Philippine economic managers have recommended the nationwide shift to Alert Level 1 amid the Russia-Ukraine crisis. The economic team has suggested some measures to alleviate the impact. Among these measures are opening all schools for face-to-face classes to increase domestic economic activity and raising the fuel subsidy program for public utility vehicle drivers. Given its delicate fiscal position, the government will employ targeted subsidies to forestall a chain reaction of increased public transport and freight costs, which could lead to generally higher domestic prices of a wide range of products and trigger higher wage demands.
Indeed, the main priority is to stimulate aggregate demand to prevent stagflation, which is the unfortunate combination of high unemployment (stagnation) and high inflation. Hopefully, the induced economic growth will outpace debt growth and inflation. And with the easing of Covid-19 restrictions, people are now seeing heavier traffic in Metro Manila. So, does heavier traffic necessarily mean that the economy is doing well?
It is helpful to cite a 2011 study done by Matthias Sweet, a researcher at the McMaster Institute for Transportation and Logistics at McMaster University. Sweet explains the convoluted relationship between traffic congestion and economic growth with an analogy from the film The Good, the Bad, and the Ugly: “We all know that it is pretty ugly out there when you are stuck in gridlock, but we have reasons to believe that there might be parts of congestion that are all three of those. Congestion may be good in that it is an indicator of active and vibrant urban places. However, congestion might be bad because it means that access is impeded, freight deliveries are not able to happen on time, and people are hating life.”
The results of Sweet’s study, which are a bit counter-intuitive, suggest that higher levels of congestion are initially associated with faster economic growth. However, above a certain threshold, congestion starts to become a drag on growth. Specifically, congestion seems to slow job growth when it gets to be worse than about 35 to 37 hours of delay per commuter per year (or about four-and-a-half minutes per one-way trip, relative to free-flowing traffic). Apparently, in some cities, congestion is more good than bad; in others, it is more bad than good.
For uncongested cities, a little more congestion might actually be good for their economies because the cost of alleviating congestion is sometimes higher than the cost of the congestion itself. A city that has only a bit of traffic would be wasting taxpayer money on paving new lanes of highway. Until congestion reaches a certain tipping point, it is economically inefficient to spend resources to fix it. Paving new unnecessary highways might do more harm than good to the economy.
Above that four-and-a-half-minute threshold, however, something else happens: Commuters’ quality of life starts to decline. If one must spend a miserable hour or two five days a week just to get to work, that person will either require higher wages or look for another job. If congestion makes it harder to match the right workers to the best jobs, that would be economically inefficient, too.
Interestingly, in a 2014 report, the Japan International Cooperation Agency found that the Philippines suffered P2.4 billion in daily losses (P0.876 trillion in a year) due to Metro Manila traffic. The report then projected P3.5 billion in daily losses by 2017 (P1.278 trillion in a year). By comparison, real gross domestic product grew by 6.35 percent (P0.841 trillion) from 2013 to 2014, and by 6.93 percent (P1.113 trillion) from 2016 to 2017. Sadly, the estimated losses due to traffic outweighed income growth.
Thankfully, the Metropolitan Manila Development Authority is proposing changes in work arrangements to ease heavy traffic while Covid-19 restrictions are being relaxed. Before the pandemic, working onsite was strictly required, but having gone through lockdowns, people now realize that economic activity can continue through flexible work arrangements, such as working from home. Under the new normal, less traffic does not necessarily imply less productivity. Flexible work arrangements could even unleash greater productivity and generate savings from less exposure to traffic.
As for Build, Build, Build, which aims to create more efficient public transport systems and spread economic development more widely across regions and sectors, this program should continue. Nevertheless, there is a need to rethink what exactly should be built under the new normal. Planners should consider having more open spaces and better infrastructure for pedestrians, joggers, and bikers, who appear to have grown in number recently, since people would like to avoid crowded commuting stations. Indeed, less traffic and a cleaner environment would be the natural consequences of such careful urban planning.
Dr. Ser Percival K. Peña-Reyes is the Associate Director of the Ateneo Center for Economic Research and Development.