News and Views

David Hensher: transport economist

Source: Professor David Hensher
Source: Professor David Hensher

Professor David Hensher is the Founding Director of the Institute of Transport and Logistics Studies at The University of Sydney Business School. David has published over 600 papers in leading international transport and economics journals, as well as 16 books.

So you weren’t born a Smart Mobility expert. How did you get to where you are? What led you down that road of Smart Mobility and so forth?

My formal training is as an economist. And I’ve always been interested in understanding human beings and decision making and, especially, how we arrive at sensible outcomes that get community support. But I was educated in England and in Australia, and all my education formally at university was in the economics field. I fell into transport economics by chance. I originally thought I’d be a macroeconomist.

But I was asked a very interesting question one day about the pricing of parking, and I thought, “That sounds interesting,” and I looked into it. Some years later when I met my mentor, Professor Michael Beesley from the London Business School, he convinced me that transport questions are the best example of using applied microeconomics because they have real meat. And they are, in a sense, very challenging because you have a temporal focus, travel time as for example. And you have a spatial one, location. Unlike a lot of economic issues that are aspatial and atemporal, it added a dimension that I found very exciting.

Because of my interest in understanding consumer choice, I got very involved in econometric methods that could be used to estimate models designed to understand why people make different choices. And over the years, I built up quite a reputation globally, in the area of discrete choice modelling and in the design of choice experiments. Both in terms of the methodologies but, also, the sorts of data we need and how we would use them, and the policy implications.

And in the last five or six years, what with the arrival of the era of digital disruption, there’s been a lot of interest in asking the question about how might these new ways of providing mobility opportunities be received by the market? And of course, that’s my bread and butter. Understanding what is it that influences people’s choices and, to what extent, our new models of mobility. The way of moving people out of conventional ways of travelling into new, innovative, multi-modal methods, which may or may not work into the future. But unless we research them and understand them better, we don’t know whether they may or may not have a role.

That, for want of a better word, light bulb moment, moving from plain economics to transport economics, how far along your academic road was that?

It was just before I started a PhD, which actually ended up being in that field. Because I’d already been a mainstream economist and I was going to do an Honours thesis in looking at the economics of development. I should also add that, apart from being born in England, I was brought up in Kenya for eight years. And I went back to England and went back to boarding school and subsequently came to Australia.

I was heavily influenced by Africa and was always fascinated by development economics. But it’s amazing how this one question, one day, when I found theories of economic growth a bit dull in relation to, “Well, have you thought about looking at transport parking using microeconomics?” turned the tide. And maybe if someone had not asked that question at the time, who knows, I might have ended up working in a bank.

What year was that David with the question of parking, and your shift to transport economics?

The early 1970s.

And though there has been a lot of thinking, a lot of words written about transport economics, have you seen much in the way of change in the last four or five years?

Not really, sadly. I mean, I think one of the great worries we have is the disinterest, other than negative interest, in governments wanting to take pricing reform in transport seriously. And only this morning (3 October 2018) the Grattan Institute came out with a congestion tax (sadly using the wrong and emotive language to sell road pricing reform). But government immediately in Victoria and New South Wales, rejected it as not part of their policy platform. A pricing solution? No, let’s just build more roads.

So I think, sadly, the big challenge we face is, how do we get buy-in from the community to convince the politicians that we need to change the pricing model If we’re to actually make better use of our transport resources and possibly reduce the need to keep building?

As regards charging for road use what do you think the public’s thought are? Your research recently came out as saying the public does have a reasonable taste for it. Do you think road use charging is the biggest weapon for change in the battle against congestion?

Absolutely, you know, as much as I’m interested in mobility as a service (MaaS), and as much as I’m struggling to understand the barriers to successful trials, I do think at the end of the day MaaS may end up being quite a niche application. But where the real benefits could come is by wholesale reform of the pricing of the use of all of the roads, including revising the tolling model and its pricing structure.

If we can move away from fixed charges like vehicle registration and replace an element of the fuel expense charge with a distance-based charge in the peaks of the main cities, I believe, that we have a high chance of demonstrating to the population that they will be financially no worse off.

But the traffic levels will be sufficiently improved to return the peaks to what we’re used to in school holiday times which is about a 7 to 8% reduction in traffic. And what’s quite incredible is that it doesn’t take much of an adjustment to make a difference in the quality of the travel.

That makes me wonder two things. One, you said the public has an interest in it, is the government brave enough to do it? And do you think the economic argument alone makes the argument for a change?

Well, first of all, I agree that when we talk about the economic argument we’ve got to talk about fairness. And we can immediately say the existing system is not fair. And so, we’re coming up with an equity model, which recognises that those who benefit should contribute, that’s this new model.

But what’s most important, and the reason why ITLS does the transport opinion poll — which is nationwide and does include our cities of course — is that we have over 67 to 70% of people in the survey saying that the new proposition, as long as it does not make them financially worse off, is something they believe that we should support.

Now, the question is, will it make them financially worse off? Our study suggests that the great majority of people in the cities will be financially no worse off, and you’ve only got to take for example the kilometres that people travel in the peak. Typically, 4,000 kilometres, if you’re lucky, multiplied by five cents a kilometre – $200. Compare that with eliminating registration, or at least halving it as a start if you like, and you’ll find that the majority of people are financially better off. So it, to me, is a win win. I think politicians just don’t believe it.

Of course there are exceptions. The previous minister of cities in the Federal Government, Fletcher, thought it was a wonderful idea, But, you know, we have to get state governments involved. And my view is that we also have to get buy-in from the community, and then maybe politicians will really listen.

So, that’s what I’ve been working on, not slugging the motorist with an extra congestion tax as the Grattan Institute mentions, which we rejected a long time ago, but getting a mechanism that will support community support for a voting model which politicians will be mad to ignore.

Let’s say If we’ve sold the idea to the public, and the government buys in. I think if nothing else from Smart Mobility we’ve learned that the biggest thing is connectivity. So, if road user charging happens, everyone’s happy about it, they stop driving so much. Then do we run into the connected problem of how public transport will cope this new behaviour?

That’s an excellent question Scott, and I’ve thought about it and the answer is fairly simple. The great majority of the switching out of the peak, 7%, are most likely going to switch to other times of day and still use their car when there’s plenty of road capacity. And we’ve done studies to show that over 70% of people who currently travel during peak periods could, if the financial incentives were there, switch into the off-peak and would find it an attractive proposition. Thirty percent could not, they’re stuck. Nine to five, they have to drop kids off to school and activities, so we understand that.

Having said that though, that doesn’t deny the opportunity to try and encourage some people to use public transport. But mindful of that even if you took a 1% reduction in car use, given that cars are 80% of the market, you’re going to have an 8 to 10% increase in public transport use which many systems can’t cope with. It’s going to take not billions of dollars, but hundreds of billions, in my view, to be able to invest in public transport to be able to provide a level that would be enough to cope with any possible growth that we could ever dream of getting if we actually introduced these very sensible road use charging policies.

The problem is, as well in the cities, that we are, especially in Sydney at the moment, we’re very focused on building railways. And I personally have no issues with railways per se, but they’re very expensive and they tend to cover a very small catchment area in terms of potential patronage. And it always raises a fundamental concern about, “Why aren’t we doing something about the good old bus?” And I don’t mean the bus in mixed traffic, I mean the bus on dedicated lanes.

And one of the good recent political pieces of news is that some that have been quite anti-bus / pro light-rail have come out saying that they have got it wrong, and have discovered trackless trams. These are essentially a double-articulated bus, with high-quality service like high quality Bus Rapid Transit, which we do not have in Australia but which exists in other countries. These can be built without digging up the road, can be built for a quarter of the cost, and can have all the high quality that’s expected from light-rail at a quarter of the cost.

This is all linked to the emotional ideology argument that we hate buses, we love trains, but now we’ve got somebody who seems to have a huge influence with politicians saying, “We should be promoting trackless trams.” And I said, “Hurrah! Finally, he’s got the message.”

What is your opinion of trackless trams?

Imagine a future whereby you can get four times the amount of service capacity for the same price and you don’t get the disruption in putting it in, compared with light-rail. And if it’s as safe as light rail why would you argue that it causes complications beyond what they’re already going to give us but far worse by building light-rail? So I think all these arguments have to be relevant to what you know.

I wonder if some councils installing light rail now could time travel to six or seven years ago, if they might rethink their current decisions?

Well, you know, six or seven years ago I’m one of those people that was heavily promoting a sensible debate about bus-based solutions and rail-based. And I was heavily criticised as being anti-rail and pro-bus, and even described as someone to be avoided at all times by those that want to build light-rail.

And it was quite sad, because we shouldn’t be putting ourselves into these boxes. My view is we want to make good, sensible decisions to make good use of our resources. And I don’t care what you call it, it just so happens that there are many examples where a Bus Rapid Transit solution would have actually deliver as good a service as light-rail but would have cost less.

But you know when you get the emotional ideology in the way which I now label choice versus blind commitment, you’re on a loser. It’s like road pricing you know, governments won’t even look at the common sense of it and see if there are votes in it. They just said, “No, full stop, no.”

It’s not smart mobility …

It’s not smart mobility it’s ignorance mobility. One thing we’re hoping MaaS will do is to integrate road user charging into the subscription price because, after all, many of the modes will be using the roads and the roads are a public asset. And then nobody is going to argue against road pricing reform because it’s not called road pricing reform – it is simply embedded in a subscription price. The customer sees it as a price of accessing a plan, not the cost of using the roads which they often regard as unfair.

Indeed, moving away from the public to the slightly more private, I’ve heard people say lately that truly automated or autonomous vehicles are decades away. Would you agree?

I do in terms of the context in which they will be available to cover most of the travel that we do. Certainly I think the technology is more or less there, but putting them into the market as a significant share of mobility modes such as 30, 40, 50 percent is decades away. Scaleability is a big challenge. The transition issues are horrendous and it’s a matter of what are we talking about, 1 or 2% maybe in the next five years, if we’re lucky?

Regulations, insurance, legals … it’s a lot of work!

It is a huge amount of work and, more importantly though, in some senses those are easier to solve. The big one is the sharing culture. And the general view is, if you get autonomous vehicles that are private and not shared, they might make congestion worse. Unless the private vehicle is shared through a mechanism whereby an individual releases their car for use to you during the day when they’re not using it. But a truly sharing model will mean you no longer own the vehicle, it’s offered through some sort of pool.

Yes, and I guess a nightmare scenario is if it’s not being shared and it’s not being used, what’s it doing if it’s got nowhere to park?

Yes. Well the story I always use is an extreme one but it brings home the message. It’s the one about, “I own my car, I don’t want to share it, I want to sit in my autonomous vehicle, it takes me to work and drops me off but it doesn’t park it goes home empty. It parks at home and then, of course, it’s programmed to pick me up later in the day to take me home.”. So two trips will become four trips.

Getting back to you David, of all the work you’ve done, what are you most proud of?

Well, putting aside the very large number of PhD students that have done extremely well in their careers in government industry and academia, some of work that I’ve had huge impact is not so much on the demand work, but in the area of contracts. Bus contracts, in particular, in relation to assisting many governments around the world in the way in which they design their contracts, be they tendered or negotiated, and integrate into them actual benchmarking to make sure that the actually delivery of the service complies with what the government signed the operators up to do.

I’d like to add here a conference series that I started with my mentor, the late Michael Beesly from the London Business School. It’s called the International Conference on Competition Ownership of Land Passenger Transport. It started in 1989, as a one-off, to talk about all the things that Margaret Thatcher was doing in Britain with economic deregulation, privatisation, tendering, etc.

We brought together a hundred people, mainly from Europe, for a week and we ran the conference in Australia up in the mountains in Thredbo. We discussed all the issues to do with regulatory reform, institutional constraints, performance measurement, etc. As I said, it was supposed to be a one-off, however, the people who attended thought it was so great that they said we’d like to run it again. And we ran it next in Finland. And before you know it we have a series. We’re now into the 16th conference in Singapore in 2019 after Sweden in 2017.

And what I like about this conference is that it brings together academics, practitioners, regulators, politicians, and consultants, over the course of a week in a workshop format. “Leave your egos at home!”, as we tell the academics, to debate all the latest issues in relation to competition and ownership. MaaS is a growing central theme, as is digital disruption.

I’m so proud of that series because it’s had such a big influence in many countries on legislation and regulation. And one country that comes immediately to mind where my work has influenced the earlier legislation was in South Africa when Mandela became President. I helped them draft transport legislation using ideas out of the Thredbo conference series and they’re still in place today. And that’s why I go there every year, because they seek my updated advice.

I should also mention that the conference in Singapore in 2019 is run by the Land Transport Authority with ITLS and Nanyang University. Very exciting because we’re going to spend a whole week talking about all this new mobility stuff. In Singapore they don’t just talk about things, they make things happen!

And so I’m very proud of the way in which I’ve managed to inform the system, if you like, about what sort of regulatory reforms are necessary to make the market work more efficiently. And what is necessary to provide support to the market where it’s not able to operate efficiently.

You’ve done quite a lot of things, in a lot of places. But If you were to sink your teeth into something new, something you hadn’t done before, what would that be?

Well, it’s sort of related to what I’ve done before but it’s the whole issue of how we fund infrastructure. I think we need to look at it a lot more carefully and dig more deeply into that than I have done in the past. I’ve done a lot of work on Public Private Partnerships (PPP) but my knowledge of the funding models is such that we almost need to start afresh and rethink how we should fund infrastructure. Because, there have been a lot of lessons learned but a lot of unresolved issues.

I take it you like the current trend that some governments are taking with their 25-, 30-year plans?

Well I think, when you’re dealing with infrastructure you need to take a temporal perspective. But you also need to have a long horizon on how you educate the equity investors so they don’t expect to get their dividends in the first few years, and if you don’t get it as is often the case with many toll roads, that they end up in court.

I would compliment the Victorian government at the moment, because I’ve been commenting on their availability payment model for roads just recently and I think that’s the way to go. This is where you do a debt financing model and issue a contract to an operator to build and manage an asset such as a road, without taking the patronage risk. The government carries the patronage risk until such times as the risk is unambiguously clear, and then equity investors may be invited to invest into the project under a normal PPP where are not much better informed about the risks.

The whole infrastructure area is really interesting. But the other area, if I could add another, that I’d like to look at but I don’t know whether I’d have the time, is the need to have a better understanding of the broader social challenges that we face in terms of the psychological and the sociological implications of the priorities of government in the transport and logistics sectors. To date it has been heavily driven by economists, by planners, and by engineers. I think the soft sciences have been somewhat neglected. I think we need to bring them into the fray to express their views on what we’re doing in terms of delivering better mobility options into the future.

We’re fairly hardwired to very traditional ways of thinking about the problems and issues around smart mobility. And I think there’s some freshness in asking a sociologist or a psychologist to tell us how to ask the questions in a slightly different way, that might be more beneficial to what we’re trying to do to make our cities more liveable, etc.

What I find frustrating is how to put teams together from industry, from government, from consultants, who actually trust each other and want to work together. And I have to say in terms of an area which is causing a lot of frustration at the moment is trying to do that to have MaaS trials.

I don’t know if you’ve been attuned to what’s been going on in trying to set up MaaS trials around the country, of which I’ve been trying to get active involved in. But I tell you it’s a frustrating business. I think I’ve got a paper coming about how to even get a MaaS trial negotiated let alone do it, you know? And when I talk about MaaS, I’m talking about a true multi-modality model, with a single point of reference in terms of a subscription price.

If you’d like to read some of Professor Hensher’s work, here’s a starter list:

Institute of Transport and Logistics Studies
David Hensher – Google Scholar Citations

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