ECONOMIC RESEARCH CENTRE
EUROPEAN CONFERENCE OF MINISTERS OF TRANSPORT
PARIS 1994
ECONOMIC RESEARCH CENTRE
REPORT OF THE
NINETY-THIRD ROUND TABLE ON TRANSPORT ECONOMICS
held in Lyons on 30th June-1st July 1992 on the following topic:
BENEFITS OF DIFFERENT TRANSPORT MODES
EUROPEAN CONFERENCE OF MINISTERS OF TRANSPORT
THE EUROPEAN CONFERENCE OF MINISTERS OF TRANSPORT (ECMT)
The European Conference of Ministers of Transport (ECMT) is an inter-governmental organisation established by a Protocol signed in Brussels on 17th October 1953. The Council of the Conference comprises the Ministers of Transport of 30 European countries1. The work of the Council of Ministers is prepared by a Committee of Deputies.
The purposes of the Conference are:
a) to take whatever measures may be necessary to achieve, at general or regional level, the most efficient use and rational development of European inland transport of international importance;
b) to co-ordinate and promote the activities of international organisations concerned with European inland transport, taking into account the work of supranational authorities in this field.
The matters generally studied by ECMT - and on which the Ministers take decisions - include: the general lines of transport policy; investment in the sector; infrastructural needs;
specific aspects of the development of rail, road and inland waterways transport; combined transport issues; urban travel; road safety and traffic rules, signs and signals; access to transport for people with mobility problems. Other subjects now being examined in depth are: the future applications of new technologies, protection of the environment, and the integration of the East European countries in the European transport market. Statistical analyses of trends in traffic and investment are published each year, thus throwing light on the prevailing economic situation.
The ECMT organises Round Tables and Symposia. Their conclusions are considered by the competent organs of the Conference, under the authority of the Committee of Deputies, so that the latter may formulate proposals for policy decisions to be submitted to the Ministers.
The ECMT Documentation Centre maintains the TRANSDOC database, which can be accessed on-line via the telecommunications network.
For administrative purposes, the ECMT Secretariat is attached to the Secretariat of the Organisation for Economic Co-operation and Development (OECD).
1. Austria, Belgium. Bosnia-Herzegovina, Bulgaria. Croatia, the Czech Republic. Denmark. Estonia, Finland, France, Germany.
Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, the Netherlands, Norway, Poland, Portugal, Romania, the Slovak Republic. Slovenia, Spain. Sweden. Switzerland, Turkey and the United Kingdom. (Associate Member countries: Australia, Canada, Japan, New Zealand, the Russian Federation and the United States. Observer countries: Moldova, Morocco.)
Public cn francais sous le litre : LES AV ANTAGES DES MODES DE TRANSPORT
TABLE RONDE 93
© ECMT, 1994
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TABLE OF CONTENTS
GERMANY
WILLEKE, R 5
NETHERLANDS
SIMONS, J 39
SUMMARY OF DISCUSSIONS
(Round Table debate on reports) 83
LIST OF PARTICIPANTS 97
GERMANY
Professor Rainer WILLEKE
Koln University
Koln
Germany
SUMMARY
1. INTRODUCTION 9
1.1. The problem 9
1.2. The concepts 11
2. THE POSITION OF TRANSPORT AND THE TRANSPORT
MODES IN ECONOMIC DEVELOPMENT 13
3. THE MAIN PERFORMANCE CHARACTERISTICS OF THE
DIFFERENT TRANSPORT MODES 15
4. THE PERFORMANCE ADVANTAGES OF ROAD TRANSPORT . . 18
5. SOURCES OF EXTERNAL TRANSPORT BENEFITS 19
6. EXTERNAL BENEFITS OF ROAD TRANSPORT: CRITICISM
AND COUNTER-CRITICISM 21
7. INTERNAL AND EXTERNAL BENEFITS OF FREIGHT
TRANSPORT 25
8. INTERNAL AND EXTERNAL BENEFITS OF PASSENGER
TRANSPORT 27
9. CONCLUSION 29
10. SUMMARY 29
NOTES 32
BIBLIOGRAPHY 35
Koln, January 1992
1. INTRODUCTION
1.1. The problem
To examine the benefits and advantages of transport and the different transport modes is highly topical and relevant, but also somewhat unusual, because the impetus for interest in the subject comes from the other side, that of the private and social costs of transport. The explosive expansion of passenger and freight transport has caused high and rising levels of disamenity and environmental pollution wherever there is a substantial volume of transport operations. At the same time, individual and political sensitivity to the nuisance and damage caused by transport is growing. This has led to critical and frequently hostile attitudes to transport and its further growth. In one economic argument, this criticism often takes the form of the thesis that transport is simply too cheap, because the provision of transport services by no means takes account of all the costs and the polluter is not made to pay; the acceptance of the external costs is a hidden subsidy to transport users and has artificially encouraged the formation of transport-hungry settlement structures (suburbanisation) and particularly transpor-intensive production and distribution systems (the just-in-time concept).
Although the criticism of excessive waste of resources is often directed at transport as a whole, and although major transport infrastructure projects of all types come up against opposition, the critical attitude and accusations of uncovered social costs are directed above all at road traffic and the internal combustion engine. A whole series of social cost calculations have tried to prove quantitatively that motor traffic, both in absolute terms and relative to other transport modes, causes particularly high social costs that are nowhere near compensated for by special charges [1],
The methodological basis for social cost calculations is still somewhat shaky, however, and the results vary enormously. They nevertheless have increasing influence on the transport policy debate and opinion-forming. The political and scientific arguments over the methods and results of social cost calculations have
also led, however, to a reconsideration of the benefits and advantages of transport and of the different transport modes. One-sidedness in the handling of costs and benefits was admittedly noted some time ago, but there are as yet very few works that deal with and analyse the subject of the benefits of transport and the different transport modes in a way that corresponds to the handling of costs and, above all, the external costs. This is especially true of the question of whether there are, in fact, any external benefits of transport and whether they can be meaningfully identified and measured, so that at last a real balance sheet of total benefits and total costs can be drawn up.
In the handling of the problem so far, there is also further asymmetry, since for certain aspects of transport it is standard practice to assume that there are additional social benefits. Thus in the case of urban public transport, notably in the big cities and conurbations, it is asserted that the service provided goes above and beyond the transport benefit for the individual passenger in exchange for the fare paid, since it provides a mobility and structuring benefit for the community as a whole. Positive external effects could therefore justify public willingness to pay for investment financing and for covering the operating deficit. A similar argument is often used with respect to the railways, at least as regards network investment and local and regional passenger services. If we look more closely, we see that the one-sidedness recognising the external costs but not the external benefits - is mainly restricted to motorised road traffic, though this is not always clearly stated.
In what follows we seek to derive the benefits brought by transport and the individual transport modes - notably road and rail - from their economic functions. In so doing we stress the dynamic functions that bring about the extension of markets and intensification of the spatial division of labour. This analysis shows that in addition to the benefits internalised in market relations, for which the beneficiaries pay an appropriate price, there are external benefits for other economic actors and for the economy as a whole. The problem thus formulated means that the field of freight transport is dealt with more extensively than passenger transport.
1.2. The concepts
The concept of benefit - in the technical sense of "utility" - is one of the essential, but at the same time confusing and not very practicable, concepts of economic science. According to the neo-classical marginal analysis, benefit is a subjective intensity parameter in consumption planning, that allows no cardinal measurement and no inter-personal comparison. We shall only just touch upon this formulation of the concept, however, as when we talk of the benefit of mobility for individuals and private households and "consumer surpluses".
Generally speaking, however, we shall use a broader and more pragmatic interpretation of the concept, notably when discussing the importance of transport and the different transport modes for the level of performance and growth capacity of economic systems. The concept here is that of "benefit to the economy as a whole", as is in fact usual in cost-benefit analyses. This parallel is only partial, however, because cost-benefit analyses relate to planning projects that can be delimited and where a "with" and "without" situation can be formulated. Such an approach, which presupposes specific segments of a partial analysis, is clearly inadequate when considering the benefits of transport and the different transport modes for the economic and social system as a whole. It would, for example, be pure speculation to try to assess the significance of growing car ownership by comparing the actual development over the past forty years with a "without" case. We therefore need to stick more closely lo the objective facts of economic efficiency and growth capacity. The more obvious objections will be dealt with. The problems that arise with the possible existence of "social" or "external" benefits of transport form a substantial part of this paper.
In very general terms, the benefits of transport services lie in improvement in economic relations brought about by the spatial transfer of persons, goods and information [2]. The provision of transport services requires the use of scarce factors of production; it is therefore desirable and justifiable only if the costs are at the very least equalled by the benefits. In principle, the same optimal factor allocation requirements apply as in other branches of production.
The use of this very general formulation leads to certain difficulties, however. These begin already with the division between passenger and freight transport. A large and growing proportion of passenger transport is either consumption itself or a direct precondition for consumption; we are thinking here of the greatly expanding leisure traffic. Another part of passenger transport is closely connected with production (commuter and business traffic). Here there is often a mixture of direct and derived benefits however. In the case of freight transport on the other hand it is perfectly clear that transport is not an end in
itself, but a means to an end. Demand for transport services is derived from the localised demand for the transported objects.
In addition to this breakdown by purpose, there is the alternative of either buying transport services or producing one's own. In the case of passenger transport, the second alternative has taken on enormous importance as a result of growing car ownership, but in freight transport too, own-account transport plays an important role both as a practice and as a possibility. Own vehicles are generally used by service, construction and repair enterprises.
The use of own vehicles can cause problems for the full play of market forces and the calculation of costs and benefits. Thus, for example, in the case of private cars there are often "irrational" benefit elements together with underestimation of the costs. In the case of own-account transport, too, there are claims that the firms concerned do not take sufficient account of the economics of the operation, but allow tradition and prestige considerations to influence the decision. These judgements, which partly stem from too narrow an interpretation of the concepts of costs and benefits, are not of particularly great importance, but it should be noted that they do enter the political debate.
Of particular importance for the completeness of the economic calculation and for the efficiency of factor allocation in the competitive, system, however is the appearance of "social costs". Social or external costs arise when production processes or consumer behaviour lead to a consumption of value of the scarce resources of production or consumption that is not borne or compensated for by the party responsible but by others, individuals or groups of economic actors.
There is now not only a considerable body of analytical and theoretical works on the social costs of transport and of individual transport modes, but also a rapidly growing though as yet still controversial volume of empirical material.
There is some dispute, on the other hand, about whether a corresponding division is possible on the benefit side and whether it is relevant with respect to the allocation of the factors of production and to modal split. If the answer is
"yes", then the total benefits of transport services are made up of internal and external benefits. Internal benefits comprise the advantages assessed and paid for by transport users, while external benefits are the advantages accruing to other economic actors or to the community as a whole, and for which they do not pay the provider [3].
THE POSITION OF TRANSPORT AND THE TRANSPORT MODES IN ECONOMIC DEVELOPMENT
Reliably functioning transport links are among the basic structural preconditions for any economic system with a spatial division of labour. The provision and use of transport services thus form a necessary part of the production and exchange system. For an analysis of the interrelationships between economic and transport processes, it is possible to adopt a static or a dynamic approach. In an equilibrium system with constantly recurring production, exchange and consumption processes that take place in the different locations of an economic space, the transport flows and transport costs are determined by the interdependence of market relations and market forces. Such an equilibrium in an economic space shows a balance between the advantages of the spatial division of labour and the transport costs that have to be accepted.
This picture of simultaneous equilibrium in all markets, which explicitly includes spatial distances and transport costs, is of use mainly as a model, but it does show the relationships between the economic space, the transport economy and the
associated need to take decisions.
Of much greater informative value than the possible incorporation of transport processes in an economic equilibrium system, is the dynamic question of the importance of transport and the individual transport modes for the evolution of the spatial division of labour and locational specialisation as an impetus and condition for economic growth and social progress.
Certain principles of the relationships and processes involved are easy enough to derive. Productivity and supply improvements, through the extension of markets and intensification of the spatial division of labour, can obviously be achieved only through an increase in transport output. Stimuli from the transport side come from transport cost reductions and quality improvements. The growing efficiency of transport makes it possible to correspondingly extend the spaces in which market relationships exist and to intensify specialisation and exchange within these spaces.
The importance of transport for opening up new areas and establishing links within areas has long been recognised and has influenced the policies of states and groups of states since ancient times. Transport and the associated infrastructures and equipment are obviously particularly highly valued and encouraged when development, often the fastest possible development of a territorial, then a national economy, is a priority political goal. Early examples are provided by the roads built throughout the Roman Empire, the expansive trade
policy of the despotic monarchs of the mercantile age and the canal and port building in the 18th century, which enabled England and to some extent France to take the first steps towards industrialisation. The technical and economic preconditions for sweeping and constantly growing economic integration, however, came only with the appearance of steam-powered bulk transport modes, above all the establishment of railway links and rail networks. The basic conceptual importance of the deliberate use of the railway as an instrument of regional and national development strategy in Germany and the United States was shown by the ideas and proposals of Friedrich List.
If we look at the interrelationships between the development of industry and transport over the long term since the industrial revolution, we can see a characteristic sequence of phases that indicate a certain regularity of production and market development. Colin Clark's use of the goods category model or Jean Fourasti£'s better known production sector model show significant dependencies and links between production growth and structural change that also make it possible to say something about the corresponding developments in transport [4].
The predominance of the primary method of production, determined by agriculture, lasted until the revolution in production and transport technologies during the 19th century. With the introduction of the steam engine, the industrial production of goods was able to come to the fore, but it was not until the development of the new steam-powered transport modes that markets could be extended enough to permit mass production. There was first a wide-ranging and densely meshed economic integration with the inherent dynamic for continuing expansion and intensification. An even greater impetus for growth than the steamship, which formed a secure basis for intercontinental links, was the development of rail networks. Rail transport can open up the length and breadth of continents regardless of the watercourses; it makes it possible to form industrial areas and link them together in polycentric patterns with a clear separation of
functions between the conurbations and the rural areas. The cost reductions
achieved through the concentration of production in specific locations and the external advantages of conurbations come into play. Despite all the political obstacles, the national frontiers in Europe in particular could be broken down and the beginnings of a single market of continental size created. As compared with the later possibilities of motorised road traffic the network building capabilities of the railways remained very limited, of course but, as compared with the baseline situation, the railways for the first time formed an efficient transport network, well suited to bulk consignments and able to offer a scheduled service.
Above all, the new possibility of regular and inexpensive transport for cheap bulk goods was a prerequisite for the industrial revolution. The secondary sector,
industry, became the clearly dominant sector in the creation of economic wealth.
If the mutually interdependent developments of production growth, spatial economic structure and transport are seen in relation to one another, then, following a suggestion by Andreas Predohl, a functional sequence of periods of integration, expansion and intensification can be identified [5]. Railways and steam vessels made it possible for ever bigger economic spaces to grow together and become intertwined; they are the instruments of the integration phase.
The boundaries between integration, expansion and intensification cannot be drawn sharply. Thus, during the course of the expansion process there is greater integration too, and with the intensification of exchange relationships there are further growth effects. When looking at different countries or groups of countries we also see big leads and lags. This is particularly true with today's transitions and links between expansion and intensification of the spatial division of labour and the intertwining of the transport economy. While in the most industrialised economies the general growth dynamic, together with the introduction of new transport technologies and new logistic solutions, makes it possible to have continuing differentiation of the services demanded and supplied, many developing countries are still in the stage of spatial integration and agrarian and industrial growth. Here, there has also been a strong regeneration of the railway networks and later, in parallel, the use of new traction technologies (diesel and electric) in rail transport and shipping and the now fully developed road, pipeline and air transport technologies.
THE MAIN PERFORMANCE CHARACTERISTICS OF THE DIFFERENT TRANSPORT MODES
Modern transport systems are extraordinarily multifaceted; they include the services of many transport modes, whose production, cost and market conditions are very different. Because of their technical and economic properties the different modes have specific service focuses and affinities to certain transport tasks that form the basic structure for the division of labour. Despite this specialisation, however, there are many overlapping fields with substitution possibilities and more or less intense substitution competition.
The performance of the different transport modes can be ranked according to certain requirements: they are required to be reliable, safe, rapid and inexpensive. The various modes possess these qualities to differing extents and in different proportions. The individual modes tend to have a combination of
specific aptitude profiles that correspond to the requirement profiles of different buyers of transport services. In the supply of transport services, it is not only the technical properties that count, but also the organisational possibilities including transport chains and full service packages - which are playing an increasingly important role. These are the preconditions for the overall logistic planning of the function fields of procurement, production, storage and distribution.
For industry and society the economic, technical and organisational variety of transport services and openness to new services and combinations of services are of the greatest importance. The logistic supply is thus able to meet ever more precisely the demands of shippers for ever better and increasingly integrated solutions to their transport needs.
If we wanted to look more closely at the national transport system, it would obviously be necessary to take account of inland waterway transport and coastal shipping in addition to road and rail transport, as they extend the possibilities and are in competition with the railways for some traffics. The same is true of some pipeline links, where overcapacities could increase interest in taking over suitable bulk traffics. Lastly, air transport at the concentration points of further growth continues to cause unsolved market regulation and investment planning problems.
However, the focus for the co-ordination tasks and the crux of the transport policy debate - including the question of the external effects - remains motor traffic and the railways, with their competition, substitution and co-operation relationships. We shall therefore concentrate on these two modes.
The system properties of the railways offer attractive cost and quality conditions as compared with road transport for bulk consignments between nodal points, and the comparative advantage increases with distance. The fact that supply is associated with a timetable and a much less finely meshed network than the road network favours the spatial and temporal concentration of demand, but limits the ability to adjust to customers' wishes when they depart from the standard. The railways are clearly inferior for collection and distribution traffic and more generally for the transport of relatively small quantities over relatively short distances. The truck is the obvious choice here.
Such a characterisation of the strong points of road and rail clearly shows that there is a relationship of complementarity and co-operation. Road transport collects and distributes, serves all points of the area and, thanks to its flexibility, is able to meet individual needs. The transport of large quantities of homogeneous goods between nodal points of economic activity, on the other hand, falls to the railways.
This simple basic division of labour has, however, been very much changed by the economic and social dynamic of the past thirty years, and this to the disadvantage of the railways. A number of interdependent factors were at work here. The continuing increases in productivity and real incomes, together with changes in demand structures and production methods, changed the spatial and temporal requirements for the delivery of goods in such a way that road transport became the dominant mode. The explosive growth of road transport is an indication of new performance standards of predictability and rapidity, but also of flexible adaptation to the particular requirements of transported goods and the size of consignments, including the possibility of global logistical planning. The railways have to adapt to these more demanding service requirements. They are responding with product innovations and co-operation, but with only limited success so far in the freight transport field. This is true of the European railways
at least.
In passenger transport too, motor vehicles have become the dominant mode.
Individual car ownership corresponds to the rise in real incomes and the decentralisation of residential areas in new, constantly spreading urban areas. A further impetus has been the increase in leisure time. Over 80 per cent of all passenger trips in Germany are made by car, but over longer distances the railways have been able to increase their market share over the past few years.
The expansionist development of road traffic, however, is meeting with increasing opposition and criticism and is, in particular, accused of causing external costs. Not taking these costs into account is considered to mean that road transport services are provided too cheaply, leading to excessively large production. This has also led to distortion of competition to the disadvantage of the railways. In any event, the trends in transport output and market shares are considered not to reflect the true benefits of the different transport modes.
This kind of argument is being widely accepted, but lacks any clear and well-established basis for evaluation. In the first place, there are still great methodological weaknesses in the determination of external costs for the individual cost items and, above all, their aggregation. In addition, it is also necessary to take into account the fact that the system comparison cannot be made solely on the basis of a cost comparison. The generally implicit assumption that the technical transport services are basically of equal value is obviously false.
This fiction is today even much less defensible than it was twenty years ago. In addition to the costs as the sum of the private and social (external) costs, the specific service advantages need to be taken into account as benefits. The critical and for, the comparison, decisive point is therefore the question of whether in addition to the private benefits of transport services, for which market prices are
paid, there are also external benefits for which those advantaged do not pay and for which their providers receive no reward. In order to be able to answer this question it is useful to look more closely at the characteristic service properties of road transport as compared with those of the railways. For in the end it is a matter of being able to estimate the consequences of alternatives.
4. THE PERFORMANCE ADVANTAGES OF ROAD TRANSPORT
For a long time freight transport by road was essentially a complement to rail transport. Since the sixties, however, the traditional pattern of co-operation has to a large extent become obsolete. The conditions for the division of labour, and with them the size of market shares, have changed radically. While the rail and road shares of freight traffic in Germany were still 56.0 and 20.3 per cent respectively in 1950, by 1964 the road share (35.9 per cent) was starting to overtake the rail (35.7 per cent) and by 1990 the situation was exactly the reverse of what it had been in 1950: 56.7 per cent road and 20.6 per cent rail. At the same time, the total inland freight transport output increased from 70.4 to 300.1 billion tonne-kilometres over these forty years [6].
This change at first took place in small steps, induced by the appearance of changes in transport needs. The shift of production and demand structures in the direction of higher value goods, the tendency towards the automation of many production processes, together with rationalisation in the combination of transport and storage and the associated reorganisation of location patterns, brought tasks for the handling of traffic flows that in most cases could be taken over only by road transport.
The particular properties of road haulage permit, above all, a very high degree of quantitative and qualitative flexibility of supply, making it possible to adjust rapidly to the time, place and quantity requirements of transport demand.
This is particularly important in the case of short-term changes in market conditions and patterns of demand. These characteristics also make road transport particularly well able to fit into transport chains and combinations with complementary services (freight forwarding, warehousing, handling, etc.).
However, these service activities can be developed and implemented only because the technical potential of the vehicles is exploited by private, profit-oriented enterprises.
The above-mentioned properties and framework conditions show marked differences to the technical and institutional performance conditions of the railways. If the characteristic changes in production and consumption over the past thirty years are looked at in connection with the development of the transport system, then it is easy to see that the type and intensity of economic growth depended on the parallel growth of road transport. As regards the relationship between road and rail transport, the old complementarity has by no means disappeared altogether. The carriage of bulk goods between nodal points still remains the essential nucleus of rail freight transport, while the new markets for rapid and sharply increasing consignments of high- value intermediates and final products - and also virtually all the increase in frontier-crossing traffic - have so far gone to road haulage [7]. The railways' efforts to increase their competitiveness, through group traffic and much shorter transport times, are only slowly becoming effective. Even the sometimes considerable successes in container traffic and other forms of combined transport remain small in volume as compared with total traffic.
For the further development of the transport system, however, we can expect further co-operation and in the longer term a more even balance in market shares.
The "renaissance of the railways" will not come overnight, however, not even in the shorter term, and it cannot be achieved through market intervention. In the immediate future, road transport will continue to dominate, firstly because of the continuing structural changes with effects that tend mainly towards road transport, and secondly because of the requirements of fast and flexible adjustment of supply to the new spatial constellations of European markets. These trends, however, which in the first place favour road transport, will lead to increasing volumes of freight running more regularly between new networks of nodal points.
This will create the preconditions for grouped consignments and at the same time economic pressure in this direction will increase. Bottlenecks in precisely those parts of the road networks on which long-distance, high- volume traffic flows are developing will make it possible to gain an additional cost advantage by using the bulk transport modes. Railway undertakings can and should support and accelerate this development through a resolutely market economy approach in their production planning.
5. SOURCES OF EXTERNAL TRANSPORT BENEFITS
The attention that has recently come to be focused on the benefits and even possible external benefits of transport is probably explained by reaction to the
intensive treatment of the external costs, but from the scientific standpoint the long silence about the external benefits of transport is hard to understand.
Marshall's concept of external economies already gives a good start, if it is taken out of the confines of the static approach and interpreted in a broader dynamic sense [8]. This concept then describes the spread of growth-promoting innovations, which as a rule admittedly arise through specific market transactions, but also for the most part outside the buyer-seller relationship, and thus have an external impact. Interestingly enough, both Marshall and then Pigou had a penchant for taking examples from the field of transport and communications when talking about external effects [9]. The concept of external economies has so far been particularly fruitful apart from the education and research sector regional economic analyses of agglomeration and conglomeration processes, in which the services of the transport and communications sector play a decisive role [10].
It is not difficult to link the concept of positive external effects with the contributions of continental transport economists. An outstanding line of economists runs from Friedrich List through Emil Sax to Alfons Schmitt and Andreas Predohl [11]. Schmitt formulates the view widely held as early as 1933
as follows:
"Over the past 100 years the world transport system has been in a state of almost unbroken revolutionary progress, that has had a much more decisive influence on the nature of the economy than all the changes in the field of production technology, for the combination of the division of labour by individual firms over ever larger areas [...] became possible only when suitable transport provided links between these mutually dependent individual firms. The international division of labour and the world economy are direct products of transport development [...]. The improvements in transport have thus not merely reduced the costs of production directly, through reducing transport expenditure as part of total costs, but also indirectly, through creating the bases for mass production and ever greater division of labour. " [12]
Predohl calls investment in transport infrastructures "dynamic structural policy"
and thus links the transport economics argumentation with the theoretical and practical analyses of the "infrastructure" problem area [13]. Many contributions have since dealt with infrastructure quality not only of tracks and roads but of the transport sector as a whole [14]. Lastly, in the cost-benefit analysis system dealing with transport infrastructures, "growth and structural effects" are considered to be of the benefit categories [15].
There is thus no lack of links for identifying the external benefits of transport [16]. Additional, better or cheaper transport services advantage not only the economic agents that are, from the outset, buyers on the transport markets concerned. The improvement in transport links is also likely to induce productivity-enhancing processes or in any event to be a necessary precondition for them. These impulses intensify the spatial division of labour, strengthen exchange relationships and make it possible to exploit latent regional development potential. Although the transport economy improvements as a rule favour specific locations and regions, the spill-over effects extend to the entire economic system, leading to better allocation of the factors of production and a higher rate of growth of production and incomes. The direct consequences for personal income distribution, land use and living conditions in different regions can vary greatly, but the growth of the overall production potential also extends in absolute terms the opportunities for social and regional policies aimed at greater equality.
The contributions to transport economics mentioned above do not yet, however, include any attempt to enumerate and classify the external benefits that would be in any way comparable with the system used for the external costs of transport. Unlike, for example, the external benefits of investment in education, no attempts at quantification have been made in the past, it being considered that the isolation and serious evaluation of the growth effects imputable to transport was not feasible. In this connection, however, the methodological and statistical conditions have improved in the meantime.
Initial attempts in recent years to establish meaningful criteria according to which a part of the gross domestic product or of annual GDP growth could be described as being external benefits of transport, have as yet come nowhere near solving the problem. They nevertheless show that very large orders of magnitude are involved, if the selected methodological approach, or one similar to it, is used [17].
EXTERNAL BENEFITS OF ROAD TRANSPORT:
CRITICISM AND COUNTER-CRITICISM
On the question of the external benefits of transport, there are not only unsolved problems of identification, classification, capture and evaluation, there is also opposition on matters of principle. The existence, or at least the relevance, of such additional and uncalculated benefits is not universally accepted. In particular, research institutes that have concentrated on determining the external
costs often explicitly dispute the fact that external benefits of transport, as a comparable counterpart to the external costs, could represent an unsolved problem of the market mechanism and factor allocation and, in fact, do today:
"As transport systems show no external benefits which distort competition between modes, the analysis can concentrate on the cost side. Just the imputation of the negative external effects undoubtedly present shows how the service quality differences between alternative transport systems are actually valued" [18].
The counter argument is, therefore, that practically all transport benefits and, in particular, all the road transport benefits are completely internalised by current market decisions together with the government's budget decisions. The benefits that accrue to the economy derive through productivity gains and to society through improved communications possibilities - which are, of course, not disputed - are considered to be so effective that external benefits not taken into account are not to be assumed. The weight of the benefit endowment is fully, and even more than necessary, effective in the individual and public choices, notably in the case of cars and roads. The capture and evaluation of the
"undoubtedly present" external costs, on the other hand, is intended to correct the situation on the other side and make complete internalisation possible. The possibility of reaching this goal should not be weakened by any cancelling out of external costs by external benefits.
Such an argument, which denies the existence or calculability of external transport benefits and notably motor transport benefits, and attributes information value to the calculation of external costs only, must however be rejected as mistaken. The problems caused by transport - noise, air pollution, accidents are certainly more perceptible than the productivity gains due to transport, which also require the combined effect of other factors; but influencing factors that are difficult to isolate and capture are no less real or important for all that.
Many arguments border on hairsplitting, for example, when people rack their brains about whether the greatly improved possibilities for contacts and visits, thanks to the automobile, give rise to external benefits, namely for the people visited, or whether this is a private occasion, for which "only" a transaction solution must be found for the imputation of the transport cost [19]. Other more important arguments are somewhat arbitrary and inclined to obfuscate the problem. Thus it is sometimes claimed that government decisions on transport infrastructure building will fully cover the foreseeable growth effects and that future benefits are thereby already internalised by society. But this is no basis for decisions. The problem is rather that the positive effects of productivity, supply
and new links, resulting from the political decisions regarding the planning and financing of transport infrastructure, need to be accurately seen and then actually taken into account [20]. In the political controversy to which any major project gives rise and in view of the somewhat inefficient financing systems, this is anything but obvious. As an aid to decision we therefore need the most complete and precise capture and comparison possible of all benefits and all costs, also taking account of the timing of their impact. But taking account in the planning : stage does not yet mean internalising the benefits; this would require market relations to be established between the producers and receivers of the benefits.
This, however, is not only very difficult for institutional and organisational reasons; because of the timing of the chain of impacts and the extremely wide diffusion of the benefits, complete translation into transactions must be considered impossible. The situation is similar with technical innovations: they are always associated with external benefits because it is not possible to have all the value . of the consequences of the new know-how flow into the account of the discoverer. The external benefits merely justify patent protection.
The position that disputes the existence or the allocative relevance of external transport benefits is to be opposed because it takes a static view not at , all suited to the problem. It is in no way simply a problem of the distribution of advantages and disadvantages, like a "zero-sum game". The vital core of the matter is the extension of production and consumption possibilities brought about by the transport system. For this reason, the experience and expectation of external benefits always has been and still is the precondition for external costs of a certain type and level being accepted as the price for an expected overall improvement in the situation. Denser settlement, production and traffic have always been associated with disamenity and pollution. Advantages have to be, paid for by accepting disadvantages. The reactions to this are always very, differentiated. There are not only perceptibility thresholds, but also narrower or broader ranges of tolerance and finally limits to acceptance. This applies not only:
to the individuals affected, but also to collective opinion-forming and to political, decision-making. The acceptance limit generally falls with increasing real income, and increasing knowledge of the risks. Avoidance, reduction and compensation measures then attempt to establish a balance between the costs of the individual measures and the improvement achieved in the overall situation.
Among the costs of the measures considered to internalise external costs there is also an associated reduction in external benefits. This point is particularly important because of the dynamic nature of the relationships. A synchronous or even anticipated internalisation of more or less precisely known social costs would have development-damping effects and could be downright prohibitive in its effects. This would then prevent the attainment of a higher level of
productivity at which the increased wealth would constitute better conditions for internalisation strategies in the context of a rational environmental policy. It is very easy to test this assertion by comparing the fully developed, relatively rich countries with the poor developing countries. If external costs, for example, in the fields of transport, water economy and waste disposal in the underdeveloped countries were to be determined using the same methods and yardsticks as in our countries, and were then to be "internalised", any chance of development would be nipped in the bud.
High external costs, and in particular those that are very obvious, thus support the prima facie supposition that there are also high external benefits, or will be in the future [21]. There are many impressive examples of this in the
development and massing of traffic in the new German Lander and the
neighbouring countries to the east. The reorganisation and reconstruction of industry in a new market economy integration is increasing the volume of traffic by leaps and bounds over certain links and certain infrastructures. This traffic is, in turn, causing very high external disamenities; there are not only parliamentary debates, but sometimes even physical fights over acceptance thresholds. There can be absolutely no doubt that the sacrifice is being made only in the expectation of higher benefits from an increased level of development. These benefits are mainly "external" because they, for the most part, accrue to economic agents who are not participating in the present transport operations, either as buyers or sellers.
The full value of the benefits therefore cannot flow to their provider through market transactions.
The thesis that the level of acceptance of external costs gives an indication df the level of the present or expected external benefits can ~ at least at a high level of abstraction - be raised to a theoretical premise. If the total benefits and total costs for transport and the different transport modes were transparent as to type and level, and if the political system were efficient enough to translate information into rational decisions, then an equilibrium would be established
between external benefits and external costs. Benefits and costs would then be
values that appeared at specific points in time. It follows from this, among other things, that the identification of external costs is by no means in itself an indication of a need for internalisation. The optimum degree of internalisation can be achieved only if the impacts on external benefits and costs of planned
measures can be taken into account at the same time.
An optimal strategy with regard to the external effects of transport therefore requires first and foremost a good and balanced information situation. The one¬
sided orientation of research and publication activity on the external costs is, however, a source of distortion in the information base. Gaps in the information
about the external benefits of transport can give rise to mistaken allocative decisions with respect to ensuring the level of affluence achieved and with respect to realising further development potential. The task of analytical and empirical economic and transport research arises out of this observation. It would already be a big step forward if the existing knowledge Were to be brought together and evaluated. This applies above all to the many scattered research findings on the productivity and income-raising impetus given by transport investments and service innovations. Then a start could be made on a systematic and critical comparison of methodologies. The aim is obviously not to begin another number puzzle, but to extend and present the increasing body of knowledge in such a way that it can be used in rational reasoning.
INTERNAL AND EXTERNAL BENEFITS OF FREIGHT TRANSPORT
As an indicator of the level of the private or internal benefits of freight transport, the earnings of transport undertakings give a rough approximation, but there are a number of theoretical and practical objections to this approach. First, despite increasingly fierce competition, transport markets are far from being fully functioning or even "perfect" markets. Then there are problems arising from the different fiscal treatment of the different modes. Furthermore, the information base is not complete; in particular there are difficulties in capturing and properly evaluating the service contribution of own-account transport. Lastly, the official statistics available give only average incomes for transport services. The total earnings from the many logistic services associated with the transport operation and flowing to the enterprises active in this field are considerably higher, however. These incomes can only be roughly estimated. Despite these drawbacks, transport earnings provide the best opportunity to get an idea of the order of magnitude of the internal benefits of freight transport.
Freight transport output and incomes
in the Federal Republic of Germany in 1990 (old Lander) excluding pipelines and air transport
Mode Transport
output (billion tkm)
Income per tkm (DM)
Total income (billion DM)
Long-distance road haulage
120 444 0.235 28 324
Local road haulage 49 400 0.150 7 410
Total road haulage 169 844 - 35 734
Rail 61 729 0.123 7 593
Inland waterways 54 803 0.035 1 918
Source: Verkehr in Zahlen 1991, pp. 343, 411. Local road haulage income is author's estimate. Pipeline 13.3 and air transport 0.44 billion tkm.
The above figures include carriage for hire or reward and long and short-haul own-account transport income, estimated using the same average income. The figures for the railways do not include service and military traffic [22]. What is missing, above all, are the incomes for complementary and ancillary logistical services. Estimates indicate that in mode-typical service packages, average earnings per tonne-kilometre can be roughly doubled. This is true also for the inland waterways, less so for the railways. However, the differences between individual firms with different product ranges can be considerable.
If we take the above statistical data and the additional estimates, together with pipeline and air transport as a basis, then the internal benefits of freight transport total DM 85-90 billion, or about 3.6 per cent of Gross Domestic Product. The modes road, rail and waterway are roughly in the ratios 100-20-6.
There now arises the question of whether these volumes and proportions can be usefully adjusted by taking into account the external benefits and the external costs. Here it goes without saying that, with the present state of knowledge, a real calculation and hence an assured overall balance is simply not possible.
There could be a directional adjustment, however, with the above benefit values being increased or reduced in line with a trend. To use exclusively external costs
and thus to assume a corresponding need for downward adjustment is out of the question according to the arguments of this paper. There are estimates and reference points that tend to indicate, on the contrary, that the weight of the external benefits exceeds that of the external costs. But these proposals are not yet established in the methodology, and the range of values given is also too great. A provisional hypothesis that suggests itself is the, admittedly bold, assumption that the external benefits and external costs roughly cancel one another out. The continued internalisation of external costs then appears justifiable only if the market conditions allow an internalisation of the external benefits in favour of their provider.
8. INTERNAL AND EXTERNAL BENEFITS OF PASSENGER TRANSPORT
In an analysis of the dynamic interrelationships between economic and transport development over the longer term, the freight transport functions take pride of place. Until the Second World War, the volume of transport output also justified this sector being given more attention than passenger transport. Since then, however, sweeping structural changes have brought a marked shift in the relative weights. The sharp increase in incomes and mass car ownership on the one hand and suburbanisation and new consumer preferences on the other, have caused enormous increases in passenger transport and in particular in local passenger transport. At the same time, there has been a shift in emphasis in trip purposes. As compared with daily routine trips for work, education and shopping purposes, leisure mobility has constantly grown in importance. The still unbroken expansion of leisure and holiday travel reflects this trend. This means, however, that individual mobility has not only come to have greatly increased weight, but also that it has a new qualitative effect with respect to benefits and costs.
The importance attached to mobility by private households is reflected in a high and stable willingness to pay. Expenditure on transport gives a first approximation to the weight of internal private benefit. In Germany (former FRG) in 1990, some DM 129.7 billion was spent on buying and running private cars; this amounts to 10.2 per cent of private consumption and corresponds to about 50 per cent of expenditure on the home. In the same year, expenditure on other, generally public, transport was some DM 20.3 billion, or 1.8 per cent of private consumption [23].
Expenditure on car use has increased over the past twenty-five years roughly in parallel with the levels of income and consumption. Deviations are explained by fluctuations in fuel prices and changes in the specific taxes, fees and insurance.
Reactions to gasoline price rises and household survey findings show that the individual willingness to pay in the great majority of households is even higher, so that there are substantial "consumer surpluses".
The particularly high value placed on mobility by society is also shown in many countries in a remarkably strong willingness to pay on the part of central and local governments, especially for urban public transport. In Germany, the annual subsidies to public passenger transport providers ~ including investment -
amount to some DM 15 billion.
As regards the question of external costs and their internalisation, there is thus a difference in the case of car use as against road freight traffic. For it is an indisputable fact that road passenger transport pays more in specific taxes and fees than the infrastructure costs imputable to it. This traffic segment thus makes a contribution that amounts to financial compensation for the social costs.
The question of whether additional, external benefits are derived from passenger transport, as from freight transport, i.e. advantages for which the beneficiary economic agents pay no price, looks on the face of it, to be fraught with difficulties. For individual mobility appears primarily to be a means of spending incomes and increasing consumption. In fact, passenger transport also has a dynamic-productive function. Thus car ownership has considerably expanded the labour markets and hence improved the efficiency of factor utilisation. In addition, the exodus of sections of the population from parts of the inner city has made it possible to alter the pattern of land use, in line with the structural changes in the economy and notably the expansion of the service sector.
But external benefits can and should be derived also from the consumption aspect of passenger transport. Private and public willingness to pay indicates that mobility is a very highly rated need. The existing dense and flexible communications network has created opportunities for personal and social contacts as well as assistance services, in which virtually everyone participates. There can therefore be no doubt that a price for mobility is paid and should be paid. It is not a question of whether a certain level of external costs is to be accepted, the only question to be argued about is the level of this price. Some indication can be given by any reliable information about the existing disamenity situation and the possibilities for improving it. But of equal rank is more comprehensive and more accurate information about the benefits side than we have at present. The question then arises as to what could no longer be achieved without specific
transport services and different transport modes. A test would show that the removal of services would not just lead to partial gaps in supply, but would necessarily trigger a downward spiral for the economy as a whole: shrinkage of markets and reduced division of labour, deterioration in productivity and incomes.
9. CONCLUSION
More questions have been asked than answered in this paper. The aim was to substantiate the urgency of the question of transport benefits and present a framework for the search for answers. If the emphasis was on the dynamic functions of transport in economic and social development, then their effectiveness in the present situation of great and rapidly following structural changes, can easily be illustrated. But the characteristic of the relationship between the service potential of the transport mode and the socio-economic efficiency of the system should lay claim to general validity. The weight of the total and external benefits of transport admittedly varies with the type, emphasis and intensity of economic development. Sudden bursts of growth through drastic technical and organisational innovations and concentrated investment activity can be followed by periods mainly characterised by adjustments that can come close to being a "steady state". In such a situation, the significance of external transport benefits would simply consist in finding the optimum for the handling of external costs between toleration and internalisation. At present the foreseeable tasks and developments leave little room for considering "steady state" models.
There is no sign at all of any saturation limit for transport or transport infrastructures, or of any tendency towards decreasing marginal returns in freight transport decreasing marginal utility in passenger transport. The theoretical and empirical discussion over the benefits side of transport should also help to break through the present investment slowdown in certain countries.
10. SUMMARY
The benefit of transport lies in an improvement in the economic conditions brought about by the spatial transfer of people and goods. Since industrialisation, the transport system has been able to achieve a virtually unbroken series of technical and organisational advances. This is a precondition for the sustainable growth of production and living standards. For transport has the quality of a
dynamic infrastructure; it enables ever more intensive spatial division of labour in ever bigger markets.
Modern transport systems are extraordinarily multi-faceted; they include the services of a number of transport modes whose production, cost and market conditions vary greatly. These system-specific advantages and disadvantages determine the basic pattern of specialisation and division of labour. For many important service areas there are also substitution possibilities and hence fierce substitution competition.
Despite the considerable importance of inland waterways, coastal shipping, pipelines and air transport in certain countries, the relationship between rail and road transport is the crux of the co-ordination problem for transport within Europe.
The system characteristics of the railways offer attractive cost and quality conditions for high- volume transport between nodal points in the economic space;
it is a carrier of bulk radial traffics. Road transport, on the other hand, has undeniable advantages in collection and distribution traffic and more generally in the carriage of relatively small quantities over relatively short distances; in addition, its flexibility makes it possible to meet particular transport needs. These characteristics indicate an essentially complementary relationship of completion and co-operation.
The old, simple pattern of division of labour has been completely changed by the economic and social dynamic of the past thirty years however. The sharp increases in productivity and real incomes, together with the shifts in demand structure and production methods, have modified the requirements for the delivery of goods and the mobility of people in such a way that road transport has become the very clearly dominant mode. The most important factors here were the technical and organisational possibilities for flexible adjustment of the services provided to the new demands of logistic systems planning.
The extremely rapid expansion of road passenger and freight transport has, however, led to increasing disamenity and environmental pollution and to congestion caused by bottlenecks in the road network. The appearance of high external costs has given rise to criticism of this development. Acceptance of the costs of environmental pollution and road accidents has weakened the competitive position of the railways. The dominant position of road transport thus does not reflect the "true" benefit contribution of the transport modes.
Explicit and fairly one-sided concentration on the external costs has led to the question of the benefits of transport, and especially of road transport, being seen as a problem of market regulation. Although there is a broad consensus on the importance of road transport in the economic expansion of recent decades, there is argument about the interpretation and imputation of these benefits. The essential question is whether the benefits of transport services are fully and completely rewarded through the market, or whether there are external benefits as well as internal. In this paper we try to demonstrate the appearance of external benefits of transport and emphasize their relevance for the allocation of the factors of production.
The provision of transport services creates development-promoting system benefits which, because of their nature and the dispersion of the effects, can never be fully imputed to the provider and paid for. A similar state of affairs is found with the implementation of important discoveries or the diffusion of the benefits of investment in education. The appearance of external costs is therefore not a sufficient criterion for saying that there is a corresponding need for internalisation.
The experience and expectation of external benefits in practice leads rather to external costs being accepted to a certain extent as a kind of price. Under abstract model assumptions, a tendency towards equilibrium between external benefits and costs can be deduced. This approach makes it possible to reformulate the question of the optimal extent of internalisation of external costs.
NOTES
1. According to Planco Consulting, Externe Kosten des Verkehrs - Schiene, Strafe, Binnenschiffahrt - Gutachten der Deutschen Bundesbahn, Essen 1990, with detailed survey of the literature. See also Teufel, D., et al, Umweltwirkungen von Finanzinstrumenten im Verkehrsbereich, UPI-Bericht Nr. 21, Heidelberg, 1991.
2. In what follows only passenger and freight transport are considered.
3. Cf Wittmann, W., Externe Kosten und Nutzen im Stra$enverkehr, Gutachten fiir den Schweizerischen StraPenverkehrsverband (FRS), Bern O.J., 1990.
4. Clark, C, The Conditions of Economic Progress, London 1940; Fourastie' J., Die gro|3e Hoffnung des 20. Jahrhunderts, Koln 1954; Rostow, W. W., Stadien wirtschaftlichen Wachstums, Gottingen, 1960.
5. Predohl, A., Verkehrspolitik, 2. Aufl., Gottingen, 1964, p. 17 ff.
6. Verkehr in Zahlen 1991, Hrsg.: Der Bundesminister fiir Verkehr, bearbeitet von: Deutsches Institut fiir Wirtschaftsforschung (DIW), Bonn, September 1991, p. 340 ff. In 1990, the inland waterways share was
18.3 per cent and pipeline transport 4.4 per cent.
7. In German frontier-crossing traffic the modal split was: in 1960, railways 52.3 mt and road haulage 11.7 mt; in 1990, railways 60.4 mt and road haulage 176.9 mt (Verkehr in Zahlen, pp. 266-267).
8. Marshall, A., Principles of Economics, 8th Ed. (1920), London 1949, pp. 221, 230. For a useful interpretation, see Blaug, M., Economic Theory in Retrospect, Homewood (111.), 1962, p. 364 f.
9. Pigou, A.C., The Economics of Welfare, 4th Ed., London, 1952.
10. Cf. A Survey of Contemporary Economics, Vol. II, Ed.: Haley, B. F., Homewood (111.), 1952, p. 117 ff, with many references.
11. List, F., Das deutsche National-Transportsystem in volks- und staatswirtschaftlicher Beziehung beleuchtet, Altona, 1838; Sax, E., Die Verkehrsmittel in Volks-und Staatswirtschaft, Bd. 1, Allgemeine Verkehrslehre, Berlin, 1918; Schmitt, A., Verkehrspolitik, in: Weber, A., Volkswirtschaftslehre, Bd. 4, Munchen und Leipzig, 1933; Predohl, A., Verkehrspolitik, 2. Aufl., Gottingen, 1964.
12. Schmitt, A., op. cit, p. 150 f.
13. Predohl, A., op. cit., p. 313 ff.
14. Cf. a.o. Frey, R. L., Infrastruktur, 2. Aufl., Tubingen und Zurich, 1972;
Siebert, H., Infrastruktur und Wachstum, in: Zeitschrift fur die gesamte Staatswissenschaft, 130. Band, 1974, pp. 533-544.
15. Cf. a.o. Planco Consulting, Gesamtwirtschaftliche Bewertung von Verkehrswegeinvestitionen - Bewertungsverfahren fiir den Bundesverkehrswegeplan 1985, in: Schriftenreihe des Bundesministers fiir Verkehr, Heft 69, Bonn, 1986.
16. Interesting material is also provided by experience with specific growth programmes in various countries. See Hirschman, A.O., Die Strategic der wirtschaftlichen Entwicklung, Stuttgart, 1967.
17. Diekmann, A., Nutzen und Kosten des Automobils Vorstellungen zu einer Bilanzierung, in: Internationales Verkehrswesen 42 (1990), 6. Heft, p. 332-339; Willeke R., Soziale Nutzen des Kraftfahrzeugverkehrs, in:
Zweites Karlsruher Seminar zur Umweltdkonomie und Verkehrsplanung, Schriftenreihe der Deutschen Verkehrswissenschaftlichen Gesellschaft, Bd. B136, Bergisch Gladbach, 1991, p. 49-60. Both sources concentrate on motorised road transport in Germany. Diekmann gives a figure of 10 to 20 per cent of Gross Domestic Product for the mid-80s (DM 180-360 billion), while Willeke would attribute "over half of real economic growth between 1981 and 1990 to productivity gains brought about through transport and logistics.
18. Planco Consulting, Externe Kosten des Verkehrs, loc. cit., p.l ff; Teufel, D.
et al, Umweltwirkungen von Finanzinstrumenten im Verkehrsbereich, loc.
cit., p. 42 ff.
19. According to Planco Consulting, Externe Kosten des Verkehrs, loc. cit., pp. 1-8. On this point, see also Wittmann, W., loc. cit., p. 48 ff.
20. "The social evaluation of the mobility possibilities and the growth or regional economic effects induced by the transport infrastructure is expressed in the collective willingness to pay." Planco Consulting, Externe Kosten des Verkehrs, loc. cit., pp. 1-6.
21. If the external costs are caused mainly by transport infrastructure bottlenecks, then a comparison of the internal and external costs and the detectable internal and external benefits is an indication of the scarcity and incentive for investment to upgrade the transport infrastructure. The use of cost-benefit analysis is only partly suited to this task because of the lack of
information about the benefit side.
22. Because of many differences in classification and delimitation, the figures given here are not directly comparable with those in the DB Annual Report.
23. Statistisches Jahrbuch der Bundesrepublik Deutschland 1991 and special evaluation by the Federal Statistical Office.
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