Economics of congestion

30/12/2006

THE Society of Indian Automobile Manufacturers (siam) says India produced over 10 million vehicles in 2006. The number of cars was more than one million. As the manufacture and sale of vehicles are important parameters of the national economy, this millionth-vehicle yardstick says the economy's fundamentals are buoyant.

I have no quarrel with this. But I do find this economic assessment rather incomplete and simplistic. Because vehicles require resources to operate, maintain and even park. Where will these resources come from? Who pays? Who does not? These assessments are critical to learn the economics that really matter: what is the cost of this growth, and how should we pay for it?

At the very least, five costs have to be added to the price of each vehicle. One, the cost of building a road. Two, the cost of maintaining roads, the cost of policing on the road, the cost of powering the millions of traffic lights. Three, the crippling cost of local air pollution and bad health which requires monitoring, control and regulation. Added to this is evidence that vehicles are key contributors to pollution, which is feeding climate change and will result in even bigger costs. Four, the cost of congestion, which every motorist on a busy road imposes on fellow travellers - from delays that cost time, to increased fuel consumption that costs money. Five, the cost of space for parking vehicles, at home and at work.

We need to ask why economists - the ones who normally rant about markets, the need for full cost pricing and removal of subsidies - never account for these costs in their calculations of growth. After all, the cold logic of the market, repeatedly cited when it comes to the meagre support given to farmers, should apply here as well. Could it be that our economists are so vertically integrated to the market - with mind and matter - that these distortions fail to catch their attention?

Take roads. We know that cars on roads are like the proverbial cup that always fills up. Cities invest in roads, but fight the losing battle of the bulge: congestion. The us provides up to four times more road space per capita than most European cities, and up to eight times more road space per capita as compared to the crowded cities of Asia. When more roads fail to solve the problem, governments invest in flyovers and elevated highways. These roads occupy space - real estate - and are costly to build and maintain. It has been estimated that in Western cities dependent on automobiles, it could cost as much as us $260 per capita per year to operate these facilities.

But this investment is also not paying off as ever increasing cars fill the ever increasing space. This is why experts say building roads to fit cars is like trying to put out a fire with petrol. Britain's orbital motorway, something akin to Delhi's Ring Road that 'bypasses' the city, was built 20 years ago. Since then, it has been expanded at huge costs to 12 lanes. But bumper-to-bumper traffic on it has dubbed it the nation's biggest car park.

Congestion costs the earth, in terms of lost hours spent in traffic; in terms of fuel and in terms of pollution. In the us, the congestion bill for 85 cities totalled to a staggering us $63 billion in 2003. This calculated only the cost of hours lost - some 3.7 billion - and extra fuel consumed, not the loss of opportunity because of missed meetings and other such factors. In the uk, the industry has pegged the figure at us $30 billion. Our part of the world is similarly blessed: Bangkok estimates that it loses 6 per cent of its economic production due to traffic congestion. These costs do not even begin to account for pollution: emissions of hydrocarbons and carbon monoxide are linked with speed and frequent stop and start.

The logic of the market tells us that people overuse goods and services that come free. Why, then, should this dictum not be applied to roads? Why should fiscal policy not be designed to reflect the real cost of this public asset? Why not charge for it?

The question of who should pay is simple: the user. But what is often not understood is the nature - colour and class - of the 'real' user of the public largess in our economies. While in the Western world, the car has replaced the bus or bicycle, in our world it has only marginalised its space. Therefore, even in a rich city like Delhi, cars and two-wheelers carry less than 20 per cent of the city's commuting passengers. The rest are transported by buses, bicycles or other means. But the operational fact is that these cars and two-wheelers occupy over 90 per cent of the city's road space. Therefore, it is evident that the user of the public space and the beneficiary of public largess - the road, the flyover or the elevated highway - is the person in the car or the two-wheeler.

Cars do not only cost on the road. They also cost when they are parked. Personal vehicles stay parked roughly 90 per cent of the time; the land they occupy costs real estate. Cars occupy more space for parking than what we need to work in our office: 23 sq metres to park a car, against 15 sq metres to park a desk. My colleagues have estimated that the one million-odd cars in Delhi would take up roughly 11 per cent of the city's urban area. Green spaces in the city take up roughly the same.

Ultimately, the issue is not even what it costs. The issue is why we are not computing the costs or estimating its losses.

- Sunita Narain

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