had to make less sophisticated assessments.
As a result, those assessments could - in a less sophisticated way - encompass everything the scheme was trying to do.
By contrast, a modern BCR for a transformational scheme struggles to calculate the transformational effects.
Because it can’t.
However, that’s like quantifying the benefits of a pub as if the only benefit it was meant to offer is as a place to eat and drink - so we’ll measure it by its contribution to human nutrition. A pub would come out with a pretty poor Value for Nutrition ratio - but that’s hardly the point of a pub.
The Government acknowledged this problem in its 2020 review of the Treasury Green Book (the “bible” for how the Government considers value for money):
A number of stakeholders have argued that while the Green Book provides a sound basis for the appraisal of options to deliver marginal change, it is less useful when changes might be transformational and that as a result the benefits of such schemes could be understated.
And sensibly recognised that:
The revised Green Book does not provide a step-by-step method that will generate precise valuations of transformational impacts. Such tools do not exist and are unlikely to be developed given the inherent uncertainty of these processes. Models can be valuable in identifying circumstances and conditions necessary for transformational change, but they are frequently less useful at quantifying impacts with precision. A robust and well evidenced logical process of change is typically more useful than figures generated from a complex model.
This is true. But it doesn’t stop BCRs being calculated. Despite this guidance, who is going to attempt to propose - for example, the HS2 replacement between Manchester and Birmingham without a BCR?
Now, it wouldn’t matter having incomplete Benefits in a BCR if it weren’t for the fact that the Costs are constantly updated.
A fraction of the benefits minus all of the costs = a negative or low BCR.
Yet once a BCR is quantified on that basis, it becomes gospel.
The productivity mystery
So, my challenge to the hive mind of Freewheeling readers is this: how do we prove that transformational transport investment will contribute to solving Britain’s productivity crisis?
This really matters. The Office for Budget Responsibility estimates that improving the rate of productivity growth by 0.1 percentage points could lower the debt-to-GDP ratio by 25 percentage points. 25 percentage points! The detail will be wrong but the impact is big.
Britain is currently suffering the rain of low productivity and we transport folk have the umbrella of connectivity at our disposal.
But we can’t just step outside, put it up and prove it works.
So what should we do?
Our Own Transport Productivity Mystery
We have a further problem as a sector which is that, while we are part of the solution, we are also part of the problem.
Our own businesses are not the most productive. It’s partly to help solve this problem that I’ve created the Freewheeling business: to help companies, organisations and authorities in our sector learn the lessons from entrepreneurial organisations around pace and agility.
At the moment, I’m primarily doing ‘standard’ transport and mobility consulting (plus a bit of keynote speaking), but over the next few months, I’m hoping to start helping organisations with our own productivity problem.
So that we’re then in a stronger position to help with the nation’s.
