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How the Invisible Hand Guides Traffic
Summary:Guangzhou has put purchasing restrictions on cars and may bar non-local vehicles from entering the city in an effort to control traffic. This proposal represents a typical planned-economy mindset that will cause more harm than good. It’s demand, not supply, that should be controlled through gentle mechanisms.

By Zhao Xu (赵旭)
May 21, 2013
Economic Observer Online
Translated by Laura Lin
Original article: 

Following the car purchasing restrictions introduced by the local government in the southern city of Guangzhou, a hearing was held to restrict non-Guangzhou vehicles from entering the city. It is expected that a city ordinance will be approved very soon.

Regrettably, this policy is flat wrong. It represents a typical planned-economy mindset that will cause more harm than good.

The logic of these restrictions goes as follows. The growth in car ownership is too fast, so limiting car-purchase will stem that growth, and anyone who responds by attempting to buy cars from other places to drive them in Guangzhou will be banned from entering with their non-local license plates.

This is very flawed logic. The growth in car ownership isn't the direct cause of traffic jams. Instead, it’s the number of vehicles being driven on the road at any given time. Besides, serious traffic congestion will in turn affect car owners, prompting the public to naturally decide whether it makes sense to buy cars and use them. Why does the government need to worry for them?

If the authorities really want to ease congestion and raise traffic efficiency, specific measure should be taken in certain areas and at certain hours so as to allow some cars movement while excluding others from the roads. This involves road resource distribution.

Let's first suppose that Guangzhou were an island and that no non-local vehicles have access to it. In this case car purchase limits could be an option. This is because as long as the restriction system is open and transparent then the car license plate lottery system is fundamentally fair and the license bidding system is efficient. 

Of course Guangzhou is no island. It’s inevitably connected with surrounding towns and cities. And the city does not just belong to its inhabitants. It's also the capital of Guangzhou Province, so all taxpayers contribute to it. It's inappropriate and unreasonable to restrict these people from driving into Guangzhou.

The various cities of the Pearl River Delta have the closest economic ties within the entire country, so restricting non-local cars from entering Guangzhou will undoubtedly be a blow to economic efficiency. It's unimaginable how this economic region could thrive were all the satellite towns like Shenzhen, Zhuhai, and Foshan to copy Guangzhou's policy on curbing traffic jams.

Restricting non-local cars from access to Guangzhou is not feasible, nor are car purchasing limits.

The Price of the “Visible Hand”

So, is there any better method for dealing with the congestion issue? Developing public transport is definitely important. However, it takes time to perfect the system. At the same time, experience in developed countries has shown that even if public transport is relatively well developed, there will always still be traffic jams.

One of the feasible solutions is to impose a "congestion fee." This has been put into practice in big cities such as London and Singapore. Unlike the limits on car purchasing and driving, which are supply-related tools, the congestion charge is a pricing tool. When the government tries to manipulate supply, it interferes directly with people's behavior and deprives them of choices. This is the direct allocation of scarce resources with the visible hand, and an intervention in the market mechanism.

Instead, the use of a pricing tool enables the market mechanism to play a role through changing the costs. This indirectly guides relevant parties in their behavior with an invisible hand while they still have the right to choose what they do.

Undoubtedly, the price tool goes better with market economic development. And even more importantly, imposing a congestion charge treats everybody fairly without differentiating whether they are locals or not. For instance, this might prompt people who generally drive to take subways to save money, or people who normally take subways may choose to drive because it is important to take a child to an exam. The efficiency is reflected in the relatively different gains.

With today's advanced electronic technology it's not at all difficult for the authorities to use an Electronic Toll Collection (ETC) system to collect charges addressed to different areas or specific periods of the day. Local vehicles or cars which have to frequently travel back and forth to Guangzhou can be mounted with a fixed electronic terminal. People with a temporary need to enter the city can pay to have a temporary terminal.

A Public Exception

What is particularly worth mentioning in the Chinese context as another cause of traffic jams are the abundance of cars for public officials. Because of a lack of information nobody knows whether these official cars are included in the purchasing limits policy -- though the public may not believe whatever the authorities announce anyway.

As for driving restrictions, the official vehicles, of course, operate outside such limits. The Guangzhou municipality has already said that it is considering issuing regular passes and temporary passes to address public and business needs. As for the market-oriented congestion charge, why should ordinary people pay this charge if official vehicles can be driven around at no cost?

If the authorities find a way of dealing with the issue of public vehicles, the problem of traffic jams will already be half solved.

News in English via World Crunch (link)

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