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Is there movement at the station? Adapting our approach to stimulus in the face of structural change

6 April 2021
From our ‘Thinking outside the box’ series
The full impact of the pandemic on long-term travel trends is yet to be revealed, and continuing to work on the assumption that things will return to pre-pandemic levels is a prudential oversight, writes Christopher Day.

With over 18 million cases worldwide and climbing, COVID-19 has had a profound impact on the global economy. Reduced economic activity, travel restrictions and government lockdowns have, according to the IMF, wiped approximately 5 percent off global Gross Domestic Product (GDP) in 2020. Depletion of monetary policy ammunition from the Global Financial Crisis (GFC), has largely paralysed the ability of central banks around the world, thereby placing the onus on fiscal policy to stabilise and stimulate tattered economies.

In response to this call, governments around the world have deployed a suite of measures including commitments to major transport infrastructure projects. For example, in June 2020, the New South Wales and Commonwealth Governments each pledged $1.75 billion to build an $11 billion Metro to Western Sydney Airport by its opening date in 2026. This presumes that air passenger numbers will continue to climb rapidly from pre pandemic levels.

Such an assumption is courageous on several fronts. The influence of the COVID-19 pandemic is likely to produce significant structural social and economic change. Business travel is expensive; a factor likely to garner greater weight in a fragile business environment. Since the outbreak of COVID-19, meetings and conferences have shifted rapidly onto online platforms such as Zoom and Skype. With remote working infrastructure in place, and its credibility proven, organisations will look to reduce travel in a post pandemic environment.  

This trend extends to daily commuting patterns. Travel restrictions triggered by COVID-19 has compelled many organisations to reconsider the role of remote working. The notion that it is impossible and unproductive has lost validity. Benefits connected to working from home, such as shorter commuting times, worker flexibility, reduced distraction from colleagues and fewer meetings, have been linked to higher levels of productivity. Furthermore, businesses which use their workspaces on a rotating basis can benefit financially by decreasing their office footprint.

Isolation and loneliness have been major challenges associated with the pandemic. While social interaction in the workplace is vital for human wellbeing, daily commuting to and from work may not be. Going forward, a hybrid model where workers commute 2-3 days per week may prove most effective (Beck and Hensher 2020, 2020a). This will have a substantial impact on commuting volumes. Even prior to COVID-19, the UK’s Independent Transport Commission found that the growing prevalence of working from home arrangements was a major contributor to the rail network’s plateauing patronage (Williams and Jahanshahi, 2018). Recent bankruptcies by UK train operating companies (TOCs), which overestimated ridership growth on the basis of increasing central area employment, are reflective of these patterns. The pandemic may be viewed simply as a catalyst that has accelerated the movement towards flexible working.

Although the full impact of the pandemic on long-term trends is yet to be revealed, continuing as if the world is unchanged is a prudential oversight.[1] At nearly $60 billion, Transport for New South Wales (TFNSW) is currently delivering the largest transport infrastructure program in Australian history. It is important to ensure that future investments made in expanding capacity, such as the proposed Metro West and Western Sydney Airport line, are both reflective of future needs and deliver “value for money” to taxpayers. Government finances are under severe pressure. While stimulus is required, delaying major infrastructure projects until we have a clearer view of future travel trends offers an opportunity to redirect precious capital towards initiatives that address weak economic fundamentals. A large body of evidence, inclusive of work by the IMF’s Andrew Warner, find little indication of a link between infrastructure spending and economic gain. Infrastructure expenditure tends to create short term construction jobs rather than high value and more permanent jobs derived from advanced manufacturing in emerging sectors such as renewable energy.

As economist John Maynard Keynes famously observed “When my information changes, I alter my conclusions. What do you do sir?” Our policymakers should consider the same.

[1] A survey by consultancy SYSTRA has found that commuting volumes in London could fall by as much as 40 percent from pre-lockdown levels with rail travel dropping 27 percent (BBC, 2020). Concurrently, there has been a boom in walking and cycling.


References

Beck, M. and Hensher, D.A. (2020) Insights into the Impact of Covid-19 on Household Travel, Work, Activities and Shopping in Australia – the early days under restrictions, Transport Policy, 96, 76-93

Beck, M. and Hensher, D.A. (2020a) Insights into the impact of COVID-19 on household travel and activities in Australia – the early days of easing restrictions, Transport Policy, in press.

BBC. (2020). Coronavirus: Transport usage will change after lockdown. Retrieved from: https://www.bbc.com/news/business-52414376

Williams, I. Jahanshahi, K. (2018). Wider Factors affecting the long-term growth in Rail Travel. Independent Transport Commission. Retrieved from: http://www.theitc.org.uk/wp-content/uploads/2017/05/ITC-Report-Rail-Passenger-Demand-November-2018.pdf