Graham Brown, a veteran of the transportation industry, argues that we could liberate innovation in human transport by replacing traffic regulation with a single, clever permit scheme.
SCI: So Graham, you’ve spent many years in the transportation industry. Just what exactly do you see as so wrong with the way transportation is managed today?
GB: Talking here specifically about road transport, if the function of roads and vehicles is to reduce the time cost of traveling distance, then the combination is not doing very well right now.
Journey times in the developed World are static at best, and rising in many places. In the developing World the problem is even more acute; it’s recognized that impediments to road freight are now holding back economies in places like Latin America, and a road journey of a just few hundred kilometers in parts of Africa can take days or weeks.
I would suggest that the problems are related to the fact it’s a hybrid system: vehicles are made and purchased privately, but the roads themselves are usually funded and regulated by government.
SCI: But that’s nothing new.
GB: Right. The history of motor vehicle regulation goes back a long way; in 1861, England introduce a law aimed at regulating the speed and weight of road going steam engines. The intention was to avoid damage to the road surface and to reduce risk. They could do this because roads were already publicly funded.
If the roads had been commercially operated there might have been the option of pricing the behavior in, rather than legislating it out. That initial law has now evolved into a vast canon of road traffic laws with varying degrees of effectiveness.
SCI: And that gave us today’s roads?
GB: Yes. The aims are still the same: to reduce ‘external’ costs like risk, with pollution increasingly being targeted, and to reduce the effect of vehicles on the roads, with congestion now becoming a focus.
These laws are only sometimes effective in achieving their ends, but they would appear to always be expensive, with multiple agencies to create and enforce road traffic laws. Then there is the issue of consent; vehicle users object to being viewed as criminals for imposing costs, especially when it happens at some arbitrary point that changes between jurisdictions.
The final problem is one that is becoming increasingly important. Road traffic laws are frequently an impediment to innovation. Innovators have no options to pay for any increased risks of experimentation on the roads, or to find ways to mitigate those costs. Instead, new technologies such as automated driving frequently require changes in the law before they can be tried out in the environment they will be used in.
SCI: You’ve proposed an alternative model for managing roads called the Roads and Vehicles Trust. Can you explain how the ‘RVT’ works?
GB: It’s at heart a simple permit scheme; vehicle owners buy an annual permit to use the roads, the funds from the sale of the permits go towards building and maintaining those roads.
In this regard it’s very similar to an annual vehicle registration or road tax. The difference is that it will be presumed that each vehicle will impose the maximum possible costs.
As I put it in my pitch at the SCI weekend, each vehicle will be presumed to be “the biggest, heaviest, most polluting, noisiest death-trap possible, and will be driven, for kicks, overloaded with explosives, night and day, in the most reckless way possible by an untrained drunk driver”. It was described this way partly to raise a laugh, but in this description is every external cost factor of using a vehicle.
What the scheme then allows vehicle owners to do is claim percentage discounts off of the cost of permits, when they can show where those things are not true. The idea is that permit prices are maintained at a stable average level, so the baseline fee will constantly be rising as a function of the discounts that are given.
Through the changing baseline external costs are progressively priced out, and excessively costly behaviors become prohibitively expensive. At the same time nothing is illegal, apart from using a vehicle without a permit, so owners can make their own trade-offs, and innovators can find ways of testing without requiring changes in the law.
SCI: Do the roads have to be private for this to work? Toll booths galore!
GB: Well, I suppose they don’t have to be private, in the same way that a car company or hotel doesn’t have to be privately run. But then very few people want to stay in a government run hotel, or drive a government built car.
Roads have a commercial value to the people who use them, but we’ve come to see them more like public parks. This is because they are open access, in the literal sense, unless, as you say, there are toll booths everywhere, which then slow everything down to a crawl and negate the commercial value. This has been the Achilles heel of the idea of private roads; how to charge for them in a fair way with low transaction costs.
This is part of the reasoning behind the permit and discount idea. The transaction cost is low because buying a permit is like paying an annual registration fee, which happens already. At the same time, buyers get to choose what is fair for them. A toll is a charge for use.
Under the discount scheme, owners choose how much use of the roads they may need. If an owner is only going to use a vehicle for 0.1% of the year, then they stand to gain a 99.9% discount.
How much of that discount they get would be weighted by the veracity of their claim. People could just make a verbal promise, and studies show that people tend to be more true to rules they set for themselves, rather than rules others set for them. Or they could go the whole hog and opt for GPS tracking with a sealed black-box recorder.
How much people spend on verifying claims, and how much they spend pursuing discounts, will depend on the prevailing baseline fee, and what other discounts they are eligible for.
To go back to the original question … I originally just thought of it in the context of a Startup City on a green-field site, but Trust-funded roads could exist alongside existing state-funded roads, and could be a means of seamlessly privatizing roads.
Owners could pay for both permits and for reduced registration fees. The registration fees could then be slowly phased out and replaced by the Trust permits as the roads are progressively placed under Trust or other private control. Or a government could use the Trust mechanisms to fund publicly run roads. I’d like to think the idea is pretty flexible.
SCI: Earlier you mentioned that current road regulation stands in the way of innovators like, let’s say, Google Car. How does the RVT fix this? This creates a sort of market in what we might call ‘transportation tech’?
GB: There are some very interesting innovations coming out of Silicon Valley and other places, the Google driver-less car being the prime example. Invariably these projects run into a problem; they want to test them on public roads, but in some way they fall foul of the law.
This may be something simple like wanted to test a prototype without headlights or mandatory airbags. Or it may be that it has some new robotic technology that means there is no human in control. Or the seats face the wrong way, or it’s a self-balancing crash-proof leaning hydrogen powered tricycle that can’t be categorized, or some other thing that we can’t yet imagine.
Whatever the innovation, at the moment they frequently require a law to be changed to be able to be tested in the environment where they will be used. Even when the law is changed, it takes time, so the pace of innovation happens at the pace of the lawmakers.
On Trust funded roads, nothing is illegal — it’s just that some things will be extremely expensive. That means, like anyone else, innovators can trade off one potential cost against others. So if testing means an increase in risk, the testers would lose some potential discount, but could claim discounts for low use, restricted routes, times of day, training of testers, and all sorts of things to bring down the cost of permits. Unless the testing almost guarantees massive destruction, they will get a permit if they can pay for it.
The other big win is in the market for new vehicle technology. If innovators know that new technology will definitely be legal to use, that will incentivize them to create more new technologies. The discount mechanism creates price signals for pollution and risks, so innovators that can reduce these are always incentivized. Compare this to legislative-led innovation, where R&D departments meet the legal requirements, then turn their energies to other things.
For a Startup City, one excellent potential outcome would that vehicle innovators and manufacturer’s R&D departments descend on the first zone that uses the Trust, creating a Silicon Valley type innovation hub for new vehicle technologies.
SCI: There’s a lot of stuff built into these permits. Can you explain in a little more detail how the pricing for things like pollution might work? We’re all used to things like CAFE standards, which are periodically changed to force carmakers to be ‘more green’. How exactly is the price changed to increase the incentive innovation over time?
GB: The ‘use’ discount I talked about before would be the only discount that could be close to 100%. Other discounts would be limited. Let’s take carbon monoxide, a particularly nasty exhaust gas. If a vehicle produces the maximum possible amount of CO, then obviously there would be no discount available.
If a vehicle produces zero CO, if it’s an electric vehicle for example, then the maximum discount for CO would be 5%. For someone facing a permit price of $250, that potential 5% wouldn’t matter so much, for someone facing $2,500, say for a large truck, then it becomes a lot more important.
Maybe it would be best to illustrate how this works with a simplified example; let’s say the baseline fee is $10,000. A car owner claims an 80% use discount, so that brings the price down to $2,000. Then they claim 50% worth of risk discounts, so it comes down to $1,000, then 50% of pollution discounts, $500, and finally 50% of size and weight discounts, leading to them to pay $250 for their annual permit.
You can see how this process can quickly increase the baseline; if the target price is $250 and the car owner achieves 80% of discounts in all those categories, then the baseline would need to be about $160,000. When it gets to that level, which I believe it will very quickly, that’s when the real incentives for innovation would start. The price signals for even detail improvements would be quite strong.
I’m not so familiar with US CAFE standards, but they do seem to demonstrate the clumsy nature of legislation. My understanding is that they were originally about reducing the dependence on foreign oil. The whole concept of averaging MPG across a model range seems odd when it doesn’t account for sales, or use.
A similar scheme in Europe leads to oddities like Toyota city cars with Aston Martin badges. Very few people buy them, but even so it brings Aston Martin’s average MPG down. And all these things are meaningless unless they factor in use; six people sharing a ride for a short time in a SUV impose far lower costs than those same six people in individual hybrids stuck in traffic for hours. That’s why use discounts would be at the top of the discount hierarchy with the Roads and Vehicles Trust.
SCI: Why Startup Cities? You must have brought the RVT to the Startup City community for a reason. What’s the relationship between the two?
GB: Well, my interest in Startup Cities came before the idea for the RVT, and it was thinking about the issue of road safety in a Startup City that led to the idea. The thinking was along the lines of; if the zone is looking to have new institutions, with more market orientated, more consensual ways of doing things, then is there scope for a private road safety agency, and, if so, what would that look like?
Read about the Roads and Vehicles Trust by Graham Brown.
As I said earlier on, I’ve long thought there are problems with how roads are managed now, and began to think along the lines of how positive things could be rewarded rather than only negative things punished.
Sometime after that I was sitting in a ‘Churrascia’, an all-you-can-eat type restaurant in Brazil, and the discount idea came. Restaurants like that must pitch their prices to take into account the biggest, fattest, greediest gringo coming in and gorging on the most expensive cuts of beef.
A funny example, but a permit to use the roads must be just like that. Why not expect users to extract the maximum value, in other words impose the most costs, just like the restaurant expects of its diners? But unlike the restaurant, where if customers don’t eat the maximum amount the company pockets a premium, the roads trust can pay that premium back in the form of discounts, so creating those rewards, those price signals for positive actions. So it all kind of came from that.
SCI: Sounds like a productive meal.
GB: Yes! And the idea might well be able to be applied elsewhere, but I still have great hopes it will be taken up in Startup Cities. At the SCI weekend the word ‘roads’ kept cropping up, the need to build roads to new locations, the need to plan for roads, and, crucially, how will the roads be paid for?
After that, after Startup Cities are being built and being populated, the next set of questions will arise, how can we avoid pollution, how can we stop accidents, and how can we prevent congestion? Now, I’m going to have to risk sounding cocky and over-confident, I believe that for all of those questions, the Roads and Vehicles Trust will be the only good answer.
SCI: Thanks Graham!
Read more about the Road and Vehicles Trust at this link.Tags: aston martin, ford nucleon, permit systems, peter thiel, privatization, public private partnership, public safety, regulation, road and vehicles trust, road safety, transportation