Transport and the economy: full report (SACTRA)

Chapter 2 - The Debate about Transport and the Economy

Introduction

2.01 This chapter provides an overview of some of the main arguments in the debate about transport and the economy. The aim of the chapter is to give the informed lay reader a summary of the sort of arguments that SACTRA has had to address in the course of its investigation, prior to a more theoretical and empirical critique of those arguments in later chapters.

2.02 The chapter begins with a brief review of why our remit is important to Government (a term we use to include central government, government agencies, local government, etc) and a discussion of the complex nature of the debate about transport and the economy. We then examine some of the statistics of transport and economic trends before outlining the debate in more detail. The chapter then sketches the debate from various perspectives - the relationship of transport and the economy at a micro-level (the level of individual firms); the spatial (mainly local and regional) impact of transport improvements; and the macro-level relationship (at the level of the economy as a whole). The distinction between these perspectives is artificial in many senses, as they interact and overlap with one another, but it can help highlight the nuances to the debate which are important to understand.

The Need to Understand the Relationship between Transport and the Economy

2.03 There are good reasons why the Government should seek to understand the nature of the relationship between transport provision and economic growth as fully and as clearly as possible. Government is committed to promoting sustainable development, embracing environmental, economic and social objectives. It is important that the economic justification for transport schemes is as robust as possible alongside consideration of their environmental and social impacts to ensure effective decision-making.

2.04 Equally, in promoting economic growth, Government is often concerned about the distribution of such growth. Transport improvements, for example, can form part of public policy packages deliberately aimed at stimulating regeneration in a particular area - sometimes even at the expense of other areas. Government needs to be clear that such action is effective in meeting its goals.

2.05 Government also directly and indirectly finances significant investment in transport. Where investment is justified on the basis of promoting economic growth, Government needs to know that such aims are being achieved, and in the most cost-effective manner, particularly given the scarcity of public funds.

2.06 Finally, Government is a key player in the planning process. Promoters of schemes often claim wider economic benefits would arise from their projects when seeking planning permission. Government needs to have a clear understanding of these arguments to enable it to balance them against other considerations and so come to effective planning decisions.

The Nature of the Debate about Transport and the Economy

2.07 Developing a clear understanding about transport and the economy is a difficult task. Asking questions about that relationship challenges what for some is a fundamental and obvious assumption: that economic growth, the need for movement and the need to invest to facilitate that movement go hand in hand. The result has been an often quite polarised debate, in both academic and non-academic circles.

2.08 Business argues that an efficient transport network is vital to a strong economy - locally, regionally and nationally - by providing high quality access to labour, suppliers and customers. Business has consistently argued that substantial investment is needed to improve the existing network, focusing mainly on road transport, but also on heavy rail, urban public transport and airports.

2.09 Other commentators argue that there is scant evidence for a causal link between transport improvements and economic growth. Some claim that a transport scheme can in fact "suck out" economic activity from an area, rather than attract it. Concern about the environmental impacts of transport and the need to balance competing claims on the public purse have also raised questions about the validity of calls for greater transport investment.

2.10 Nor is the debate simply a question of whether there are net positive or negative economic impacts arising from transport improvements. The question of size of effect is also important. Some commentators query whether the journey time savings generated, for example, by road improvements, provide anything more than marginal economic benefit. Others argue that transport improvements, for example, help enable firms to re-organise their operations, yielding significant benefits beyond those conventionally identified in investment appraisal.

2.11 The debate about transport and the economy is frequently made even less clear by a confusion of terms. The relationship between the two is sometimes taken to embrace different things: transport investment, transport infrastructure, transport improvement (however achieved - ie, by infrastructure development or through other policies), road traffic, etc. Even the term "economic growth" can mean different things to different people and is often confused with loosely defined discussions of competitiveness. Issues surrounding the definition of terms are addressed in Chapter 3.

2.12 A further complication is the difficulty in isolating the effect of transport provision on economic activity, be it at the national, regional or local level. The difficulty with, for example, before and after studies of transport projects is that we simply do not know what might have happened to the economy if a scheme had not gone ahead and the money had been put to some other use instead. Equally, there are many factors which can be

Transport and Economic Trends

2.13 The debate about transport and the economy takes place against the background of significant trends in both. Figures 2.1 to 2.7 and Tables 2.1 to 2.3 seek to give some indication of how the economy and the demand for transport have changed over time.

2.14 The last 40 years have seen growth in both the national economy, as measured by GDP, and domestic traffic. Figure 2.1 shows that passenger traffic across all modes has grown at a faster rate than the economy as a whole, while freight traffic has grown at a slightly slower rate. This embraces a significantly greater increase in LGV traffic than HGV traffic (as borne out by the billion vehicle kilometres in Table 9.4). Figure 2.2 indicates that this experience is broadly one that the UK has shared with other European countries.

Figure 2.1 Transport trends against GDP: UK 1953 - 1997
Source: Transport Statistics Great Britain 1998, ONS

2.15 Cars (together with vans and taxis) have accounted for an increasing share of UK passenger kilometres over the last 40 years, plateauing at about 86% of passenger travel during the 1990s (Figure 2.3). Figure 2.4 shows that, while the strong growth in passenger kilometres travelled by car has also occurred in recent years in many developed economies, some countries have also experienced significant growth in passenger kilometres travelled on some forms of public transport (eg Netherlands, Switzerland, Italy and USA). However, not all have experienced the latter trend, and a significant contraction in public transport passenger kilometres travelled has occurred in some countries, particularly in Germany.

2.16 Tables 2.1 to 2.3 provide a more detailed snapshot of the components of passenger travel in this country. Table 2.1 shows that the distance travelled per year by the average person has increased by more than 40% over the last twenty years to 10,726 kilometres. Looking at personal travel across all modes, the three most significant reasons for travelling are shopping, commuting and visiting friends at home, accounting for 21%, 15% and 13% respectively of journeys per person per year (Table 2.2). In terms of the distance covered by the average person, however, these journey purposes account for 17%, 20% and 13% respectively of the total (Table 2.3).

Figure 2.2 : Transport Trends Against GDP: EU 1970-1996
Source: Eurostat

Figure 2.3 Passenger transport by mode: UK 1952-1997
Source: Transport Statistics Great Britain 1998

Figure 2.4 International comparison of model trends in passenger transport: 1985 - 1995
Source: Transport Statistics Great Britain 1998

Table 2.1 Average distance travelled by mode of travel: UK 1975-1997
Source: National Travel Survey

Mode

Kilometres per person per year

Change (%) to 1995/7:

 

1975/6

1985/6

1995/7

from 1975/6

from 1985/6

Walking

399

393

314

-21

-20

Bicycle

82

71

63

-24

-11

Private hire bus

240

211

169

-30

-20

Car

5139

6108

8346

62

37

Motorcycle/moped

76

82

48

-36

-41

Van/lorry

293

367

422

44

15

Other private

24

53

64

167

17

Buses in London

92

63

80

-12

5

Other local bus

594

415

325

-45

-22

Non-local bus

80

175

150

86

-15

LT Underground

55

71

82

50

22

Surface rail

457

470

473

4

1

Taxi/minicab

21

43

69

231

45

"Other public, inc. air"

27

35

121

341

180

All modes

7578

8555

10726

42

25

Table 2.2 Journeys per person per year by main mode and journey purpose : UK 1995/7
Source: National Travel Survey

Kilometres

Purpose

Walk

Bicycle

Driver1

Pass-
enger1

Motor-
cycle

Buses

Tube2

Rail3

Taxi

All modes

Commuting

19

6

92

20

2

12

3

5

1

162

Business

4

1

27

3

0

0

0

1

0

37

Education

31

1

3

18

0

10

0

1

1

68

Escort education

24

0

19

6

0

1

0

0

0

51

Shopping

71

2

76

48

0

20

1

1

2

222

Other escort

11

0

46

23

0

1

0

0

0

83

Other personal business

31

1

40

24

0

6

1

1

1

106

Visiting friends at home

31

2

52

45

1

6

1

1

2

141

Visiting friends elsewhere

15

0

11

13

0

1

0

0

2

44

Social/entertainment

11

1

22

21

0

3

0

0

1

62

Holidays/day trips

2

2

10

13

0

2

0

0

0

31

Other, inc. just walking

43

0

1

1

0

0

0

0

0

45

All purposes4

293

17

401

236

4

64

6

11

10

1052

1 Note: Drivers and Passengers of cars and vans
2 Note: London Transport Underground
3 Note: Surface rail
4 Note: Figures rounded to nearest whole number

Table 2.3 Journey distance per person per year by main mode and purpose : UK 1995/7
Source : National Travel Survey

Kilometres

Purpose

Walk

Bicycle

Driver1

Pass-
enger1

Motor-
cycle

Buses

Tube2

Rail3

Taxi

All modes

Commuting

23

23

1429

230

23

95

37

201

6

2108

Business

3

2

882

103

0

5

6

50

5

1146

Education

27

2

42

80

2

80

3

18

5

302

Escort Education

16

0

97

32

0

3

0

0

0

150

Shopping

63

5

616

483

3

122

6

32

6

1345

Other escort

8

0

380

214

0

10

2

5

2

624

Other personal business

24

3

375

2216

3

34

6

32

6

722

Visiting friends at home

27

6

825

785

5

61

6

68

10

1823

Visiting friends elsewhere

13

2

132

156

2

16

3

13

11

359

Social/entertainment

11

5

304

298

3

27

5

23

6

721

Holidays/day trips

3

14

391

647

10

116

2

77

6

1350

Other, inc. just walking

51

0

14

5

0

0

0

5

0

79

All purposes4

272

61

5488

3253

50

566

77

523

64

10726

1 Note: Drivers and passengers of cars and vans
2 Note: London Transport Underground
3 Note: Surface Rail
4 Note: Figures rounded to nearest whole number

2.17 In the case of freight, Figure 2.5 shows that road transport has become the predominant mode of moving goods in the UK over the last 40 years. As with passenger transport, Figure 2.6 shows that strong growth in road freight traffic has also been experienced recently in many other countries, although again some countries (eg USA, Portugal, Italy and Finland) have seen significant increases in freight traffic moved by rail. Analysis of four EU countries, highlighted in Chapter 6, indicates that, although an increase in the average length of haul was the single most important determinant of the increase in traffic, several other factors have had a significant impact in influencing patterns of freight traffic.

Figure 2.5 Domestic freight transport by mode: UK 1953-1997
Source: Transport Statistics Great Britain 1998

Figure 2.6 An international comparison of modal trends in freight transport: 1985-1995
Source: Transport Statistics Great Britain 1998

Figure 2.7 Growth in Economic sectors: UK 1957-1997
(By Gross Value Added at constant 1995 basic prices)

Source: Economic Trends Annual Supplement 1998

2.18 Finally, there have also been significant structural changes in the nature of economic activity in the UK. Figure 2.7 shows how the contribution of the service sector to national GDP has grown in importance compared with, for example, manufacturing (although this remains an important sector). Since the mid 1980s, there has not been a major change in regional shares of national UK economic activity.

Micro-Level Relationship between Transport and the Economy

2.19 Transport, as one factor in the production of goods and services, represents a cost to individual businesses. A traditional theoretical view suggests that a transport improvement which reduces transport costs (through shorter journey times and lower vehicle operating costs) enables firms to sell their products more cheaply. This stimulates greater demand, so that as firms enjoy enhanced scale economies, a virtuous circle of further cost reductions and sales growth is set in motion.

2.20 UK businesses themselves appear strongly to perceive that transport improvements would enhance their ability to compete. A CBI survey of 12,000 firms asked businesses to prioritise future action most likely to promote business competitiveness in their region. Better transport was considered to be among the top three factors in each region - though with some difference in terms of modal priorities - out of a total of 22 factors (which included, for example, action to improve the labour market skills, to promote inward investment and to provide appropriate sites for development).

2.21 Similar comments were made in correspondence from the Government Offices for the South East and for the North West to SACTRA (1997). They acknowledged the widely-held view in their regions that transport was "a particularly important ingredient" or "a vital part of the package" in promoting competitiveness.

2.22 The importance attached by business to the need for transport improvements has been questioned. Some commentators argue that the small transport cost reductions usually associated with schemes means they will only ever be of limited benefit to businesses. Others have called into question whether the small time savings for individual journeys can in practice be translated by business into enhanced productive capacity.

2.23 Thus Parkinson (1981), for example, pointed out that transport costs were a small proportion of total production costs (5-10%). He concluded that, given the small reduction in transport costs typically arising from a new or improved road, it is implausible that the fall in prices that could result from this small reduction in transport costs would lead to a significant increase in GDP.

2.24 Other empirical evidence paints a somewhat different picture. An Ernst and Young study (1996) made clear that the ranges of transport costs as a proportion of total business costs, identified by Parkinson and others, masked significant variation between sectors. For some firms, transport costs can represent a major item. Figures compiled by Diamond and Spence (1989) indicate that as a percentage of operating costs, transport costs accounted for 2.6% of motor vehicle part production, 7.7% for pharmaceuticals and 12% for wholesale distribution. In other sectors, such as construction, the figures can be significantly higher. Potentially, improvements which reduce those costs may thus be of considerable benefit.

2.25 The study also reveals that even in high-value added firms, where goods transport can account for less than 1% of total business costs, those costs are nevertheless closely monitored. The implication is that firms, in a bid to remain competitive, remain keen to control and reduce costs, no matter how small. This impression is strengthened if one considers that transport costs will appear more significant to businesses when expressed as a percentage of profits. Other work by Mackie and Simon (1986), in their case study of the Humber Bridge, cites that three-quarters of the firms questioned claimed that they were able to use their savings productively.

2.26 While there remains debate about the scale of the direct benefits to businesses arising from transport improvements, attention has also focused on potentially wider, indirect micro-level benefits. In the Ernst and Young study (1996), just over 20% of firms reported that changes in their use of transport due to new or improved transport had led to wider business benefits in the form of reduced inventory costs (through reorganisation and centralisation of distribution operations), their ability to access new markets, and their increased size of labour catchment areas.

2.27 A considerable amount of work has been done, for example, by Quarmby (1989), Mackie and Tweddle (1993), and McKinnon (1995), to suggest that road improvements can have a much greater indirect impact on competitiveness by enabling firms to restructure their logistical systems. Several commentators have also identified the growing importance to business - particularly with regard to goods distribution - of schemes which improve the reliability of journey times.

2.28 Critics have, however, raised concerns about the centralisation of logistics operations made possible by, among other things, road improvements. It is argued that, by serving markets from fewer distribution centres, additional traffic is induced, thus increasing environmental externalities, such as pollution. Since the cost of these externalities is paid for by society at large, and not by the businesses responsible for causing them, the result is deemed to be economically sub-optimal. Businesses respond that improved efficiency of distribution operations has reduced fuel consumption, and consequently reduced the level of their emissions.

2.29 Another criticism sometimes voiced derives from the view that traffic generated by new road building means that any benefits to business and, indeed, other road users are transient, if not actually negative. It is argued by proponents of this view that any time savings generated by a scheme are soon lost as the new road fills with traffic and congestion returns; while at the same time the additional traffic generates greater external costs such as pollution.

2.30 In fact, SACTRA's 1994 report indicated that, in conditions of congestion, the consumer benefits of a scheme would be generally reduced by the effects of induced traffic and, in some circumstances, this could then make the net present value of the scheme negative, though this would not necessarily be the case. The Committee's analysis suggested that the more typical case would probably be to make the net consumer benefits smaller, but still positive. The environmental effects of induced traffic would, however, generally be unambiguously negative.

Spatial Issues

2.31 A key aspect of the debate about the relationship between transport and the economy are the claims made about the impact of a transport project on a local area or region. Claims can emphasise the value of transport improvements to an area - large or small - as a means of overcoming what are, in effect, barriers to trade with other areas of economic activity.

2.32 Some of these claims deal with issues of perception, such as the impression in the minds of potential inward investors about the accessibility (and so attractiveness) of particular parts of the country. A recent AA/CBI survey (1998) showed that over 70% of local authority economic development officers who responded said that the quality of transport links were an important feature in attracting investors to their areas. North Lanarkshire Council (Lawson, 1997) claims that the relative success of Lanarkshire Enterprise Zone in attracting investors compared with Clydebank Enterprise Zone can be explained by the different quality of road links serving the two areas.

2.33 These studies reflect a widespread view by promoters that schemes can overcome perceptions, especially on the part of inward investors, of distance, peripherality or disadvantage. For example, business interests have argued for a motorway-standard link beyond Exeter to serve the south west, for dualling of the A590 to serve Cumbria and for direct rail services from the Channel Tunnel to the North of England and Scotland, to overcome the perceived distance of those areas from key markets. The Government Office for the North West (1997) claimed that even peripheral considerations such as the image enhancement of an area can be "significant spin-offs" from investment in new or improved transport infrastructure.

2.34 In another piece of evidence received by SACTRA, a study by the Welsh Economy Research Unit (1997) on economic development in Merthyr suggests that improved road access to the area has been an important factor in influencing the location decisions of recent investors. The report contends that the wider economic benefits in terms of generated new income and employment are likely to outweigh the economic significance of any direct savings in transport user costs.

2.35 Removing trade barriers by improving transport links is also argued to be a key part of policies to promote economic regeneration in areas of particular poverty. These areas are characterised by under-utilisation of a range of resources, such as labour and/or land. Transport improvements are often seen as a way of 'unlocking' these resources, for example, by providing access to derelict sites or to new job opportunities for the unemployed, so contributing to the typical high-level aims of removing deprivation, and enhancing economic development and social cohesion.

2.36 Transport schemes aimed at promoting regeneration might take different forms. The Black Country Development Corporation (1997) said in its evidence to SACTRA that the direct access to 3 million square feet of industrial and commercial floor space provided by the Black Country Spine Road was critical to its programme of regenerating previously derelict land. The Coalfields Task Force (1998), on the other hand, has stressed that there is an urgent need in coalfield communities - where levels of car ownership are low - to enhance public transport (through better bus services, shared use of a minibus, car pools or re-opening of redundant railway stations) as a way of giving people ready access to towns and employment sites.

2.37 Removing barriers to trade can also be seen as important to other, wider areas than simply blackspots of economic deprivation. Poor transport links between one region and another, it is argued, can protect uncompetitive indigenous firms, enabling them to charge prices higher than those which are efficient. Removing that effective barrier through improved links could benefit the wider regional economy by reducing prices to end consumers and producers. One manufacturer in North Wales is quoted by the Freight Transport Association (1997) as having benefited in precisely these ways due to improvements to the A55.

2.38 It is also worth noting that the need to tackle trade barriers is seen as important even in the case of those areas which are relatively strong economic performers. One of the arguments used to support the cases for Heathrow's Terminal 5 (Coopers and Lybrand, 1995) and modernising the London Underground claims that the project is an essential part of efforts to maintain London's status (economic, as well as cultural and political) as a world city. The Government Office for the South East - a region usually thought of as relatively prosperous - also emphasised (1997) that poor transport links have long been identified as a factor limiting developing in Sheppey and Hastings, which both have Assisted Area status.

2.39 However, there are alternative views about the impact of transport improvements on the economic prospects for an area. First, commentators point out that better transport by itself is highly unlikely to stimulate economic activity. The campaign group South Coast Against Road Building (SCAR) intuit this by quoting Whitelegg (1994): "Birmingham with its ample supply of motorway connections is not a conspicuous economic success and Edinburgh, with far less motorway linkage than Glasgow, has certainly not suffered economic decline in comparison with its traditional rival".

2.40 Inward investors, it is pointed out, look to a range of factors in determining the attractiveness of a location. The AA/CBI survey (1998) of local authority economic development officers indicates that issues such as the availability of suitable sites and a skilled workforce are as important, if not more so, to investors when they choose where to locate. Attempts to overcome perceptions of distance and disadvantage can also be made by means other than additions to transport infrastructure, including improved frequency, quality or marketing of transport services. For example, the Government responded in 1996 to business calls for a motorway-standard route beyond Exeter by reclassifying the existing A38 as an expressway and colouring it blue (as with motorways) on maps.

2.41 McKinnon (1996) suggests that the Scottish economy has successfully adapted to its geographical peripherality by, for example, developing sectors of high valued added products and making use of traffic flow imbalances to secure favourable export haulage rates. As a result, Scottish manufacturers actually spend less on transport than the UK average, expressed as a proportion of value added or net output. He also notes that firms such as IBM and Digital have closed down their national distribution centres across the Continent and manage satisfactorily to supply their European customers from Scottish plants.

2.42 However, McKinnon warns that, as the cycle times of logistics operations continue to be compressed, this will magnify differences in transit time between peripheral and more central regions. He also anticipates that attempts to capture the environmental costs of transport through higher fuel taxes and new road user charges will discriminate against businesses in more remote regions which have to travel further to access markets.

2.43 Supporters of schemes themselves recognise that, while transport improvements may be necessary, they are rarely, if ever, a sufficient condition for stimulating economic activity. Parkinson (1981) also notes that the empirical evidence suggests that areas with low levels of development seldom lack just good accessibility - they have disadvantages other than or in addition to transport inaccessibility, such as lack of sites or of skilled labour.

2.44 Initiatives to promote regeneration also recognise that the degree to which a transport scheme is complementary to other policy tools is essential to maximising the contribution of that scheme. Evaluation of the effect of the Bristol Spine Road (DETR, 1997a) showed that the regeneration benefits of the scheme had been limited - though still positive - because the Urban Development Corporation had failed to put in place a coherent regeneration strategy.

2.45 A second common observation is that transport improvements can harm a local or regional economy, by exposing indigenous firms to competition from stronger rivals outside the area - the so-called 'two-way road' argument. Where improved transport links behave in a way similar to the removal or reduction of a trade barrier, there can be winners and losers from the improvement, depending on among other things the structure of local and regional economies. A report on completing the European Single Market (Emerson, 1998) - which aims to reduce barriers to trade within the EU - indicated that, while overall EU productivity would rise, much of this came from a rationalisation of industry that would imply the end of production in individual sectors in some countries.

2.46 A study of transport and development changes around Inverness for the Transport Research Laboratory (Halden and Sharman, 1994) also helps highlight the point. The study concludes that expansion of tourism in the area would not have been possible without the major transport improvements in the area examined. But it also acknowledges that the improvements may have had negative effects in more peripheral parts of the study area, by increasing the pressure to close local health centres or offices in peripheral areas and to service the population from more centrally-located facilities.

2.47 Friends of the Earth in Cornwall (1997) cite the experience of different towns in the county to make a similar point. On the one hand, it is claimed that the local economies of Okehampton and Liskeard are suffering due to the effects of recently completed bypasses, as locals go elsewhere to shop (Exeter in the former case and Plymouth and Truro in the latter) and as companies transfer operations elsewhere. On the other hand, attention is drawn to the apparent success of Millbrook, with no empty shops and a complete range of services and facilities, which despite being only three miles from Plymouth is poorly served by transport links.

2.48 DETR (1997b) concedes that in rural areas improved transport links could run counter to regeneration and other policy objectives, though it emphasises that it is hard in general to say whether the net effect is positive or negative. In the specific case of regeneration, DETR points out that the low levels of wages, property costs and congestion on local roads associated with deprived areas means that these areas are highly unlikely to suffer economically if opened up to greater competition.

2.49 Equally, where regeneration policy supported by transport improvements simply shifts economic activity from one area to another, with no aggregate economic benefits being created, this may be entirely consistent with policy aims. The Government Office for the South East (1997) reminded us that, given the forecasts of growth in household numbers in the region, it was an objective of public policy to provide a higher proportion of the new homes and jobs in Kent Thames-side, supported where appropriate through improved transport provision.

2.50 Even where a transport improvement does have a positive impact on more than one area, it does not necessarily follow that all affected areas will benefit to the same extent. Dodgson's (1974) case study of the impacts of the M62 underlines the point that, for example, some areas (eg, West Yorkshire) were likely to have benefited more than others (eg, Lancashire) from reductions in freight transport costs arising from construction of the motorway.

2.51 Cornwall and Wiltshire Friends of the Earth (1997) make a further related point when they suggest that road building in rural areas in fact allows wealthier households to displace local poorer families, either by buying second homes or by facilitating long car commuting journeys. The extent to which there may be social distribution issues associated with transport schemes is an explicit area of interest for the current Government.

Macro-Level Relationship between Transport and the Economy

2.52 The debate about the relationship between transport and the economy focuses not only on the impacts on individual businesses and of local or regional areas, but also on the economy as a whole. The close correlation between economic growth and increased movement - and, since 1945, the correlation in particular between road traffic growth and economic growth - is seen as evidence of a close link between transport and the economy. But this does not help clarify the direction of cause and effect - whether increased movement is a sign of economic growth stimulated by other factors; whether traffic growth, facilitated by transport improvements, itself stimulates economic activity; or whether there is some iteration of the two.

2.53 Nevertheless, commentators point to the historical contribution of transport improvements to economic development. This is particularly true of the case of developing countries, where the transition from a fragmented communications system to even a poorly developed network is of great importance (Owen, 1987; Hilling, 1996). Perhaps the single most important factor is the transition to all-weather, all-the-year-round road surfaces.

2.54 In this sense, the complete absence of a well developed transport system acts as a serious constraint on growth. It helps explain why up to 40% of World Bank loans have been used on transport projects (Hilling, 1996) and why the UN designated the ten years to 1988 as the transport decade. Similar emphasis on transport can be found in the portfolio of the European Investment Bank (Pinder, Edwards and Wise, 1995).

2.55 The role of transport in promoting the integration of markets has also repeatedly been argued to have been a major factor in the British primacy in the Industrial Revolution (Szostak, 1991). Turnpike roads, canals and then the railways were each important in reducing transport costs and facilitating urbanisation and the development of large scale industry.

2.56 Similarly, the development of the UK motorway network in the last 40 years is seen to have played its part in post-war economic development, for example, by making possible systemic transformation in the distribution and logistics sectors. McKinnon (1995) argues that the strategic road building programme "can be viewed in historical terms as a major 'network development episode', comparable to the earlier eras of canal and railway construction". One might add that the development of air transport links has been a further similar type of development which has helped contribute to the globalisation of business and economic activity.

2.57 The work of others suggests, however, that it would be wrong to assign undue prominence to any one particular mode, even railways, which are often seen as the most spectacular invention of the Industrial Revolution. It has been estimated that the direct resource savings from freight transport by rail compared with alternative modes of transport were around 4% of 1865 GDP, a result that echoed the findings of Fogel (1964) for 19th century America. A somewhat smaller gain probably resulted from investments in canals in 1800 (Hawke and Higgins, 1981).

2.58 Furthermore, a study of the inequalities in and production potential of European regional economies (Biehl, 1986; 1991) explained the differences in per capita GDP as a function of the regional endowments of labour, capital and various forms of infrastructure. While the lack of an effective transport system did appear to be a constraint on a regional economy achieving its full production potential in some regions, it was shown that in many poorer regions this was not the case and thus that simply improving transport would not lead to growth without other parallel interventions.

2.59 For a country such as the UK, with a now well-developed transport network, the question arises as to whether further improvements to the network can have anything more than merely marginal benefits to the national economy. McKinnon (1995) takes the view that new road construction projects are likely to make a smaller contribution to economic development than in the past, partly because much of the earlier benefit was network related, but also because the business restructuring processes have largely run their course.

2.60 While there is a sense that the tangible benefits arising from significant transport improvements may have already been largely tapped, major reductions in travel costs have still resulted from projects completed only relatively recently. Projects such as the Humber and Severn Bridges, the improvements to the A55 and the combined transport changes around Inverness are all ones which have led to significant reductions in transport costs.

2.61 The recently completed A14 link between the A1 and M1 is reported to have saved 30-35 minutes on journeys accessing the motorway network (Government Office for Eastern England, 1997). Since opening the final section of the route in Northamptonshire, industrial and commercial development within seven miles of the road is reported to have increased by 470% (including both relocation and expansion of companies). The Rural Development Commission (Spence and Linneker, 1995) makes the observation that, since the 1980s, rural areas have experienced relatively high levels of economic growth, despite having the least transport infrastructure - though, it goes on to say, rural areas have generally seen the largest improvements in their infrastructure.

2.62 Alternatively, in the UK, significant programmes of remaining improvements to important parts of the transport network have been identified - for example, Railtrack's investment programme, modernisation of the London Underground and the strategic roads programme - amounting to tens of billions of pounds. It is arguable that these improvements, in aggregate, could substantially improve the quality of transport in the UK, to the benefit of the economy. Calculations carried out by the Centre for Economic and Business Research (CEBR, 1994) suggest that expenditure on modernising the Underground would increase the UK's GDP growth by 0.06% per annum in the period to 2003; while a 50% increase in expenditure on roads would lead to GDP 0.73% higher by 2010.

2.63 Several variations on this theme can be found in the claims made for expenditure on a range of transport projects. A study by Roger Tym and Partners for the North of England Assembly (1992) into the benefits of dualling the A1 claimed that 855 new jobs would be created directly and indirectly, adding £19.5 million to GDP. A report by JMP consultants (1989) on the Dearne Towns Link Road claimed that once the link road was open, an initial 860 jobs might arise due to developments associated with the road, with a further 129 jobs per annum from progressive development of key sites. The multiplier effects of development were predicted to provide 125 jobs with a further 23 jobs per annum.

2.64 Friends of the Earth (Jenkins, 1997) similarly claim that policies to promote public transport, cycling and walking could lead to the creation of 130,000 new jobs by 2010, more than offsetting the loss of jobs in the motor industry as a result of decreasing car use. BA point to the cumulative potential wider job losses and loss of value added in the UK economy were a fifth terminal not to be built at Heathrow Airport. A study on the effect on the East Midlands of proposed improvements to the Midland Main Line (W.S. Atkins et al, 1990) also sought to identify the net employment benefits arising from various factors such as overseas inward investment (500 jobs), indigenous expansion (1,500 jobs) and office decentralisation (500 jobs).

2.65 Others treat the claimed wider impacts of schemes and programmes on GDP and employment with some caution. Barker and Lewney (1997) of Cambridge Econometrics claim in their response to SACTRA that the effect on GDP of investing in transport infrastructure (even in large projects, such as a new rail freight network linking UK regional centres with the Channel Tunnel) would appear to be very small. The CEBR figures on economic growth are, indeed, marginal in size yet depend upon major expenditure running to billions of pounds, which may be difficult to raise either in the public or private sectors.

2.66 Parkinson (1981) also reminds us of the potential weaknesses in approaches which claim wider effects on economic activity arising through a multiplier effect from investment in transport improvements. Necessary conditions for such an effect to occur are that there is no offsetting public or private expenditure decrease to accommodate the increased roads expenditure; the Government (in the case of publicly-funded schemes) can finance the scheme without affecting output through inflation or taxes; and that there are unemployed resources to meet the increased demand.

2.67 Another line of argument suggests that public investment in transport does in fact have more than a marginal positive impact on GDP. Aschauer (1989) argues that public investment in infrastructure leads to improvements which increase firm's profitability - or rate of return to private capital (such as the capital invested in a company's distribution fleet). Firms then respond to increased profit by expanding the pace of capital investment, in turn leading to higher labour productivity and output, so perpetuating a further virtuous spiral of investment. The result, contends Aschauer, is a return on publicly-invested infrastructure projects significantly higher than investment in private firms.

2.68 Critics, however, claim that these suggested high rates of return on public investment simply defy experience. They also point out that the empirical evidence used by Aschauer (1989) could suggest a different relationship of cause and effect - higher transport investment not causing economic growth but being made affordable by that growth in income.

Conclusion

2.69 The evidence received by SACTRA clearly indicates that the debate about transport and the economy - academic and non-academic - is highly complex and one which has many strands.

2.70 When surveyed, businesses claim that transport improvements are important to competitiveness. Businesses claim they are able to use time savings from transport improvements productively, often leading to wider business benefits, for example, in the form of restructured logistical operations.

2.71 These views are questioned by those who argue, for example, that transport cost savings are typically small in scale and potentially transient as, in the case of new road capacity, any time savings are whittled away due to generation of new traffic.

2.72 Transport improvements are frequently argued to improve the economic prospects of an area. This might occur by increasing the attraction of a location to inward investors, unlocking under-utilised resources (such as derelict sites) and increasing competition between firms.

2.73 Alternatively, it is argued that improved transport by itself is unlikely to be sufficient to improve an area's economic performance and that, by exposing indigenous firms to competition from outside stronger rivals, a transport project might suck economic activity out of an area (though this may be an explicit aim of public policy).

2.74 One line of argument suggests that the creation of a well-developed transport system has been and remains important to countries with developing economies, although some commentators have warned against putting undue weight on the contribution of transport in these instances. In the case of well-developed economies, such as the UK, doubts are raised as to whether even significant programmes of transport investment can have anything more than marginal impact on national GDP.

2.75 The Committee felt it important to disentangle some of these strands, and to examine certain specific issues in greater detail, if it was itself to come to a clearer understanding about the relationship between transport and the economy.

2.76 At a very basic level, it became clear that there are two inter-related aspects to that relationship. On the one hand, there are linkages which can help explain how transport has an impact on economic activity. On the other hand, economic activity itself can shape the demand for transport. There may often be iterations between these two aspects - for example, a transport intervention may lead to changes in the economy which in turn may have further impacts on the demand for transport. For the sake of simplicity, we examine each aspect separately, with Chapters 4 and 5 focusing on the former type of linkages, and Chapter 6 the latter.

2.77 Much of the evidence also suggested that potentially there were impacts arising from transport improvements other than those currently evaluated by project appraisal. Before the Committee felt it could address the adequacy of current transport project appraisal, we felt it important to understand better the sorts of situations (both in terms of the nature of the economy and the size of the project) where potentially wider impacts (negative and positive) might arise. SACTRA commissioned research on this topic, which we examine in Chapter 4.

2.78 In addition, the Committee also felt it was important to examine more closely the validity of claims made about the likely economic impacts of schemes and about some of the claimed shortcomings in appraisal methodology. Again, we commissioned research and address these issues in Chapter 10.

2.79 First, however, we felt it was important to be clear about the definition of those terms which are central to our inquiry. The next chapter addresses this issue. A glossary of terms is also provided for ease of reference at the end of the report.

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