25 July 2005

25.07.05. Seoul's mayor shows his green streak

Editor’s note: One week to the day after we nominated Seoul’s mayor for this year’s prestigious World Technology Award for Environment, this article appeared today in a series of the International Herald Tribune on the trials, tribulations, and accomplishments of a selection of “World Mayors - at http://www.iht.com/indexes/special/mayors/index.html As you will note if you have the time to work your way through the series, the path to a better and more sustainable city is anything but a straight line; compromises and mistakes are part of the game. But so too is action and whatever it takes to get the job done. Not always pretty mind you, but the real world out there is chaotic, fuzzy and not about ready to solve its own problems. And here you have a dozen examples of people who are at least trying.

(And by the way have YOU signed up to endorse this terrific sustainable transportation concept? If not, we are waiting for you – at http://kyotocities.org, clicking the last menu item to see notes from your New Mobility Agenda and Kyoto Challenge colleagues world wide.)

Seoul's mayor shows his green streak

By Choe Sang-Hun International Herald Tribune, Monday, July 25, 2005

SEOUL When monsoon rains pounded Seoul in late June, carp swam up a stream cutting through skyscrapers and shopping towers in the city center, their scales glinting in the sun.

Television crews rushed to film it. "The return of the carp," newspapers gasped. And Mayor Lee Myung Bak had scored another point for what he calls his "green revolution."

Critics deride Lee's ecological projects as public relations stunts carried out with an eye to winning the South Korean presidency two years from now. Nonetheless, the greening of Seoul, a city of more than 10 million, is moving ahead. Since his election as mayor in 2002, Lee has ripped up tarmac and torn down walls, replacing them with grass and trees.

Seoul Forest, a $223 million "ecological park," opened in June with a stock of deer and mandarin ducks.

But by far his most visible project has been a $350 million enterprise to uncover a six-kilometer, or 3.7-mile, stretch of the Cheonggye stream, which once ran through the heart of Seoul but disappeared from public memory a generation ago.

The fact that this was masterminded by Lee, 63, is perhaps the most unusual thing about it.

Once known as "the Bulldozer," Lee built national fame as the hard-driving chief executive of Hyundai Construction & Engineering, South Korea's best-known builder and icon of its breakneck industrialization. It was Hyundai that, in the 1960s and '70s, helped put a concrete cover over the Cheonggye stream and built an elevated highway above it. The stream turned into an underground sewer, although the highway gave the city a badly needed traffic route.

Upon taking office, and with the same speed and optimism that he once employed in building dams and factories, highways and railroads, Lee undid his former company's legacy in Seoul. He demolished the elevated highway - a crumbling hazard and urban eyesore after decades in service - and cleaned out the stream. He built 21 artfully designed bridges over the waterway.

When I was in business, South Korea was an underdeveloped country that raced to become rich, and I was at the forefront of it," the mayor said in an interview at his City Hall office on a recent sultry afternoon. "As a mayor in the 21st century, I saw it my responsibility to make Seoul a green city, to make it a world-class metropolis."

Lee, one of a new generation of brash, energetic mayors in Asia, has pressed ahead with his mission despite scandals, like the one that landed his right-hand man, Deputy Mayor Yang Yun Jae, in jail on bribery charges in May.

"I get jobs done," said Lee, who is quick to smile. "That's why I am criticized a lot, and praised a lot. I am a CEO mayor. I take risks."

Gritty, blunt and ambitious, Lee is, in a way, a reflection of the modern history of Seoul, the 600-year-old capital of Korea. A son of a poor farmer, Lee lived in a shantytown, worked as a garbage collector and was jailed for student activism before graduating from Korea University in Seoul in 1965.

He joined Hyundai Construction that same year and sped up the ladder, becoming chief executive at the unheard-of age of 36. Lee led six affiliates of Hyundai, which grew into the country's largest conglomerate during his tenure. He switched to politics in 1992, when he was elected as a national legislator from central Seoul.

Now, as top administrator of a city that is home to more than one-fifth of the country's population of 48 million, Lee does not shy away from confronting national leaders. He calls President Roh Moo Hyun's government "amateurs who don't have the capacity and experience needed to run a country."

A member of the opposition Grand National Party, Lee earns brickbats for such comments. Roh's construction minister, Choo Byung Jik, for one, has denounced the mayor's green projects as "window dressing."

This is nothing new: Lee and the national government have been at odds for years over how to ease Seoul's urban problems, from soaring housing prices to traffic jams.

From the mountains surrounding the city, Seoul today looks like a gigantic concrete scab sprawling up hills and gullies under a brown haze of pollution.

The city has grown in leaps and bounds. It had barely one building standing at the end of the Korean War in 1953. By 1988, it was able to play host to the Summer Olympics. But it was also a city built in a hurry. In 1995, an upscale department store collapsed, killing 501 people.

With 23.5 million people squeezed into Seoul and its satellite communities, the city is one of the world's most congested metropolises.

Thanks to Lee's efforts to improve public transportation, more Seoul commuters are leaving cars behind and riding the bus or subway these days. Still, Roh recently complained that Seoul's congestion was getting worse. He came up with a radical remedy: packing up the entire national government and moving it to a rural town south of Seoul. But in October the Constitutional Court ruled against him.

The president quickly offered an alternative plan that involves relocating 176 administrative agencies, public corporations and institutes out of Seoul. That plan is also being challenged at the Constitutional Court.

Lee has condemned what he calls Roh's "politically motivated scheme" to "split the capital and win votes" outside Seoul for his party. (Roh cannot profit personally from any new votes, as he is bound by law to a single term.)

Lee's supporters say that his can-do image could carry him to the country's top post in December 2007. Surveys rate him as the country's most popular mayor - although not everyone is happy, of course.

"The bus-only lane Mr. Lee introduced has improved traffic for buses, but slows down taxis," said Yoon Chang Tae, one of the city's 70,000 taxi drivers. "But I recognize his drive, his effort to change the city."

Kim Jin Ai, head of an urban design firm, Seoul Forum, calls Lee an "image-player" and "urban decorator" whose projects have less to do with restoring the city's natural environment and historical heritage than with quick and photogenic achievements for possible political gain.

"He is in a hurry to show results before his term ends," Kim said.

That much seems true.

The Web page of Lee's office is crammed with plans for new projects. Construction will begin next year on a new city hall building and a new opera house. A new international school is under construction, part of Lee's campaign to make the city more attractive to foreign investors.

Another project is Seoul Plaza, the formerly concrete circle where a half-million Koreans shouted for democracy in the 1980s and as many soccer fans gathered during the 2002 World Cup. Now it is covered with grass. On weekends, children frolic, bands play and fireworks burst above - as much a restoration of greenery as a showcase reminder to citizens of what their mayor is doing for them.

In stressful Seoul, "without realizing it, people become less friendly and short-tempered," Lee says. "By changing the city's environment, I hope I can help make citizens more relaxed."

On a clear day, Seoul's parks, hidden palaces and Buddhist shrines leap up in vivid green in the shadows of skyscrapers. On weekends, thousands hike up mountains only an hour's subway ride from the city center, while the center reverberates with demonstrators of all stripes who call Roh "the enemy of workers," President George W. Bush an "imperialist," and the North Korean leader, Kim Jong Il, a "devil" who must be burned, at least in effigy.

Most people hardly seem to realize that they are living only 50 kilometers, or 30 miles, from the world's most heavily armed border, within rocket and artillery range of Communist North Korea.

One change that Roh and Lee both embrace is the relocation of U.S. troops away from their Dragon Hill base, smack in the center of Seoul. When the move is completed in a few years, it will end a century-old foreign military presence in Seoul: first by Chinese troops, then by Japanese colonialists and, later, U.S. soldiers who fought in the Korean War and stayed.

Once a symbol of security, the 265-hectare, or 655-acre, U.S. base has come to be regarded a source of traffic congestion and a slight to national pride among young citizens.

While the Defense Ministry wants to sell the plot to housing developers and use the proceeds to help finance the U.S. military's relocation, Seoul's Lee hopes to turn the compound into a leafy ground that rivals Central Park in New York.

"The city is turning green bit by bit everywhere," says Lee, who has yet to declare his presidential ambitions but already sounds like a man running for office. "And citizens appreciate this."

IHTCopyright © 2005 The International Herald Tribune | www.iht.com

22 July 2005

22.07.22. 7/7: What kills you matters - not numbers

Editor’s note: Professor John Adams contributed this note yesterday to the Social Affairs Unit, a UK charity that “addresses social, economic and cultural issues with an emphasis on the value of personal responsibility”. We are pleased to share it with you as food for thought about the importance of the issues which concern us all here.

7/7: What kills you matters - not numbers

Posted by John Adams

The death toll from the London bombings represents six days of death on Britain's roads. The death toll from the Madrid bombings represents twelve or thirteen days of death on the Spanish roads. In the 25 "busiest" years of "the troubles" in Northern Ireland twice as many people died in road accidents as were killed by terrorists. In Israel, between 27th September 2000 and 26th September 2003, 622 civilian Israelis were killed by Palestinian terrorists; the annual road death toll over this period was about 550. Last year the World Bank and WHO estimated that more than 1.2 million people were killed in road accidents globally – more than one 9/11 every day. Yet the public fear of terrorism - and reaction to it - is on a completely different scale to that of death on the road. Prof. John Adams - Britain's leading academic expert on risk and the author of the seminal Risk - asks why this should be so.

7/7 is Britain's 9/11. After the events of the 7th July 2005 most of the British press adopted 7/7 as its shorthand symbol of Britain's terrorism victimhood. The eight most-powerful-men-in-the-world, coincidentally assembled for the G8 in Gleneagles in Scotland, stood shoulder to shoulder before the World's television cameras. Tony Blair proclaimed their solidarity, outrage and defiance. The Prime Minister then helicoptered to London to assume command of the emergency. The 60-fold differential in numbers of lives lost was a negligible inconvenience. London, like Madrid, like New York, was a victim of terrorism.

In the following days the Government and the media choreographed the nation's grief, anger and resolution. (As I write I am listening to a BBC radio programme devoted to explaining why it pulled programmes from its schedule the following week for fear of treading on the sensitivities of a traumatized nation.) One week on, millions stood in silence for two-minutes at mid-day to commemorate the events, and tens of thousands assembled in Trafalgar Square in the evening to manifest their ... what?

In Britain on an average day nine people die and over 800 are injured in road accidents. The mangled metal, the pain of the victims, and the grief of families and friends, one might suppose, are similar in both cases. Measured in terms of life and limb, 7/7 represented six days of death on the road. But thousands do not gather weekly in Trafalgar Square to manifest their collective concern. Why?

The 191 people killed by the Madrid bombers on 11th March 2004 were equivalent to the number killed in road accidents in Spain every 12 or 13 days. The latter tragedies usually merit only a few column inches in the local press. The former evoked three days of national mourning in Spain and a 3 minute silence all over Europe. On the first anniversary there was another 5 minute nationwide silence in Spain.

Other examples:

  • In the 25 "busiest" years of "the troubles" in Northern Ireland twice as many people died in road accidents as were killed by terrorists. Most people in England have never seen a report on television or in the press about a road accident in Northern Ireland;
  • In Israel, between 27th September 2000 and 26th September 2003, 622 civilian Israelis were killed by Palestinian terrorists. The annual road death toll over this period was about 550;
  • In the first half of October 2002 two people per day were killed in Washington and its suburbs. They were killed suddenly and without warning by a stranger they had never met. There was no discernible pattern in their age, sex or ethnicity. Their families and friends grieved, but otherwise their fates attracted virtually no media attention. They were victims of road accidents. Over the same period someone was killed every other day by the Washington Sniper. Again there was no discernible pattern amongst the victims chosen by the anonymous killer. Their fates attracted massive media coverage all around the world and led, far beyond the vicinity of their occurrence, to extraordinary changes in behaviour - ranging from a massive policing operation to people jogging to their cars in zigzag patterns with their groceries in supermarket car parks;
  • In 2003, worldwide, 23 Americans were killed by acts of terrorism (compared with 25 in 2002 and about 2800 in 2001). No terrorist attacks against the U.S. homeland were reported in 2004. In each of these years about 42,000 were killed on American highways. And yet the resources devoted to countering the terrorist threat continue to increase, and the revocation of traditional civil liberties continue apace.

Outside Baghdad, almost everywhere one might travel in the World, the risk of being killed in a road accident greatly exceeds the risk of being killed by a terrorist.

Figure 1 suggests the way in which acceptance of a given actuarial level of risk is likely to vary widely with the perceived level of control an individual can exercise over it and, in the case of imposed risks, with the perceived motives of the imposer.

Figure 1 Amplification of perceived risk

With "pure" voluntary risks, the risk itself, with its associated challenge and rush of adrenaline, is the reward. Most climbers on Mount Everest know that it is dangerous and willingly take the risk. With a voluntary, self-controlled, applied risk, such as driving, the reward is getting expeditiously from A to B. But the sense of control that drivers have over their fates appears to encourage a high level of tolerance of the risks involved.

Cycling from A to B (I write as a London cyclist) is done with a diminished sense of control over one's fate. This sense is supported by statistics that show that per kilometre travelled a cyclist is 14 times more likely to die than someone in a car. This is a good example of the importance of distinguishing between relative and absolute risk. Although 14 times greater, the absolute risk of cycling is still small - 1 fatality in 25 million kilometres cycled; not even Lance Armstrong can begin to cover that distance in a lifetime of cycling. And numerous studies have demonstrated that the extra relative risk is more than offset by the health benefits of regular cycling; regular cyclists live longer.

While people may voluntarily board planes, buses and trains, the popular reaction to crashes in which passengers are passive victims, suggests that the public demand a higher standard of safety in circumstances in which people voluntarily hand over control of their safety to pilots, or to bus or train drivers.

Risks imposed by nature - such as those endured by those living on the San Andreas Fault or the slopes of Mount Etna - or impersonal economic forces - such as the vicissitudes of the global economy - are placed in the middle of the scale. Reactions vary widely. They are usually seen as motiveless and are responded to fatalistically - unless or until the threat appears imminent.

Imposed risks are less tolerated. Consider mobile phones. The risk associated with the handsets is either non-existent or very small. The risk associated with the base stations, measured by radiation dose, unless one is up the mast with an ear to the transmitter, is orders of magnitude less. Yet all round the world billions are queuing up to take the voluntary risk, and almost all the opposition is focussed on the base stations, which are seen by objectors as impositions. Because the radiation dose received from the handset increases with distance from the base station, to the extent that campaigns against the base stations are successful, they will increase the distance from the base station to the average handset, and thus the radiation dose. The base station risk, if it exist, might be labelled a benignly imposed risk; no one supposes that the phone company wishes to murder all those in the neighbourhood.

Less tolerated are risks whose imposers are perceived as motivated by profit or greed. In Europe, big biotech companies such as Monsanto are routinely denounced by environmentalist opponents for being more concerned with profits than the welfare of the environment or the consumers of its products.

Less tolerated still are malignly imposed risks - crimes ranging from mugging to rape and murder. In most countries in the world the number of deaths on the road far exceeds the numbers of murders, but far more people are sent to jail for murder than for causing death by dangerous driving. In the United States in 2002 16,000 people were murdered - a statistic that evoked far more popular concern than the 42,000 killed on the road - but far less than the 25 killed by terrorists.

Which brings us to terrorism and Al Qaida. How do we account for the massive scale, world-wide, of the outpourings of grief and anger attaching to its victims, whose numbers are dwarfed by the those of other causes of violent death?

Up to this point we have been discussing individual responses to a range of risks. Terrorism targets governments. Terrorists pose a threat not just to individuals but to the social order - and to those who purport to maintain it. Murderers and careless drivers are not seen as threats to the ability of the government (the Hierarchy) to govern.

And governments have multitudes of press officers and IT experts to amplify their anxieties. Leading the way is the US Department of Homeland Security. I now have on the toolbar of my Internet browser an icon provided by them. It is currently set at amber - "Significant Risk of Terrorist Attacks". The Patriot Act, the US Department of Justice proclaims:

has played a key part in a number of successful operations to protect innocent Americans from the deadly plans of terrorists dedicated to destroying America and our way of life.

Others see the Patriot Act itself as the more significant threat to the American way of life. The American Civil Liberties Union observes:

Many parts of this sweeping legislation take away checks on law enforcement and threaten the very rights and freedoms that we are struggling to protect. For example, without a warrant and without probable cause, the FBI now has the power to access your most private medical records, your library records, and your student records... and can prevent anyone from telling you it was done.

Until recently terrorists could be relied upon to choose iconic targets, such as the World Trade Center. But as these targets have been "hardened" - the Houses of Parliament in London now have highly sophisticated screening of entrants, and barriers to prevent car and lorry bombers getting near - terrorists have begun conferring iconic status on more mundane targets - such as bars in Bali, commuter trains in Spain, and buses in London.

Taking an advantage from a necessity the terrorist now seeks to spread the idea that nowhere is safe. But this makes the selection of victims more random, as with road accidents. If acts of terror continue to be more widely dispersed, might we become more fatalistic about them, and begin to treat them with the same indifference with which, as a society, we react to road accidents? An actuary asked to pronounce on the risk of terrorist incidents, comparing them to road accidents, would conclude that everywhere is very safe.

Such a perspective, by putting the perceived threat into a context with which most people feel less anxious, would undermine popular support for "security" measures - such as those currently invoked to detain "terrorists" in Belmarsh and Guatanamo without the need to provide traditional proofs of guilt, and the further police-state powers of surveillance that governments are in the process of granting themselves.

Or might this perspective also foster a reassessment of the equanimity with which we accept the toll of death on our roads?

[An extended version of some of the ideas discussed below can be found in Science and Terrorism: Post-conference after-thoughts, World Federation of Scientists, International Seminar on Terrorism, Erice 7-12 May 2004.]

John Adams is emeritus professor of geography at University College London.

21 July 2005

21.07.05. Cities in Asia pioneer new solutions for transportation bottlenecks

Editor’s note: This piece on city transportation advances in Asia by John Ernst, the Asia Regional Director of ITDP - The Institute for Transportation and Development Policy – provides an excellent overview of what is going on in some of the leading edge cities in Asia in the face of an enormous explosion of the numbers of cars on the streets. For years Asian cities have copied the long trusted old formulae of the old economies: forecast and build more roads. What is not least interesting about their innovative approaches is not only that they are showing results, but that congested cities in the older industrialized countries are now starting to look to them for examples.

Cities in Asia pioneer new solutions for transportation bottlenecks

One of the world's best examples of how to improve the problem of traffic congestion is in Asia -- the City of Singapore. It has combined extensive and high-quality public transportation with electronic road pricing, attaining a congestion solution virtually unknown in American cities. (London has implemented a similar formula for their downtown.)

Most Asian cities, though, cannot afford to make the same amount of investment in subways and elevated rail systems that Singapore has made. They rely on buses to provide public transportation, and the buses become caught in congestion.

A promising first step for Asian cities to solve their congestion problems has come from South America. This is an altogether new kind of public transit service called bus rapid transit. While it uses bus technology, the service is dramatically improved by key features including: 1) exclusive lanes, 2) multiple doors and rapid boarding at stations -- similar to a metro, 3) prepaid boarding, and a variety of other innovations tailored to the particular needs of a city.

Bus rapid transit was first developed in the 1970s in Curitiba, Brazil, but reached prominence with the implementation of the TransMilenio system in Bogota, Colombia in 2000.

The former Mayor of Bogota who implemented the system, Mr. Enrique Penalosa, has been an international advocate for bus rapid transit and livable cities. His personal visits to cities in Asia have led to systems now under development in Jakarta, Delhi, Hanoi, Guangzhou, and several other cities.

The Jakarta bus rapid transit system opened its first line in 2004. It is the first fully "closed" system in Asia, i.e., the buses operate only in the reserved lane and do not enter or leave the system. ITDP was fortunate to be able to assist Jakarta in their planning. We are also helping develop systems in Guangzhou, Ahmedabad and Delhi. Other organizations are also involved in developing bus rapid transit in Asia, including the US Agency for International Development (through ITDP), World Bank (in Hanoi), EMBARQ (in Shanghai), Asian Development Bank (Manila), the India Institute of Technology - Delhi, and the Energy Foundation (China).

Bus rapid transit, like all public transit, is only the first step and will not in itself reduce congestion. Bus rapid transit provides a way for passengers to avoid congestion. The Jakarta system, for example, saves a full hour of transit time for its passengers. To reduce congestion itself requires providing a strong incentive for those causing congestion, i.e., car drivers, to leave their cars at home and take the new public transit system. Singapore's electronic road pricing is a key example of such an incentive. Jakarta is now considering a similar central area pricing scheme. Other options exist, such as increasing the cost of parking.

Jakarta has also improved pedestrian facilities. A surprising number of Asian city residents still walk significant distances, even though many cities have cannibalized their sidewalks to make way for the ever increasing motorized traffic. Cities like Jakarta have realized that a high quality public transit system requires high quality pedestrian facilities to go with it. Jakarta is considering increasing bicycle facilities as well. An ITDP survey in 2004 indicated that over 20% of the bus rapid transit passengers would use bicycles to get to the stations if secure parking were available.

These are some of the solutions emerging in Asia for the problem of congestion. I hope this is useful information for you.

John Ernst Asia Regional Director
ITDP - The Institute for Transportation and Development Policy

16 July 2005

16.07.05. Can Soaring Land Values Serve as Riga's tax base?

Editor’s note: This contribution came in to the Land Café of The Commons today, and was posted by the authors who are identified at the conclusion of this piece.

Can Soaring Land Values Serve as Riga's tax base?

Prof. Michael Hudson and Prof. Jeff Sommers

For the past five years, the city of Riga has been experiencing a real estate boom that has multiplied prices for many apartments as much as ten-fold and more. While this is somewhat faster than has occurred in cities such as London and New York (where prices have only doubled or tripled in the past five years), the basic principle is similar. Yet, the forces behind this asset inflation are not widely understood, although the dynamic is quite simple and well known by many mortgage banks who are fueling the property-price inflation.

Most cities and states throughout history have financed their public spending by a property tax. This tax typically has been levied on the land's economic surplus - its rental value. Ever since the Physiocrats and Adam Smith, economists have recognized that this land value is provided by nature, or in other words as said in the real estate business, its location, location, location! It is geography, not the creation of value by people, that give this land its value.

Increasingly, banking systems throughout the world have focused on lending money against hard collateral - and the largest asset category in every country is still the land, even in today's industrialized world. In America and Britain, some 70 percent of bank loans take the form of mortgage loans. This means that as bank credit expands, most of it is channeled into the real estate market, thus inflating prices.

The hope of making a price gain - or simply for families to buy before prices rise even further - leads buyers to vie with one another to buy property. The natural limit is reached when absentee speculators agree to pledge all the property's rental income to the bank as interest. In the U.S. real estate market the motto of investors is that "rent is for paying interest." Their hope is to resell the property later at a capital gain. The banker gets the current rental value and the property owner gets a chance to come out with a capital gain. In Latvia the situation is far more extreme, and thus financially more precarious than in America and Britain. In Riga, rental income from most apartments provides only a fraction of the interest payments on any mortgage taken to purchase an apartment. Indeed, many apartments are not rented at all, but instead held in order to sell dear. People take credit to purchase apartments, whose real value is in their location more than the building itself, in the hopes of realizing a quick return on resale. To be sure, while Riga real estate was undervalued just a few years back, the current situation resembles the 1998 ruble crash, in which investors put ever more money into Russian bonds expecting fast returns only to see the bubble burst when the ever upward increasing amount of money required to fund the high returns finally ran out.

The important variable in this is the local property tax rate. As home and apartment prices rise, they feel squeezed by having to pay as much as 40 percent of their income to service their mortgages and pay property taxes. In Riga the figure on mortgage payments can be even higher. The response to this in the US and Britain, realizing that they will be in danger of forfeiting their property if they miss an interest payment to the banks, is for many homeowners to campaign for lower property taxes. But, banks for their part know that whatever the tax collector gives up will be available to be paid out as interest. So they back "populist" political agitation for lower property taxes, claiming to support the "little man," especially small homeowners who find themselves strapped by the heavy mortgages they have taken on. But when the dust settles after taxes are cut, more rental value is left free and clear to be pledged to the banks as mortgage interest on yet higher mortgage loans for yet higher property prices.

This process already is squeezing many in Riga. Fortunately, there is a simple way to bring property prices back in line with affordability. All that Riga and other cities need to do is to tax about half of the rental value of land - not the buildings, because that would discourage construction, but only the value of land itself. A small 3 percent tax on assessed property values would mobilize the value created by Latvian prosperity to be used by the government to build the kind of economic infrastructure that the country needs to develop and become more prosperous. Moreover, Latvia has among the highest income and wealth inequalities in Europe. This measure would help address this issue and facilitate the country's further development while creating political stability and fairness in the process.

The question is where should the money go? All to the banks and property speculators, or directed to educational, economic, health, and transport infrastructure needs? The answer is surely the latter, but there is even reason to believe the current situation in Riga is bad for the banks' long-term interests. If property values continue escalating at present rates the resulting popped real estate bubble could leave them holding an unsustainably large set of bad loans. This would be bad for them and the country. While there are differences to be sure, one must remember that it was precisely this kind of real estate bubble that contributed to the Japanese and Thailand recessions in the 1990s from which these countries have still not recovered. Indeed, one of the few countries to escape the East Asian crisis was Singapore, which intervened with monetary policy to slow down the real estate market before it burst.

Yet, one way to continue Latvia's impressive economic growth without resorting to tighter credit policies is to levy a land tax. Indeed, failure to tax land value will oblige Latvia to do one of two things, each of which is even more burdensome for labor and industry. Without a proper real estate tax, either the country will have to keep its onerous income tax on labor and industry, or retain its regressive sales tax; or it would have to borrow the money, requiring higher future taxes to pay interest charges on this debt.

One way or another, someone in Latvia needs to pay for the modernization of its transport, power, communications and other civic improvements. The least burdensome way to do this is via a land tax, because the land exists whether or not it is taxed, but labor and capital investment will be discouraged by taxation. The more tax that can be raised from real estate, the less interest the banks will be able to charge, and thus slow down the increase in land prices. This will keep housing prices more in line with what Latvians can afford. And to top matters off, the absence of an income and sales tax on labor and industry will help the nation compete more in global markets, creating a broader distributed prosperity for the country and not just narrowly for property speculators. Indeed, another advantage of a higher land tax, including land on which apartments rest, is that it would curb some of the speculative excess. Currently, there is no penalty for buying apartments and keeping them off the market until prices climb. A tax would impose a real cost on holding apartments through taxes needing to be paid on the property whether in use or not, thus encouraging their sale and use. This should moderate price growth.

In today's world where countries are vying with each other to create a prosperous, competitive labor force and investment climate, keeping housing prices in line by minimizing the economy's debt overhead is emerging as the decisive factor in comparative international costs. Most countries have similar technological modes of production today. Where they differ is in their property and financial overhead. The largest factor explaining differences in comparative international costs is how capital and real estate is "costed," that is, whether its rental value serves as the national tax base (in place of taxing labor and industry) or is paid to the banks as rising mortgage charges on increasingly expensive homes and office buildings.

Latvia has a chance to gain a lead over neighboring Baltic and Scandinavian states by keeping its housing and building prices low via a land tax. Many Latvians no doubt feel that they are getting rich as property values rise. But a real estate bubble is not truly a sign of rising prosperity; it means merely that the economy is being distorted and becoming debt-ridden that will serve as a future drag on growth.

* * *

*Prof. Hudson is Distinguished Professor of Economics at the University of Missouri (Kansas City), Harvard Fellow, and monthly commentator on PRI's radio program "Marketplace.

*Professor Jeff Sommers is the Visiting Fulbright Professor at the Stockholm School of Economics in Riga.

12 July 2005

12.07.05. China's Car Culture shows the way

Editor's note: And now for our surprise free scenario:

A City's Traffic Plans Are Snarled by China's Car Culture

SHANGHAI, July 9 - When officials drew up the blueprints for the redesign of this city in the early 1980's, nary a skyscraper punctuated the low-slung horizon, whose buildings mostly dated from the decades of Western control early in the last century.

Stuart Isett for The New York Times

Passengers on the new Shanghai subway often ride on overcrowded trains.

Stuart Isett for The New York Times

Roads on the south side of Shanghai filling up with commuters leaving the city during an evening rush hour last month.

The hugely ambitious plans called for Shanghai to be built anew. And among the top priorities in a city previously dominated by bicycles was avoiding the most common plagues of the automobile age - unmanageable traffic and unbearable pollution.

To that end, enormous sums were spent on spectacular bridges, elevated highways and a brand-new subway system. But today, glance out the window of one of this city's 3,000 high-rises around 6 p.m., when snarling masses of horn-honking cars tend to congeal in gridlock, and it is hard to escape the impression that Shanghai, at least for now, is losing its bet.

As people in this richest of Chinese cities have grown more and more affluent, they have displayed an American-style passion for the automobile. But for Shanghai, as for much of China, getting rich and growing attached to cars have increasingly gone hand in hand, and have produced side effects familiar in cities that have long been addicted to automobiles - from filthy air and stressful, marathon commutes to sharply rising oil consumption.

China accounts for about 12 percent of the world's energy demand, but its consumption is growing at more than four times the global rate, sending Chinese oil company executives on an increasingly frantic search for overseas supplies. The country's top environmental officials have warned of ecological and economic doom if China continues to follow this pattern. But in cities like Shanghai, where automobiles account for 70 percent to 80 percent of air pollution, nothing seems capable of stopping, or even slowing, the rapid rise of a car culture.

This is not for lack of trying. In one attempt to slow the growth of automobile traffic, the city has raised the fees for car registrations every year since 2000, doubling them over that time to about $4,600 per vehicle - more than twice the city's per capita income. Many drivers illegally register their cars in other cities, where the fees are much lower, and the result is a never-ending cat-and-mouse game with the traffic police.

The traffic efforts have been coupled with a major expansion of the public transportation system, which comprises gleaming new subways and the world's fastest train, a magnetic levitation vehicle that zips to the airport in under 10 minutes.

The steep growth in automobile traffic here, however, seems to mock the city's efforts. The original blueprints for a major expansion of Shanghai's road network, drawn up two decades ago, predicted that Shanghai would pass the threshold of two million cars in 2020. In fact, that figure was reached last November.

"The estimates we made 20 years ago have been proven wrong," said Li Junhao, chief engineer of the city's Urban Planning Administration Bureau, in something of an understatement. "The development of Shanghai has been beyond our imagination."

Even interim traffic estimates here have fallen far short. Two years ago, the city government rushed orders for the construction of a new, elevated loop expressway for central Shanghai, because other elevated expressways were already saturated at peak hours. "Just one year after some roads were completed, they reached vehicle flow volumes that were forecast for 15 to 20 years from now," said Yang Dongyuan, a professor at the School of Transportation Engineering and vice president of Tongji University.

Meanwhile, the city is expanding its subway grid well beyond the 310 miles of track first planned. Two new lines are being added to the original 15, along with another 192 miles of track. Even so, the subway system, gleaming and clean though it is, is one area where traffic has failed to meet projections, with less than half the expected ridership on some lines. The reason, experts say, is that there are not enough trains, resulting in overcrowding, which further encourages people to ride in cars.

To be sure, Shanghai's failure to master the challenge of the automobile reflects a mixture of forces, both economic and cultural. Foremost is the city's economic performance, which has been fast even by Chinese standards, and has outstripped even the most optimistic projections.

Add to this a flourishing consumer culture that equates car ownership, however costly, with personal freedom, prestige and success.

In this regard, Yu Qiang, a 31-year-old salesman, is a model citizen of sorts. Mr. Yu spent more than $20,000 last year to buy his first car, a Chinese-made Buick, so that he could drive to work each morning instead of relying on public transportation.

Because of heavy traffic, the seven-mile commute usually takes a full hour. It includes dropping his 5-year-old son off at kindergarten and his wife, who teaches, at her school.

"A new subway line will be completed to my neighborhood later this year, and I'm hoping many other people will ride it so that the traffic will get better," Mr. Yu said. "I'll keep driving my car, though. It's more comfortable because I can listen to music, use the air-conditioner, and it's not crowded."

Mr. Yu then made a comment that sounded like a city planner's nightmare and a car salesman's dream. "In China everybody wants to have a car, and I'm just one of them," he said. "We think of it as changing our lives." As for the traffic implications, he added, smiling, "The government has a lot to do to improve the traffic, and I believe they will do it."