Wednesday, December 28, 2016

The end of private car ownership?

These days every year is the time of predictions and I have never shied away from them. Here are therefore my predictions, not for 2017 but for 2027.

Autonomous (self-driving) cars are here to stay and the plans of manufacturers point at an exponential future growth. Consumers have already expressed their preferences for reading; working; meeting; or chatting on their cellphone in the car, rather than driving.

The internet of things (IoT) is already changing our mobility behavior and, with applications like Uber, as well as GPS navigators such as Waze and Sygic, our car is already connected to all others. This has the potential to alleviate much of our transport externalities, such as accidents, congestion and air pollution, and lead to a much better, and more efficient, use of road infrastructure.

We are using our car only for 10% of its time and that’s a terrible waste; car-pooling (in autonomous vehicles) will increase. Private transportation services will be demand-driven: I will have a car waiting outside my door only when I need it. I won’t need half an hour every evening to find a parking spot in the neighborhood, nor would I need to pay car ownership taxes for having a car gathering rust on my sidewalk. Once it has dropped me off, the car could go and park itself at a specially designated parking area, hopefully outside our congested cities. Residential areas will again become what the word says: "residential".

Considering the above, at some point in the near future, car manufacturing will start declining precipitously. The end of car ownership is here.

Happy New Year 2017 to all.


Tuesday, December 20, 2016

On public contracts in ports, natural monopolies and supernatural nonsenses

Ports are often referred to as the classic example of the so-called natural monopoly case, whereby possible market failure can justify government intervention. Under certain conditions (level of demand, cost structures and technology), a market with two or more firms can produce sub-optimal economic outcomes (for example a certain port may be too small to have two tug operators), whereas a single firm might produce the required output more efficiently. For this reason, governments often decide to move away from a multi-firm competitive environment (competition “in” the market), towards a monopolistic, albeit regulated, situation (competition “for” the market), achieved (sic) through competitive public tendering. 

I have always argued that such public intervention in commercial decisions is wrong. And it is wrong for two reasons. 

First, the sometimes widespread corruption in the public sector may result in ‘photographic’ tenders favoring the local incumbent, effectively shutting-off international or even national competition. Thus, it is not uncommon for public tenders to end up with only one interested bidder, while the correlation between ‘single-bid’ contracts and corruption in the public domain is not passing unnoticed either (Figure). Finally, the opening up of the market for public contracts is one area where WTO is dragging its feet for years now without any progress. 

Second, governments, and the public administration by and large, are by far the least competent actors to decide on ‘market size’, or on the financial ramifications for private firms who would like to take calculated risks and enter a market. This is because governments lack both the information required for such decisions (a typical case of asymmetry of information), and the legitimization to decide themselves on the fortunes of private risk-takers.[1] 

Instead, the role of the public administration is to set the rules of the game; determine the conditions and quality of service it requires (including any Public Service Obligations) and then leave it up to the private sector to decide for themselves if the market is big enough, if they see profit prospects, or if they would like to go bust; but this ought to be ‘their’ decision, because it is ‘their’ money, and ‘their’ neck on the block.

HE Haralambides

[1] A notorious case, immediately overruled by the State Council, was the communist (sic) Greek government’s decision, in 2016, to limit the number of national TV stations to 4, on arguments based on the ‘financial survivability’ of broadcasters, given the size of the advertising market...

Monday, December 12, 2016

Protectionism: choosing the wrong medicine to the right illness

Trade has undoubtedly created unimaginable wealth and welfare throughout the world, but at the same time it has also precipitated worrisome disparities in job creation and income distribution in many countries. 
Spellbound this afternoon, I listened to Yi Xiaozhun, Deputy Secretary General of WTO, to reaffirm my conviction that protectionism is the wrong medicine for the cure of this malady. 
Rather than questioning the merits of trade, affected partner countries of our multilateral trading community should find those tools and economic policies which ensure that (a) benefits from trade are distributed as fairly as possible among local communities and their peoples; and (b) local industry of high import content is not unreasonably exposed to (unfair) foreign competition.
A great lecture by all counts.

HE Haralambides

Friday, December 2, 2016

For whom the bell tolls?

Once the critical instrument for the reconstruction of a Europe dilapidated by war, infrastructure today is increasingly becoming a private- rather than a public good, where the user pays principle ought to apply. In this sense, Germany’s road toll plans are in the right direction.

Port competition, for a common European hinterland, is intensifying as a result of plentiful road infrastructure, much of it in Germany. Motorways are thus becoming just transit links, with the benefits of costless infrastructure accruing to the origin (e.g. China) and destination (e.g. Switzerland) of cargo, rather than to the German taxpayer who is called upon to finance infrastructure development and maintenance.

The Dutch government ought to study more carefully its objections to the German road toll plan. The elasticity of demand for Hamburg port services is three times higher than that of the port of Rotterdam, and a more expensive use of German motorways could have the effect of diverting cargo traffic from Hamburg to Rotterdam. And few would mind this in The Netherlands; or would they? 

HE Haralambides