Building Roads – poor business decision

Steven Joyce really is beginning to annoy me as Transport Minister. Not only has he trodden all over the people of Mt Albert and Waterview, in deciding to can the Waterview tunnel, but he lives in a bizarre dreamland where he thinks that funding for future transport projects should be dependent upon the current amount of people using a particular type of transport method, rather than the future trends of where the split in transport modes is going.

Now this should be a simple issue, but clearly there’s a complexity in people’s heads that enables Steven Joyce to hide behind his answer of “84% (or sometimes 86%, depending on how he feels) of Aucklanders use private cars to get to work, so that’s where most transport funding should be doing”. To clarify, I accept that most people use cars to get to work, and to get around Auckland – that’s not debated. And in fact, it’s not really surprising considering that probably around 84% (if not more) of the current transport network is pretty much dedicated to cars. The railway lines, the Northern Busway and the various bus lanes across Auckland could be considered as the only current parts of the transport system to not be dedicated to private vehicles. However, when it comes to transport funding what we’re talking about are projects for the future, not projects for the past.

I feel that a metaphor is necessary here for this to make sense. Let’s say that I run a company which sells two different products: red socks and blue socks, for example. 84% of what I sell are red socks and 16% of what I sell are blue socks. Therefore, 84% of my current machinery is dedicated to making red socks and 16% dedicated to making blue socks. Now, over the past few years my sales of red socks have been pretty constant, in fact they haven’t increased since 2004. Over that same time period my sales of blue socks have increased significantly – by around 20-30% even. Furthermore, I know that 5-10 years into the future my main ingredient for making red socks is going to increase dramatically in price, and my prices will need to go up significantly to reflect this. Therefore my likely future sales of red socks are going to stay constant or perhaps even decline. As people will still need to buy socks, blue socks will become comparatively cheaper and more popular.

Now, a few questions:

  1. Over the next 5-10 years is it more likely that my sales of blue socks will increase, or my sales of red socks?
  2. Given that my sales of red socks haven’t increased since 2004 and because I’m mindful of future price increases in a very important ingredient, should I build another machine that makes red socks?
  3. Given the recent increase in my sales of blue socks, should I add capacity to the production of them instead?
  4. Would it be wise, in a business sense, for me to focus the vast majority of the money I have to spend on capacity increases on red socks?

In case anyone got lost in the metaphor, private vehicles are red socks, public transport is blue socks. Steven Joyce is proposing to spend the vast majority of transport funds for new infrastructure on roads, even though the number of vehicles using the roads is not increasing. Meanwhile, our “growth sector” of blue socks/public transport is getting ignored and deprived of necessary funds.

Geez I thought this guy was a successful businessman. He sounds like numbskull to me.

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