We are in for another economic treat! Guesting in this article is Alvin Ang PHD, one of the most respected economists here in the country. He is also the former president of the Philippine Economic Society, #ICON2014 Speaker, and Ateneo Professor.
Check out his view on this current traffic situation and how this related to financial markets. Enjoy!
The headlines of the past two weeks have literally been traffic and anything related to it. But, this is not news, but is something that has been bugging us for decades! However, it seems to be deteriorating by the day. The key challenge is that there seems to be a lack of interconnection between the roads, the users of the roads and the managers of the roads.
In economics, we call this market failure. Why compare the situation to a market? Just like any product or service, the market is the meeting place between demand and supply – in the case of traffic – it is the supply of roads and the demand for it. Roads, however, are unique goods in the sense that they cannot be produced immediately. Therefore, you have a situation wherein demand will always exceed supply. Furthermore, demanders of road have different objectives of using the road thereby creating various inefficient conditions. Some uses it for direct income (public transportation), others to deliver their products/service, others to connect physically or simply leisure (travel and tourism). With different objectives comes different valuation of the road use. Hence, the public transport will always value its use based on the number of passengers, while a CEO will value its use in the shortest time he/she can be in the meeting. This is a unique condition of this market and therefore it depends a lot on what is known as coordination.
In other markets, coordination is simpler because the product/service is one and the objective of buyer and seller coincides, i.e. earn and satisfy.
This is true of the financial markets – undoubtedly one of the efficient types of markets. So how do we go about solving traffic? It is therefore a challenge of coordinating the different valuations of users while preparing to add more roads.
In short, you cannot have a coordinating mechanism that is not coordinated. In the context of Metro Manila and the Philippines for that matter is that we have a serious coordination failure. There is no central coordinating mechanism for traffic as local government units assert their control and responsibilities over the roads within their political boundaries. The gridlock experienced at NLEX and for the ordinary jeepney terminals near your neighbourhood are just clear examples of poor coordination. Besides, you have enforcers on the streets who also have different valuations. They have quotas to catch violators and therefore they will have to meet them. A truck violater flagged on the street will punish the driver and reward the enforcer (quota plus plus) but it will cause lost value to those clogged at the back of the truck.
In the final analysis, the current situation cannot be solved by temporary solutions. The long term solution is in a central traffic coordination mechanism that has the authority and power to manage interconnected roads and influence users. For instance, the central coordinator should have the power to influence the behaviour of public transportation drivers by changing the way they receive their income. Instead of focusing on traffic violations and increasing their fines, why not consider incentivizing license – ie those without any violation until renewal gets a 25% discount. Create a contest for barangays with the least traffic (just saying). Coordination is all about making everything efficient and predictable. In the meantime, I have decided to delay purchase of vehicle until I secure that parking space in our community.
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