HAIC | Urban Transportation… a tale of excitement and desolation
The transition to a digital life has brought us an infinite array of new services and ways to communicate. Yet, in metropolitan areas, the opposite has happened and leaving one’s neighborhood has become an unpleasant experience.
Tragedy of the Commons, urban transportation, Sergio Alberich, Human Action Investment Club, Traffic Jams, Regulation
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Urban Transportation… a tale of excitement and desolation

November 4th, 2015 | by Sergio Alberich

“It is reasonably certain that we would still have stagecoaches — nationalized, to be sure, heavily subsidized, and with a fantastic research program to ‘retrain the horse’ — had there been ministers of transportation around 1825.” –Peter Drucker

The transition to a digital life has brought us an infinite array of new services and ways to communicate. Today, whether you have family living across the Atlantic or co-workers based in Asia, communication is easy, fast and cheap. It is as if the world has shrunk and the four corners of the Earth are at anyone’s reach. Yet, in metropolitan areas, the opposite has happened and leaving one’s neighborhood has become an unpleasant experience. Traffic jams are frequent, public transportation is always problematic and the time spent commuting has dramatically increased over the past 30 years.

At this point, the transportation problem is a pervasive phenomenon. It is not a local matter restrict to a few megalopolis, but a global trend that is spreading fast. Which, given how different cities’ characteristics are, is a bit surprising when you stop to think about it.

Compare the usual European, North American and South American cities. Dense urban cores contrast with cities dispersed over large areas, public transportation (despite all of its flaws) is sometimes available and other times almost inexistent, road capacity seems abundant in a few areas and very restrict in others, and car ownership penetration ranges from very high to very low. Still, no matter what the differences are, congestion is always an issue.

With traffic-planners constantly failing to deliver sustainable improvements to almost chaotic situations, private solutions are arising, in one way or another, almost everywhere. As a result, for the first time in decades, these creative endeavors seem to bring real advances to the commuting experience and for the transportation of goods and services.

Meanwhile, it is the usual tale of regulation and protectionism that makes more noise. 100-year-old government sponsored monopolies get so jealous and so threatened that they decide to spend money and energy lobbying to block the disrupting start-ups with arguments that the newcomers “are getting a free-ride”, “are not safe” and “constitute unfair competition”. Yet, they are often talking about companies that receive no government money, get no special favors, provide services that are safer than the regulatory standards and are merely running their businesses by the rules of the market. That is, attracting customers by providing higher quality and cheaper products/services.

All that said, this old urban transportation system has not only become completely obsolete, messy and extremely expensive, but is also doomed by an entrepreneurial wave that gains momentum in the midst of Economic, Technological and Governmental trends that are striking similarly in completely different places around the globe. At this point, trying to block the arrival of a new scene in urban transportation, one widely fostered by the private initiative, is as absurd as it was, back in the day, to try to prohibit the CD industry development in an effort to protect the cassette industry, or to banish the mp3 to save the CD. It is an incredible waste of valuable resources that might kill a few start-ups and delay the success of some promising business models, but in no way, it will be able to shield urban transportation from drastic changes.

From the purely Technological side, recent innovations give birth to a series of business models that were not feasible before. The simple emergence of the smartphone and peer-to-peer communication makes possible the sharing-economy. Not only can one talk to a cousin living in a different continent on a daily basis, but the appearance of online marketplaces (which are, in their essence, nothing more than the digital version of a farmers’ market) allow micro entrepreneurs and interested customers to easily find and communicate with each other. Perhaps, right now, the best known of these marketplaces is Uber, a mobile app that connects individual drivers and passengers. Still, it is just one of many similar marketplaces popping up everywhere.

Car-sharing programs like Zipcar and Car2Go (hourly car-rental services) are borderline mainstream today, and programs that are even closer to the individual, like RelayRides (an online marketplace for car-rental), are also exploding in Europe and in the USA. Parking, one more expensive and annoying issue, is being transformed thanks to technologies that were not commonly available 10 or 15 years ago (a few examples would be ValetAnywhere, Zirx, Vatler and Luxe Valet that provide valet services through mobile apps, or ParkingSpots.com, SpotHero and KurbKarma that work as marketplaces for parking spots).

In vehicle production, the impact of peer-to-peer communication cannot be ignored but it is perhaps worth focusing on some of the most common breakthroughs. Energy storage (batteries) is undoubtedly a hurdle (both in financial and performance terms) but it has already reached a development stage where many new vehicles are possible. Electric scooters are already a regular image in many places and the Renault Twizy is a fun drive in a car so small that almost makes the Mercedes Smart Car look like a sedan. Most importantly, these new vehicles are already being used in many new ventures. Scoot, a one-way electric scooter-sharing firm based in San Francisco, just started running a small fleet of Renault Twizy cars (despite the car not being totally legal in the USA – by the way, it is completely legal in Europe!), and by all accounts, it has been a success. Bonzer, a Boston start-up, is about to start a pilot program using similar cars in one of the area’s most prominent universities.

Still, that is not to say that the future is exclusively electric. It is not and it should not be! Fossil fuel engines, despite ludicrous regulations that in many cases prevent innovation, keep evolving in price and gallons-per-mile performance. As a result, consumers and entrepreneurs have access to more options that enable them to try new ideas (for example, tiny and cheap cars seem perfect for one-way car-sharing operations. They need small cars that are easy to park, cannot afford big fuel bills and do not need the performance of high-speed vehicles). Yet, regulation always gets in the middle, and many of these car models are simply not legal in some countries because of senseless laws (here).    

However, technology is not the sole responsible for this boom in inventive endeavors, Governmental factors are of the uttermost importance as well. Reframing it in a better-suited way, governmental operational incompetence and governmental fiscal irresponsibility are, indirectly, a big stimulus for entrepreneurial creations.

Simply put, bureaucrats are historically (and logically) incapable of directing and dictating transportation. Sure, there are some very smart people with good intentions working for transportation authorities, but the whole phenomenon is so complex that one (or even a group of bright minds) cannot make transportation less problematic by simply fine-tuning regulation.

Actually, they can only make it worse. The harder they try, the worse it tends to get. Essentially, all their attempts center on what people should do, on telling them how they should behave, on planning their lives for them. It simply does not work.

It is almost analogous to trying to control Boston’s bread supply! No one is in charge of controlling it, and if someone tried to control it, it would be a mess. Sure, we can observe and appreciate the process, but we cannot fully comprehend and control all the events behind the social order of the production and consumption of bread. Then, we cannot replace the plans of each person (from the old man who buys a baguette to the delivery boy who works at a bakery, to the bakery owner…) by the will and desire of social-bread-engineers and expect better results. In other words, the supply of bread in most cities is a self-organizing complex social system that arises as the result of human action and not human design. This is a deep insight that traffic-planners and politicians seem to completely ignore.

Consequently, they have invariably resorted to nonsensical laws or pharaonic constructions that only improve the conditions a little bit for a tiny minute. License plate lottery and rationing, parking restrictions, vehicle taxes, advertising and incentives to carpool, vanpool, use public transit, billion dollar subways lines, very expensive bridges and tunnels that connect to nowhere, new regulatory agencies and so on. Yet, strangely to traffic-planners, the progression of the transportation problem is always the same. More traffic, worse pollution and higher costs.

Not to mention the crusade against cars we currently see in so many cities. The mayors of Sao Paulo, Los Angeles, Paris and New York seem to believe that worsening traffic for anyone who drives a car is going to improve the welfare of everyone (here). They want to make driving so annoyingly bad that the citizens of these cities are going to happily shift to walking, public mass transportation and riding bikes. A bad joke at best!

To make matters worse, politicians, regulatory agencies and state-owned firms (huge cash drainers that are usually state or municipal government’s first or second biggest budget line) have been lousy at avoiding and dealing with the transportation problem while being awarded, year after year, with broader reach and higher budgets.

Now, imagine what is going to happen when the governments have to de facto deal with their all-time high debt and deficit levels. When, despite the opposite desire of politicians and bureaucrats, they have to really cut expenditures to deal with lower levels of inflow and higher interest rates. Which kind of bright and sustainable solutions can one expect from governments? Nip, zero, nada!

On the Economic front, the money-debt bubble is still expanding and yet to burst (to be better covered in future issues… meanwhile, check here), but the pornographically low interest rates of the past years have their share of victims. The retirees, including the post WW II baby-boomers , suffer because the savings they rely upon to survive yields nothing while invested in very high-risk portfolios. On the other extreme of adulthood, the youngest part of the labor force, the so-called millenniums, face high unemployment rates and a lot of personal debt.

All of that leads to a big share of the population adopting or adjusting to a “own less, pay less, asset light” lifestyle that completely alters the transportation industry. Retirees downsizing sooner than expected and moving back into the city while the youngsters deal with their own struggles and postpone the responsibilities of the grown up life have effects that go far beyond transportation. However, it is vital to point out that these economic factors along with the growth of car-sharing and ride-hailing services have just started to chip away at the landscape of car ownership.

Still, even with all that in mind, it is hard to know exactly how the movement of people, goods and services in metropolitan zones will be changed, and which business models will prevail. Undoubtedly, the particularities of each city, the different geographical aspects, the preferences of consumers and the ability of each entrepreneur will shape the ventures that will triumph in each area or niche, but some trends appear to be quite ubiquitous and a few questions can be quickly formulated.

What will be the effects on traditional car manufacturers? Are we going to have more companies following Uber’s brilliant strategy of growing fast at the cost of immediate financial returns in an effort to make its service so well known and appreciated that it becomes a bad proposition for politicians to openly oppose it? How will rebalancing problems in one-way business models be solved? Dynamic pricing should be of much help, but what about the self-driving cars we expect to see in the not so distant future? What about streets, roads, highways, subways and bus systems? Can we also expect the private initiative to prevail here as well? And the political class, how are they going to behave throughout that landscape change? Will they be forced to be a bit more open towards the private initiative when they face the fact that they cannot afford to keep fostering the expensive and unpopular options they are familiar with?

Above all, the designer deciding on a new job in the auto-industry should be concerned with the future of the company he joins. The supplier of state-owned transportation firms has to wonder if his future (and even present) really lays there. The individual investor has to study and inquire the butterfly effects it will bring to many other industries… and the consumers already tired of dealing with agonizing traffic-jams, horrendous public transportation options and problematic parking could pay attention to this incredible array of solutions that are taking shape in front of their eyes, and give them a try.

Lastly, I urge the reader to think beyond the ideas and insights presented here, and wonder how his surroundings are going to be affected by this upcoming change in the urban transportation landscape. After all, it is worth remembering that when we left the horse-carriage and adopted the car, life changed not only for the entrepreneurs involved in the industry, but for all of us.