“What is the economic case for Mini Switzerland?”
That is the question the transport economist Omer Bor asked me recently.
After all, something can be a nice thing to do (and even the right thing to do), without actually adding value to the economy.
Which category does this fall into?
Well, it may not surprise you to learn that I do feel there is an economic case for mini Switzerland.
That’s what today’s post is about.
However, interestingly, when I sent it to Omer, he thinks the opposite. He thinks there is a strong case for Mini Switzerland, but it’s a social one: and we shouldn’t be afraid to say so.
So this week you get an economic case from a non-economist, and next week a non-economic case from an economist.
Maybe it’s autumn that’s the silly season…
The economic case
It all starts with the core purpose of transport, which is connecting people to opportunity. Cars do a decent job of connecting rural communities to other parts of the same rural community, but they have two key weaknesses:
The first is that they don’t do such a good job of connecting to economic opportunity within cities, as British cities tend to have insufficient road capacity to absorb cars from rural areas.
The second (and most serious) is that young people prefer to live in places with high-quality public transport, and so move out. That causes a skills drain.
Let’s deal with these in reverse order.
The result of doing an image search for “young person, public transport”
Young people
Public transport is a youth magnet. Young people are less likely to drive and are more likely to be cost-sensitive. Insurance costs are higher, and young people are more likely to socialise outside the home and need to come home at antisocial hours.
For all of these reasons, young people want to live in a place where they can easily get about by public transport. As most villages do not have decent public transport, this causes something of a brain drain, as young people typically move to London. There is a very well established lifetime cycle in which young people move to London in their 20s and 30s, and then move back at to the country with the young kids.
Unfortunately, it is young people who often generate the high-productivity jobs of the future. Thirty years ago, it was young people who experimented with the internet: now it is young people who are more likely to use AI.
This holds back economies where young people are less willing to live, while causing London to overheat.
Commuting to Cities
The economic value of cities is directly proportionate to this effective size: the number of people in the labour market. Bigger cities have higher productivity and higher GDP per Capita.
Cities like Hamburg, in northern Germany, have GDP per head 95% higher than the European average because they have huge integrated transport zones surrounding them which can pull in a huge Labour market from the rural economy.
At the other extreme, cities like Leeds and Sheffield don’t even have integrated transport zones within the city, which means that city is - in effect - smaller than its actual size.
Mini Switzerland in places like the Hope Valley, which are close to multiple cities, have the potential to increase the effective size of the city without having to build more houses.
Currently, travelling by public transport from Bradwell to Manchester for work is just not realistic but driving is miserable. That means that Bradwell is, in effect, not part of the Manchester economy. Mini Switzerland has the potential to change that.
The economic benefits of agglomeration (lots of people with lots of jobs) are well known and were the formal rationale for the Elizabeth line.
In effect, Mini Switzerland and the Elizabeth line are the same thing, just on a different scales: connecting people to opportunity through better public transport.
You can see why people visit Hope Valley
Tourism
One of the biggest uses for Mini Switzerland will be the visitor economy, so why haven’t I listed that?
To a very significant extent, because it depends at what level you are measuring the economic benefit.
For the Hope Valley, the economic benefit is significant. The road network is saturated, which means it is impossible to bring more visitors in.
Mini Switzerland will enable more people to visit pubs, cafés and shops than otherwise would have been possible.
However, if you were looking at it at a national level, then probably those are people that would, otherwise, have spent their money in some other place. The national economic effect is therefore zero.
How much does it cost?
Saying there is an economic benefit does not mean that it is free.
The economic benefit is realised through lots of people having better, higher-productivity jobs and through the economies of places where Mini Switzerland projects happen becoming stronger. This will generate new tax revenue, but it does not materialise in fares.
My hypothesis is that Mini Switzerland will require taxpayer investment, but that it will generate passengers at a greater rate than cost. The overall cost to the taxpayer will go up, but the subsidy per passenger will go down.
In effect, we will become more efficient in spending taxpayers’ money as an investment in connectivity.
Over to Omer
So, this is my answer to Omer’s question. It’s all in words, not numbers. Omer is a numbers person.
Next week, he’ll tell you that he thinks there’s a strong case for Mini Switzerland, but he wouldn’t base it around economic analysis at all.
