Finance and Friction - August 22, 2022
Why Convenience, Not Affordability is the Ticket to Germany's 9-Euro Transit Experiment; New Reads on America's Housing Crisis, and Raleigh's "Suburbanity"
After two weeks in Germany, I could write a long screed about how the German transit system puts the US to shame. How I could travel to and through towns of around 4,000 to 60,000 people and cross the border into Poland without the use of a car. How the express trains reached speeds of 165 mph. All of that has been said before, though, and smacks a bit of the college kid who studies abroad and comes back affecting an accent.
The world doesn’t need another American urbanist romanticizing Europe, so I'll save it for another post. There are real challenges in Germany - the looming specter of a dark and chilly winter brought on by the loss of Russian natural gas; the plodding acceptance of digital payments and broader digital infrastructure running headlong into the country's legendary automotive industry, just as that industry electrifies and modernizes; and perhaps most stereotypically, a complicated and oftentimes inflexible governing bureaucracy.
My only brush with German bureaucracy this trip came in the security line at the Reichstag Building, and wasn't really unreasonable. I had made reservations for a tour under the name "Chuck," conflicting with my official passport name "Charles," which no one has called me in 35 years. After a few minutes of back-and-forth, the mix-up ended in a half-stern, half-smiling admonishment from the security guard "Nur Hinweis Name!" she said, punctuating each word with an index finger on the Passport cover. "Official name only."
Subtle shifts were noticeable compared to my last trip here in 2017. Aside from a handful of small restaurants, credit cards were mostly accepted, and the Deutsche Bahn train system app had seen a substantial facelift. Our time in Germany coincided with one of the country's most publicized experiments in public transit provision. The 9-Euro ticket allowed riders nationwide access to all local and regional transit, excluding the high-speed Inter City Express (ICE) trains, for a flat 9-Euro monthly fee from June through August.
The negligible cost of month's transportation offered welcome relief for consumers in the grips of global inflation, and a political talking point for the newly elected coalition government. Secondarily, the cheap tickets were geared to induce drivers who had avoided public transit during previous COVID waves. Train use certainly increased, with trips between 30 and 100 kilometers more than doubling, and particularly strong traffic in rural and coastal areas such as Stralsund.
The real benefit of the policy was not only in its price, but in its convenience. Suddenly, regional ticket schemes and complicated pass systems were no longer relevant. A trip from the Munich Airport to a neighborhood in Leipzig, which in the past might have required three separate ticket purchases (S-Bahn, Regional Express, U-Bahn), was now seamless. The minutes spent figuring out various ticketing systems, multiplied by millions of riders, amounted to a substantial time drain.
And while it looks like the finances of the 9-Euro ticket won't be sustainable long-term, according to Finance Minister Christian Lindner, other officials such as Transport Minister Volker Wissing and Chancellor Olaf Scholz could consider some form of all-access pass for the future. Wissing noted that he would be meeting with state representatives to discuss how to improve the "comfort, usability, and maybe also affordability" of public transit. The statement implied a stronger emphasis on usability than on affordability. While keeping the fare at 9 Euro might cost the German government an unreasonable 14 billion Euro, a similar, if higher priced, ticket may still prove popular, so long as service levels remain reliable.
Ultimately, the 9-Euro ticket removed what economists and investors call friction. Friction, in other words, includes the monetary and nonmonetary costs of completing a market transaction, separate from the transaction itself. Digitalization and the rise of the internet-connected smartphones have removed much of the friction of information exchange and online shopping. These trends have also reduced the friction of urban transportation - with real-time tracking and digital tickets replacing subway tokens and ride-hailing apps replacing phone calls and long waits for taxis.
The increasingly frictionless urban economy is not without its critics. The rise of online shopping, some studies show, has increased urban congestion, and ride sharing's rising prevalence may have undermined some transit systems. Paris Marx, one of the harshest critics of Silicon Valley's push to reduce urban transport friction argues that these shifts have led to more income segregation, are hostile to pedestrians, and benefit primarily large tech companies.
This critique is fairly extreme, and ignores some of the benefits of app-connected transportation options - particularly micro-mobility options such as scooters and e-bikes, which have been embraced by shift workers in the United States and elsewhere as lower-cost alternatives to cope with inadequate off-peak public transit service. However, it's worth considering as a broader concern about private companies increasingly filling gaps in what were once public services.
For those sharing this concern, Deutsche Bahn's experiment with a seamless ticket may be a welcome sign. Rather than relying on private sector apps, a public service provider is taking steps to reduce friction for its users. In fact, the market for private-sector travel providers may have taken a hit. With less friction, third-party apps could become less useful.
Among the signs lobbying against the extension of the 9-Euro ticket was one from Omio, a European travel booking app and provider, near the Berliner Dom. "Sweaty trains and overcrowded buses? 9, Danke!"
Stakeholder Friction and US Transit Building
What can we learn in the United States from the 9 Euro ticket experiment? I'm not so optimistic when it comes to public transit. Seamlessness is only beneficial in a system with high levels of reliability as well as frequent and far-reaching service - features sorely lacking in most American public transit systems. (Though Deutsche Bahn's on-time performance has suffered in recent years and compares unfavorably to neighboring Switzerland, network connections are far more robust, and delays less frequent, than most regional rail service in the United States). The Northeast corridor - where regional trains like the Long Island Rail Road intersect with New York's broader subway system as well as regional Amtrak trains - seems like the most feasible area for a pilot program.
But first, American transit leaders should focus on developing reliable service, by reducing the friction that keeps new transit from being built in the first place. The fragmented and consultant-driven process of developing new transit projects leads to a lack of comprehensive vision, which in turn leads to cost overruns as additional interest group demands are layered into project plans. As Eric Goldwyn writes about an ill-fated Boston-area project: "without a comprehensive view of the project, it's easy to see how all of these changes lead to much greater costs as each stakeholder sought to extract value from the largest capital project in the MBTA's history."
As it stands, privately operated competitors, such as Florida's Brightline are laying tracks, often faster and with less friction.
“America’s Affordable Housing Problem,” by Corey Lefkowitz at Our Built Environment - If one area of American civic life suffers from fragmented decision-making and complex cost overruns more than transit, it is housing. This 14,000-word piece clearly lays out the landscape of the housing shortage - how regulations like parking minimums, NIMBYism, and the patchwork nature of subsidized housing agencies set up to build too little, too slowly - have left the United States with a severe shortage of housing units, just as the large generation of millennials reach their household formation years.
“Raleigh/Durham: First Impressions,” by Addison Del Mastro, at The Deleted Scenes - It’s always interesting when outside observers examine a place you know well. Del Mastro takes a look at land use in the suburbs in and around Raleigh and Durham. He finds a form of hyper-suburbanization with few central places. With everything built around the car, and little human-scale development, the suburban Triangle feels at once “empty,” requiring traveling long distances for basic needs, and “claustrophobic,” owing to the constant stream of cars on the area’s roadways. Surely, the Triangle isn’t alone in this suburban form of development, but it’s not surprising that this decentralized pattern reached its most intense form there. The history of the area’s largest economic development victory almost guaranteed it. The Research Triangle Park was premised on a centralized location between existing universities in the urban cores of Raleigh, Durham, and Chapel Hill. The timing of its formation in the 1950s and 1960s coincided with the nation’s increase in suburbanization. The secretive nature of life science research and development projects also led to single-use zoning with large setbacks and long distances between buildings. As RTP became an employment engine, new housing developments sprung up around the park, rather than the existing urban cores in Raleigh or Durham. While both downtowns in Raleigh and Durham, and even the RTP itself, have embarked on densification campaigns in recent years, the spread-out nature of the Triangle remains a defining feature.
Thanks to the McCloy Fellowship on Global Trends from the American Council on Germany for sponsoring this trip.