Guest Post by Omer Bor
The Economic Case for Mini-Switzerland
"If you treated all the dishes in your kitchen as dishwasher safe, within a few months all the dishes in your kitchen would be dishwasher safe."
Rory Sutherland likes to repeat this line. The point is that a tool does not only test things. Over time it changes them, too, because whatever doesn't survive it gets thrown out, or reshaped so it does.
I thought about this when Thomas and I first discussed the economic case for Mini-Switzerland.
Last week Thomas set out his economic case, emphasising commuting into cities, agglomeration and growth of places. It reads like a perfect exam answer. It ticks every box you would find in the Transport Analysis Guidance (TAG) for an investment in public transport, with the right caveats.
Yet I don't think that is how we should approach the question. This post is my attempt to say why, and what I would do instead.
What Mini-Switzerland is
For the few of you who have not followed Thomas's project: Mini-Switzerland is a plan to integrate timetables for easy interchange between buses and between train and bus. The aim is that from any village you can reach as many places as possible within an hour or two by public transport, without a car. A national demonstrator is currently funded by central government, with the idea that if it works, local authorities elsewhere could have one too, knowing what it does.
What is TAG and how it is used
The vast majority of transport investment in the UK is made only after its costs and benefits have been analysed using the Transport Analysis Guidance (TAG), and it has been found to represent Value for Money for taxpayers.
TAG is truly world-class guidance, which other countries look to when they shape their own. In the UK, TAG is the dishwasher from Sutherland's line. It forces every investment into a particular shape
Why I would not use TAG to make this case
By far the most reliable way to score well in a TAG appraisal is to make the journeys that lots of people already make faster. This time saving, multiplied by the number of travellers and by a value of time, is the biggest line in nearly every economic case.
Mini-Switzerland, however, is doing something different. It is not trying to get existing passengers to their destination faster. It is trying to increase the number of destinations a resident can reach via public transport. To do so it makes buses wait for each other, contrary to TAG's implicit advice. And indeed the concept of an interchange in itself is discouraged due to a time penalty. But the idea behind Mini-Switzerland is that easy and seamless transfer would open up more destinations, which in turn would induce more demand. The models that feed TAG rarely capture that.
Second, TAG values an hour of a commuter's time at more than twice an hour spent travelling for any other reason: shopping, visiting a friend, an NHS appointment. But Mini-Switzerland is not a commuter scheme. Its users are more likely to be rural residents going about their daily life.
Third, TAG rewards productivity benefits from agglomeration: the idea that productivity rises when more workers are within reach of more employers. But a rule of thumb is that beyond about 45 minutes of travel there are very little gains. If you wanted to design a scheme for agglomeration you would not build a Mini-Switzerland. You would build a radial network that gets everyone to big cities as fast as possible. That is precisely what Mini-Switzerland is not doing.
If you take the appraisal seriously you would never have designed a Mini-Switzerland in the first place. And having designed one, you would be under steady pressure to tweak it to fit TAG. Within a few tweaks you would have a different scheme. The dish has become dishwasher safe.
Should we scrap TAG, then?
Absolutely not. TAG has a critical role in a democratic country. It holds politicians to account when they spend public money. It does so on a premise the public generally accepts: that money should be spent where it does the most good for the most people. That is what TAG is all about.
It is especially important for schemes at a national scale, where getting the informed view of every affected user and resident is impossible. But for schemes that can be funded locally, such as Mini-Switzerland, TAG shouldn't be the first accountability tool of choice.
Locally, there are many other accountability tools: elections, consultations, campaigns, social media, Freedom of Information. If a mayor or a council leader makes a decision their electorate doesn’t like, you can be sure they’ll feel it. They might even be replaced in the next election. That is a more direct accountability mechanism than any Benefit-Cost Ratio could ever be.
Mini-Switzerland is a national demonstrator, funded by central government. But the idea is that local authorities could observe its impact and decide to 'buy one' too, using their devolved budgets or local funding.
What to do instead
What is this economist good for, then, if he won't provide an economic case?
I think that the value of Mini-Switzerland should be measured by comparing it to other bus enhancement schemes. If Mini-Switzerland can generate more demand - per pound invested - than other bus schemes, then we'll know that passengers value the connectivity it provides.
This still leaves the question of what is the right price to pay for a Mini-Switzerland. A question that a traditional TAG assessment would answer, but this benchmarking exercise won't. That is, I think, for communities to decide. So the job of the demonstrator is to show what is possible, the extent to which passengers value this offer and the potential revenue uplifts. Local authorities can then make an informed decision. But for that to happen, the scheme must be designed according to the principles of Swiss-style connectivity - not British-style Value for Money assessment.
People often want a number they can advertise - "Each £1 invested generated £4 in economic benefits!" As an economist, I am tempted to go ahead and estimate it. But it is important to recognise when the traditional toolbox of economic analysis isn't the right one.
I'd be genuinely interested to hear what other economists and non-economists make of this. Should we protect schemes from BCRs when their underlying principles are different? Or should we make TAG comprehensive enough to be suitable to all schemes?
