The New Atlantis: Charter Cities
Archived audio: I’m at the airport in Lagos and electricity just went off for, this is five minutes and there’s still no lights at the airport—the international airport, Lagos.
Wooo! Finally we got lights.
Tamara Winter: Lagos, Nigeria is one of the largest cities in the world. It’s home to over 14 million people and one of Africa’s main economic hubs. It’s the most populous city in the country with Africa’s largest GDP. However in Lagos, even basic services are unreliable.
Archived audio: Everything comes to life when there’s light. When there’s no light you can literally feel handicapped.
Tamara Winter: This isn’t a new problem in Lagos. An unstable power grid and political corruption make providing everyday utilities—like electricity—a struggle. In 2016, The Guardian reported on a neighborhood that went without power for five years because its residents refused to pay bribes.
These kinds of challenges are not unique to Lagos or even to Nigeria. Across the developing world—from Jakarta to Kinshasa—cities are growing rapidly. New residents are pouring into cities that have neither the infrastructure nor the institutions to adequately serve them.
In his 2005 book Planet of Slums urban theorist Mike Davis chronicled the rise of million-person cities in the developing world. He described the lives of the more than one billion people who live in the world’s slums.
Booming populations of these fast-growing cities find themselves in harsh living conditions. Flooded streets. Poor ventilation. Little to no waste clearance. And few basic services.
The absence of infrastructure makes life dangerous.
Lack of access to sanitation and healthcare are directly responsible for high infant and maternal mortality.
Communicable diseases—that have become a thing of the past elsewhere—run rampant.
Despite these challenges, people across the developing world are seeking out the economic opportunities that cities provide.
So, is there another way? Another avenue for people in search of a better life to access not only economic opportunities, but also stable governance and reliable institutions.
In this episode, we’ll be looking at one possible solution: charter cities. Built—sometimes almost from scratch—in developing countries. These developments are outside-the-box infrastructure. Rather than reforming or building on existing cities they are new constructions often with their own economic regulations and laws. Privately backed. And focused on bringing economic growth to emerging economies. Supporters see them as a way to theoretically seed the ground for more stable institutions and improved governance.
Hello and welcome to the first episode of Beneath the Surface, a podcast series from Stripe Press exploring new ideas and big questions in the world of infrastructure. I’m your host, Tamara Winter.
It’s not an accident that the first episode begins in Nigeria. That’s where I was born. My family moved to the United States when I was just two months old. But growing up in Texas I often wondered: what if instead of being raised in Dallas, I grew up in Lagos, like the majority of my family? That question is part of why I’ve always been so fascinated by questions about development and specifically, about Africa’s trajectory. It’s part of my story.
I’m also no stranger to the world of new cities. I used to work at the Charter Cities Institute. We’ll actually hear from the institute’s founder Mark Lutter a little later in this episode. The Institute, based in Washington D.C. is a non-profit that’s working to build the ecosystem for charter cities by developing institutional frameworks that can guide their creation.
Now, before we get into the nitty gritty, I want to be really clear about some of the words we’re using in this episode. You’ve already heard me say ‘new cities’ and ‘charter cities.’ There’s a pretty broad ecosystem of new city projects. So when we’re talking about the whole landscape, I’ll use the term ‘new cities’—charter cities are just one part of that world, the part most focused on leveraging the creation of new cities for global development.
So, what are charter cities and where did the idea for them come from in the first place?
If you spend any amount of time talking to folks about new cities there’s one name that will keep popping up.
Person 1: Paul Romer
Person 2: Paul Romer
Person 3: Professor Paul Romer
Tamara Winter: Paul. Romer.
He’s not a household name, but he’s been one of the most influential economists in the world for the last 20 years. He’s a former Chief Economist at the World Bank and in 2018 he even won the Nobel Prize.
Archived audio: Dear Professor Romer...the tools you have developed broaden the scope of economic analysis...I now ask you to receive your prizes from his Majesty the King.
Tamara Winter: He’s a big deal—if you’re an economist. But that’s not why all these people mention his name. In 2009, he gave a TED Talk. Now this might not seem that exciting—an economist giving a 20 minute lecture about his new idea. In fact, if you watch the talk—it’s on YouTube—you might not walk away inspired to start a city of your own.
Romer walks on stage his hair more salt than pepper and close-cropped, wearing blue jeans and a dark suit jacket over a button down shirt.
He paces back and forth while he talks, a clicker in his right hand occasionally changing slides behind him. His voice is steady, not monotonous, but not an orator’s.
The talk has been posted on YouTube for just over 12 years and has only a little more than 150,000 views.
However, for many who saw this talk back in 2009, who were captivated by Romer’s ideas, it was an a-ha moment. Like when the Beatles first went on the Ed Sullivan show.
Back in 1964 a generation of young music lovers saw four guys from Liverpool playing music on their TV and thought to themselves: maybe my friends and I can do that.
Inspired by Romer’s talk, many entrepreneurs began wondering the same kind of thing—what if they could build charter cities too.
So—Romer’s idea. Charter cities. New cosmopolitan growth centers that would promote economic development and connect developing countries to the rest of the global economy.
Romer’s proposed cities would be more than special economic zones—areas with different economic regulations—they would also be special governance zones. Places where different laws would allow for faster economic growth thanks to better institutions.
Romer imagined cities located in developing countries administered by the governments of developed countries.
Now, more than 12 years after Romer’s talk, if you ask some of the people most involved with the movement what charter cities are, and what purposes they serve, you’ll get pretty different answers.
Patri Friedman: I think of a charter city as a special jurisdiction that is a geographic area that has different laws and institutions from the rest of the country. And the amount of difference has to be more than a special economic zone which typically just has some tax breaks, tariff breaks, a small number of legal changes.
Tamara Winter: That was Patri Friedman. He runs Pronomos Capital, a venture capital firm which invests in new city projects. Their slogan: Better laws. Better lives. Oh, and if you caught that his last name is Friedman. Yeah, he’s the grandson of legendary economist Milton Friedman.
He got his start in the world of new cities when he founded the Seasteading Institute. A non-profit that worked to establish autonomous communities on free-floating platforms stationed in international waters. Friedman’s interest in new cities came from his analysis of governance as a kind of product that should be subject to updates.
Patri Friedman: Why do our cellphones get better every year and our governments maybe occasionally get better, maybe sometimes degrade and what I realized is that if you throw away all the morality and philosophy and say, “Okay this is an industry”, what characteristics does it have?
Tamara Winter: Mark Lutter, the founder and executive director of the Charter Cities Institute has a slightly more technical definition of what constitutes a charter city.
Mark Lutter: So a charter city is a new city development: a new city with better laws. Paul Romer, for example, was advocating that high-income countries such as Canada act as a guarantor in a low-income country such as Honduras. And the Charter Cities Institute moved away from this, I guess, this idea, this definition, arguing for a public-private partnership.
Tamara Winter: Lutter founded the Charter Cities Institute just one year after finishing his PhD in economics. In his view, charter city developments, if and when successful, will have long term positive impacts beyond the cities themselves.
Mark Lutter: Charter cities have primarily been focused on emerging markets, creating a space with new institutions. So this would be going to places like Nigeria, Zambia, Honduras and creating new city developments that allowed for people to be able to hire more easily to, resolve disputes more easily to pay taxes, to register a business, having a government that’s effective at providing public goods, and this would allow for sustained economic development over time.
Tamara Winter: The Institute’s website lists some of the existing cities that they see as examples of this model—jurisdictions that improved their governance and, as a result, their economic output.
Dubai. Singapore. Shenzhen. Hong Kong.
These cities have all experienced astronomical growth in relatively short periods of time. The Charter Cities Institute’s website has a slideshow with before and after images of each city and information about their growth.
The images that accompany these numbers are just as striking. Shenzhen in 1980 is a pastoral scene of green fields, rolling hills, and distant mountains—home to about 300,000 people. But by 2017, it is all sleek skyscrapers and glowing lights—a metropolis with a population to rival New York City. Oh, and the average yearly income increased over 10,000 percent, too.
Browsing these figures. Listening to Friedman and Lutter. And hearing Romer’s optimism echoing from 2009, it’s easy to understand why so many people are so dedicated to promoting the idea of new cities.
But what do these numbers really mean? Who are these cities being built by? And maybe more importantly, who are they being built for?
I first met Mwiya Musokotwane on a trip to a remote island in Zambia. I was there as part of my work for the Charter Cities Institute.
Mwiya’s a stoic, physically imposing guy, well over six feet tall. I’ve known him for a while now and he’s basically got two speeds: full suit and sweatsuit. He’s either in board rooms, meeting with elected officials, and giving presentations, or he’s at home being a doting dad, the kind who keeps a lot of pictures of his daughter in his pocket—and on his Instagram.
He’s the co-managing partner, along with his father, of Thebe Investment Management and the founder of Nkwashi, a new charter city project in Zambia.
Mwiya Musokotwane: Zambia, it’s kind of like the junction point between Central Africa, Eastern Africa, and Southern Africa, and like South Western Africa also. Lake Tanganyika which is the world’s second longest and second largest lake by volume is partly in Zambia. The source of the largest river in southern Africa is in Zambia so it’s at the confluence of these interesting things.
Tamara Winter: Zambia’s natural resources, especially copper, made it a target for colonization. But Zambia had a distinctly different experience than its neighbors.
Mwiya Musokotwane: You didn’t have very militarized colonial experience as was the case elsewhere in Kenya or in South Africa. So the British were very white glove here. I think part of that is Zambia was never really seen as a place where they were going to settle…it was seen as a resource country.
Tamara Winter: The British occupied what they called “Northern Rhodesia” from the late 19th century all the way until 1964. After gaining freedom Zambia began to function as a democracy. However, within a decade of independence the country was under one-party rule.
Mwiya Musokotwane: Seven years later became a single party socialist state, as was the fashion in Africa those days, and you know that was basically the beginning of a long and steady decline for the country.
Tamara Winter: The economy was soon in crisis and actually contracted for decades.
Mwiya Musokotwane: We ended up losing three to four times our GDP per capita over the 20 years of socialism that we experienced. And then people basically got to a point where they had enough and demanded liberal democracy again.
Tamara Winter: After a series of coup attempts…
Archived audio: Where the rebel officers had attempted to announce they had attempted to overthrow the government because it was corrupt.
Tamara Winter: …and internal struggles in the 90s, that saw former leaders imprisoned…
Kenneth Kaunda: Today, God is great indeed. I am out, but I’ve not been told why I was in the prison for five months and seven days.
Tamara Winter: Zambia has once again begun the move towards a multi-party democracy. Just last fall, Hakainde Hichilema, who ran for president six times in the last 15 years, was finally elected.
As recently as 2017, he too spent time in prison, accused of treason for his role in anti-corruption protests against the former president. Now, Hichilema is committed to an ambitious agenda and has already begun traveling, connecting with other world leaders…
Kamala Harris: Well it is my honor and pleasure to welcome you, Mr. President, to the White House.
Tamara Winter: …working to ensure that democracy in Zambia will be bolstered by strong national institutions and a renewed commitment to economic development.
Hakainde Hichilema: For us to be able to run our countries in a manner that would deliver what we may call democratic dividends.
Kamala Harris: That’s right.
Hakainde Hichilema: Delivering accelerated economic growth development to offer opportunities to our people. I think, Vice President, that’s what will sustain democracy. That’s what will make democracy attractive.
Tamara Winter: Hichilema grew up in a farming family and spent years in international business. His presidency promises a new era for Zambia, one focused on economic growth and greater stability in the government.
Mwiya, who was born in the late 80s, grew up watching Zambia’s economic and governance struggles first hand.
Now in his early 30s he wants his investment firm to be an engine of development not just for Zambia, but for all of Africa.
This vision drives Mwiya’s interest in Nkwashi. You can hear the same far-reaching desire when he explains why he wanted to build a city in the first place.
Mwiya Musokotwane: I was asking myself, “how can I apply this to fix these problems as opposed to being a bystander?” I started thinking about the resources I had available to me. It just so happened that my family owned a ranch about a half-hour drive out of Lusaka and it was large enough that something meaningful could be done there.
Tamara Winter: Mwiya mentioned Lusaka.
That’s the capital city of Zambia and the largest city in the country with between two and three million residents. It’s a bit larger than Chicago and slightly smaller than Berlin. And the problems he’s talking about? Well, the city is growing fast—faster than many of its institutions can cope with. As recently as October of last year there were major blackouts across Zambia.
Power isn’t the only element of infrastructure under strain in Lusaka. It’s estimated that by 2030, the city will have a shortage of three million homes.
Part of Mwiya’s drive to build a new city nearby was to add another living and working hub: one that could be a home to professionals and those who want to connect more directly with the rest of the world.
Mwiya Musokotwane: Nkwashi is a satellite town to Lusaka. We like to call it a knowledge city. We’re anchoring the city on institutions of learning and it’s been designed to be able to be a home to up to 100,000 people.
Tamara Winter: Those learning institutions include a 130 acre university campus and the Explorer School which provides entirely online education for primary and secondary school.
Archived audio: Imagine a school without borders. A school where students and teachers come from places all around the world from Bahrain to France, from Australia to Zambia.
Tamara Winter: In Zambia it is common for the children of wealthier families to be educated outside of the country, in Johannesburg or even London, where Mwiya went to school. The Explorer School also reaches across borders with students in Nigeria, India and beyond but is anchored in Nkwashi.
By creating learning institutions in Zambia that are internationally connected, Mwiya hopes there will be even more reason for those seeking economic and educational advancement to stay.
Mwiya Musokotwane: We’re creating these institutions that hopefully can be the engines of initial economic growth. If Explorer School and Explorer Academy are fantastically successful that then creates the natural impetus to create city number two and three and four and five.
Tamara Winter: Large scale new city projects like Nkwashi sit squarely at the intersection of public and private institutions. They are often so significant in scope that they require cooperation from local and national governments, in addition to willing investors. Luckily, Mwiya was prepared to navigate both of those worlds from an early age, whether or not he was fully aware of it.
Mwiya Musokotwane: I didn’t really grow up with a very boxed-in view of the world.
Tamara Winter: His parents made sure of that. His father is actually one of the architects of Zambia’s financial system.
Mwiya Musokotwane: He’s like a super disciplined academic type person and he’s also been a central banker and economist and policy maker. A lot of the conversations he would have would be around things to do with how to develop Zambia. How to develop Africa at large.
Tamara Winter: His mother was an entrepreneur.
Mwiya Musokotwane: She had her own ways of conveying similar values to us. But most of hers were more practical so I think everything I learned about business as an example, I learned from her.
Tamara Winter: Growing up in a household with international business interests meant an early window into the wider world.
Mwiya Musokotwane: I would go with my parents on their trips to figure out different commercial undertakings they might want to get involved in like acquiring land and stuff like that at a super young age. It created this very like, explorer type mindset in me. I think that’s stuck with me into adulthood.
Tamara Winter: But Mwiya was also an introverted kid who preferred his own company. Luckily at home he was in an environment that filled him with a fierce curiosity. His parents nurtured his development—each in their own way.
For example, when he was 13 his father gave him a biography of Albert Einstein. His mother? Well, she gave him The Power of Positive Thinking.
Mwiya Musokotwane: You know, where my dad is taciturn, she’s more expressive. Where his interests lie in more technical facts hers are much more to do with human wellbeing. He’s taught me how to build systems and she’s taught me how to lead those systems.
Tamara Winter: And now, with a project like Nkwashi, Mwiya is combining lessons from both parents.
Mwiya Musokotwane: Building cities and building institutions of learning...it sits right smack on the intersection between public sector and private sector work.
Tamara Winter: These projects also take a hefty dose of confidence and that ‘explorer mindset’ that Mwiya described. Like Patri Friedman and Mark Lutter, Mwiya’s interest in new cities came from his dissatisfaction with the status-quo solutions he saw being offered to the structural problems in Zambia.
Without Mwiya’s imagination, the land that is now becoming Nkwashi could have been put to more mundane use.
Mwiya Musokotwane: There was the possibility of just subdividing allotments and then selling those, but that also felt very boring and like, low-impact. And the possibility of building something more meaningful seemed more interesting. So we’re like, “Okay we’re going to build a city.”
Tamara Winter: In the red dirt and scrub brush, Mwiya saw something possibly transformational that could reach far beyond 3,000 acres outside of Lusaka.
Mwiya Musokotwane: Right now what we have is a situation where Africans regardless of where they live in the world are treated as nominal equals. It’s one thing to be equal in the law, it’s another to be equal in the way someone regards you in their hearts. And I think that’s what places like Nkwashi represent for me.
Tamara Winter: Mwyia’s clear sense of purpose in building Nkwashi is not always as easy to detect in the world of new cities. Nor is the seamless mix of public and private.
That intersection can sometimes be an uncomfortable one. Remember, when Paul Romer proposed the notion of charter cities, he was clear: they would be special opportunity zones run by other governments. That idea met with almost instant backlash.
Isabelle Simpson: The argument is that Paul Romer’s model was too neocolonial because he would have these foreign countries come and intervene, but that when it’s private entrepreneurs because they are not bound to a particular country that it’s not neocolonial.
Tamara Winter: Isabelle Simpson is a PhD candidate at McGill University studying new cities and startup societies.
Isabelle Simpson: But obviously from the perspective of the local people it is very much neocolonialism.
Tamara Winter: Discomfort over foreign governments running cities in other countries is part of what spurred changes in how new cities are discussed and planned.
Patri Friedman of Pronomos Capital—who we heard from earlier—is especially interested in thinking of new models for charter city development.
Patri Friedman: That idea that a charter city is operated by a foreign power that just didn’t fly at all. So today’s charter cities are overseen by the host country and often are public private partnerships with companies that will build and operate the city.
Tamara Winter: But this model presents challenges of its own.
Patri Friedman: The gold standard right now is the Honduran ZEDE system.
Tamara Winter: In Honduras, laws were passed to seed the ground for new city developments.
Archived audio: Honduras has began to create two of the twelve regions of development and employment also known as charter cities.
Tamara Winter: Called the ZEDE laws, they were so controversial they created a constitutional crisis, and inspired multiple protest movements.
Local suspicion towards new city projects has been common in Honduras.
One project, Prospera, has had ongoing tensions with the population that lives near its borders.
Prospera has also been criticized for its legal system. A board of seven arbiters, many of them not native to Honduras, oversee private disputes in the city. They are asked to make rulings over residents who may or may not speak English and who are governed by a code that has borrowed liberally from different existing sets of laws.
That’s a pretty extreme example. Mark Lutter, the director of the Charter Cities Institute, who you heard from at the beginning of the podcast, has been critical of this particular aspect of Prospera.
Champions of new cities do, however, speak glowingly about the possibilities of these kinds of mix-and-match legal systems, ones that allow laws to be switched out and updated like software. From Patri Friedman.
Patri Friedman: What’s interesting to me from an infrastructure perspective is that modifying other kinds of infrastructure—power systems or sewer systems of a city—is very, very difficult but law is a virtual layer so it can be modified the same way you deploy new software builds.
Tamara Winter: And the sources for these new software builds? They can come from almost anywhere.
Patri Friedman: It’s a really, really interesting point of leverage to say can we essentially write better operating systems or copy the existing operating systems, that is, copy functional sets of laws and administrative procedures from countries that work well and bring them to other countries.
Tamara Winter: To critics of the new city movement this description of governance sounds too straightforward. It is emblematic of the tendency of charter city advocates to oversimplify complex issues. Isabelle Simpson goes all the way back to the first moments of Paul Romer’s original TED talk as an example.
Isabelle Simpson: He begins this talk by showing an Associated Press photo of African students who are sitting under streetlights at an airport and they’re sort of bent over their textbooks.
Paul Romer: Take a look at this picture. It poses a very fascinating puzzle for us.
Isabelle Simpson: So already I find this sort of annoying because people have this really bad habit when they want to illustrate dysfunction or chaos they use Africa.
Paul Romer: These African students are doing their homework under streetlights at the airport in the capital city because they don’t have any electricity at home.
Isabelle Simpson: And Romer does not mention that the students are from the Republic of Guinea and the airport is the international airport there. And the year is 2007.
Paul Romer: Let’s just pick one, for example the one in the green shirt.
Isabelle Simpson: Romer then gives one of the students a fictive name, “We’re going to name him Nelson.”
Paul Romer: Nelson.
Isabelle Simpson: I bet Nelson has a cellphone.
Paul Romer: I’ll bet Nelson has a cellphone. So here’s the puzzle. Why is it that Nelson has access to a cutting edge technology like the cell phone, but doesn’t have access to a 100 year old technology for generating electric light in the home? Now in a word the answer is rules. Bad rules can prevent the kind of win-win solution that’s available when people can bring new technologies in and make them available to someone like Nelson.
Isabelle Simpson: Actually the causes of electricity blackouts here are complex and a comprehensive explanation would have required Romer to address in addition to the poor tariff structures—what he says are the ‘bad rules’—he would have had to talk about the country’s weak infrastructure, issues of transmission and distribution losses, supply shortages and lack of diversity in the electricity generation mix, corruption distorting contract negotiation, and the neocolonial economic situation that thrives on extraction by foreign companies which are the ones grabbing the most electricity at the lowest price.
All these complex elements, they don’t fit into Romer’s narrative about bad rules.
Tamara Winter: The reason scholars like Simpson fear this simplification is because simple-sounding problems invite simple solutions that overlook necessary complexities.
Isabelle Simpson: If you say that you want to build a new city what is it exactly that you mean by city? Isn’t a city a political space where people with different opinions and different ambitions will come and debate and sort of try to create this better society all the time? Or are you trying to create this community of like-minded people which ultimately is just sort of a gated community?
Tamara Winter: In addition to political questions about new cities, there are also cultural and historical ones. Juan Du is the author of The Shenzhen Experiment: The Story of China’s Instant City. She’s also…
Juan Du: …the Dean of the Daniels Faculty of Architecture, Landscape, and Design at the University of Toronto.
Tamara Winter: In her book, she pushes back on the popular narrative about Shenzhen: that until 1979 it was a sparsely populated backwater. And after government investment and its designation as a special economic zone only then did its population and economic output explode.
Juan Du: I think it’s important to keep in mind what accounted for Shenzhen’s rapid population growth wasn’t necessarily just top-down policy, it was a bottom-up willingness that people wanted to go there.
Tamara Winter: In her book, Du unpacks how Shenzhen’s history allowed it to rapidly transform into the megacity it is today.
Juan Du: The centuries of history prior to 1979 is as important as the history of the last four decades. The incredible urbanization and economic growth in Shenzhen was built up on foundations that was already preexisting and those foundations took decades if not millennium to be built.
Tamara Winter: Du also takes issue with many of the popular statistics about Shenzhen pre-1979 that feed the city-built-from-scratch narrative.
Juan Du: People think that in 1979 it was just a small sleeping fishing village of 30,000. First of all, there are no villages that have 30,000, especially a sleepy one and a small one at that. Shenzhen was a conglomerate of 2,000 villages and several historic townships that existed for centuries.
Tamara Winter: The population of that 2,000 village conglomerate? Closer to 300,000. And it was this preexisting network that ushered contemporary Shenzhen into being.
Juan Du: There are so much local and indigenous knowledge and organizations and economies and local networks and international networks of those local indigenous villages that formed and actually allowed Shenzhen to survive its most difficult start up period at the first five years, the first ten years.
Tamara Winter: The willingness in the new city world to downplay this part of Shenzhen’s story in favor of a more a-historical, top-down narrative worries Du.
Juan Du: City making is a very, very complex and difficult process. The misconception that Shenzhen grew from scratch that it was a blank slate or a tabula rasa is, I think, the most dangerous misconception. That one can take zero, one can take a blank sheet of paper and that all you need to do is add money and policy that you can have a city.
Tamara Winter: But looking at some proposed new city projects it seems like that’s exactly what certain investors hope to do.
In 2020, Hong Kong real estate developer Ivan Ko proposed a creatively named new city “Nextpolis” to be located in Ireland and populated by residents of Hong Kong who wanted to escape that city’s increasingly challenging political environment.
There was also a proposal in Singapore for a floating city that could house migrant workers and move, when needed, to be near construction projects.
These simple-sounding solutions point to other important questions that need to be addressed in the new city ecosystem. Like who has a say in governance. Simpson points out that many of the cities cited as examples of new city developments—Shenzhen, Dubai, Singapore—are also those with restrictive, even authoritarian, national governments.
Isabelle Simpson: It’s very bizarre that charter cities entrepreneurs would use this very authoritarian model as their blueprint for this sort of pro-free market, pro-freedom, individual freedom developments that they’re trying to do.
Tamara Winter: One of the most high profile new city projects currently under construction— Saudi Arabia’s NEOM—fits this mold.
Archived audio: The contemporary city needs a full redesign. What if we removed cars? What if we got rid of streets? What if we innovated in the public space?
Tamara Winter: Backed by hundreds of billions of dollars of government money, this ambitious plan includes everything from automated ports, to city modules spread out over hundreds of miles of desert and connected by high-speed rail. Promotional materials make it sound almost irresistible. As one Wall Street Journal article put it: it’s Disneyland meets Dubai.
Archived audio: Through advanced manufacturing methods we will create green industries of the future with sustainability and reusability built into their DNA. Because any business destined to change the world, must also protect it.
Tamara Winter: NEOM is part of Saudi Vision 2030, the flagship project of the authoritarian Saudi government of Muhammed bin Salman. It has ruthlessly targeted journalists, activists, and critics at home and abroad.
Isabelle Simpson: Entrepreneurs who are very insistent on freedom of association, freedom of movement, freedom of speech. Their model for charter cities are authoritarian countries.
Tamara Winter: Nkwashi, however, is not this kind of project. It’s being built in Zambia by someone with deep roots in the country. And it is being supported by a new administration that is committed to using economic development to build more democratic institutions.
Some form of government support is crucial in creating a new city. The projects that succeed will have both government support and a significant connection to the place where they are being built.
Nkwashi has that connection. Even the name of the city speaks to its Zambian roots.
Mwiya Musokotwane: It means eagle and so the Zambian national bird is the fish eagle and so we decided to name the city after the national bird and we chose to name it in a language that was indigenous to the area.
Tamara Winter: However, these close ties don’t mean the city and the ideas that come along with it will be instantly adopted.
Mwiya Musokotwane: I think people think of us as being fairly forward-thinking and maybe a little bit crazy sometimes, but I think in a good way.
Tamara Winter: Some might view Nkwashi as ‘crazy’ but that hasn’t really harmed its popularity.
Mwiya Musokotwane: And you know we sold out in like three months; that initial batch of I think 80 five-acre plots, it was.
Tamara Winter: And Mwiya firmly believes in the mission behind Nkwashi—not just the city, but what it could represent.
Mwiya Musokotwane: I see Nkwashi as a beta, as a proof of concept. Speaking as an African, I think one of the challenges Africa has had is we haven’t yet done really big interesting things as a continent—the kind of things where people look at them and say, “Oh wow that’s like super cool that has a lot of positive impact not just for Africa but for the world at large.”
Tamara Winter: That drive to change perception is a personal one for Mwiya, shaped by experiences he had during his university years in London. At 17, he left Zambia, hopeful and a bit apprehensive.
Tamara Winter: He made friends quickly and found community in the classroom. However, while in London he also experienced everyday racism. This might not sound that revelatory—a young African man encountering racism in early 2000s London.
What makes these experiences so important is the way Mwiya talks about them.
Mwiya Musokotwane: Running in the train station to catch the train and then policemen in the train station stop you like, “Where are you running to?” I’m in a train station, it’s obvious I’m going to catch a train. You know, it’s interactions like that where I felt like I was nominally equal.
Tamara Winter: Did you catch that? Nominally equal. Mwiya uses the same words talking about these incidents as he does when describing the necessity of Nkwashi. If Nkwashi is proof of concept and other similar new cities can be built around Africa, Mwiya hopes that—in time—through the educational and institutional development they bring, the international perception of Africa and Africans can change.
In the end, there are as many questions about the future of new cities now as there were twelve years ago when Romer gave his talk. Maybe even more since there are real projects being launched. I was once a die-hard evangelist for new cities, a true believer. I still see the promise in the model, but now I approach the subject with more humility. Basically I’m trying to remember how little I know about what the next decades of new city development will entail.
The world of new cities is shifting all the time. There have been some major changes just in the last few weeks. Remember the ZEDE laws in Honduras? They don’t even exist any more! They were unanimously repealed by Honduras’ national congress.
I’m still optimistic that some version of new cities will fit into the fabric of solutions to economic challenges. But I also recognize that, in 30 years, the actual model or models that succeed may look very different from many of the projects that have been proposed so far.
In the meantime, knowing there are people like Mwiya out there, thoughtful enough to meaningfully consider the big questions facing their societies and daring enough to work on audacious solutions, gives me a lot of hope.
Beneath the Surface is a production of Stripe Press. The senior producers for this series are myself and Everett Katigbak. This episode was produced by Jack Rossiter-Munley. Whitney Chen was our production manager. Our sound mixer and sound designer was Jim McKee and we had editing support from Astrid Landon. Original music for this episode was composed by Auribus.
Visit press.stripe.com to learn more about Stripe Press.
That’s it for this episode. I’ve been your host Tamara Winter. This is Beneath the Surface.
Episode 01 B-side
Interview with Juan Du
Tamara Winter: Welcome to Beneath the Surface B-sides where we bring you full interviews with infrastructure experts. If you listened to the first episode of this podcast you heard excerpts from my interview with Juan Du. She is the Dean of the Daniels Faculty of Architecture, Landscape, and Design at the University of Toronto and the author of The Shenzhen Experiment: The Story of China’s Instant City.
In our conversation she offers insights into Shenzhen’s history, explains the personal connection to the city that inspired her to spend 15 years writing a book about it, and reveals why she thinks the ‘Shenzhen Experiment,’ as she calls it, is far from over. So without further ado, here is a lightly edited version of my conversation with Dean Juan Du.
Tamara Winter: So we’ll start with the hardest question first. Tell me your name, your academic affiliations, and why I’m talking to you right now.
Juan Du: The why I’m not sure if I can tell you! So, hello, my name is Juan Du, I am the Dean of the Daniels Faculty of Architecture, Landscape, and Design at the University of Toronto in Canada. And I recently relocated in the last six months from Hong Kong to Toronto. So it’s nice to be speaking with you.
Tamara Winter: And tell me, so you’re an architect by trade. I would love if you could tell me a little bit about your background. How did you end up writing this book? Because, well you know certainly Shenzhen’s architecture is mentioned, that isn’t really the defining feature of the book. And maybe you could tell folks what the name of your book is as well.
Juan Du: Sure. So the book is called The Shenzhen Experiment: The Story of China’s Instant City and the book as it was published is probably the fifth evolution of it or reincarnation of it. I didn’t start out by writing such a book because I am trained in architecture. And I started out to write a more architectural book about the city and specifically about the urban villages of the city. However, as I started to uncover more and more about the urban villages, I discovered a larger story really at the story of the city and the story of China. It is a story that I think is very misunderstood. It essentially is the story of China in the last 40 years and how that is contextualized within a broader understanding of the history of China, perhaps over a few centuries. So it just became a much bigger book, perhaps not in length, but in scope, the more I researched and worked on that.
One of the first reasons why I wanted to write the book is actually based in my first hand experience of planning and design projects in Shenzhen. And I came across this deep history and vibrant, overlooked, urban neighborhoods that is not present in the way that Shenzhen is typically portrayed in either national media in China and especially international media in the world. It’s usually portrayed as the city without history, the city without any important pre-urbanization culture or people of significance. And that was just very much contrary to what my own experiences and later my own research uncovered. So this is why I decided to take on this challenge of writing this book. And it was very difficult for me, precisely because I wasn’t trained particularly to write such an expansive book, but it was very much a learning journey. And with these knowledge and lessons that I’ve uncovered over a decade of research and writing, I think it does contribute back to my own discipline of architecture and urban planning and design, but also I hope it contributes to others who are interested in economics, politics, geography, environmental transformation, whether it is in the Chinese context or anywhere else in the world.
Tamara Winter: For anyone who isn’t familiar, what is Shenzhen? Where is it? And maybe you can answer this now, or I can ask it again in just a little bit, why is Shenzhen such a significant city?
Juan Du: Sure. I’ll start with the ‘where’ first, maybe. So Shenzhen is located in southern China. It’s at the southern east most tip of China, just north of a river from Hong Kong. And the river is called the Shenzhen River. And this river is the border between the city of Shenzhen and the city of Hong Kong. And it used to also be an international border that you know defined between China and colonial era Hong Kong, which was ruled by the British. So it is a very interesting location. I would also say that what’s a unique geographical feature, in addition to where it’s located, is the people via one fact: it is the only city in China’s southern region where the primary dialogue is not Cantonese, which is the southern dialogue of China. The primary dialogue in Shenzhen is Mandarin, which is a typically northern dialogue that people have used to speak everywhere in China.
So this is not to say that Shenzhen is a northern city, but it really testifies to the cosmopolitan nature of the city, that it is located in the southern tip. And it has a very rich southern history of China, but it is a city of migrants from all across China. And it’s really, I would say the most diverse city in China in terms of the backgrounds of people and where they’re from geographically and perhaps also socioeconomically. And I think that for me, is what makes it a significant city. And I would say that it also makes Shenzhen the most dynamic city in China today because of that mixture, because of that diversity. And it has this extreme mixture of low tech and high tech industries, it has this extreme mixture of urban and rural cultures. It has this extreme mixture of kind of the very local regional quality of a southern city with international enterprises and international headquarters via where it is and its unique history.
It’s also significant if we want to speak about numbers, it’s also significant in terms of its population number. It is a city of 20 million people, which makes it a rare mega city in the world, 20 million. But what makes it more unique is that in the 1970s, the population in Shenzhen was 300,000. So it went from 300,000 to 10 million in two decades. And then when it was 10 million in the early 2000s, everyone said, “Well, this is it. This must be it. I mean, Shenzhen has reached this potential. It’s no longer unique. It’s no longer special.” Yet, over the following decade and two decades, it continued to grow into where it is today, a city, 20 million people. And that makes it an internationally significant city because that type of population growth, not only is it unprecedented in China, it’s unprecedented in the world, anywhere, at any moment of history, in the world.
Tamara Winter: I really appreciate that because you just flagged Shenzhen’s population in the '70s. I’m going to come back and ask you a question about that because when I was working at the Charter Cities Institute, I was under the impression that the population was actually 30,000, but there’s a very particular reason why you used the 300,000 number.
Juan Du: Yeah.
Tamara Winter: But there were a lot of people who speak as though Shenzhen’s history began in 1979. Why was 1979 such a significant year for China more broadly?
Juan Du: Right. So 1979 is a very significant year for both Shenzhen and China. In 1979 was the year, the city of Shenzhen was established, meaning it was formally designated as an urban unit. So prior to 1979, the region was called Bao’an county, which was a rural county in the province of Guangdong. So in 1979, it was designated on this special entity as a city of Shenzhen, but the further significance of 1979 to both Shenzhen and China is because 1979 was the year China, via the central government in Beijing, launched China’s reform and opening. It was basically the beginning of a series of economic and sociopolitical reforms that entirely pivoted China’s economy and culture onto the world stage and into the identity of what China is today, internationally.
I think for anyone who perhaps do not have that particular memory or anyone who’s younger than 50, I would imagine that they would be very shocked if they’re shown images or facts about what China was like in the 1960s and '70s, including anyone who’s younger than 50 in China today. The year 1979 to launch, it was a very pivotal moment and pivotal year. It’s not to say everything was instant.1979 launched the reform and opening. 1979 established the city of Shenzhen, but the first decade of that was very rocky. It was very difficult. It was very challenging. Shenzhen was very close to being shut down multiple times, reform opening policies was close to shut down multiple times. It wasn’t until the mid 1990s, right, almost two decades after 1979, did it stabilize and the country and the city had enough confidence that this is definitely the right direction for the city and for the country.
Tamara Winter: And for anybody who doesn’t already know, how did allowing Shenzhen, designating it as a special economic zone, change the city? I mean, you’ve alluded now to population growth. I’m also curious about GDP growth and more broadly how Shenzhen’s success really impacted the whole country.
Juan Du: In 1979, what was initiated was not only the city of Shenzhen, there also was initiated a policy to create special economic zones. And in 1979, Shenzhen was one of four special economic zones that was created. So what makes Shenzhen’s beginning as a city unique is that within that year, it was both a city and a special economic zone in China. There are many conversations about special economic zones. It continued to be used almost like a miracle growth formula in the world today, especially in developing economies and cities, what it meant for China at that time for Shenzhen, at that time by special economic zone, it simply meant within the designated special economic zone of Shenzhen, which was only actually the southern half of the city of Shenzhen.
But within that special economic zone that the zone and the city government had the power to create an experiment with various policies and various mechanisms that was not legal, that was not allowed and not existent outside of the zone. And I also think sociopolitical reforms and policies that were experimented with, that at the time was not possible anywhere else in China. For example, at that time, if you were not born in a particular city and had its local residency status, which is called Hukou in China, you cannot legally work in anywhere but that city. You cannot get a job, you cannot get housing, you cannot get married anywhere else, but that city. It was very much mechanism of economic and population management system in China, let’s say, that it was a planned economy. But because Shenzhen was designated as a special economic zone, in Shenzhen if you were a migrant from somewhere else, from another city, from a rural region, from a village, you could get a job.
You could go to school, you could rent a home, you could get married, you could make so many decisions about your own life that at the time in China, you couldn’t. And that’s why it was significant. And I would say, that’s what attracted people to go there. So what makes it unique, it’s not only the number and the population growth. I think the question is that why did all these people go there? That’s one of the biggest, I think overlooked lessons. Shenzhen as is being discussed either as a charter city precedent or model, or as a special economic zone model. I think it’s important to keep in mind, is that what accounted for Shenzhen’s rapid population growth wasn’t necessarily just top down policy. It was a bottom up willingness that people wanted to go there.
People were not forced to go there. People were not sent to go there. People left the comfort of their home. People left the comfort of their jobs and their families to go to, at the time, I said the first decade was very difficult for Shenzhen, but people left the comfort of their home. And under a planned economy, if you had a job, you had that job for life. It may not be a job you love, but you had it. You had housing, you had a job, you had your basic social networks. Within those first decade, the type of people that the city attracted were a very unique type of people. It was people who was more adventurous, it was people who is entrepreneurial. It was people who are not satisfied with what life offered them in wherever they were. So what makes Shenzhen a really interesting case study for me is a much more closer understanding of what propels people, what would attract someone to whichever place or whichever socioeconomic costs are coming from.
What would attract someone to leave everything they know, and go to this place and believe that it is a land and opportunity. And to the testament of Shenzhen, even though there has been, of course, many people who arrived in Shenzhen and couldn’t make it and left, but many more did stay, right? The fact that it started with the population 300,000, now it’s 20 million. We’re basically talking about 20 million migrants, 20 million people, because it’s only within four decades, right? New population growth. Those were born in Shenzhen is still not the majority of the 20 million. The majority of the 20 million are migrants from everywhere else. They went to Shenzhen and they were able to, despite whatever challenges of a new environment, changing policy, they were able to take root and take advantage of the various unique opportunities that the city have offered and was able to make their homes there.
Tamara Winter: You went to Shenzhen, I believe in 2005, I love that the book kind of starts and ends in the same place. Forgive me if I say this wrong, in Baishizhou, what did you see when you first got to Shenzhen and why is that specific village so significant to you?
Juan Du: I did use Baishizhou, a particular urban village, as a historical site and device to open the book and end the book. And there are personal reasons. And I think for me also intellectual reasons to want to do that. Personal reasons is that in 2005, I was working in Beijing at the time and I was flying to Shenzhen to work. And I would fly to Shenzhen once every week or every two weeks. I’d fly in in the morning and I’d leave in the last flight out, because why would I want to stay in Shenzhen, it’s a city with no history, no culture. I’m only going there on business. And then one day my meeting ran over, the city official, the urban planner that I became very good friends with decades later was driving a bit too slow, going to the airport. And I missed my flight.
So the city put me up in a hotel. It was a place called Overseas Chinese Town, O-C-T, which is the nicest neighborhood in Shenzhen. It has these kind of Italian villas. It has a very famous theme park. It has these tree-lined streets and some business hotels. So I was put there to stay for the night and take my first flight out the next morning. And in the hotel room, I couldn’t sleep. So I thought maybe a walk would do it. So I started walking and got lost and walked into this incredible scene, this was probably past midnight already, of a city square with everyone full of people at midnight, full of people, cooking and eating and this outdoor market, lots of kids running around. And I described it as seeing, I think in my book rather cinematically, but it was a very cinematic experience.
It was as if I discovered this new world that no one had told me about, none of the architects and planners and government officials I had met at that time in Shenzhen, because I was just starting to understand the city has ever mentioned such a place of urban villages. None of what I’ve read about the city have talked about it. So it was just this incredible thing. And then later I was to understand that Baishizhou is the city’s largest and most populous urban village. It has this incredible history that I speak about in the book, I think in one of the chapters. And I did decide to end, I believe it was the last chapter on Baishizhou as well to, in some ways to talk about what started out as a very touristic understanding of what the urban village is and what the city is.
But after a decade and a half of researching and interacting and learning from the local residents and the local scholars, I start to really have a much deeper understanding. However, by, at the end of the 15 years, Baishizhou was in the process of being cleared out for demolition. So I really wanted to be able to include that part in the book to really put in some ways a sense of urgency to what I wanted to call out to attention of both the people in Shenzhen, people in China, people everywhere else is that very often what’s happening through an urbanization process of so-called urban renewal, what we are demolishing, which on the surface might cosmetically look as if it shouldn’t be there, that in fact is the very heart and engine of what made that city vibrant and important in the first place. And that, for me, I think has a certain degree of urgency and has a degree of importance to be able to share with an international audience.
Tamara Winter: Your book does, I think a masterful job of pointing out many misconceptions that people have about Shenzhen, whether it’s that Shenzhen’s success should primarily be attributed to top down government, to the idea that Shenzhen before the city kind of grew to become what we know it to be today, had no one there and it was just kind of this like back woods village and the land was pretty insignificant. So I’m wondering if you could tell me what are maybe some of the sort of most jarring misconceptions that people have about Shenzhen and why was it so important to you to kind of take pains to correct them?
Juan Du: The reason why it’s important for me to put that front and center is because I had those very same misperceptions and misconceptions of the city when I started first going there. But what’s different between myself and perhaps the greater media perhaps is that my misconceptions are very quickly dispelled by me understanding the city more, but then is to watch that those misconceptions, not only did it stay throughout the decade and half I was researching and writing the book, they actually grew, it grew in their status. And it grew in the number of people who held them, it was primarily at first just kind of a national discussion. And then it became an international, Shenzhen became an international model city.
And with Shenzhen’s reputation rising in the last decade, the misconceptions also arose in their importance and impact. So I thought it was really important to outline that and to say that this is why I’m writing the book, is I wanted people to have an understanding that not only is Shenzhen not the way that is commonly being perceived. In fact, it is the exact opposite. That’s what I think is really intriguing and unfortunate to me about these misconceptions of Shenzhen, and there’s many. But I think for the purpose for the book and for the purpose of me trying to create it more succinctly and communicate them, I had outlined that there was misconceptions of time, misconceptions of people, misconceptions of purpose. So misconceptions of time, we spoke about the fact that Shenzhen was established as a city in 1979. And for the most part, we’ve been speaking about the city’s growth in the past four decades and how that paralleled or instigates, actually, the growth of China in terms of economics in the past four decades.
However, if you have read my book, you understand that in the book, I take pains to research and create evidence to show that the centuries of history prior to 1979 is as important as the history of the last four decades. And that if we did not understand what had happened in Shenzhen in the region in China prior to 1979, there could be no understanding of why Shenzhen was created. Why there was this special economic zone. Why China launched the reform opening. And most importantly, I think I wanted to evidence and I hope it was compelling to anyone who has read the book that the incredible urbanization and economic growth in Shenzhen in the past four decades absolutely was built up on foundations that was already preexistent in the region. And those foundations took decades, if not millennium, to be built.
And that if Shenzhen was what people think it was in 1979, and this is where the misconception at place is also one of the misconception is that people think that in 1979, it was just a small sleeping fishing village of 30,000. First of all, there are no villages that has 30,000, especially a sleepy one and small one at that. But Shenzhen was not a small sleeping fishing village. Even if we don’t look at the population statistics, Shenzhen was a conglomerate of 2,000 villages and several historic townships that existed for centuries. And this is really important to understand the region and this particular place, the people, the geography, the fact that it was a port, the fact that it had these rivers, the fact that it had all of this land, that was cultivated.
So that geographic understanding is really important because the misconception that Shenzhen grew from scratch, that it was a blank slate or tabula rasa is I think the most dangerous misconception that one can take zero, one can take a blank sheet of paper and that all you need to do is add money and policy that you can have a city. So I think that really is the biggest and most dangerous misconception of Shenzhen because that’s not how it happened. And the reason why I say it’s the most dangerous misconception is that Shenzhen now has been used as a model city in the context of charter cities, in the context of new cities, in the context of special economic zones, to demonstrate that not only is it possible to grow a city from blank, to plan a city from nothing. And all you had to do is add foreign direct investment.
Not only is it not that, it’s the opposite of that. There was so much local indigenous knowledge and organizations and economies and local networks and international networks of those local indigenous villages that formed and actually allowed Shenzhen to survive its most difficult start up period at the first five years, the first 10 years. And this is really something that I’m very passionate about to advocate because I believe in the importance of cities, I even believe in charter cities as something that’s important to talk about, I believe that we can make new cities and make it livable and attractive, but we also need to understand that it’s not just add money or just add policy, there is no miracle growth in this way that it is city making. It’s a very, very complex and difficult process.
And if my study of Shenzhen hopefully can evidence is that it’s really important to understand that preexisting geography of people, history, culture of that place and that we should see those existing geographies, not as something to get rid of, not as a inconvenience, not as a nuisance, but really see them as the key ingredient, the seeds, if you will, that can contribute to the success of the future new city or the future new charter city.
Tamara Winter: I think a lesser understood part of Shenzhen’s kind of contribution to the world, its cultural contributions. There’s a music video that you reference. This is around the time that you’re starting to get the first music videos coming out of China and these music videos are being shot literally as the city is being constructed. And one thing you’ve taken quite a lot of care to sort of show, not tell people about, and whether it’s in your book or in your appearances since then, is the real spirit of the people in Shenzhen.
Juan Du: Yeah. So, I think in the book, I say one evidence, the first master plan of Shenzhen was based on a anticipation of a population 1 million by 2010. And by all accounts, that was a very ambitious master plan. There are not many cities that was able to go from scratch to 1 million. It was already a very ambitious plan, top down planning, many cities who’s been planned to have city of 1 million do not have any, right. There are many ghost towns, whether in China or elsewhere, more top down planned cities fail than succeed. So the top down planning from policy, from resources, infrastructure, housing, central funding, what have you, anticipated population of 1 million by 2010. The actual population in 2010 in Shenzhen was 10 million, 10 times more than what was planned via policy and the various instruments of that, whether economic or spatial. So 90% was unanticipated bottom up, right? 90% was just, people wanted to go there.
And this is where the importance of the urban village I was speaking about earlier because the city was planned with its infrastructure, whether it’s housing, schools, hospitals, restaurants, to serve a particular proportion of the population. Who made up for the 90%? The local communities, the local villages, they turned their own houses into rental housing. And then once they had rental housing, the new migrants opened up restaurants. So what’s interesting of Baishizhou is that you can walk into any street in Baishizhou, and you can, within one hour, sample food from all over China, because they’re all opened by migrants from all over China. So this is what I mean by that I think we have underestimated the powers of bottom up action and bottom up growth. And because the book is intended for a general intellectual audience, I do not put too much academic or theoretical terms in there, but that aligns with my own work, in understanding informal urbanization, informal settlements, and to understand how communities build their own housing, build their own economy, build their own social network and social systems.
And I’ve come to really understand that for a city to be a healthy, vibrant, expanding city, you need both formal or top down policy and planning and governance. It’s not just, that’s not important. It’s very important without that 10%, right? Without that top down, there would’ve been no Shenzhen. But this other part, the informal growth, the informal settlements, kind of these informal networks that very much is tied into and contributed to that formal economy, that formal policy, you need that without the informal on the bottom up, there would be no Shenzhen as we understand it today, and we would not be speaking about it and I would not have written a book and it would not be cited in India and Africa, Honduras, Ireland, wherever it is around the world as a model city, right? Because that top down aspect, that kind of planning aspect is actually quite standard, but it’s this kind of how these policies, when emerged with the local population of the preexisting villages and were emerged with all of these people from all around the country, coming into this one city and all collectively believing in the possibility of the new.
That is an incredible, I think, a social, psychological experiment. So, I go back to why I called my book The Shenzhen Experiment is because I think that it is very much an experimental city. It was set up as an experiment for China to experiment with, can you have market economy in a communist country? But I think its significance goes way beyond that. It’s an experimental city in understanding human nature. It’s an experimental city in understanding both the incredible opportunities of urbanization and rapid growth, but also the native impacts on the environment on the geography of rapid urbanization. You know, the fact that it’s the state of where it is today, of being say a mega city of between 10 million to 20 million people, it’s only in the last two decades. That makes it one of the world’s youngest cities and newest experiments.
I think in the conclusion of my book, I said, “I think the Shenzhen experiment’s far from over.” So I am always very uncomfortable, even myself to make any very declarative or conclusive comments about Shenzhen, because I think we don’t really understand it yet. Despite the fact that I’ve spent these time researching into it and reading everything I can about Shenzhen and southern China, I think there’s still so many more we don’t know about the city. There’s so much more lessons to uncover. So I think this experiment continues and where the city is today and where it’s going to go, it’s an open question. It’s an absolute open question. So for me, is that there’s so much for us to learn about this city and for the knowledge and experience of the city to benefit both cities and governance and also individuals in China, in Asia, but also I think there’s a lot of lessons to offer to people from all around the world, whether they’re decision makers or they’re citizens themselves.
In the book, I do highlight a number of individuals I have met. Some of them are historical figures, and some of them are common everyday people and how their own lives were impacted by the urbanization of the city. But also I wanted to show how they, as individuals contributed to the city and ultimately shaped the city. And one thing I always like to remind myself and remind everyone else, that 20 million sounds like a monolith block. It’s very common for when, especially in the American context, when we look at Chinese cities or when we look at China, we see these huge gigantic numbers and that just automatically turns apart your brain into thinking that is monolith. But I do want to highlight that it’s 20 million of individuals and it’s 20 million individuals not unlike you and I. It’s 20 million individuals who have their strengths and weaknesses, who have their own neuroses, who have their emotional baggage.
And these individuals, whether they’re mayors or they’re construction workers, they have had and continue to have influences in shaping the city and that’s whether it’s in Shenzhen or elsewhere. And that ultimately is something that I really would like for, especially the English reading audience and especially the North American audience, to have a more humanistic understanding of Shenzhen, to have a more humanistic understanding of China, to have a more humanistic understanding of cities that in one country or in one city, there are so many diverse views and so many different diverse entities and that individuals, nationalities, places of residence should not be grouped in within one overarching understanding about one particular country. Imagine if that be the case in the reverse, right.
Do we, as individuals, want to be defined by the overall message that came out of the U.S in the past five years? I would think not. So in the same way, I would also ask everyone to have the curiosity, to try to understand whether it’s China or India or Africa or France, to understand the nuances of these political situations, and to understand the difference between national politics and individual rights and individual dreams.
Tamara Winter: Beneath the Surface is a production of Stripe Press. The senior producers for this series are myself and Everett Katigbak. This episode was produced by Jack Rossiter-Munley. Whitney Chen was our production manager. Our associate producer and editor for this episode was Astrid Landon. Our sound mixer and sound designer was Jim McKee. Original music for this episode was composed by Auribus. To learn more about Stripe Press, our books, our films, and more, visit press.stripe.com.
That’s it for this B-side. I’ve been your host Tamara Winter. This is Beneath the Surface B-sides.
Salton Sea: White Gold in the California Desert
Tamara Winter: Earlier this year I visited California’s Salton Sea for the first time. I went with my friend and colleague Everett Katigbak. He’s a producer on this podcast, and you’ll hear from him throughout this episode. It was his first trip back in over 20 years.
Everett Katigbak: It just surprised me how little has changed. But also seeing the lake itself was kind of surprising. When I was standing there the other day, it’s a no man’s land. It’s literally scenes out of Mad Max. I know we say that kind of jokingly, but you can really envision it.
Tamara Winter: Since the waters of the Colorado River rushed into the Salton Basin in 1905, the lake they created has been a source of promise and conflict. Now it’s shrinking, and has become one of the most polluted bodies of water in the country.
It’s also poised to become one of the largest sources of lithium in the United States. As the world transitions from gas to electric vehicles, demand for lithium is increasing rapidly. And so is interest in the Salton Sea. The potential for investment and industry could be transformational for the area.
But what will that transformation look like? What impact will lithium extraction have on local communities? And what can examining the history of the Salton Sea reveal about its present and future?
Hello and welcome to Beneath the Surface, a podcast from Stripe Press all about new ideas and big questions in the world of infrastructure. I’m your host Tamara Winter.
In the first episode of Beneath the Surface we looked at charter cities. New urban developments built almost from scratch through financial investment and political will. In this episode we’re visiting a very different kind of place.
Everett Katigbak: So we’re here in Salton City. This is, I think the largest community out here around the Salton Sea.
Tamara Winter: The communities that have grown near the Salton Sea are unincorporated. And include everything from off-the-grid artist communities to half-inhabited suburban developments.
The fate of these communities is tied to the sea. When it was a tourist destination they felt the benefits. But that opportunity has long since dried up, along with the sea. Now, the promise of becoming a ‘lithium valley’ is bringing a wave of development that could breathe new life into the area.
I mentioned my colleague Everett. Well, when we started talking about doing an episode on the history and future of Salton Sea, we found out that Everett and his family have a stake in the area. At the tail end of the Salton Sea’s resort era, his family bought some land there. Hoping, like many, that it was an up-and-coming oasis.
Everett Katigbak: This is the place where when I was young my parents actually bought a plot of land. We’re literally standing on this plot of land. Around it there’s a handful of homes, but for the most part it’s a bunch of empty lots out here. It is a very picturesque view. It’s like a postcard. But I imagine the closer you get to it the less photogenic it gets.
Tamara Winter: You have a daughter Drew. How do you hope she experiences the Salton Sea? Do you think in her lifetime it might get, I don’t know, poppin’?
Everett Katigbak: I don’t know…I don’t imagine she’ll have any connection to it. I never talked about it growing up. It’s just something I totally forgot about. The more my parents are getting older and thinking they need to let go of this place the more I’m hearing about the lithium stuff. So for me it’s something that I kind of want to hold onto for a little longer and see if something happens.
Tamara Winter: In the early 20th century, major construction projects were underway across southern California. Engineers planned irrigation canal networks to bring water to arid corners of the California desert. The dream at the time was to provide water for farming to the scorching hot Imperial Valley where temperatures regularly spike well above 100 degrees. Rain rarely falls. And snow has been recorded only once in the last century.
But nature had other plans.
For millennia, the Colorado River had occasionally made its way into the Salton Basin, creating lakes. But in the spring and summer of 1905 multiple floods wore down and eventually broke through the canal gates. And water poured into the basin.
Initial attempts to close off the flow of water failed miserably. Another flood in November swept away the hastily constructed dams of gravel and brush.
For two years the water flowed. And for two years crews worked around the clock. In sweltering temperatures. Under the threat of multi million-gallon flash floods. To redirect the river. When the water was finally stopped, the newly formed Salton Sea covered over 400 square miles.
The early years of the Sea were mostly quiet.
Naturalists categorized the many species of birds that began to congregate on its shores. The Salton Sea Wildlife Refuge was created.
During the Second World War the sea became a source for fish when German u-boats made the ocean too dangerous. The military used the sea for bombing exercises. In fact, the crew that dropped the first atomic bomb on Hiroshima flew practice missions over the Salton Sea.
The sea, however, was already shrinking and becoming saltier and saltier. But this didn’t stop interest in the sea from growing during the postwar economic boom.
One of the people who moved to the Salton Sea after World War II was Helen Burns. She and her family made their home on a small plot of land owned by her father. Her daughter Donna Kennedy—who was barely more than a toddler at the time—remembers those early years well.
Donna Kennedy: She moved us down to the Salton Sea into a trailer which had an adjacent outhouse. And we had a standpipe where we could stand and bathe. It didn’t make any difference that we were nude because no one else was there, it was completely deserted, just us.
Tamara Winter: Living in the semi-wild meant Donna and her sister had a unique childhood.
Donna Kennedy: We did a lot of swimming in the sea, it was very clean then. Sandy beach and very lovely. So my sister and I would just frolic in the water and the sagebrush and try to catch lizards and avoid snakes and scorpions too, we didn’t care for scorpions.
Tamara Winter: Helen, however, had big dreams. She set up a makeshift stand built out of a piano box and some palm fronds. Truck drivers. Immigrants trekking up from Mexico. Occasional tourists. They all stopped by Helen’s for soda, coffee, postcards, or tubes of Salton Sea sand.
Business grew. And so did the number of tourists. The Salton Sea became a destination, marketed as an inland resort—the next Palm Springs.
By the 1950s the Salton Sea was the place to be. And Helen expanded to meet the demand.
Donna Kennedy: Basically if you wanted to have some fun you went to Helen’s. At her high point she had a marina, a boat dock, gas tanks. A campground. Besides the bar and restaurant, the motel, but I’d say by 1958 things were really moving.
On 4th of July she had hell divers and people water skied across the sea and back and got trophies and wore little horns. On New Years she had icebreakers and people skied across and back. There was the Miss Salton Sea Contest, the Mr. Salton Sea Contest. There were treasure trails where people went across the desert in their dune buggies and they’d try to find all the treasures she had hidden…it was just roaring with activity.
Tamara Winter: Helen even earned a new title: Queen of the Salton Sea.Helen wasn’t the only one who saw the promise of the sea in the 50s and 60s. Other entrepreneurs, sensing opportunity, hitched their fortunes to the sea. The newly formed Salton City grew and grew. Promotional videos from the time show a desert oasis, a paradise of crystalline waters and inviting beaches. The future for Salton Sea couldn’t have looked brighter.
Archived audio: In an article appearing in the The Los Angeles Times April 17th, 1966, Salton City was chosen by a group of planners, architects, administrative officers, politicians, professors, and associated thinkers as one of the 24 major cities in southern California in the year 2000.
Tamara Winter: By the late 1960s and early 1970s however, tourism was drying up. And so was the sea. The water level dropped so significantly and the salt level rose so much, environmental observers worried that the fish and birds that lived in and around the sea would begin to die.
The lack of rainfall in the Imperial Valley meant that the sea’s main source of new water was agricultural runoff. Which brought with it pesticides. Soon birds began dying and algae bloomed in the once clear waters. Resorts closed or scraped by with reduced clientele. When powerful tropical storms ripped through the Imperial Valley in the mid-70s many packed up for good.
Whacko: It used to be a real nice dinner house owned by Bill and Maxine McClaren.
Huell Howser: What happened to it?
Whacko: Eh, the floods.
Huell Howser: Uh huh.
Whacko: They kinda split up, well, actually it’s the floods what did it.
Tamara Winter: By 2000, Salton City was far from being one of southern California’s major cities as the LA Times had predicted. In fact, its population shrank to less than 1,000.
Most people who have heard of the Salton Sea are probably familiar with this era of its life - from the 70s to the present. In the popular imagination, it has existed for almost 50 years as a polluted, decaying, steadily salinating space populated either by die-hards left over from its boom years, or those looking for off-the-grid living in the surrounding desert.
Less than an hour south of the sea, the unincorporated community of Slab City grew on the remains of a defunct military base. Artists, dropouts, and others seeking a life outside of mainstream society congregated in the desert in what is now affectionately referred to as “The Last Free Place in America.” When we visited Salton Sea, Everett made a trip out to The Slab and talked to some of the colorful residents.
Wizard: Greetings and welcome to East Jesus! I am your mediocre half-assed tour guide. I don’t give tours.
Tamara Winter: That’s Wizard.
Wizard: I spend six months here and six months in India or Vietnam.
Tamara Winter: If you meet him, his name makes a lot of sense. He’s got this long dusty gray beard that he’s clearly been growing for several decades and he speaks with the confidence of someone who could conjure a rabbit out of a hat.
Wizard: This is a sheltered workshop for the work ethic impaired. They’re not lazy. They’re work ethic impaired.
Tamara Winter: East Jesus is a massive collaborative art piece.
Wizard: It’s a work of over 2,000 artists. And they would come here and they’d be inspired by the art. They would create art.
Tamara Winter: It’s about 50 miles from where Everett’s family has their plot of land in Salton City. On the other side of the sea. But the environmental disaster at the sea touches both communities. As the sea evaporates in the baking desert sun, dust rises from the exposed lakebed.
Wizard: The wind blows all this toxicity towards San Diego and LA and Imperial County doesn’t have the money to do anything but San Diego and LA does. If it affects them, they’ll do something about it.
Archived audio: Sort of fine white powdery dust sits on top of the playa…and a very small wind will blow that and…I’ve been out here at times when it looked like a snow blizzard, you couldn’t see anything.
Tamara Winter: Faced with looming environmental and human crises, the state of California has created commissions. Convened taskforces. And made multimillion—even multibillion—dollar promises to restore the sea. But these plans, some of which have been debated for almost two decades, have not changed the day-to-day reality for many who live in the area.
Now the Salton Sea is at a crossroads. It is a potentially vast source of lithium - an essential ingredient in the batteries that power the green economy.
Audrey Carleton: Lithium, it’s been called “white gold” it’s kind of this like crucial element in the move towards electric vehicles and the move away from oil and gas.
Tamara Winter: That’s Audrey Carleton.
Audrey Carleton: I am an environmental journalist for Vice. I wrote this story on the Salton Sea becoming sort of this new quote-un-quote “lithium valley” through this deal that General Motors has with Controlled Thermal Resources.
Tamara Winter: Leading car companies are increasing the number of electric vehicles they can produce. Tesla made headlines last fall for having a market valuation greater than Toyota, Volkswagen, Daimler, Ford, and GM combined. But GM’s stated transformative goals set them apart.
Audrey Carleton: General Motors is kind of paving the way. So, they made a first in the nation commitment to phase out all of their gas-powered cars by 2035.
Person 1: General Motors plans to stop making gas powered cars by 2035…
Person 2: On the assembly line at this GM plant outside Detroit there are two things autoworkers…will never see again internal combustion engines, and gas tanks.
Audrey Carleton: Because they are like the American automaker and they’ve made this kind of first commitment to be all EV by that period of time they are really kind of setting a standard for other automakers.
Tamara Winter: Right now it’s estimated that almost 30% of greenhouse gas emissions in the United states come from transportation. So it’s understandable why GM’s plans are so ambitious. And their dedication to lithium mining is so strong.
Audrey Carleton: They’re really sort of trying to carve themselves out as a leader in the EV space in doing so and in order to make that happen they’re going to need a lot of lithium so General Motors struck up a deal with a company called Controlled Thermal Resources to mine for lithium for lithium ion batteries to go in electric vehicles.
Tamara Winter: Enter the Salton Sea. The US Department of Energy estimates that the sea could be the source of up to 600,000 tons of lithium. Per year. In fact, the Salton Sea is…
Michael McKibben: …the largest brine source of lithium in the world.
Tamara Winter: That’s Dr. Michael McKibben. He’s an Emeritus Professor of Geology at the University of California Riverside. He’s also one of the authors of a recent report on energy resources—including lithium—at the Salton Sea.
To understand how lithium will be extracted at Salton Sea, we first need to talk about why it’s there in the first place. That’s a journey that starts millions of years ago, and thousands of miles away.
The Colorado River snakes and curves across the southwestern United States passing through parts of Colorado, Utah, Arizona, Nevada, and finally California. The waters of the river have traveled that route for millions of years slowly eating away at sandstone and sediment.
It was these waters that carved out the Grand Canyon. Over millennia the river carried all of the rock and mineral it eroded away. Occasionally, when hard rains fell, or there was heavy snowmelt in the Rockies, the river waters rose. And in southern California, the river would burst its banks and the parched Imperial Valley would be filled. Temporarily.
The ancient lakes that formed became central to the lives and mythologies of the native peoples who lived in the area. Quechans, Chemehuevis, Cahuillas, and Kumeyaays gathered on the lake’s shores and fished their waters.
The presence of these lakes can still be seen. The largest and most recent, called Lake Cahuilla, left what are called ‘bathtub rings’, or marks on the surrounding rockfaces indicating where its waters once stopped. Repeated flooding and evaporation over thousands of years left behind sediment full of minerals and trace metals, picked up as the river rushed from the Rockies to the sea. Among those metals: lithium. A lot of lithium. Dr. Michael McKibben explains just how much.
Michael McKibben: Sort of back of the envelope calculation estimates I’ve done are somewhere on the order of two million to six million metric tons of lithium.
Tamara Winter: A million, or six million, of anything is a lot, but Dr. McKibben puts those numbers into perspective.
Michael McKibben: You know, even if we just produce a faction of it every year we could supply all US needs for lithium and actually have enough left over to export it to other countries. That would totally reverse the situation the U.S. is in where we’re now importing over 95% of the lithium we need.
Tamara Winter: Right now, most lithium is mined outside the United States. Australia, Chile, Argentina, and China are all home to robust mining operations. But it’s not just the fact that the Salton Sea is in the United States that makes it such an attractive source of lithium. It’s the way lithium can be extracted.
Right now, there are two common ways lithium is mined: open-pit, and evaporation. Open-pit mining is especially common in Australia.
Archived audio: It’s vast and remote here in Pilbara and rich in minerals.
Tamara Winter: Pilbara: sparsely populated and full of lithium. It’s home to growing mining operations.
Archived audio: A new mine has recently opened here with the aim of becoming one of the biggest lithium mines in the world.
Tamara Winter: That clip is from 2018. Since then, global demand for lithium has grown. And mining operations have become more and more lucrative.
Archived audio: But we do things differently here. Mining hard rock lithium.
Tamara Winter: In this type of mining, lithium-rich rocks are blasted apart. Pulverized. And soaked in sulphuric acid. Places like Pilbara are the ideal location for this kind of mining. It’s a region slightly larger than Iraq, but with barely more than 60,000 residents. But the pits still leave deep scars across the land. And acid runoff contaminates water supplies.
The other type of mining used to collect lithium is evaporation mining. This practice is most common in South America and involves pumping groundwater from underneath dry lake beds and salt flats into enormous evaporation ponds. For example, the ponds at the Atacama salt flat form a checkerboard that stretches almost 30 square miles.
In addition to taking up a lot of land, this type of mining uses large quantities of water in areas where it is already scarce.
Indigenous communities near the Atacama salt flats have lost access to water and those opposed to mining fear for the fate of local wildlife if the mining operation continues.
Archived audio: Sonya Ramos believes that lithium mining is killing this desert. A growing number of Chilean scientists agree and have come to the Atacama to join her campaign to stop it.
Tamara Winter: So, the irony here is clear. Mining lithium—the metal that is crucial to a global transition to clean energy, can create environmental issues of its own. Added to this is another uncomfortable reality: currently the most developed nations in the world have the highest demand for lithium. But it’s sourced from some of the poorest. As Dr. Michael McKibben notes…
Michael McKibben: We’re letting all the environmental problems occur in these other countries to satisfy our need for lithium.
Tamara Winter: But this is where the Salton Sea comes in. The way that lithium will be gathered from the Imperial Valley is so different from open-pit and evaporation mining that Dr. McKibben hesitates to call it mining at all.
Michael McKibben: The thing I worry about most is people understanding direct lithium extraction in the context of how lithium is mined elsewhere in the world. And that’s really our biggest challenge is we shouldn’t call it lithium mining at the Salton Sea—we should call it lithium extraction because it’s not mining in the traditional sense of the word.
Tamara Winter: The process called direct lithium extraction involves using some of the green energy infrastructure already at the Salton Sea and repurposing it to collect lithium in addition to creating clean energy. There are already large scale geothermal energy projects at the Salton Sea. Everett and I saw some of them when we visited.
Everett Katigbak: Maybe describe we’re seeing, Tammy.
Tamara Winter: Okay, well this is a geothermal plant. It’s interesting…everything looks rusted by the way…it’s a lot larger than I thought when we were first driving in. You’ve got these giant, round cylinders with scaffolding at the top I guess.
Tamara Winter: They draw hot saline brine, rich in metals and minerals, to the surface. As the brine is brought up, the change in pressure causes it to boil. The steam from the brine turns turbines creating electricity. Usually the brine and the recondensed steam are pumped back into the ground so the process can begin again.
Direct lithium extraction basically places a filter on this process. Using other elements to draw the lithium out of the brine after it has already been brought to the surface. Then the brine, minus some lithium, is pumped back into the ground.
Geothermal electricity is created. Lithium is extracted. And the only remnants are the brine and water. The potential for geothermal energy and lithium extraction at Salton Sea is especially promising because of California’s green energy goals.
Michael McKibben: So California is now legislatively mandated to have its electrical grid be based on all renewables by 2045. And so that means we need more geothermal energy to satisfy that requirement and we need more lithium storage batteries to store electricity.
Tamara Winter: This new commitment to renewables means that California is ready to invest in more geothermal energy. The state—famously situated on a fault line—has huge geothermal potential. But geothermal has long played third fiddle to wind and solar because of the high cost of building power plants. Now, as California works to decarbonize, the growth in demand for geothermal energy could provide an influx of well-paying jobs and political attention to the Imperial Valley.
Michael McKibben: The state public utilities commission just asked for 1000 megawatts more of geothermal energy and the only place that can be supplied by really is the Salton Sea geothermal field. So they may have to double or triple the number of geothermal powerplants down there over the next decade to satisfy the demand for renewable energy.
Tamara Winter: This could be an avenue to even more green industry. More geothermal plants means more potential for lithium extraction. But extraction is only the first step. Currently almost 80% of lithium ion batteries are made in China. If lithium extraction at the Salton Sea is successful, it is entirely possible that the area will become the ideal location for large scale domestic battery production. All of this potential is politically attractive. Presidents from both parties have championed the idea of “energy independence” for decades.
Gerald Ford: Good evening. Last January 15th I went before your senators and representatives in congress with a comprehensive plan to make our country independent of foreign sources of energy by 1985…
Ronald Reagan: ...technologies and more independence from foreign oil.
George H. W. Bush: ...there is no security for the United States in further dependence on foreign oil. [Cheering]
Bill Clinton: I have repeatedly called in this campaign for more energy independence for America…
George W. Bush: One of the greatest results of using hydrogen power of course will be energy independence for this nation.
Barack Obama: We are closer to energy independence than we’ve ever been before…
Donald Trump: We have energy independence right now…
Joe Biden: …quote “energy independent” which is a phrase that’s thrown around…
Tamara Winter: Energy independence. A political catch phrase that is so popular because it can mean, well, almost anything. Does it mean opening up protected lands for oil drilling? Expanding fracking operations? Investing in wind power and solar arrays? Well, depending on who is speaking it could be any of those. Or all of them.
But the underlying desire for stable, domestic sources of energy makes a lot of sense. And as the globe transitions to green energy, the benefits of significant domestic production of lithium and lithium batteries will only grow.
The question remains: will lithium extraction do what no other industry has accomplished and bring political attention and well-paying jobs to the Imperial Valley?
Archived audio: Infrastructure turned this desert into productive farmland, but young people…worry that there’s no political will to help this delicate ecosystem and the families who live here.
Tamara Winter: For decades the communities near the Salton Sea have heard government promises of investment. And while there is a lot of hope about what lithium extraction could mean, there is also some understandable suspicion.
Person 1: Anecdotally after windy days we see a lot more asthma patients coming in.
Person 2: Myself and my family developed asthma while living here.
Tamara Winter: Childhood asthma rates are more than twice as high in the area around the Salton Sea than in the rest of California. As the sea continues to shrink…
Archived audio: This area used to be water…but now obviously it’s dry here and the shoreline is hundreds of yards in this direction.
Tamara Winter: …more and more fine dust particles are exposed. And risk rises. The hope is that, through lithium extraction, not only will the area receive an economic boost, but that efforts to restore the area will also gain attention and urgency.
Roy Durantes: For a very long time the state was the number one entity working to restore the Salton Sea and to be honest with you things were going very slow.
Tamara Winter: Roy Durantes is a former news producer and the founder of a group called “Saving the Salton Sea.” He’s also the director of the Salton Sea Film Festival, which gives local youth the opportunity to document their experiences of the area.
Roy Durantes: I am not an expert. I am just a concerned resident. I know some people who suffer asthma. And one of my very close friends had some asthma seizures. The playa dries, all these contaminants that have been dormant there for practically 100 years could dry up and become airborne could become dust and go into the region and into people’s lungs.
Tamara Winter: Durantes worries that the speed of the state’s response does not match the rate at which the environmental disaster is escalating.
Roy Durantes: If you look at the playa exposure. This thing, man, is drying. It’s almost like in a race to dry up and we’re in a race to stop it from drying up because we don’t want to turn this into a ghost town.
Tamara Winter: But there are still open questions around what lithium extraction will mean for the Imperial Valley.
One thing is certain: lithium operations will grow in coming years. Global demand is expected to rise by over 800% in the next decade. So as this new layer of energy infrastructure is being created, it’s important to ask the right questions. At the Salton Sea, an area that has seen economic and political promise come and go, all these questions are playing out in real time. As Dr. McKibben explains…
Michael McKibben: So part of the challenge to the geothermal companies and then those of us who are doing research down there is to educate the public about what’s going on and to help them understand that this is not traditional lithium mining that we’re talking about.
Tamara Winter: A little bit like the L.A. Times in 1966 envisioning the area as the next Palm Springs, there is a potentially thrilling future in the making at the Salton Sea. One where lithium extraction is a success, battery factories are built, well-paying jobs flood the Imperial Valley like the Colorado River waters, and the environmental crisis at the Sea is contained. That’s a future Roy Durantes can see.
Roy Durantes: What’s important is the thousands of families who are here. The thousands of kids, the thousands of people. My hope for the area is that the Salton Sea is restored so that it becomes a place of business. A place of industry. A place of recreation. A place of economy. A lot of us are very expectant and very hopeful. We want to see something happen. We want people to bring in solutions.
Tamara Winter: Beneath the Surface is a production of Stripe Press. The senior producers for this series are myself and Everett Katigbak. This episode was produced by Jack Rossiter-Munley. Whitney Chen was our production manager. Our sound mixer and sound designer was Jim McKee and we had editing support from Astrid Landon. Original music for this episode was composed by Auribus. To learn more about Stripe Press, our books, our films, and more, visit press.stripe.com
That’s it for this episode. I’ve been your host Tamara Winter. This is Beneath the Surface.
Episode 02 B-side
Interview with Audrey Carleton
Tamara Winter: Welcome to Beneath the Surface B-sides where we bring you full interviews with infrastructure experts. If you listened to the second episode of this podcast you heard excerpts from my interview with Audrey Carleton. She is an environmental journalist and multimedia producer who writes for Motherboard, the science and technology arm of VICE. She covers all aspects of the global transition to green energy.
In our conversation she discusses the potential for lithium extraction at the Salton Sea. She also draws on her experience covering the oil and natural gas industries to help explain why local environmental and social justice groups have reservations about the lithium operations. So without further ado, here is a lightly edited version of my conversation with Audrey Carleton.
Tamara Winter: So Audrey, why are we talking today?
Audrey Carleton: So we’re talking today because a couple of months ago, General Motors, which is America’s car maker, basically, struck up a deal with a company called Controlled Thermal Resources to mine for lithium for lithium ion batteries to go in electric vehicles. For context GM made this first-in-the-nation commitment to phase out all of their gas-powered cars by 2035. And you know, they’re really sort of trying to carve themselves out as a leader in the, in the EV space in doing so. And in order to make that happen, they’re gonna need a lot of lithium. So they have staked out this area with Controlled Thermal Resources in Southern California called the Salton Sea which is a really interesting place because it’s this very toxic, very salty lake. It’s, it’s just a interesting place. And there’s a lot of kind of sociopolitical dynamics going on here, but essentially the goal is to mine for lithium using existing geothermal power plants and use that lithium to create EV batteries and achieve this goal of, you know, being all electric by 2035.
Tamara Winter: So you recently wrote about Salton Sea. Tell me a little bit about that.
Audrey Carleton: So back in July, I wrote this story for Motherboard on the Salton Sea becoming sort of this new quote unquote “lithium valley” through this deal that General Motors has with Controlled Thermal Resources.
Tamara Winter: So Audrey, what is the Salton Sea?
Audrey Carleton: So the Salton Sea is not actually a sea. It is sort of a lake. And it’s kind of an accidental one. It was created in 1905 as kind of like an offshoot of the Colorado River. So essentially the Colorado River spilled out of its irrigation system into this one kind of reservoir in the very southern tip of California near Baja. It’s also kind of near Joshua Tree, if you’re familiar with that area. It sits around 200 feet below sea level. And it doesn’t have an outlet. So there’s, you know, water kind of flows into it from the Colorado River, but it doesn’t flow out of it. So it just kind of sits there and the way that the water level is managed is water kind of evaporates off of it.
And that process leaves behind a lot of salt and a lot of minerals. So it’s become, over the years, incredibly salty, I think somewhere around 50% saltier than the Pacific Ocean. So it’s not the most habitable place for animals or people. It’s in the middle of the desert, but you know, it’s, it’s a really kind of interesting, interesting area from a social kind of demographic standpoint. I believe the last numbers I saw on unemployment in the region were around 20%. So pretty high. So, you know, I think we could call this in, in one future day, if, if this does become a real lithium hub I think it will be a place where environmental justice questions are like really at the forefront of who’s involved in the economic boon that this creates, who kind of benefits from it and who is potentially harmed. I think there are a ton, a ton of interesting questions, all kind of hovering around this area. And after I published this story for VICe, I will admit, this is probably the one story that has gotten me the most, the most response, because this is like an extremely hot button controversial issue.
Tamara Winter: I want to get back to some of that after we set some context for folks who may not be familiar with things like what lithium even is and why Salton Sea is, is so toxic. So Audrey, what is lithium?
Audrey Carleton: Sure. Great question. It is an element, you might remember it from the periodic table and it is a key ingredient in lithium ion batteries. So specifically, it’s extremely conductive. What that means is it has an extra electron on its outer shell and that electron because it just has the one it wants to be moving around and glamming onto other elements and creating bonds and in bouncing around so much, it creates an electrical current. So it’s highly conductive and when it’s shoved into batteries, it makes, you know, a really strong electrical current. It’s also unbelievably flammable. So these lithium battery fires are kind of a growing issue that we’ve also been working on at VICE. It’s, it’s because it’s so conductive, it’s really hard to put out and fires kind of spread in this crazy way because this one electron just wants to glam onto other things and they can be really hard to control.
That’s a little bit tangential, but you know, lithium is, it’s been called white gold. It’s kind of this like crucial element in the move towards electric vehicles and the move away from oil and gas because we need batteries in order to create electric vehicles and to create battery storage. Batteries will be the key to holding onto the energy that’s generated from wind and solar. In, you know, in kind of building up that infrastructure. It’s super important. I mean, one of the main kind of counterpoints that people always say about wind and solar is, well not everywhere is windy and the sun is only out for half the day, less than that during wintertime. So how are we going to, you know, generate constant energy storage or have sort of a constant, reliable energy source if these things are not around for, if they’re only around for a short amount of time and the answer is, is batteries you generate electrical current and you store it into a battery and then that’s, you know, used for later, but we need to be creating batteries and mining for minerals or elements like lithium in order to do that.
And, you know, lithium’s a crucial one and it’s got a, gotten a lot of attention, but there are other elements that have kind of been that are like essential to battery creation too. Like cobalt. But it’s sort of the big one.
Tamara Winter: How is lithium mined typically?
Audrey Carleton: Sure. Yeah. So Lithium’s kind of an interesting element. It doesn’t exist in a pure state in the earth. That’s usually glommed on with you know, another element. So it’s often mined in this process called open-pit mining, and thisrefers to the kind of technique for mining. And that’s used also in like coal mining and mining for lots of other things, but specifically with lithium, essentially what happens is a few feet of earth is dredged up. Usually open-pit is used and with open-pit mining, this is usually done with whatever the mineral or element that is being mined is pretty close to the surface of the earth. So you just kind of just dig up some earth. A few feet, few hundred feet. And create an open space, and that will make way for the minerals that you’re looking for. This process is done with coal mining for example, this is the same process that leads to mountaintop removal which is extremely controversial and really environmentally destructive.
But with lithium mining, it’s, you don’t quite have to go that deep, it often creates these sort of flats. They kinda look like salt flats. You may have seen, you know, like these aerial images of lithium mines, they’re these kind of vast greenish whiteish kind of, honestly like really beautiful looking mines. And what happens is when that earth is dredged up, it gives way for this sort of salty, muddy briney stuff that then the water is evaporated off of it. And that leaves just the minerals behind. And then those are distilled and lithium is taken from it. And this is done typically, I mean, there’s, this is sort of a new thing for the U.S., but there’s this one region in South America called the lithium triangle in Chile, Argentina, and Bolivia.
And there’s these massive lithium mines there. And that’s sort of the process there is open-pit mining and the one consequence to this, the few consequences to this is that it’s very water intensive, it creates a fair amount of mineral waste. And, you know, the health consequences of being around open-pit mines are sort of unknown. There’s this one lithium mine in Nevada, in this region called Thacker Pass that’s gotten a lot of attention and been very, very controversial because it would sort of require doing this same process and dredging into this one mountain. And you know, I think a lot of concern around this process is valid because we just, you know, it’s relatively new, we just don’t know a ton about it. So we, it’s sort of, it’s sort of like a new frontier, like a new unknown, what, what it’s gonna, you know, what kind of consequences it’s gonna hold for the people who work in this industry and the people who live nearby it.
Tamara Winter: And I am gonna jump out of order here, but I’m curious how CTR’s process differs from open-pit mining.
Audrey Carleton: Yeah, sure. So, Controlled Thermal Resources has proposed a slightly different process from the typical sort of open-pit mining process. The Salton Sea is already home to a number of geothermal plants so those are power plants that take heat and steam from deep beneath the earth. It’s kind of the same heat and steam that you might see in a geyser, and it’s a renewable resource. I mean, we will always have these stores of heat underneath the earth. And you know, these geothermal mines take this up and generate energy from it and then pump that back into the earth. So it’s renewable. What CTR has proposed is taking brine as a byproduct of these power plants and extracting lithium from it, and then sending that same water back into the earth. So it’s essentially taking a byproduct of an existing energy generation process and taking a mineral out of it and then returning what was already going to be going back underground into the earth.
The company has been firm that this process is less water intensive and less wasteful. And generally just kind of better for the environment than open-pit mining and requires a lot less in terms of land use. Because that’s another thing with mining is that it uses a ton of land and you know, like maybe years down the line, we’re seeing this with coal mines, at least in the infrastructure package, there’s sort of a push to reforest old coal mines and that’s possible, but it takes a lot of work. And so that’s one, one other consequence of, of traditional mining is just how much it takes in terms of land. And you know, that is land that takes a lot of work to get it back to the way that it was or if you even can get it back to the way that it was.
So, you know, this process kind of takes advantage of existing infrastructure. But that said, I mean, they’re still working out the kinks of what exactly this is gonna look like and, and what they need to build and what they need to create in order for, you know, this, this lithium valley or this, they calling it ‘hell’s kitchen’. This region of California to become a real lithium mining area. They’re still kind of working out what that’s gonna look like in terms of infrastructure. So the land use question is kind of still, it’s still there.
Tamara Winter: And I know you touched on this a little bit earlier, but I’m going to ask it again. What companies right now are really interested in mining lithium in Salton Sea?
Audrey Carleton: So General Motors is kind of the big one that’s staking its claim in this region, but California has created a commission, the Lithium Valley Commission, to kind of oversee the process and turn this area into the home of an industry. I think of it as like a second Silicon Valley, because the names are so similar, but General Motors is kind of paving the way. So they made a first-in-the-nation commitment to phase out all of their gas-powered cars by 2035. And you know, because they’re like the American automaker and you know, they’ve made this, this kind of first commitment to be all EV by that period of time, they are really kind of setting a standard for other automakers. It’s going to say, if this works, it’s going to say to other automakers, look, we can do this, here’s how you can do it as well, we can live in an electric vehicle country, you know, within, within a reasonable amount of time. And it could turn this area into a real hotbed. It could really make this part of California, like an actual lithium valley, you know? So I think it’ll be interesting to see what happens. But we’re still a couple years away from that because the deal, you know, with this one mine is still kind of being figured out.
Tamara Winter: Why is it so important to mine more and more lithium? Why is there particularly such interest right now?
Audrey Carleton: Yeah. That’s a great question. So lithium is a crucial element in the creation of batteries. And batteries are going to be essential in the transition away from fossil fuels because they hold on to energy that can be, you know, kind of created at any time and they make broadly speaking, they make renewable resources more reliable and more sustainable. Wind and solar are often kind of critiqued as being unreliable resources because the sun only shines for a certain amount of time every day and the wind is not everywhere, not all parts of the world are windy, and the wind doesn’t blow all the time. It doesn’t blow at the same speed. So how can we rely on these resources?
Well, the answer is with batteries. By taking that energy and storing it somewhere, we have it to use for later during periods when it’s nighttime or periods, when it’s, there’s not as much of wind as a resource, we have that energy that we can rely on. With electric vehicles specifically, what that means is that each car has a battery and that gets plugged into a charger, but the energy that that charger pulls from the grid can come from any number of resources. So it’s kind of a mix right now. It could come from oil and gas. It could come from renewables, but the goal is to transition the entire energy grid to renewables and be able to pull energy from that and store it in cars with batteries. Batteries are essential for everything for the broader kind of transition to renewables. They’re essential for cars because they eliminate the likelihood that you’re using fossil fuels to power your car, because the energy that you’re pulling and storing in that battery could come from any number of things. As long as it’s energy, it can be stored in a battery, essentially. It’s just electrical current.
Tamara Winter: Are there environmental risks to lithium mining?
Audrey Carleton: I mean the main things are the land questions, the land use questions and also the water that’s required. And the waste. So those are the three big ones is that it’s this process that just requires a lot of water to generate, you know, to pull minerals out of these briney kind of flats. And it, you know, requires a ton of land. A lot of land has to be staked out to create these mines. And in, you know, like Thacker Pass that’s land that’s on the top of a mountain. It’s also land that is on and near Indigenous communities. So that’s very, you know, valuable, culturally valuable and really, really important land.
It’s the water, it’s the land and it’s the waste. There’s a lot of mineral waste that’s generated in this process as well. So, you know, CTR, Controlled Thermal Resources aims to kind of cut those out of the process by just using a byproduct of existing infrastructure. But it’s also kind of a new technology that they have created.
Tamara Winter: And who lives in and around Salton Sea?
Audrey Carleton: The community around the Salton Sea is fairly low income. Historically on average, there are a lot of Latino communities in that region. And this would be, if this goes well, and the jobs were given to people in this community, it would be a real boon. I think from what I gauged when I was reporting on this story there is a fair amount of distrust because there were some solar projects that went up in the region a few years ago that did not end up having the jobs go to the community. That’s sort of historically how these things go. I mean, solar’s a little bit different and renewables we’re still kind of learning, but with oil and gas projects, often what happens is, you know, a pipeline will go up or oil wells will go up, or drill rigs. And the people who work on those rigs are often not people from the community. They are people who work for the company and travel around and go from region to region. And so that’s how you sort of hear about these like abandoned or these sort of ghost oil towns in, you know, in the Permian Basin in Texas is, the industry will kind of move into a region. It will be a huge boon that helps all sectors of life. I mean, the value of everything goes up when there’s a resource like this that’s so valuable and, and becomes such a part of the economy. Everything from like haircuts to like how much your coffee costs, everybody’s just making more money for that short amount of time. But then once that resource dries up, those workers move away, they go onto a new place.
That’s also how you hear about these, these sort of man camps of workers who kind of move into this region and work for a period of time and then move to the next one with their company. That’s sort of the trajectory that we’ve seen with fossil fuels. I think there’s still a lot that we’re seeing around the construction of all renewable infrastructure, including mines for elements like lithium. But I think the number one concern that anybody has when something like this pops up in their region is who’s going to be benefiting from it. And if this doesn’t become something that could lift up the community around the Salton Sea and flow cash into it and really become an economic boon for that region and the people that have lived there for decades then it’s kind of like, who’s it for?
What are the consequences, what are the trade offs, what’s being sacrificed in order to make this happen? And, you know, if this mining typically is not great, I mean, mining is like kind of a dangerous, dangerous process. Coal mining we have seen comes with like countless health consequences and lithium mining is still kind of being studied, but you know, if there are harms and those harms are kind of inflicted on the people who live in that region, but at the same time, they’re not really given, you know, the local jobs then that’s like a really unfortunate trade off. That’s a really, really unfortunate situation. And it would be kind of an injustice for that to happen.
Fortunately, it’s looking like that’s not going to be the process, but I think that is the fear. And so, you know, the folks that I talked to when I was reporting this story out said that people in the community hadn’t really been informed of the mines going up, but were open to being part of that. If it was something that was, that proved to be kind of a financial boon for the region. But you know, they just kind of want to have a stake in the process. And that’s why this Lithium Valley Commission is so important. It’s kind of a multi-stakeholder body. It’s got you know, folks from the company. It’s got folks from the local government in Imperial County in California. It’s got a couple of members from like local community development organizations and nonprofits on it. So it really does have a lot of different voices at the table. And you know, I think if this mine comes also with something like training programs for folks who live in the region and you know, kind of job development programs, then we could see this be something that really does benefit the whole community. But you know, that’s, I think the nuances of that are still are still being worked out. And the one government official who I spoke to in Imperial County when I was reporting this story out, said that so far, you know, I asked him like, does it seem like, you know, the voices of people who live in this region are really gonna be heard, like who has more say, you know, on this, on this panel. And he was like, well, everybody’s getting along for now, so… which is good looking out in the future, but we’ll see. I mean, there’s just any number of directions this could go.
Tamara Winter: Wow.
Audrey Carleton: I think a lot about the term like ‘sacrifice zone’ which is one that’s commonly used to talk about oil and gas projects. And even in Brooklyn, there was this pipeline that went up, has gone up over the last couple of years. And that term was kind of used a lot, was like you know, this region is a ‘sacrifice zone’ for this infrastructure. With pipelines it’s a little bit different because it’s kind of like, you know this infrastructure just runs through your area, but it doesn’t really create any jobs other than the jobs that are required to build it in the first place. But then once it’s built, it’s kind of built. With a mine it’s a little different because I think you know there’s a more steady kind of flow of work involved in that process.
But yeah, I mean, nothing is really guaranteed and we see this all the time with fossil fuel projects where, you know, there’s been some semblance of input from a local community that for example, like really needs funding for education or really needs funding for a certain, you know, social good. And so when they get the chance to kind of tap into something like, you know, some sort of resource that’s really, really lucrative then they’ll often, you know, leaders will ultimately decide to say yes to it, but it’s a trade off. Because it does come with health consequences and then often that, that doesn’t end up panning out the jobs.There’s no commitments or no contracts that say the jobs have to go to people who live in that region. So these are kind of promises that are often made in the first kind of planning stages of a project, but aren’t ever really kept.
That’s not to say that’s always what happens, but it is a very distinct possibility with any project that you know, it’s not that this trade off ends up being like the people who live here and have lived here forever, and for whom this is really their home and their community, they don’t get any of the benefits of this. In fact, they just get an influx of people from outside who come and that can lead to all kinds of things. It can lead to displacement/ I mean if we compare this to the Silicon Valley and look at the displacement that happened in Northern California as a result of that. You know, that’s a distinct possibility here. But mostly, I mean, when I think about these things, I think about the health impacts cause there’s pretty much no form of resource extraction that comes without any kind of health consequence for the people who live near it, whether that’s like air pollution in particulate matter and asthma or you know, ingesting like runoff and toxins that have leached into your waterways.
Like all of these things come with consequences. And so if it were to be that the community and the Salton Sea only kind of gets those negative consequences and none of the benefits, none of the economic benefits that they’re saying, you know, they’re expressing interest in, that they’re saying that they want, then, that would be like a huge injustice. But I mean, if I’m being frank, I think it’s one that like a company like General Motors would be able to get away with because oil and gas companies have been doing this kind of thing for years. And there’s only recent attention to environmental justice as a concept. But you know, there’s nothing that would, I don’t know, I guess I’m just cynical. I think that the company would probably be able to get away with it.
Tamara Winter: I don’t know if I totally disagree, you know, I hope that people will keep writing about it and talking about it. And I do wonder if the tide is turning a little bit. But yeah, I don’t, I don’t know if we have like full, like a hundred percent reason to be optimistic. I know, I’m going to wind get this down and basically just ask you one, is there anything that I, that you think is really important that I, or listeners of the podcast should know that we haven’t talked about?
Audrey Carleton: I feel like we’ve covered a lot of stuff. We’ve covered a fair amount of ground. I would say, I just think this is going to be a new, massive frontier in kind of the energy transition. There are probably going to be mines popping up all over the place and other mines. I mean, this one is not as controversial, but the Thacker Pass Mine in Nevada has become like wildly controversial and sort of represents this new intense kind of question of like, what are we willing to sacrifice in order to get to a renewable economy and whether we can kind of maintain the scale of consumption that we’re at and still, you know, avert the climate crisis. Like I think that this question around lithium is so interesting from an environmental perspective, but also weirdly like a philosophical one because you know, we have certain needs that we, as a species have gotten used to having like heat and electricity and cars and the ability to travel and the ability to shop and go places and mail people things.
And if we want to maintain that, we’re gonna need an energy source, but no energy source comes without consequences. So it’s kind of just about minimizing those things. And I think this is a really interesting time to be looking at this right now because it’s so new, but I think that we are only going to continue to see more mines and more protests and more lawsuits against companies that are aiming to mine. And I also really staunchly believe that if we want to see a just transition, that means that we cannot treat people and the earth in the way that the fossil fuel and the coal industry has treated people and the earth. And, you know, those processes of permitting plants and permitting drill rigs and stuff and oil wells historically have been rife with violations and like, you know, like bad things happen in oil fields every day.
There is illegal dumping all the time, you know, like this is a really, really difficult space to regulate. And I think if we want, you know, our new renewable economy to not come with some of those negative things, we need to hold these companies that are leading it to account. And so I think this is gonna be just like a really interesting sign of where we’re at in terms of that to see, how the creation of these minds play, plays out. And I think it’s like a really interesting, the Lithium Valley Commission and this one community and, you know, the kind of dynamics, the political dynamics at play here are really kind of interesting litmus test of that.
Tamara Winter: Absolutely. Audrey, thank you so much for this. I learned a ton. I read your article, which is fantastic, but I learned a ton in just talking with you. So I’m so grateful that you took time to chat with me. I really appreciate it.
Audrey Carleton: Yeah. Thank you so much.
Tamara Winter: Beneath the Surface is a production of Stripe Press. The senior producers for this series are myself and Everett Katigbak. This episode was produced by Jack Rossiter-Munley. Whitney Chen was our production manager. Our associate producer and editor was Astrid Landon. Our sound mixer and sound designer was Jim McKee. Original music for this episode was composed by Auribus.
To learn more about Stripe Press, our books, our films, and a whole lot more, visit press.stripe.com.
Alright, that’s it for this B-side. I’ve been your host Tamara Winter. This is Beneath the Surface B-sides.
The Industrial Ballet: An Investigation into Global Supply Chains
Tamara Winter: The global supply chain is like an industrial ballet.
An intricately choreographed dance of manufacturers, distributors, and transportation infrastructure that physically moves materials and products across the globe. However just like a ballet, when one dancer stumbles - the whole production can go sideways very quickly.
Archived audio: This is what the traffic bottleneck looks like at the ports of LA and Long Beach.
Tamara Winter: In the fall of 2021, with holidays fast approaching, a record number of ships sat waiting just off of the Port of Long Beach, California, unable to unload billions worth of cargo. Fifty miles north in Malibu, the pristine coastline looked more like the area’s notoriously congested freeways. Cargo ships also stretched south, some 100 miles or so towards San Diego, not too far from the border of Mexico.
Archived audio: The backup is mostly due to a surge in imports because of the coronavirus pandemic.
Tamara Winter: Online sales increased more than 30% since the beginning of the pandemic, and continued to rise throughout 2021. Local lockdowns, and physical constraints on workforces, compounded the problem until, in the lead up to the holidays, it reached a breaking point.
Archived audio: The complex delays at the nation’s busiest ports, accounting for 40% of the country’s container traffic, affects consumers from coast to coast.
Tamara Winter: One person monitoring the situation closely was Ryan Petersen, CEO of Flexport, a technology platform for global logistics. When he heard the news stories about the backlogs at California ports, he took action.
He hired a boat, toured the ports, and then he took to Twitter. In 30 tweets he laid out his five-point plan to ease the bottleneck. Soon he was on the phone with California Governor Gavin Newsom, and Long Beach Mayor Robert Garcia was implementing some of his recommendations. So how does someone end up writing what came to be known as “the tweetstorm that saved Christmas”?
Welcome to Beneath the Surface, a podcast series from Stripe Press all about big ideas in infrastructure. I’m your host Tamara Winter and today we are sitting down with Flexport CEO Ryan Petersen to understand how he thinks about trade, the way he understands the intersection of government and technology, and why he founded Flexport in the first place. We cover a lot of ground talking about everything from ancient trade routes to what Flexport is doing to help during the present crisis in Ukraine. I hope you enjoy this conversation with Ryan Petersen.
Tamara Winter: This is a really long time coming. I almost feel like the hipsters, like I knew you before, my dad was reading like cover stories about you. People now know you for donating lots of money to Ukraine or saving Christmas, but some of us, some of us have been here before that. Maybe we’ll start with what is Flexport?
Ryan Petersen: Well, Flexport is a technology platform for global logistics. We make it possible for companies of any size to ship anything anywhere.
And simply that process try to bring kind of utility grade infrastructure to an industry that’s kind of taped together by duct tape and emailed Excel files and PDF attachments and stuff. And we can make this seamless, our mission is to make global trade easy for everyone, but we want to make trade so easy there will be more trade as a result of when we’re finished. 20 years ago, I ran a small business buying products and China and selling them on the internet and was very frustrated by my experience, dealing with logistics and felt just like…George Bernard Shaw says every profession is a conspiracy against the laity.
And it felt like that, like anytime I dealt with these companies, it just seemed like there was, nobody could tell me where my stuff was, how much it was gonna cost, whatever they told me, ended up costing more, a lot of really confusing paperwork, regulations, documents that were needed, data that needed to be collected and shared with the governments and stuff. And it just, nobody was there to hold my hand and make this easy for me.
And it’s an industry full of code words, acronyms and Viking English, weird language is used all the time. And kind of like an all boys club, literally an all boys club, there’s lot of men working in this industry. And like, it’s very hard to parse as an outsider. When you’d ask someone to explain it to you—my working model now that I’ve kind of been on the other side is that I think that the industry treats these words, these acronyms, this lingo, as kind of a rookie detector.
And it’s kind of icky. Like I want to work with companies that just want help people. And it should be a really fun industry. You get to help entrepreneurs, you get to help businesses achieve their goals, right?
But it’s so important. Like we probably lifted a billion people outta poverty in the last 50 years through free market economics and adoption of global, free trading type policies around the world. And yeah, it’s like, here’s something that’s really important, interesting in my view, fun and really broken. It’s like, it’s a good heat map for where you should go work and what you could, what, where you could like build a career and do something interesting.
Tamara Winter: In a word, the thing that you’re fixing is transaction costs, it’s funny. I was born in Nigeria and every time I go back, my mom’s like, “Look, if we’re at the market, don’t say anything”, because as soon as I do, it’s like, you sound like an NPR host, I’m immediately gonna charge you, you know, 40% more or whatever.
Ryan Petersen: This is when you go back now?
Tamara Winter: Yeah, exactly. Right.
Ryan Petersen: How old were you when you left Nigeria?
Tamara Winter: Two months. I just want to get into, you know, you live and breathe logistics so much so that, tell me about your daughter’s Halloween costume last year.
Ryan Petersen: Well, my wife gets all my credit for this. We dressed my daughter, she made a wagon into a container ship, like a little radio flyer wagon, and made it into the Evergiven container ship. And we dressed my daughter like a sailor and had her drive, you know, ride around and pulled her around in that thing. And we even at some point blocked traffic with it.
Tamara Winter: [laughs] But I’m sure nobody minded because it’s like this beautiful little girl just being driven around.
Ryan Petersen: It was super fun.
Tamara Winter: Tell me about, so we talked about, why you started, how you got to starting Flexport, but I wanna go back even earlier. What was your upbringing like? How does somebody raise a child that goes on to, you know, I don’t know, save Christmas?
Ryan Petersen: [laughs] Saving Christmas. So my mom is an entrepreneur actually. And she’s an expert on food safety and like regulations, the intersection of food safety and government regulations. So helping companies to comply with food safety regs and, and build healthier food supply chains. I do kind of think she raised my brother and I to be entrepreneurs. We used to get our allowance by delivering sodas to her office. And like we had to sell them, we would buy the sodas at Safeway or something, sell them to her office and make, you know, make a spread.
Tamara Winter: [laughs] And then that was your allowance?
Ryan Petersen: Yeah, that was how we got allowance. It was good money. She allowed us to overcharge her for the sodas. We’d go to Costco and buy, blow pops in bulk. And I’d sell them to all the other kids in my middle school. I don’t think at the time I was thinking about entrepreneurship, obviously, she never talked to me about that, but both my brother and I became entrepreneurs.
Tamara Winter: It’s interesting how many parallels there are to different parts of the series, but the very first episode with Mwiya who is building a city in Zambia, his father was like one of the chief architects of Zambia’s finance ecosystem, but his mother was an entrepreneur.
Ryan Petersen: Yeah, my mom’s a huge influence on me. My brother’s probably even more so. My brother’s a born entrepreneur too. And, when I graduated from college, I didn’t have a lot of prospects for gainful employment.
Tamara Winter: Why?
Ryan Petersen: I don’t know, I went to UC Berkeley. I was really interested in international development. The question of like, why are some countries poor and some countries rich?
Tamara Winter: You didn’t want to become an economist?
Ryan Petersen: I didn’t have the skillset for that. And then no, I didn’t wanna do like a PhD in economics. Honestly, I’m very skeptical of it all. So my brother hired me working for this trading company.
Tamara Winter: Is he older or younger?
Ryan Petersen: My older brother, yeah. And he was a computer programmer at Intel and he was taking his salary and using it to buy stuff in China and sell it on the internet. Just like very entrepreneurial. This is, late nineties, early 2000. So there was a tech startup scene, but we weren’t part of that. It was like just a couple kids trying to make some money.
Tamara Winter: And are you from Berkeley?
Ryan Petersen: Bethesda, Maryland. Washington DC.
Tamara Winter: So this is interesting because you are sort of like right in the heart of government. And you’re in Bethesda. And for anyone who’s listening, who doesn’t know about Bethesda, Bethesda is where sort of the children of bureaucrats grow up.
Ryan Petersen: Well, my dad worked at the National Institute of Standards and Technologies. My dad’s a computer programmer actually, wrote his first code that was like in production, in use in the seventies when he was working, it was actually evaluating Soviet defense. Eventually my mom started this business that does food safety and she needed software to evaluate risk of pesticides and applying like, okay, if we use this pesticide, what will happen based on the dietary data of the whole United States population? What’s the safety implications of various pesticides? And so he wrote that software. And that’s still the software that the U.S. government uses to evaluate pesticide risk assessment in the United States, is written by my father.
Tamara Winter: So in some ways the marriage of government and technology or commerce is just like a very natural one for you. I’m curious about your philosophical influences. I mean, I’m hearing some like Hayek in what you’re saying. I was looking at some of the books that you recommended and I mean, they’re everywhere from The Goal to just like interesting philosophical read. So tell me, who are the sort of intellectual influences on how you think?
Ryan Petersen: The thing I love about reading is like, if, if you’re reading good books, every good book you read should point you to like two or three more. I don’t think I ever really read a book by the way, cover to cover on my own until I was about 25 years old. I’m serious. I like hacked my way through college and like, you know, found the Cliff Notes or whatever.
When I was 25, I was living in China and running this sort of business that would export products from China, studying Chinese in the morning and exporting products to sell in the United States.
I was living there and all of a sudden books became incredibly scarce and I was kind of bored. I didn’t have that many friends. And so when, you know, there’s not a lot of English bookstores at that time. In the part of China I was living. So I would go to Hong Kong and buy like a backpack full of books and bring ’em back. And so that’s when I really became a reader. I think I read over, over like 75 books in one year that year. And it’s become a real passion of mine. The biggest influences, I think that the aha moments where I was like, whoa, this changed my worldview, probably like Richard Dawkins and reading The Selfish Gene and understanding something about evolution and genetics.
And then building from that is a book that really changed my worldview is called Complexity, Waldrop is the guy’s name. And it’s about complex adaptive systems. And this idea of feedback thresholds of complexity, when a system has enough interacting parts that at some point there’s this threshold of complexity it reaches, and it has emergent properties and it changes. So take hydrogen and oxygen. It’s pretty simple, but if you put them together, at some point you get enough of these molecules together and you got the emergent property of wetness of water, but there’s nothing about hydrogen or oxygen that if you looked at them, you would say, oh, this will—there’s wetness here. Like, no, it happens at some level of complexity when you put enough of these together. And so that was the first book that set me on that.
And the one that I found that I really recommend to people, it’s not a book, it’s an Audible course called Big History. And it’s the application of complexity theory to the history of the world starting at the Big Bang all the way to the present. And then when you start to see that you can apply that in business is when it gets really fun. And that many, you know, it’s many of these things are just fascinating to watch, be able to apply an idea from one discipline to another. I think that’s where you get the most innovation is taking an idea from biology and applying it to business. Society tends to create specialists. And I really like being a generalist, understanding a little bit about everything and then you get creativity because you’re putting ideas from different disciplines that no one ever thought to combine.
And my most recent inspiration has been a guy named John Boyd who’s a military strategist and talks about, how do you manage volatility and chaos, which is something that the military has to be really good at. And what is, what are the attributes of an organization that in the middle of complete chaos fog of war, what’s going on here can still take decisive action and not be caught like in survival mode and fail. And I think that’s something I’ve been trying to apply a lot at Flexport because we’re in a lot of chaos all the time. And if we can make sure we’re still playing offense, like understanding what’s happening around us and taking decisive action and then learning based on our actions.
Tamara Winter: Okay. Tell me about trade routes. Maybe you can paint a picture for me sort of about the evolution of modern logistics.
Ryan Petersen: Oh wow. Oh, well trade is something there’s, there’s evidence of long distance trade between human beings that far predates even things like art.
Tamara Winter: Yeah.
Ryan Petersen: Possibly predates language like 10, 50,000 or more years ago, you can, you can find evidence that humans were transporting things over a long distance. It goes for a really long time, even like the invention of the boat. The invention of the boat happened in like Mesopotamia, where what they were actually doing is transporting goods down river. And what they would do is build these wooden boats, cover them with animal skins so they could float down river and then scrap the boat, but keep the animal skins and hike back and do that over and over again. That was tens of thousands of years ago, like before agriculture, even. So this is an ancient, really ancient industry.
I think you could probably date the more modern form with the age of exploration and sort of like Prince Henry, the navigator in Portugal. And actually you really wanna tie that to the Mongol invasions. So the Islamic empire kind of separated Europe from the east and they traded a lot, but the Islamic empires were in between and they were the middle man and they marked everything up like 10x and made a lot of money became rich doing that. And during the Mongol invasion, the Mongols came and defeated the caliphate in Baghdad and opened it up. And that’s where you get like Marco Polo, right, traveling to the east and kind of saw the riches of Asia and Europe for the first time was trading. And that was about a hundred year window when it was open.
And then it came kind of crashing back down. The iron curtain of the Islamic empire came back and Europe was like, wait a minute. We, like, we just saw, all those riches we wanna get in on these like cheap spices and all the other stuff, the silks and everything. And so it started with the Portuguese trying to find a way around Africa and they started, this is like the original kind of like technology industry. They had to build all kinds of astronomic instruments to be able to tell where you are. It was about, I want to say 1350 is when they really started that program.
And 1498 is when they rounded the horn of Africa and made it into India. Now, it’s not all beautiful. Like obviously there’s terrible things that happen. Like the first thing they did was kill a whole bunch of people who were on their way to the Hajj Islamic pilgrimage. It’s easy to kind of see yourself in these people. Especially as like a European descent person like myself, I’m like, oh yeah, I came from these people, but they were like really superstitious, very different types of people. They saw themselves in a holy war against Islam it was really, like reverse jihad crusade from the beginning. But very quickly they set up trading centers and the spices were like 1/1000th of price or something like that.
Maybe, maybe that’s a bit, but it was so much cheaper if you could go to the source and not just in India, but all the way to the Spice Islands, which is, I think, modern day, the Malukus or Indonesia. And so it suddenly became very, very rich. It was kind of the original venture capital that if you sent a ship to the Malukus and it made it back, you made like eight extra money and yeah, only half the people made it back, but you still got four extra money. You know, only half the ships made it back. So that’s kind of the origin. And I think where it really comes to the next level is in the, I want to say like one of the Dutch East India Companies, the first joint stock companies, or the first public company you could buy shares in was a shipping company, the Crown of the Netherlands and later England and France to the certain extent gave monopolies on trade and in exchange for, the crown would take 20%, but then if you wanted a trade with the east, only this one company could trade.
And so that was like 1700s, 1800s the East India Company, but there’s terrible things, of course: trading slaves, trading opium was big, we don’t want to pretend like all of the trade was always great and you do need regulations and there’s good reasons to have like all the rules that we have around trade today, but yeah, it’s a fascinating industry and it’s like really cool to be part of that today. Probably the most important thing, I would argue that the most important technology of the last 50 years is the shipping container. At least in terms of like lifting people out of poverty and unifying the world, creating globalization and yet, it hasn’t really changed. We still unload these ships one container at a time. It’s just like, there’s not a lot of innovation and it makes sense because it’s hard to change an organization, an institution, a way of doing things.
Tamara Winter: That actually sort of beautifully dovetails into what I wanted to ask you next. You know, most people tend to think of supply chains from a consumer point of view, right? So you know, earlier this week I ordered my favorite version of Clif Bars, this is a peanut butter banana one, and you know, I press some buttons on Amazon and it comes to me. So that’s the typical way people think about supply chains, but can you talk about how the supply chain affects the economy more broadly?
Ryan Petersen: Well, it’s the circulatory system for the economy. The supply chain can be a lot of things. It’s also the manufacturing and things, the raw materials, there’s a great paper called I, Pencil. You know what I’m talking about? I, Pencil?
Tamara Winter: I love I, Pencil. For anyone who’s not listening, the founder of FEE, the Foundation for Economic Education. It’s a great essay about trade, about how a pencil gets made called I, Pencil. Yeah.
Ryan Petersen: Yeah, yeah. And it’s basically the idea that like, there’s no human being that understands how you make a pencil and you couldn’t possibly make something simple as a pencil because you have to understand, okay, what is it made of? It’s got wood. It’s got like maybe rubber, some graphite in the middle and some kind of aluminum rapper. It’s like, okay, to make that, you need to understand how to cut down trees. Okay. How do you cut down a tree? You need a saw, okay, now I need to know metallurgy. It’s like right away, you give up. There’s no one, you know, of course there’s some people who know metallurgy, but now to make rubber, okay. I need to know how to grow rubber trees, do the little thing where they cut the slit in it, you know, capture the rubber, process it. The same for aluminum, same for graphite. And then create, I have no idea how they put the graphite inside the wood, but they have to do that too. It’s like, there’s no one who could do all of that. And then imagine that on an insane complexity of the modern economy, where everything is connected to everything else, and we all take it for granted. And that fundamentally it’s the supply chain. How does this connect to one another? How do we connect companies, people and the ideas that go into those products, right? Adam Smith has a great quote, he’s like, “I never saw a dog exchange a bone with another dog.” It’s something that only humans do.
And we depend on it to an insane degree. It’s what advances civilization and progress because every time two people trade with one another, there’s a mutually beneficial exchange. And so value is created from that process. I give you something that you value more than what you gave me, I think it’s a foundational aspect of like, how we rise up as a human civilization, as a, human you know, species.
I think it’s actually one of the dangerous things in globalization, is you lose kind of some of the uniqueness of different cultures and different civilizations and being uniquely good at something. Probably the most important economist, if not the most famous, is David Ricardo explained how this value creation takes place when two people trade. But if everybody has the same ideas, then all you get is like, oh, we have slightly different geographic attributes, geologic attributes, you have coal and we have timber or something. It’s not, not that interesting when all the ideas are the same. And you lose some of that if there’s cultural monotone, like all the civilizations have the same ideas. It’s not very interesting. I love to travel and I think I used to like to travel even more because the internet has kind of created a lot of monoculture. You can get avocado toast anywhere you want on planet Earth now, it’s like a sign elites are traveling in the neighborhood. I hate seeing avocado toast when I’m in some foreign country. And you know, you want to live in a world where there’s like more cultural diversity and I think it can lead to more interesting exchange of ideas and exchange of products and things.
Tamara Winter: There’s a great Verge article that I think about constantly called Welcome to Airspace. And it’s all about the Airbnbification of everything. The last time I was in Zambia, I just tweeted pictures. Like, where do you think I am right now? And I got like, oh, Miami, San Francisco. And I was like, nope, I am in Lusaka, Zambia. And it looks like I’m in Miami.
Ryan Petersen: Yeah. I bet you can get avocado toast there.
Tamara Winter: You actually can. And you know what? The avocado toast was some of the best avocado toast I’ve ever had, I’m still thinking about that avocado toast. Alright, I’m ready to talk about Flexport. What is the problem that Flexport was created to solve?
Ryan Petersen: It’s fundamentally that it’s too hard to buy products in another country and import them into a different country, ship them around the world, clear them through customs, get them delivered, where they need to go. And this is for businesses, like helping a company solve this problem that they shouldn’t honestly have to have this big bureaucratic department pushing paper to do the things, it should be automatic like, companies need to be really good at two things: make an awesome product that’s high quality at scale that people want—very, very hard, almost a nightmare to do that in this world—and then even harder in my view is be differentiated, like build a brand, a customer connection, sell the product. So supply and demand, right? It’s like the core attributes of a business. And if they’re doing all this other stuff like compliance and spending time on paperwork and shipping and routing containers and tracking things like, it’s not really value added work. It should be an automatic kind of utility scale, just reliable thing that’s out there. And that’s what we, that’s what we’re building. Very, very hard problem, because if you wanna ship a single, let’s call it a pallet of goods.
Tamara Winter: Yeah, I actually would love you to walk me through, you know, if I’m, if I’m the, you know, the Clif company, what actually does it take to ship this from wherever it was made now I’m kind of scared, to me in, in New York.
Ryan Petersen: Yeah, and so if you’re, if you’re making well, let’s say—I don’t know enough about Clif Bars, so I don’t wanna speak to, that specific company, but let’s say you’re making a pallet of some new, like cool hardware company, maybe these headphones right here. And you’re trying, they’re probably made in Shenzhen or thereabouts, in Southern China. And if you were to try to get those products made and shipped in a smaller batch, let’s take, because I want to show you it’s very normal to ship like a pallet of stuff. It should be even more normal than it is, except it’s really hard. But let’s say we’re shipping a pallet.
So we’re talking about like one meter cubed of stuff that needs to ship around the world and it’s going to be—okay, how many companies are gonna be involved in this transaction? I’m shipping this from, let’s say Shenzhen to St. Louis. Alright, I’ve got a pallet of stuff and it’s going to go by ocean freight to save money—air freight’s pretty expensive. I’ve got the factory that’s gonna pick these up. So I’ve got to send a truck to pick it up, bring it to a warehouse where it’s gonna be consolidated with other customers’ cargo, put into a container. I’ve got to find a container somewhere. I’ve got to then get another truck that takes that container to the port. A customs brokerage needs to clear it out of the port, out of the country. I’m now at seven companies involved in this transaction and I haven’t left the home country yet. Seven different companies. Put it on a ship is eight, clear it through customs on the other side of the world, bring it to the port, 10 companies, another truck picks it up, brings it to a warehouse. That’s 12 companies. Another truck brings it to your final warehouse for wherever it’s destined. I’m not even like in the store yet. Oh. And by the way, there’s a bank that’s providing a payment on this transaction, maybe it’s Stripe. There’s a insurance company that’s going to underwrite in case something gets lost or damaged in the way. So I’ve got like 13, 15 companies, very normal thing to have that.
Tamara Winter: And I don’t even have my headphones yet.
Ryan Petersen: Yeah. Your headphones haven’t got to the consumer, right. And so warehouse pick, pack and delivery. Fundamentally the problems come about because everybody in this chain is operating off of like a very local set of data of what can they see about the transaction. And yet they’re dependent on each other in a chain. Humans have to be involved in some of it. Compliance is at stake. You can’t just ship anything across international borders for good reasons. Counterfeit, drugs, arms, people, who knows what can be shipped, right? So you need these regulations. And so that’s the fundamental problem is how do we get data to the company that needs to do something, connect with that asset, with that truck, with that ship, if there’s an asset involved, show them what to do.
They need data to do their job. And then they have to tell us what they’ve done and share data back. And that’s, that’s fundamentally, what’s different. We call this business a freight forwarder. That’s what we call this industry that solves this problem. Because if you’re a startup making headphones, you definitely don’t wanna be dealing with 15 companies every time you ship your pallet of headphones. So you call a freight forwarder and then a freight forwarder deals with the complexity. I often joke it should called freight email forwarding because they basically just like email everybody and make it happen. And you don’t have to deal with that. What Flexport does differently is build interfaces, web interface, mobile interface, increasingly it’s about APIs and connectivity to software talking to software so that, that data can flow to and from these parties and get visibility at what’s happening, control over what’s happening, to help smooth that transaction, make it cheaper, make it faster. Hopefully we can route around disruptions in supply chain. We can find you better routings and cheaper, faster, more options and make that process better.
Tamara Winter: You have had an inside look, more so than most, into what part of the supply chain has broken down in the past couple of years, you know, there’s the like sort of evergreen headline in this, in these unprecedented times. What in the supply chain broke down? Can you just help me understand that?
Ryan Petersen: A lot of things, I mean, I think fundamentally what’s happened is that consumers really shifted their buying patterns rapidly overnight. When we all locked down and stop going to restaurants, hotels, bars, travel, all these things that are in the, what we call services, massages, like stuff that you just stop doing, tended to be services and we all shifted our spend onto goods. Income didn’t fall that much. A lot of people were out of work, especially if you worked in the services businesses, but the government really printed a lot of money and did a lot of stimulus. So people had money, money burns a hole in your pocket, you’ve got to spend it you know, you’ve got to get your dopamine somewhere. So people just kept buying stuff on Amazon and elsewhere, e-commerce went crazy. So you had this big shift from services onto goods and with all those goods purchases that just put incredible stress on our supply chain, manufacturing companies and couldn’t keep up. And so a lot of things kept breaking down.
On logistics, it’s a simpler story. We just didn’t have enough infrastructure, not enough containers, not enough chassis—these are the trailers that haul containers—not enough drivers for the trucks, not enough container ships, the ports that we have didn’t have enough throughput to keep up with all the excess volume. So like volume of containers is up 20% over pre-pandemic levels. Things started to break down just by just not being able to keep up with the demand.
Tamara Winter: I’m thinking back to when my poor dad had to sit through me and Swan Lake. I mean, if one thing goes wrong, if the Nutcracker, you know, falls, everybody falls. And, and it sounds like that is kind of a, there’s a similar level of fragility in our supply chain, which I don’t know that most people appreciated, because again, there’s a pencil right here. All you can see is, you know, the pencil that gets to you. And a lot of that complexity is just kind of hidden.
Ryan Petersen: Yeah. And markets work like for the most part and the price mechanisms respond. And you gotta be careful what if the price goes way up for ocean freight, which it has, it’s like up five x or so over pre pandemic levels, and there’s a lot of push right now, Congress is trying to bring it back down through regulations. We’ve got more talk about price controls than we’ve had, like in my lifetime right now. And it’s pretty dangerous because that high price is a signal to market participants. Hey, there’s money to be made. If you can bring a ship to market, if you can build a ship and that’s how markets are supposed to function. So you take out the price mechanism and you will not get more goods in response to the demand. And like, what we need is more supply, and that’s what prices are for.
So when prices go up, I know a lot of government politicians, or it’s popular to say, oh, corporations are greedy, but like, maybe so, but the mechanism is price is high. Oh, wait, there’s opportunity here. And people surge onto that. And that’s, it’s amazing. It is a ballet like that. It all works. And it works because of the price mechanism basically. But it’s also amazing that it works given how screwed up humans are, like human nature is pretty screwed up. And like the fact that it all works is kind of a miracle. Like people have all, we’re kind of like beasts inside and have all these crazy emotions and terrible things, yet the economy mostly works and it’s, we can call it fragile, but it’s been relatively resilient.
Tamara Winter: Tell me about some of the misconceptions that people have about global trade. You’ve become kind of a go-to expert, like what are the sort of things people just get wrong over and over again?
Ryan Petersen: The idea that trade is exploitative, I think is a really interesting one. Like you have this whole fair trade movement, which I don’t quite get because trade is like mutually beneficial exchange or the idea that someone’s being exploited here, doesn’t really add up to me. I think you do need really good regulations on like externalities, like environmental damage and there’s great reason to have rules, like to protect environment, and labor safety standards and things like this, child labor and all that. But like, that’s not a trade. That’s just like good governance. The trade aspect of like one company exchanging something for money on the other side of the world, that’s like, that is the heartbeat of wealth creation, value creation, the engine of prosperity. And so to take it away, I’ve found to be really dangerous. That’s like one criticism.
I think the valid criticisms that I’m very much like really interested in or the stuff I was getting to earlier on like global monoculture. Like if it’s the same product sold everywhere on planet Earth, the Earth becomes less interesting. And it’s maybe that’s like a privileged white guy thing to say, because like, I want to go to Zambia and experience like Zambian culture and like, show me what Zambia is like and make it different. Whereas Zambian people are like, look, we’re trying to be less poor.
Tamara Winter: Yeah.
Ryan Petersen: We want to have a life like you have. And who am I to say like, oh, you can’t, I don’t want you to benefit from like Western nice things. I want you to live with the way Zambains always lived in my mind.
Tamara Winter: Look, I didn’t wanna say it, but I, you know, I was thinking it, but I’ll tell you what, next time I go back to Nkwashi, I’ll take you with me. You’ve touched on this a lot, but I wanna ask you explicitly, you know, there’s an inverse relationship between trade and poverty. And I’m hoping you can offer some sort of like more examples of this and expand on that point a little bit, because it’s one that I believe really strongly.
Ryan Petersen: Yeah, and well, we’ve seen it over the last 50 years. I think China’s probably the best place we can point to where we lifted 600 million people or so from below the poverty line, it’s really an economic miracle. But it’s not unique to China. Korea’s a great example. Export led growth in Korea. Dubai is a more modern example where liberalization and opening things up and allowing trade to take place. I think it’s well rounded in economic theory, which I’m skeptical of, but in empirical data, you can just look and see that the countries that trade more, become more prosperous.
And it’s a little dangerous in my view, there is nothing that says that all progress is up and to the right, Like we kind of think so, because we feel like we’re in a golden age and the world’s never been richer. And the graph of GDP is just like this amazing exponential curve. Four percent annual growth, but if you do it for 500 years, you get like an insane exponential curve. But that does not have to be the case. And if you look across 10,000 years of human civilization, there are these waves of progress and then collapse. And we’re right now at a crossroads where trade has not been so unpopular in a long time, you’ve got trade wars between China and the United States. You’ve got pretty much both parties in the United States, no longer supporting a free trading agenda. You’ve got war as we speak unfolding in Ukraine, which has made trade and economic sanctions into a weapon. I’m not necessarily arguing you shouldn’t do this, but we should talk about the consequences. Russia and Ukraine combined are number one and number five in grain exports. And Belarus is I think number one in fertilizer exports in potash. Take Africa over the last 40 years, Africa’s made huge amounts of progress at five x the output of food in the continent per capita over the last 40-50 years. But a lot of that’s dependent on fertilizer imports. And so if you suddenly remove all these fertilizer imports and that’s going to be even for the food sufficient nations, all of a sudden they might not be. And a lot of countries take Egypt or many Middle Eastern countries are net food importers and they buy a lot of grain from Russia and Ukraine. And if that’s removed from the market, food insecurity is what leads to civil war, famine, anarchy, right. And we’re on some level, we’re going to find out just how important globalization and trade is because we’ve taken it for granted. We’ve become incredibly dependent on it. And if you suddenly rip that carpet out, it’s almost, it’s a pretty unfair to these countries who were sold a bag like, hey, you’ll be able to get goods from anywhere. It’s very scary. I’m very worried about it.
Tamara Winter: It’s really interesting because there are, you know, the first order effects that I think even those, I don’t know that they’re very well understood. But the second order effects I think are really poorly understood.
Ryan Petersen: Yeah, and the second order effects, third order effects. I mean, it’s really anyone who thinks they could predict all of this. I have no idea, but very few people predicted, like realized that actually the governments really aren’t nearly as important as the people in the west and in the social media world, just reacting. And then every company feeling like, oh, we can’t do business in Russia anymore.
Tamara Winter: Right? Like Coca-Cola.
Ryan Petersen: Even if we’re allowed to legally, we just can’t, and backing off. And that probably was not part of the calculus of like, you know, we’re not, McDonald’s is not required to shut down all their stories, but they just did.
Tamara Winter: It’s like interesting, you know, 30 years ago or whatever you see, like those incredible images of the first McDonald’s opening post-Iron Curtain falling. And now, you know, McDonald’s is like pulling out. It’s just, it’s really interesting and visceral. You talk often about cargo as capital. What does that mean when you talk about cargo as capital?
Ryan Petersen: Well, just inventories is another form of dollars, the money has taken a different form for a period of time. I mean, that’s trade fundamentally is you’ve exchanged dollars for this other thing, which is a form of capital, working capital, inventory. I think many logistics companies and logistics companies that are buying logistics services, brands, the logistics department is not really thinking in these terms. This is classic, like finance teams think about this. Like they see it on the inventory and on the balance sheet, as you know, working capital, inventory is another line item there.
But the logistics teams of the world have been trained, just like buy cheap freight as cheap as they can get the service to buy freight. They’re not really doing the math, which is not that sophisticated, but it takes one degree of sophistication more to realize that, hey, you know what, if you can ship that container 30% faster, then that’s 30% less inventory at any given moment sitting on the water, being unproductive, doing nothing useful.
And so you should be willing. Now you can do the math. Are you willing to pay a premium for faster freight in order to get that cash back and reinvest it in your business in more interesting ways and put it to work? This is why, that’s one of the reasons why very high value products will ship by air. You don’t want something really, really valuable sitting on the ocean for a month. One, it might get damaged, but no, it’s more, it’s not valuable have a container load of iPhones. I’ve not done the math. Well, we could probably do the math pretty quickly. There would be probably 50,000 iPhones in a container, times a thousand bucks, each 50 million in an iPhone. I made this up. I have no idea, but I’m just doing it in my head, 50 million dollars. There’s better things Apple can do with 50 million bucks, like run some more ads and pay for air freight, which isn’t that expensive given the value of those products. So those will ship by air. There’s some degree of that, but the typical logistics team doesn’t think that way. And at Flexport, we try to get to, hey, can we help you be heroes, help you represent this data to your CFO so they can see the option like, oh, wow. I could, if I ship, if I pay a little bit more to ship it faster, I get the money back and improve my working capital situation.
Tamara Winter: I want to talk about containerization, because I’ve asked you very little about that. You know, shipping containers are kind of, the heart of global trade and of the basic unit for measuring global trade. I want to know, is more generally better when it comes to containerization?
Ryan Petersen: Yeah. Well I think containers revolutionized trade. We probably reduced the cost of shipping things by like 95 to 99%, depending on the commodity. You see these old photographs, we have some in the Flexport office, like there’s this photographer who worked at the port of Oakland as a longshoreman and was also a photographer. And he took these beautiful pictures right at the dawn of the container era. So they have some containerization, but they also had these guys doing backbreaking work, like hauling sacks on their bag, loading the ships. And the way the ships were loaded was like, literally like tying rope to tie it all down and unbelievably laborious. And it would take a week or more to load a ship, which is not a good use of an asset. Like you’ve got to get this thing moving. It makes money when it sails.
So containerization revolutionized the world and made trade possible, made it possible to buy things from around the world and find, you know, allow economic opportunity, jobs to be created and us to have cheap stuff as well. However, there’s been very little progress in that since the seventies when this took place. I don’t think the container itself needs to change form factor. It seems like basically correct. But the process by which they get loaded, unloaded from the ships, seems like there’s a lot of opportunity besides just like, pluck one container at a time off the ship. Like it would be fun to do a design contest where there’s some really creative types.
Tamara Winter: Maybe you should.
Ryan Petersen: Yeah, conveyor belt, like PEZ dispenser out the front. I don’t know. There’s got to be some better way to do that.
Tamara Winter: There’s so much talk right now about the next World’s Fair. Like bringing or World’s Fair, reviving it. I don’t know. I would love to go and see container ships. I was eating at Mission Rock and we were just watching the container ships, just one by one come through and I, it would be really cool to see like a giant robot crane.
Ryan Petersen: Well, the thing to watch is, is the crane up or down?
Tamara Winter: What does it mean?
Ryan Petersen: Well, if it’s up, it’s not working and just watch they’re, they’re not down that often.
Tamara Winter: Tell me, speaking of throughput is the health of global trade, is it primarily about throughput?
Ryan Petersen: Well from a logistics standpoint, yeah. It’s all about throughput, efficiency costs, you know, transaction costs. How do we lower the transaction costs to reduce the amount of error? Like most actual transaction costs, some of it comes from humans doing work, but I think at least within Flexport, most of the problems come about through bad quality, bad data rework, like having to redo the thing, getting the, when the data’s wrong, it can lead to, you know, a hundred x more cost. Like if you take a customs clearance, if you file with the right data, it might take you a minute to get the data organized correctly, like a minute of human labor and review the documents, we use machine learning to ingest the data off of, if it is a PDF or Excel file or something, but you still need a human to review it and validate it like for compliance reasons. So it might take you a minute. If the data’s wrong, it might take you two weeks of dealing with customs to sort it out and what went wrong.
Tamara Winter: I guess I want to know and this might be intuitive to most people, but why is it so important to have uniform standards across countries on things like shipping container dimensions? I didn’t realize that that actually wasn’t standardized until very recently.
Ryan Petersen: Yeah. Well, standards are crucially important for, I mean, the container’s an obvious one because if the container’s a different size, then you can’t have a standard size ship, crane, etcetera. If every container’s different, it just leads to chaos. And so that was actually created by the Federal Maritime Commission, which is a U.S. agency, created that standard. And then used that funding mechanism where if you wanted to build a ship, you basically got super cheap capital. As long as you adhered to the standard. You could build another kind of container ship, but why would you do that when like, this is the standard everyone’s using and it’s like free money if you build a ship like that. So that was one way to get a standard. It’s notoriously how hard to get everyone to agree on standards.
Tamara Winter: Why?
Ryan Petersen: Well, everyone has their own opinions and you have these very boring consortiums, like I’ve never been involved in the, what do you call the web? The, HTML standard setting body that sets CSS and all these things, I would go crazy. I might have an opinion, but I can’t sit through those meetings, which is dangerous because then the standards get set by like the most boring people possible who are willing to sit through such meetings, and actually it’s a very good example is that the, the 40 foot container was not the right standard necessarily. The companies that invented the shipping container where one was using a 24 foot container and one was using a 26 foot container and for their businesses, that was like more optimal for the size and volume of the stuff that they were shipping. And there’s nothing to say that 40 foot is the right amount. In fact, I would argue it’s definitely the wrong standard because for trucks in the United States, domestic trucks, 53 foot is the length of a standard semi truck, which is really silly because we should have 53 foot ocean containers because then on every single shipment you’d have about 30% more cargo per driver per asset move.
Tamara Winter: Why is it 40?
Ryan Petersen: It was just set that way.
Tamara Winter: It was just arbitrary?
Ryan Petersen: By the Federal Maritime Commission. I mean, I don’t know, I wasn’t in, in the meetings standard setting body.
Tamara Winter: So maybe it’s your fault because you weren’t in the meetings.
Ryan Petersen: Or like take the QWERTY keyboard. I mean, it’s notorious like not, it was set to slow you down rather than type fast. So that’s a bad standard, and yet standards are super valuable. If every keyboard was different, you could only use your own computer.
I think optimizations are really important here. So for example, all the containers that we ship on average are only 70% full. Like we use, we digitize these packing lists and do the geometry of the cardboard boxes inside and see that they’re only 70% full, there’s 30% extra space right here. Okay, cool. Like you got 30% savings on carbon just by filling the container correctly. That’s not hard. So there are some easy, low hanging fruit, but fundamentally, how do you replace this? And it might be that this is one of the last holdouts where you continue to use fossil fuels, even as we go to electric fleets on cars or nuclear, hopefully nuclear power for the grid. Like you’re probably not gonna get people comfortable. There has been one nuclear power cargo ship in the history of the world, back in the sixties. I don’t think we’re ever going to go back there.
Tamara Winter: What happened to it?
Ryan Petersen: It got decommissioned. It went for a couple of years. It was like a super fast boat. But it pre-container era. And so when the containers came along, it was retired and I think it was also pre-Chernobyl when people freaked out about nuclear.
Tamara Winter: It is so interesting to me, you know, my background, I went from Bethesda to San Francisco too, then to New York. But it was always really interesting to me to observe the way that technologists interact with government. There’s your sort of Stewart Brand style person who is sort of both very interested in government and very interested in technology, but there is, I think a perception that technologists today sort of hate the government and I wonder why it is so important to you and why you have sort of gone out of your way, really to work with governments basically at this point on every level.
Ryan Petersen: Well it’s, our business is in clearing goods through U.S. customs. So we, you know, Flexport couldn’t exist until we got a license from the government to be able to do customs clearance and I had to go through FBI background checks, Department of Homeland Security, every customs broker does. So you know, that is our business is complying with government regulations and we don’t have a problem with the government regulations actually. I think there’s good reasons. Of course I can object to certain things. I think tariffs should be lower or have nuance and stuff like that. But like fundamentally governments have every right to control what goods flow into their country and there’s reasons, very good reasons to prevent drugs and certain kinds of weapons and yeah, illicit activity, counterfeits and stuff from crossing border. So the government plays an appropriate role and we’re happy to work with them constructively on that stuff.
As a citizen, I am kind of like confused in San Francisco, why the tech community has been so disengaged with the government. I mean, like we have the board of supervisors is our version of the city council here in San Francisco. And it’s like really antagonistic to technology and to business.
They just keep passing rules that are like really anti-business, new taxes, things that are just like, oh, they clearly don’t want us here. We should leave. And yet there’s 11 people on that board. I think probably seven of them are really anti-business and four more moderate and reasonably pro-business appreciate that we employ lots of people in the city and, and pay lots of taxes. So there’s seven seats and, you only need a majority or some form of majority, seven elections, each of which is decided by a couple hundred votes, We are home to some of the greatest technology platforms in the world with literally billions of users. Like we’ve managed to sign up a billion users from your website and you can’t get a hundred people to vote in an election. Like what is going on? Why are we so disengaged? I don’t have a good answer for it, I think you’ll probably start to see people wake up take action and like, look it’s, I believe deeply in democracy, but part of the democratic process is people like taking action and getting people getting out to vote.
Tamara Winter: And, you know, as you look across whether it’s shipping, Flexport, what are you optimistic about?
Ryan Petersen: Well, you know, it’s, you have to stay optimistic about the ability for individuals to make a difference. I found over and over again in life that if you just take some action, it has a quality of its own that, can pick up the phone and call someone and make something happen, send emails, make stuff happen, and the world just kind of responds. Most recently, like we had this concept on our executive team meetings. Tuesday after the war started, we’re like, hey, we should activate flexport.org on Ukrainian relief.
Tamara Winter: For people who don’t know what is flexport.org?
Ryan Petersen: Oh, that’s the impact arm of Flexport. We do logistics for humanitarian relief, disaster relief. It has two missions, one is carbon measurement and offsetting and mitigation and two is humanitarian relief. So this is our impact arm. Of course the executive team level we thought of, hey, let’s get flexport.org working on this. flexport.org had already been working on it for like three days. They had already lined up nonprofits and aid agencies and would take action. But we, what we said was, hey, let’s help them raise some money. I mean, there’s only so much that Flexport can do as one company to pay for very expensive humanitarian relief operations. So let’s reach out, texted a couple of people. Next thing I know Ashton Kutcher and Mila Kunis run this like GoFundMe campaign that’s as of this moment has raised 20 million bucks for us and for airbnb.org to house refugees, us to do logistics for refugee sites.
It’s like four days, we did that. And not everyone has our brand and our resources and knows how to text Ashton Kutcher or whatever, but like, you can start on a smaller level and just take some action and help somebody. And especially when you try to help someone else is when the world tries to help you, help you help them. But next thing you know, it’s a virtuous cycle and we’ve seen that with flexport.org. In fact, that was part of the reason that we set it up in a way that we can take donations is it allows us to go out and ask people to get involved, like our customers. We get them to donate products. If we can find a product that our customers make that a refugee camp needs, that’s like, what we do is we match them and we pay for the logistics, or we’ll get a donor to pay for the logistics. But like, by getting that sense of community engagement, everybody’s asked to help. People love to help. Like they want give back, they want to find these opportunities. And so I’m so very optimistic of the power of kind of, I might call it naive optimism that like, believing that you can do something, even if it’s tiny and it has a power of its own to inspire other people to do that. We live in a messed up world, but I don’t think it’s more messed up than it’s been in the past.
Like there’s always been wars, since the dawn of humanity, go read the books, like there’s been much worse wars as bad as it is to say, because we’ve never had an iPhone to watch this stuff firsthand the way we do right now. But wars have gone on since the dawn of men and that is not going to change because human nature is not going to change. There’s gonna be wars in the future. And yet humans also, I think if you were to go over right now to Poland, you would see people taking care of each other people housing refugees, people looking after families. And so the bright spot of humanity is not going to change either. And there’s a lot to be optimistic about for sure.
It’s like kind of crazy to recognize we all do kind of have these superpowers. It takes a long time to compound so that the world’s given me more resources and connectivity and network to get stuff done, but I think we all have that superpower a bit. And the more you use it, the more it compounds, and becomes more powerful. Like I have a couple of friends who are I might call them like obsessive phone users on like the old school, like call people. And these people have superpowers that would, you would not believe. Like the willingness, I don’t have this, but if you had it, the willingness to make 20 to a hundred phone calls per day, if you make a hundred phone calls per day in 10 years, you’ll be a billionaire. I’m certain of it. One of them called me last night. We’re flying all these goods over to Ukraine and he’s trying to get me to fill the planes full of refugees coming back. And I’m like, that’s a great idea. They’re passenger planes. So there’s empty seats. We could do that, but they need visas to come into the United States. He’s like, yeah, you’re right. Okay. And he like patches me through and calls this like world famous venture capitalist while I’m on the line, gets him on the phone, is like, “Hey, can you help us get visas for refugees coming to the country?” He’s like, “I don’t know why you would think that I could help you with that. But like, let me see, I’ll email the government,” and like next thing, you know, like emailing senators and like I have no idea if that’ll happen or not, probably not, but like I’ve seen crazier plans work and it’s just like the willingness, energy to go try stuff, like make it work. And then you keep trying it and it compounds so, a bit like that. With my kind of port tour tweet or, you know, I’ve just been trying stuff like this for a long time and finding out like, oh wow. It can, like, you can actually have a big impact out there if you, if you’re willing to look stupid sometimes and just go for it.
Tamara Winter: So that was Ryan Petersen, CEO of Flexport. I don’t think there’s a lot more to say after that other than maybe we should all be making a few more phone calls?
In the meantime, I hope you will join us for the next episode of Beneath the Surface. We’ll be looking at a type of infrastructure that has acutely felt the impacts of COVID-era supply chain disruptions: housing. We’ll travel to London and visit with a Haredi Jewish community that has fought to upzone their houses so they can have room for their large families.
Beneath the Surface is a production of Stripe Press. The senior producers for this series are myself and Everett Katigbak. This episode was produced by Jack Rossiter-Munley. Whitney Chen was our production manager extraordinaire. Our associate producer and editor for this episode was Astrid Landon. Our sound mixer and sound designer was Jim McKee. Original music for this episode was composed by Auribus.
To learn more about Stripe Press, our books, films, and more visit press.stripe.com. That’s it for this episode. I’ve been your host Tamara Winter. This is Beneath the Surface.
You Say You Want to Build More Housing
Ben Southwood: It’s March the 15th. Half past one in the afternoon and I’m standing on a residential street in South Tottenham, which is in Haringey, a borough of North London.
Tamara Winter: That’s my colleague, Ben Southwood. He’s out on the streets of London to look at houses.
Ben Southwood: So the buildings we have here are two-story terraced Victorian and Edwardian homes. I can see many of them have cornices under their eaves or bay windows, gables…
Tamara Winter: And he’s looking at these houses here because many of them are beginning to change.
Ben Southwood: This residential street’s not quite like every residential street in the country because in addition to its normal two-story Victorian terraced homes, there are additional extensions that have been put on many of these houses. They have been built directly upwards, completely in keeping with the existing Victorian facade. In fact, I’m standing directly opposite an extension going on right now.
Tamara Winter: Victorian houses in the UK were built during the reign of Queen Victoria from 1837 to 1901. People from across the country flocked to London just as the industrial revolution was picking up speed. From 1811 to 1851, the population of Greater London doubled, half of the country’s population called the city home. A lot of new housing was needed and fast. And today, many of these Victorian houses are still in use. But now, London faces a new housing crisis: unaffordable rents, overcrowded conditions, and the dream of home ownership drifting further away from the city’s young people. London isn’t alone here. A similar story is happening around the world in cities large and small.
However, on that quiet residential street in South Tottenham, the story behind those extensions offers a lesson for those tackling the global housing crisis.
Hello and welcome to Beneath the Surface, a podcast from Stripe Press all about new ideas and big questions in the world of infrastructure. I’m your host, Tamara Winter.
In our previous episode, we looked at supply chains: the movement of materials and products from country to country and a delicate dance that makes up the global economy. Today, we’re looking at a component of infrastructure that by its very nature doesn’t move: housing. The issues around housing are diverse and wide ranging. Whether the locality in question is a small town or global metropolis, every place has its own unique challenges. Still, once you dig a little deeper, you start to see some common threads. In this episode, we’ll explore why housing prices have risen dramatically in so many places and how individual neighborhoods, like South Tottenham in London, can address these challenges.
For most of human history, people lived in rural areas. But over the last two centuries, cities around the world have seen explosive growth. The UN estimates that 2007 was the first year that most people lived in urban areas and the urban population is expected to double by 2050. This means that cities are having to adapt in unprecedented ways. How do we deliver food and other goods? How do we move through and between cities? And where are all of these new urban dwellers going to live? Because right now, the increase in population is leading to a housing shortage. The supply of homes in most cities has not kept up with the demand, unless supply means prices naturally go up.
Archived audio: Housing prices are continuing to surge across…
Archived audio: We’ve seen house prices go up steadily by several thousand…
Archived audio: Housing prices in Ireland rising by a hundred euro a day.
Archived audio: Housing costs taking a bigger bite out of your paycheck and it doesn’t seem to be any relief in sight.
Emily Hamilton: I would say that affordability in US cities is the biggest challenge right now.
Tamara Winter: This is Emily Hamilton. She was at the top of my list of people I wanted to talk to for this episode on housing.
Emily Hamilton: I’m a senior research fellow at the Mercatus Center at George Mason University.
Tamara Winter: She says the most relevant housing challenge across the country and really across the world is affordability.
Emily Hamilton: Several decades ago, urban policy makers were much more concerned about having too many residents leaving cities and issues like vacancy and crime were much more relevant than affordability. But today, as cities have become job centers once again and are generally the location where the highest paying jobs in the US are located, it’s become much more of a question of how to make space for everyone who would like to live in cities and be able to access those job markets at prices that are affordable to them. And in many parts of the world, that holds true as well, particularly English speaking parts of the world, like the UK and Canada, are facing very similar affordability challenges to the US.
Tamara Winter: I’ll admit that I’m a statistic on this trend as well. Since graduating from college in 2017, I’ve lived in some of the most expensive cities in the US: Washington DC, San Francisco, and now, New York.
From 1980 to 2020, housing prices in the New York metropolitan area have gone up 700%, more than double wage growth during that same period. In other words, an apartment that sold for $200,000 in 1980 would’ve sold for $1.4 million in 2020. In San Francisco, house prices went up over 900%, and cities outside the US have seen equally dramatic numbers. Ireland saw prices rise by about 800% driven primarily by Dublin. Prices in Sydney, Australia were up almost 1,500%. And in London, the average home price in 1980 was about 25,000 pounds. In 2020, the average price was about 490,000 pounds, a nearly 2,000% increase.
Ben Southwood: Well, the UK, and the UK isn’t alone here, has a shortage of housing around its most successful, big cities.
Tamara Winter: That’s my colleague, Ben Southwood, again. He’s currently an editor for the online magazine, Works in Progress, but he’s been studying housing for a long time.
Ben Southwood: I worked in housing policy for much of the last five years, including at Create Streets, Policy Exchange, and the Adam Smith Institute. I’m obsessed with housing. In the morning, I wake up thinking, "How are we going to solve the housing problems in the UK today?" And I go to bed in the evening, also, still thinking about how are we going to solve the problems in the UK has with housing.
And this shortage of housing has led to massive increases in the price of that housing either to buy or to rent and also big shortages and long waiting lists for government-provided housing.
Tamara Winter: Ben is always thinking about unique solutions to the housing crisis. So when he came across a series of interesting building renovations happening in North London, he had to investigate.
Ben Southwood: Most of the time in England, when you do upwards extensions on homes, those extensions look very different to the house underneath and often are very ugly. And often, therefore, neighbors oppose them very vociferously. However, this extension, interestingly, was identical to the building underneath. In fact, it looked as if they had cut off the roof, added an identical story, and then plopped the roof back on top again.
Tamara Winter: So Ben did what any good researcher would do these days: he took the question to Twitter.
Ben Southwood: A councilor from North London, that is someone who had been elected by the local residents to be on the council—council is just the standard form of local government in the UK—replied to our Twitter threads, telling us what happened.
Tamara Winter: The councilor revealed that the people of this community had a particular need for these housing extensions because they were Haredi Jews.
Archived audio: Two hundred boys and girls waved a greeting to England, land of the free, the advanced guard of the first 5,000 Jewish and non-Aryan child refugees from Germany will be provided with a temporary home here while arrangements are made for them to immigrate.
Tamara Winter: Haredi Jews first established themselves in London in the 1920s. However, it was after the second World War that the area really started to take off as Jewish refugees fled the Holocaust. Haredi Jews tend to be stricter in their practice of Orthodox Judaism than their peers. They adhere to kosher diets, go to synagogue several times a day, and send their children to religious schools. They also observe Shabbat on Saturdays, meaning, they don’t drive or use electricity. All of these cultural factors mean that Haredi Jewish people tend to live in tight knit and compact communities.
One area they settled in was Stamford Hill. It’s in a borough of Hackney in North London. Today, it is the largest strictly Orthodox Jewish community in all of Europe. Add to that, the large size of Haredi families and the result has been overcrowded housing conditions. So yet another neighborhood in North London sprung up as a hub for the Haredi community, South Tottenham in the borough of Haringey. By one estimate, the number of Haredi families has increased fivefold in the last several decades. That’s where Ben found himself, investigating housing extensions.
Ben Southwood: Hi there. I’m standing in South Tottenham, which is a neighborhood in North London looking around a suburban street. I have two-story Victorian homes. It’s quite quiet. I can see a few people walking down every few minutes. I can see lots of people walking around in Orthodox Jewish clothing. And I’m just about to meet my friend, Mark, at his house.
Tamara Winter: I talked with Ben after his trip to hear more about what he learned.
Ben Southwood: The local community is Haredi Jewish. Most of them are also Hasidic, which means they have particular ways of dressing, and particular religious rights, and so on. And I met with three leaders in the Haredi community in North London: Mark Groskopf, Shmuel Davidson, and Motty Pinter.
Mark Groskopf: My name is Mark Groskopf and I’m from the Jewish Tottenham community.
Ben Southwood: Mark is a family man with nine children, one of whom has left the house.
Shmuel Davidson: I’m Shmuel Davidson. I’m from the Tottenham Jewish association. I’m also a deputy on the board of deputies and being a community activist here in the area, where I’ve lived all my life. And I thrive to build this area.
Ben Southwood: Shmuel is a man who’s very much in demand. During our interview, he had to leave to take phone calls about five times constantly responding to community’s desires and needs.
Motty Pinter: My name is Motty Pinter. I work for Chinuch UK, which is the representative body for 80 Haredi schools across the country. I also work for Agudas Israel Housing Association.
Ben Southwood: Motty is the extremely energetic leader of the Hackney community.
Motty Pinter: We liaise with the council and we do a lot of work with the council. So any issues, they’ll come in to try to understand the Jewish community and see what the needs are.
Ben Southwood: This community has lots of kids on average. One of the stats said their average number of children was six.
Motty Pinter: In Hackney, 8.1% of the population is Haredi. But when you look at the children population, you have 25.9% of the children population in Hackney is Haredi. When you drill that down to two to five-year-olds, you have over 30% of children, which are Haredi now. So what you figure is how many households.
Ben Southwood: So all of these families having six children, the houses just weren’t built for them. Most communities, if they get overcrowded, decide to move out to the suburbs where land is cheaper, rather than staying in central London where land is more expensive. However, the Haredi Jewish community were not willing to do this because all of their cultural amenities are in one place.
Shmuel Davidson: I can’t just move randomly to another borough where I don’t have a synagogue, I don’t have a kosher shop, I don’t have schools. My daily life is going synagogue. It’s just part of my daily routine. We pray three times a day. Going to the synagogue is just what we do. We can’t just move random everywhere. We don’t have a synagogue. It’s not, we just don’t have a life. My whole life, my whole family life will just be completely not there. Take for example, weekend Shabbat, I don’t use public transport. We have to walk. So I need a synagogue within walking distance.
I need kosher food. I can’t just go to the local grocery store and find food there. There’s no kosher food there. I need to be able to go shopping on a daily basis. I need a bakery. I need a kosher bakery. I need a butcher. I need a kosher butcher. I need a school for my children. My children could go to non-Jewish school, however, culturally inappropriate. Yes, they will be educated nationally, the proper way, as education goes, however, the cultural appropriate education, the religious education, they will not get and they won’t feel comfortable there. I won’t feel comfortable.
Shmuel Davidson: This is part of my daily life, my daily infrastructure. So we need to be living in an area where we have the community infrastructure, the synagogues, the shops, the schools, everything we need as a community and live our lives.
Ben Southwood: So all of these things make it very difficult for the Haredi community to spread out. They need to be near one another and they have a very vibrant cultural life as well, which is another reason why they would like to be near, with one another as well. All of these things meant they weren’t willing to move out. So instead of moving out, the Haredi Jewish community decided, "Well, should we buy more of the houses in the neighborhood and spread out in each direction?" Well, firstly, it’s very expensive. It might cost them 500,000 pounds to buy the next door neighbor’s house. Secondly, that takes houses off the market and that means other people can’t live there. And finally, there just aren’t enough houses to go round.
Tamara Winter: The housing challenges the Haredi community face are just one example. Any neighborhood can grow beyond its limits because of high birth rates, increased immigration, or simply because it’s a newly desirable place to live, but the Haredi community represents this perfect storm of housing crisis. They have on average eight people in their families. They need to be within walking distance of certain shops and community services, making it really hard to relocate. And the area where they live is way too expensive to buy any neighboring homes. If they can work their way through a housing crisis, shouldn’t it be doable anywhere?
Stuck in the situation where they needed more space, some Haredi families decided to just start modifying their homes. But because of housing regulations in the UK, that’s easier said than done. Ben explains.
Ben Southwood: So in the UK, we have something called planning, which is what Americans call zoning. But the difference between planning and zoning is that zoning is usually rules-based, so there are a bunch of rules that say what you can build and where, and then developers have to follow those rules. Planning in the UK is discretion-based, so every individual house, if you want to extend that house by adding a story or putting a different window on it or something like that, you have to apply to the local government and say, "Please, can I do this?"
There are almost no developments that you can do without a specific permit with the council, which is the local government, going through the details of that permit, and councils look through every application bit by bit. And so it makes it very uncertain, very costly to pursue development because it’s uncertain whether you’re going to get permission or not.
Some of them were building up in the maximum way they were allowed under the current rules or even pushing the rules to the limit. Building ugly box dormers is what they call them: boxes. And neighbors were objecting to these because they were unsightly and they were ruining the original heritage of the Victorian buildings, but they needed the space. So there was this conundrum where they wanted space, but the existing ways of delivering space were insufficient and ugly.
Tamara Winter: Here’s Shmuel Davidson.
Shmuel Davidson: There was no basic guidelines on what the rights, what the wrongs were. People were trying all sorts of things and it was just causing all sorts of problems for planning, enforcement, and it was just getting nowhere. And it got to the point where the community and the local authority really became heads up together and the whole thing.
Ben Southwood: So they petitioned the council and said, "Look, can we build upwards?"
Tamara Winter: Mark Groskopf again.
Mark Groskopf: And Shmuel and I was going backwards and forwards saying, "Look, let’s come up with a solution." And it was actually after sitting, going backwards and forward, they turned their around and said, "Look, you know what? These actual lofts are ugly. Let’s come up with a new plan." We want a space, they wanted looks.
Ben Southwood: Working with the council, the community came up with the idea of extending the buildings upwards in a way that was consistent with their existing style so that the street looked like it had just been originally built as a Victorian three-story street. Basically, you take off the roof, you add in an extra story that looks just like the one underneath and then you put the roof back on. So it just looks like the original building, but stretched upwards. It can get four or five in some cases, six bedrooms added on top.
Tamara Winter: And over the years, the community began to make some progress working with the local council. Here’s Motty Pinter.
Motty Pinter: They would put forward the most recent update, people would be able to argue over it or say their opinions. They would put things down on the table and say, "These are ideas that the architects have raised." And then people around the room would be able to say, "Yeah, but this won’t work here or it will work here."
Tamara Winter: The council in Haringey was surprisingly open to the Haredi community’s ideas, but there was still some opposition.
Motty Pinter: We heard different views from different people. Some of those have been extremely challenging. For some people, they see this as something new and they’re concerned how it’s going to look and how it’s going to end up.
Shmuel Davidson: In this area, we had actually people, residents who worked silently against it. However, once we came about the design, with the concept, with the idea, working endlessly with the local authority, with both the politicians and the officers, together with community. And with the product we were going to deliver, I think all around, the opponents, very nice, but they saw the benefits just outweighed the opponents a million times.
Ben Southwood: It still took years and years of work from the community to get the design code put through and make it so that if they made a planning application to the council, the council was very likely to say, "Yes, as long as it stayed within the rules they had set out in advance."
Motty Pinter: I think once this is actually introduced and it’s introduced more widely, I think a lot of those fears won’t be there anymore. I think it’s just people being concerned about what is going to happen, but when it actually happens, they’re going to see a lot of benefit.
Shmuel Davidson: When I grew up here, the concept of building extensions, those days was virtually nonexistent. And I see families today who have built like what we’re standing in front of now, which…
Ben Southwood: There’s one going on right now as we speak.
Shmuel Davidson: Right. I was going to say that it’s going up right now, which has just made a complete life changer, a life changer to the area, a life changer to the families. The design, it just fits into a beautifully Victorian side of the houses. It doesn’t look odd. It doesn’t stand out. The quality gives to the family, to the people. And if you just go around the area, just see the development, which has gone on here, which has been achieved by this magnificent idea, which I think we’re unique for the country, I think.
Ben Southwood: Yeah.
Shmuel Davidson: And it’s absolutely amazing.
I just hope others will just copy us and do that because as there’s a housing crisis generally across everywhere, and we know there’s just no housing. Our achievement was the product which we have, which we see today. And this is a phenomenal product and it’s a product of community coalition, a product of working with the local politicians, a product working with the local offices, a product working with local residents, consultations, perseverance, nonstop, and knowing where your end goal is going to be and really go for it.
Never drop out, never give up. Because eventually, if that’s what you want to get achieved, I want to get there, you’ll get there.
Tamara Winter: What Mark, Shmuel, Motty and the rest of the Haredi community were able to make happen in South Tottenham is ultimately a success story. And the numbers would suggest that this success should be replicable. Haredi families have, on average, around six children. The birth rate in England and Wales in 2020 was 1.58 children per woman, a much smaller number. So if the Haredi community can create abundant housing with such a high population growth rate, certainly, it could be done across the larger UK population. But remember that it didn’t just magically happen, it took perseverance and patience, and working within the system to make progress.
But why can’t the system be more accommodating to encourage more housing in the first place? Why does it take so much effort to build housing, something that London desperately needs?
John Myers: What we see if we look at traditional zoning in places like England is that they were never designed to streamline that sort of process. They were never designed to solve those political challenges. I mean, zoning was essentially designed to stop change in many places.
Tamara Winter: This is John Myers. He’s working at the forefront of pushing for housing reform in the UK.
John Myers: We shouldn’t be surprised that we’re not getting plentiful housing in areas with zoning, because it was never designed to allow the densification that we used to see historically over centuries in cities, and which led to much loved urbanism that you see in historic housing cities in Europe today.
Tamara Winter: His work goes back to 2014. John read an article that made him realize just how upside down the housing market truly was.
John Myers: It explained that the total market price of housing in the UK was three times more than what it would cost to rebuild all of that housing at today’s prices from scratch. And so that to me was the biggest distortion I’ve ever seen in any market or industry anywhere. It’s just an eye watering shortage. And it tells you that there’s something really wrong there. It means that the reason why housing is so expensive in London is not because there’s some shortage of land or because we have a brick shortage, it’s because you’re simply not allowed to build more even when it would be enormously economically beneficial to do so. And that was just the most broken thing I’ve ever seen.
Tamara Winter: John’s organization is called YIMBY Alliance, which stands for: Yes, in My Backyard. It’s a counter to NIMBY or Not in My Backyard. The NIMBY acronym was born from neighborhoods that didn’t want the downsides of new housing near them. Understandably, there are plenty of reasons to not want certain projects in your neighborhood. After all, who wants to live next to a coal power plant or a garbage dump? But when it comes to building housing, the effects are generally felt very locally: things like construction noise and additional traffic. And so the idea behind John’s YIMBY movement is that the collective economic and social benefits of allowing new developments will outweigh any short-term side effects. And John’s proposal is to leave the decision to build denser housing to the people who live on the street, where the housing will actually be built. It’s a proposal he calls ‘street votes.’
John Myers: If somebody turns a single family home on your street into say townhouses or into low rise, apartment blocks, that mainly only affects the other people on your street, especially if effects on parking and other traffic congestion are controlled carefully.
So there’s no real reason why, if the broad majority, the overwhelming majority of people on your street, are happy for those sorts of developments to happen to gracefully allow single family homes to be turned into townhouses or even something a bit more ambitious. There’s no reason why they shouldn’t be able to choose to allow that so long as the neighbors on other streets are protected.
Tamara Winter: Street votes certainly sounds like a winning scenario for neighborhoods with each individual voter deciding for themselves if they’d like to capture the benefits of new developments. But of course, it’s not always easy for entire neighborhoods to come together. In South Tottenham, for example, the neighbors were opposed to changing the aesthetic of the old homes there. They ultimately found a solution, but surely, looks can’t be the only thing holding back new housing. Is there more behind this resistance to change?
Tamara Winter: Thank you. I think we’re good. Yeah?
Ronan Lyons: Yep. And my phone has just gone... yeah, no, it’s still working away there.
Tamara Winter: Hello! Yes, I’m so excited about this.
I got in touch with Ronan Lyons.
Ronan Lyons: My name is Ronan Lyons. I’m an associate professor in Economics at Trinity College Dublin.
Tamara Winter: Ronan is a bit of a housing guru in Ireland.
Ronan Lyons: People in Ireland might also know me because I work on something called the daft reports. Daft is like Zillow or the Right Move in Ireland. It’s like a major property portal. Once a quarter or twice a quarter, one for rental and one for sale, I do housing market analysis. So with the never dull Irish housing market, there’s always something to talk about.
Tamara Winter: In Ireland, we see the same story playing out as in so many other countries.
Ronan Lyons: In short, we have a situation in Ireland where we have not enough homes getting built for the number of new households that would or should form. I do think Ireland is a good microcosm of a lot of the issues that have arisen in many... especially high income countries over the last 30, 40 years.
Tamara Winter: It turns out, the history of these rules are part of the reason it’s so hard to change housing policy.
Ronan Lyons: What had happened between the ’40s and the ’70s in the United States is there had been significant attempts to boost the home ownership rate. What it meant was that the typical district that’s voting people in in the US or indeed in a European country, now has a majority of homeowners and their interests may differ from other households. That was kind of a key turning point. Because once people were aware of that, they were able to co-opt all sorts of reasoning, some of it environmental or quality controls or whatever, and use those as fronts for what is effectively preserving the value of the biggest thing on their balance sheet.
Tamara Winter: And so when politicians are trying to appeal to voters, anything that will affect the value of their homes can get politically dicey.
Ronan Lyons: When they put in land use restrictions, they’re doing so because they get the elected to do so. People who come along, they won’t phrase it like this, "I will preserve the value of your home by limiting the construction of new homes." That is a vote winner, right? Whatever way, you’ve got to indicate that you’ll do that without saying, "And I’m going to price that new households." That’s a vote winner.
If you look at Ireland, if you look at lots of European countries, if you look at the US, we have ended up with a system where the incumbents, the people who are there already and secured their housing, have disproportionate power over new housing supply.
Tamara Winter: Despite this individual opposition, the benefits of growth and new housing are widespread throughout society. There’s better investment in infrastructure, attracting new businesses, creating more jobs. And of course, keeping house prices affordable.
And with John Myers’ street votes plan, he believes that there will be enough people who see through the short-term to the larger upside.
And he’s hopeful because he’s seen this localized effort work outside the UK. First, in Israel.
John Myers: The most recent example that comes to mind is in Tel Aviv where the government proposed the means for residents to be allowed to decide if they wanted to redevelop their own apartment block, either extend it or to replace it with an entire new block with more apartments in it. That accounted for about 35% of the new homes in Tel Aviv in 2020. It’s an astonishing increase.
Tamara Winter: Second, in South Korea in the 1990s.
John Myers: The government allowed areas of single story homes to vote collectively if they wanted to give themselves permission to redevelop that whole area. And again, that accounted for the majority, I think, of the new condos built in Seoul for a portion of the 1990s.
Tamara Winter: Lastly, a city in my home state: Houston, Texas
John Myers: Houston, as you know, doesn’t have zoning in the traditional sense of the term, but it does have what are called minimum lot size requirements. And that says that if you want to build a new home, you have to have a piece of land which is at least a certain size. Those sizes were quite big. And the city of Houston wanted to reduce that size to allow more homes to be built in Houston, to keep Houston affordable for renters.
There was a fair amount of political resistance from people living in areas of single family homes with large lot areas. And so in order to overcome that pushback, they decided to allow effectively an opt-out from the change that they were proposing and that let them get that change through, and you see the results in Houston where there’s a lot of new housing being constructed as a result of that. There are a lot of homeowners who are probably better off because their plot can now be used for more housing than it was before. And yet, the people who are most resistant to change have been able to opt out.
And so this principle of giving flexibility on a very small level can make it much more politically palatable to engineer change and to get more housing. If you offer families a way to literally change their lives, the way to guarantee housing for their children or their grandchildren, a way to make it much easier to live, and all they have to do is vote for graceful change, which is completely consistent with what we’ve seen in cities over centuries, I have to believe that a small amount of people will do that. And that’s very consistent with what we’ve seen in Tel Aviv. It’s consistent with what happened in Seoul. And it’s also consistent with the fact that most of Houston didn’t opt out of these changes.
Tamara Winter: And as John points out, the needle doesn’t have to move that much to see real change.
John Myers: We don’t actually need to upzone the entire London or the entire of the Bay Area in order to get vastly amounts, more housing. So in London, if you just took 3, 4, 5% of the lowest density areas, you would engineer a step change. You would more than double the supply of housing in London.
Tamara Winter: With all of these examples, John feels optimistic that street votes can gain some real political momentum in the UK.
John Myers: We’ve seen quite a fair amount of traction in England with that. We’ve been lucky enough to find an incredible coalition that has supported these sorts of ideas, because it’s ultimately not very controversial. There aren’t really that many people who disagree with the proposition. But if the people on the street want to see more development, they should be allowed to permit it.
Motty Pinter: I want to put it on pause for a second?
Ben Southwood: That’s okay. But it’s fine to get extra…
Motty Pinter: I have a tendency to talk too much. You don’t stop me, then..
Tamara Winter: Finally, back in South Tottenham, Ben wrapped up his interview with Mark, Shmuel, and Motty. By one estimate, the Haredi community has added a thousand extra bedrooms using their method of building extensions.
Ben Southwood: Okay. So let’s have a little look around.
Tamara Winter: And Mark himself had recently constructed a loft conversion onto his own Victorian house.
Mark Groskopf: It was built about six months ago. So I was living in a bedroom, seven kids living in one bedroom, three bunk beds and a mattress on the floor.
Ben Southwood: Wow.
Mark Groskopf: That’s how the family was living.
Tamara Winter: So before Ben left, Mark gave him a tour of the house.
Mark Groskopf: You’ve come into the hallway, you’ve got a dining room. So it’s quite a big dining room which we’ll extend it slightly. And then…
Ben Southwood: Mark has a very large dining room, presumably to fit his nine children, wife, and self in having dinner at the same time.
Mark Groskopf: Let’s go upstairs.
Ben Southwood: And we go upstairs and Mark shows me what the house originally looked like. There were two bedrooms and two bathrooms. In one of the bedrooms was the master bedroom and the other bedroom was seven of his children.
Mark Groskopf: This is where we had three bunk beds and a mattress on the floor. We got two bunk beds.
Ben Southwood: Now, there’s only two children in that original seven-children bedroom. And the other children are all spread across different bedrooms.
Mark Groskopf: And we got another floor.
Ben Southwood: And he’s added four bedrooms on the top floor.
Mark Groskopf: And then you’ve got a front room over here, as you can see how big it is.
Ben Southwood: Wow. Imagine. So you were going from that room where there were six of them in there.
Mark Groskopf: Yeah.
Ben Southwood: And then now, they’ve got a huge two-bedroom.
Mark Groskopf: That’s correct.
Ben Southwood: He says that this has made a huge difference to his children’s experience of school, to the togetherness, everyone’s getting along better. It really is striking how one-and-a-half extra stories can make such a large difference to how much space there is to go around when there’s seven children’s crammed into one bedroom, it must be much harder to have lots of the things that you want as a child.
Mark Groskopf: And then we go up to the next floor. And what I’ve done is in this area over here, where the front of the house goes alone, we call it the apex. We’ve left over there and it’s a center room. We use it as a center room.
Ben Southwood: Ah.
Mark Groskopf: So you’ve got the toys down over there.
Ben Southwood: Yeah.
Mark Groskopf: And then the kids go inside over there and relax and enjoy themselves over there.
Ben Southwood: Mark’s family looks after kids with special needs from the community.
Mark Groskopf: Every weekend, we bring kids in from the other families to give the parents a rest…
Ben Southwood: In the low ceiling part, he put in a sensory room with interesting lights and sounds and so on for kids to go in. And apparently, they really like it.
Wow. Well, my mother would love to meet you then because she does a lot of work.
It’s amazing how much they’ve managed to add how many... they’ve got extra bedrooms. They make all the space, they’ve got extra bathrooms, and this is all just on the existing plot.
Tamara Winter: Beneath the Surface is a production of Stripe Press. The senior producers for the series are myself and Everett Katigbak. This episode was produced by Dave Yim. Whitney Chen is our production manager extraordinaire. Our sound mixer and sound designer is Jim McKee. Original music for this episode was composed by Auribus.
To learn more about Stripe Press, visit press.stripe.com.
That’s it for this episode of Beneath the Surface. I’ve been your host, Tamara Winter. We’ll see you next time.
Episode 04 B-side
Interview with Ronan Lyons
Tamara Winter: Welcome to Beneath the Surface B-sides, where we bring you full interviews with infrastructure experts. If you listened to last week’s episode of this podcast, you heard excerpts from my interview with Dr. Ronan Lyons. He’s an associate professor of economics at Trinity College Dublin and the director of Trinity Research and Social Sciences, an interdisciplinary research initiative that brings together scholars from across the university. In our conversation, he offers insights into the complexities of housing broadly and explains why the challenges plaguing housing markets are especially acute in Ireland. So without further ado, here is a lightly edited version of my conversation with Dr. Ronan Lyons.
Tamara Winter: Hello. Yes, I’m so excited about this. Okay. So the first thing I’m just going to have you do is introduce yourself and your academic affiliations, if you will.
Ronan Lyons: Sure. So my name is Ronan Lyons. I’m an associate professor in economics at Trinity College Dublin, where I’m also the director of a center called Trinity Research and Social Sciences which is like a collection of a few hundred research active social scientists across all disciplines in the social sciences here in Trinity and people in Ireland might also know me because I work on something called the Daft Reports. Daft.ie is like the Zillow or the Rightmove in Ireland. It’s like a major property portal and once a quarter or twice a quarter, once for a rental and one for sale, I do housing market analysis. So with the never dull Irish housing market, there’s always something to talk about.
Tamara Winter: So Ronan, well, that’s actually really helpful. I’m curious about your journey into housing. How did that become a topic of interest for you? And I’m also curious, if I may, about your personal housing situation, because you have...it’s three children, is that right?
Ronan Lyons: That’s right. Three boys, six and under, so a busy household. So I actually studied as an undergrad at Trinity and I did economics and political science. And afterwards, as many people find themselves, I didn’t really know what I wanted to do and I was in the lucky position that I was offered a scholarship to stay at Trinity. And I did some research in economic history, the history of trade and globalization, which I found really interesting, but then you’re like, "Well, I’ve picked one thing and I fall into one thing, what else do I want to do?" So I worked in policy making for a while. I worked for the National Competitiveness Council in Ireland. So Ireland as a small open economy is really dependent on its ability to trade internationally. So the Competitiveness Council advises the prime minister and the cabinet on where Ireland is doing well or badly.
So that gave me a, I suppose, a taste of policy analysis, policy advice, and policy making and how policy happens. And at the same time, a friend of mine had set up daft.ie, the Irish property portal when he was in high school. And after I finished my degree, he came to me and he said, "Could we do a report where we look at the...just the rental sector in Ireland and how it’s performing?" Because there weren’t...it wasn’t the same, I suppose, measurement of housing market conditions at the time. So I accidentally ended up in housing but after working in...I was doing this as a side gig and I was working for the Competitiveness Council and I did a bit of work for IBM as part of their policy consulting.
And I was moving around. So I had done research, I’d done policy making, I did private sector, but I realized that actually the thing I really enjoyed was research. So I had gone wandering around, but I came full circle. And in some ways you have to do that, right? You have to go and, or somebody like me has to do that. I need to know what I’m not doing to know that I’ve made the right choice, but in 2009, then I started at Oxford, a doctorate there looking at the Irish housing bubble and crash. And I finished 2013 and I was lucky enough that Trinity was hiring at the time. So I started in the department of economics then and I’ve kept those economic history or long run economic development as one hat and housing is another hat.
And I see them as related because when you look at housing and you look at real estate, if you think about the immobility of a home or a building, when you buy it, you’re buying the opportunity associated with the location. And unlike a worker can move and financial capital can move and some workers are more or less mobile, that’s certainly true, but a dwelling isn’t. So the idea of using housing and using land to tell us something about what is good or bad about a location or what people are more or less confident about for me, that’s the heart of why real estate and why housing is really interesting in addition to the very obvious thing that we all need somewhere to live, right? And if...as we’ll presumably get onto, if we don’t have enough places to live, then all sorts of problems arise from that.
Tamara Winter: That’s actually exactly the next question. It’s so funny as we’ve done some of these interviews, one of the producers are working with was like, "Tammy, I think you take for granted the idea that people just know what’s going on with housing, what the problem even is, if there is one." So I might actually ask you that question as, and maybe you can both couch it in Ireland, this is very much an issue across the world. What is the basic challenge with housing right now? Whether it’s affordability, not having enough homes, et cetera. Can you explain it to me like I’m five?
Ronan Lyons: I’ll do my best. And I do think Ireland is a good microcosm of a lot of the issues that have arisen in many, especially high income countries over the last 30, 40 years. In short, we have a situation in Ireland where we have not enough homes getting built for the number of new households that would or should form. And some of that is population growth. And Ireland is I think, unusual in Europe in that it will have faster population growth this century than last century. And some of that’s the long shadow of, there was a famine in the 1840s and that’s why there’s such a large Irish-American community and there’s also a large Irish community in Britain as well. And that has those deep historical roots, but since the 1980s and 1990s, Ireland has had a successful business model where it’s a gateway to the single European market.
And as a result of that, it has had all sorts of growing pains. As in incomes have gone up, population has gone up, Ireland has gone from net emigration to net immigration and all of those are signs of success, but unless you scale up the infrastructure as well, then you will come up with all sorts of congestion challenges. And the timing was fortuitous for things like road infrastructure, the European Union gave Ireland money to help build a motorway network. It didn’t have any highways 30 years ago, but in relation to housing, that’s a much more local issue and like many places, we have for various reasons, many of which are worthy, made it more difficult to build a home. So in addition to the population angle, we also have something that’s common in other countries as well but I think Ireland is particularly acute in this, changing demographics.
So if you think of countries on a journey from having households of four or five persons on average to households having one or two persons on average, and some cases, maybe three, but you see, average household size is going from four to two, even with the same population, you need twice as many homes, but the homes are different. And on top of that, if you go from rural to urban in the same a hundred year transition, you are going from larger rural homes to smaller urban homes. And that’s a challenge of location and it’s a challenge of mix, but it’s also a challenge of viability because not everything scales down, you need plumbing, you need a bathroom and a shower and a toilet and a kitchen, regardless of how many people you have in the home. You need some basic infrastructure in there.
So providing a home for one person is not a quarter of the cost of providing one home for four people. And I think that’s a big challenge that Ireland has struggled with and I think other countries struggled with as well, it’s perhaps less obvious than the population increase bit but certainly in Ireland’s case, providing urban housing for smaller households is not something the country is good at and it’s even a struggle to get politicians and policy makers to recognize the scale of that need.
Tamara Winter: Could you explain basically what happens when the housing stock doesn’t match population growth or immigration?
Ronan Lyons: Yeah. So actually part of my doctorate, one of the main chapters was trying to come up with what you might think of as a house price equation. What happens, house prices or housing prices if income goes up, if supply goes up, if credit conditions get tighter or looser, and the credit conditions bit was super important at the time, because Ireland was coming out of a bubble and crash situation. So that was the focus at the time was how much, if nothing else changes and you loosen credit conditions, what happens property prices and sure enough, they go up and tightening them brings them back down again. And a lot of macro credential rules are about trying to level that out, take that channel for amplifying house prices up and down and just really calm it down.
So that then leaves you once you at least try and contain those credit conditions, then it leaves you with this battle between supply and fundamental demand rather than credit demand or assets, factors like that. And on the fundamental demand side, you’ve got income per household and you’ve got household size. And those two things in Ireland’s case have been in...household size been going down, right? So you need more households per population or more dwellings per population and incomes have been going up. And this is another tricky bit for policy makers, the richer you get, the more you consume of everything, some things you shift into and some things you shift out of, but you consume on balance more of everything, the richer you get and that includes housing.
And going back to that piece of research I did for my thesis, one of the things we were trying to do was take out that bit and say, "Okay, if you hold income constant then you increase supply by 10%, what happens?" And our best estimate was that if you did that exercise, you would lower prices by about 12%. And that’s a fundamental that, again, in many countries, people are questioning, right? Because they see completions going up, more new homes getting built and they see prices of rents going up and they go, "You can’t say to me that if you build more homes, prices will go down because that’s not happening at the moment." And really this gets to the heart of the social science of housing is that that correlation is not about causation, that what’s actually happening here is that homes are getting built because there’s a lot of need.
And in Ireland’s case, there’s a need for maybe 40 to 50,000 homes a year and it’s only building 20,000. Now, if you didn’t build those 20,000, rents and sale prices would increase even more. And that’s the tricky bit because it’s very hard to argue with someone who doesn’t, who sees the correlation and doesn’t believe the underlying theory. It’s hard to say to them, "Well, let’s stop building and let’s see how that goes," right? That’s not a viable suggestion because that would make things worse, not better.
Tamara Winter: The conversation about housing tends to be so polarized, especially online, but we’re talking about people’s livelihoods, right? I’m Nigerian, my parents immigrated to the US when I was about two months old and thank goodness they found a house in Texas where we grew up but say they had moved to New York, I think the situation would be very different or in Ireland where my grandfather worked for a substantial part of his career. Anyway, I digress. We know that house prices increasing is one of the obvious effects of restricting the supply of housing for whatever reason. But I wonder too, if you could just talk about some of the less well understood effects of restricting the supply of housing.
Ronan Lyons: I mean, Ireland’s a good example of...I mean, it’s hidden and people don’t talk about it that much, but I mentioned earlier, Ireland’s really dependent on international investment or at least outwardly focused. Some of it’s indigenous and some of it’s coming from overseas, but it’s about creating economic activity for exports, right? You’re tapping into the European market. But over the last few years, the housing has been so scarce that firms have been holding back on expanding. I mean, think about how wrong that is, right? That you actually could hire an extra 2,000 people and you’re choosing not to, not because you can’t find work for them, but you can’t find housing for them. I’m not saying everywhere suffers from that, but there are, I think lots of places. If you look at New York and Tokyo over the last 50, 60 years, New York and Tokyo are roughly the same size, they have now...since the 60s, they’ve had very different setups in terms of the ability to build new housing. Tokyo is now about twice as big as New York.
And people will say, "Well, New York’s big enough already. It doesn’t need to get any bigger," but the point is, and you talk to say the economic geographers, people like Enrico Moretti or whatever, and it’s the geography of where people are productive. And there are certain features about locations that make them productive and that would allow people to choose themselves if they want to move from say one part of the US to another, in order to move into a growing industry. And if housing is stopping that either internally in the US or internationally in the case of Ireland, that’s a real direct cost. I mean, housing is always in everywhere, right? Someone’s shelter, right? It’s their home at nighttime, but housing is seeping into being about livelihoods as well. And whether we are enabling people to have the most fulfilled potential that they can, that if we’re not getting housing, right?
That’s for me, one of the...it’s not hidden, but it’s maybe not always highlighted, the cost of not enough housing, but it does seep through everywhere. If you don’t have enough housing... I wow my undergrads with the story that say 20 years ago, I had friends who moved out of their parents’ home in Dublin to rent a property in Dublin while they were in college, because they were just like, "Well, hey, I’m an adult, I’ll go off and I’ll find somewhere to live."
That is so far from the possibility now, if you’re a 19 year old student in Dublin, I mean, you just stay at home with your parents. There’s no option. You may even have to commute. If you’re outside Dublin, you may be commuting an hour and a half every way, very early in the morning and very late at night to go to college. And that has a cost too, in terms of all sorts of things that are forgone that I took for granted when I was an undergrad that today’s undergrads can’t do. And I think they’re hidden costs as well in terms of forming people and their opportunities, because those years say between 20 and 25 are so crucial to people who are, say, in the higher education space. They’re so crucial to what happens afterwards. Everything is path dependent.
Tamara Winter: Absolutely. I really appreciate that in particular, because I think it’s just poorly understood. Okay. So this is actually not super relevant to the podcast, but I’m personally curious about it. Can you summarize Ireland’s housing bubble and its subsequent crash in 2007? What happened there?
Ronan Lyons: Yeah. You will see it given as an example of, well, this is almost like the textbook case of this is what happens when you let markets go wild. And I think that misses a key part of the story. Clearly the global credit gloss in the early 2000s was an important factor, but you have to rewind a little bit. And in the mid, late 1990s policy makers were grappling with this idea that Ireland is growing, Dublin is growing, how are we going to provide new housing? And they came up with this scheme that said, "Let’s regenerate parts of Dublin as Ireland’s biggest city and we’ll allow people to write off construction costs for building new homes." So it started out with this urban renewal thing, and that actually worked quite well.
I mean, you had organizations that weren’t particularly familiar with building apartments, they’re used to building houses and then they were building apartments. So there might be other quality issues there that we can come back to. But overall, the goal of getting new housing, where there was long term demand was by and large met and actually rents fell during Ireland’s boom and bubble. So many new rental homes were built that rents were cheaper in 2004, 5, 6 than they were in ’98, ’99, 2000. And that’s fascinating because Irish people forget this because they just remember when the sale prices bit was through the roof. So politicians looked at this and went, "That’s interesting. So if we do this tax relief thing, we get lots of housing. So let’s try it in all the other constituencies where we want to get reelected," right?
So they went off and they said, "Rural parts of Ireland, let’s get loads of housing built." And it was a no brainer for a developer because they could...the rental income didn’t have to be from the property they were building somewhere in rural Ireland. It could be from anywhere and it didn’t have to be that year. It could be, at some point over the next number of years. So they could build these properties and either good case scenario, they get someone to live in them, worst case scenario, they don’t, and they still get a lower tax bill and unsurprisingly tens of thousands of homes were built in places where there was no long term need. And at the same time you had this credit bubble, which was pushing up prices in lots of countries, the US, UK, Spain and Ireland was right up there at the fore, incomes were going up, confidence was high, banks were getting into mortgages.
We had savings and loans like institutions building societies, but they gave way to the banks and the banks became the main mortgage providers, but they didn’t realize what they were playing with and they were giving people more and more leverage. So you had these two things going on, lots of new homes getting built and prices going up a lot. And then the global gloss stopped. The bubble stopped, the music stopped and then things turned pretty quickly. And the government at the same time decided to end the cost release. They were like, "Hang on, what are we doing here actually? And we should stop these release." So Ireland in around 2007 turned and went from a decade of phenomenal increases in the stock of housing and in prices, and that prices bit that was credit driven, it went the other way and prices fell by about 55% in the space of five years. And that’s like a national average.
In some segments, if you’re in one of these places that got lots of extra housing, one of these rural markets, the cost of a smaller home might have fallen by 80%. And even to this day, some of those rural counties that saw the most construction relative to the number of people in those early 2000s years, housing today is still the same cost it was 20 years ago because so much was built. In Dublin, not enough was built even in the bubble years and housing is about a third more expensive now than it was in 2000. It’s certainly, not even 20 years, it went up and down and then up again. But paradoxically for...the narrative in Ireland would be that, "Well supply doesn’t keep prices under control because look what happened in the early 2000s."
Paradoxically what happened in the early 2000s, when you take a step back and take out the credit bubble is a stunning endorsement of the idea that more supply makes housing more affordable because if you’re in Leitrim or Longford, which are these rural counties that saw some of the most housing built, housing is really affordable there now compared to Dublin where it’s not.
Tamara Winter: And so that’s why in your Works in Progress piece, you talk about the Irish ghost towns that actually aren’t ghost towns or at least weren’t intended to be. It’s so funny because in that answer, you actually answer like the next three questions. Your dissertation at Oxford in it, you detail the various factors that affect home prices in Ireland. Could you share some of those factors?
Ronan Lyons: Yeah. What I had in mind here and I guess, I’m slightly different to the standard academic because I had had that experience of seeing how policy makers worked, or at least I’d like to think I’m slightly...everyone does, right? Everyone’s slightly different. But I said, "Okay, there’s a morass of factors that can affect housing prices, but can we distill them down to the three, four, five, six most important ones? And I was lucky that I had a supervisor who sees...I’m in many ways, I’m a product of his way of seeing the world, right? My way of approaching a question like that, I like to think is mine, but really it’s, I’m inheriting a lot of his way of tackling these questions. So you could have 50 factors that drive house prices, but we were trying to come up with this list of the most important, so that we could say to policy makers, "If you’re looking at, if you want to control housing prices, if you want to see what’s going to happen next, these are the most important."
And I mentioned household income, right? So if household income goes up or down and that can go up or down for a number of different reasons. One of the reasons household income went up in Ireland, say from the 90s to the 2010s was because more and more women were actively in the labor market. So instead of one income or one and a quarter income, you might have one and a half or two incomes and that will boost household income or unemployment, right? So in aggregate, the higher the unemployment rate, the fewer incomes there are per household, right? On average. So there’s a lot going on in that measure. So household income is one, household size is another. And one of the things that was under the hood at the time, and I’m focusing more on now to try and get the point across to policy makers, is that Ireland going from say a three and a half persons per household to two and three quarters, right? That pushed up prices by between 40 and 50% in the space of three decades or so. And I don’t think that’s appreciated.
You’ve the same number of dwellings, but you’ve more and more households even with a similar population. And of course in Ireland’s case population was going up, household size was going down. So there’s an even greater increase in the number of households. And then there’s the supply factor, right? So controlling for all those demand factors, fundamental demand factors, the supply, and there’s the three fundamentals and you’ve got asset factors as well. And one of the asset factors is what’s known in the literature as user cost. So how much does it cost you to hold a property one year to the next?
And some of that is they say expected capital gains, right? If you think your property’s going to go up 20% between now and next year, it doesn’t really matter if you have 1% property taxes or your cost of borrowing is 3%, you are going to get...you think you’re going to get this 20% gain. And that was a huge driver of demand. And then the final factor is credit conditions that how much...for a given set of savings, how much is the financial system leveraging you up? And in Ireland, like in many countries, we went from say, 25% deposits in the late 90s to sometimes 5% or 0% deposits in 10 years later.
And if you think of that as in and of itself, going from 25% deposit to a 5% deposit, the same savings are going to get stretched at a huge amount more in terms of the mortgage you get given. Now, other factors come in there, but those are the five ones: household income, household size, housing supply, the user cost and credit conditions. And we put numbers beside them and said, "Okay, if you want to think about what drives house prices, an X percent increase in incomes will do this," and so on.
Tamara Winter: Was it like multiple regression analysis?
Ronan Lyons: Yeah. So in terms of the methods, what we were using were...they’re macro econometric methods. So what you’re trying to do is run regressions where you want to maximize the ability of the data to tell you what’s going on. You don’t want to say, "Well, we’re going to assume people are this risk averse or that," whatever it might be, you want to let the data tell you as much as possible. So it makes sense on a first pass theory level, it makes sense that supply is going to be relevant for the cost of housing and incomes and so on. And you can put them in and see what they tell you. And you can also break it down and say earlier or later which factors are most important.
And that was one of the punchlines at the time, which was almost 10 years ago, was that ’95 to 2001 prices increased…house prices increased a lot in Ireland, but it was a mix of lots of different things. As Ireland went from being a declining population country to a rising population, rising income country. ’01 to ’07, it was almost entirely credit conditions, right? Basically nothing else changed. Yes, supply went up, but incomes went up almost one to one to match. So that the...of the, I think it was the 8% increase on average per year in inflation adjusted housing prices, seven and a half percent was coming just from credit conditions.
Tamara Winter: A comment and a question. The comment would be, I’ve never heard anybody mention the shrinking of household sizes being a relevant factor in the increasing demand for housing but it seems so obvious when you think about it. So that’s very interesting. The question would be, you mentioned something a few answers ago about the difference between New York and Tokyo, decades ago they had the same population size and now Tokyo is both much larger, but also...I mean, I don’t know how much larger, but also much denser. And I know that that... I know very little about this, but I know that’s related to the differences in how Americans are even extending it, the West tends to treat housing as an investment rather than how Tokyo in Japan tend to treat housing. Could you speak to those differences a little bit?
Ronan Lyons: Yeah. And there’s a great author called Bill Fischel who’s written something called Homevoter Hypothesis and more recently had a book called Zoning Rules. And if you read Zoning Rules, he’s an economist himself one, who’s proficient in the law. And he has a good caricature of economists at the start of the book where it’s like an economist assumed that planners are just economically illiterate and stop the building of housing for some reasons due to their own preferences. And it’s like, no planners are responding to the demand for planning that when they put in land use restrictions, they’re doing so because they get reelected to do so, that people who come along and go, I will—but they won’t phrase it like this—I will preserve the value of your home by limiting the construction of new homes.
That is a vote winner, right? Whatever way you’ve got to not dog whistle it in but you’ve got to indicate that you’ll do that without saying, "I’m going to price that new households," that’s a vote winner. And I think a lot of it comes from...there’s a website WTF Happened in 1971, right? There’s all these charts that suddenly just change in 1971. And we can think of lots of potential factors in there. But I do think the 1970s, the unexpected inflation in the 1970s, possibly driven by the oil price shocks or a combination of factors, including the oil price shocks in places like the US, opened the eyes of homeowners to the idea that if inflation comes along, your debt stays the same size in nominal terms and your property value goes up. So inflation is bad from a consumption point of view, but if you’re a homeowner, it’s good because the real value of your debt goes down.
And we’ve known this, that’s why we had hyperinflation after World War I, countries wanted to get the real size of their debt down, just add a few extra zeros to your currency and the debt goes away, that kind of thing. But doing it for households in a mass home ownership environment, because of course what had happened between the 40s and the 70s in the United States is there had been significant attempts to boost the home ownership rate for potentially very good reasons. But what it meant was that the typical district that’s voting people in in the US or indeed in a European country now has a majority of homeowners and their interests may differ from other households. And that was a key turning point because once people were aware of that, they were able to co-opt all sorts of reasoning, some of it environmental or quality controls or whatever and use those as fronts for what is effectively preserving the value of the biggest thing on their balance sheet and in some ways they’re entitled to do that.
If I own a home and in principle, I could go out there and actively try and minimize the new housing supply to maximize the value of my home. Now, I think that would be incredibly hypocritical of me given what I passionately believe about housing to be doing that. So I try and do the opposite. I try and argue for more housing, even though it’s not in my own interests. And the economists are laughed at for assuming people are always super automatons and rational and so on. But in my case, I’m living proof that that’s not the case, I suppose. But in general, I do think that that switch got flicked in say in the US in the 1970s and it didn’t happen in other places.
And that might be because the age structure is different in Japan now, if you increase interest rates, that could be an economic spur to activity, right? Because the age structure of the population, they’re net savers as opposed to net borrowers or there’s different things going on in different countries or it could be just the way the shock is felt. The same shock, but it’s felt in different ways in different countries. But certainly if you look at Ireland, if you look at lots of European countries, if you look at the US, we have ended up with a system where the incumbents, the people who were there already and secured their housing have disproportionate power over new housing supply.
Tamara Winter: It actually leads into...and I just have two more questions. The next question, which is, as you look...I find it unfortunate that, and I understand why these debates often get so charged, but I do find it a bit unfortunate and so I wonder as somebody who does support more liberalized zoning, what do you think are the most compelling arguments that opponents of liberalized zoning make?
Ronan Lyons: I mean, there are...one relates to quality I think, and one relates to distribution, right? So people who...and I would have...in the Irish housing debate and people can go on Twitter and see, I would say something and you’ll have...there’s a group of people who will argue vehemently that, against say, if I argue for new rental housing in Dublin, because it badly needed, people would say, "No, the rental housing is getting proposed is not adequate." And they’ll say either, for example, either it’s not good enough quality, so we need higher quality standards. Personally, I don’t think that’s true of the housing that’s getting built at the moment. I think I’ve tried to come up with a measure of it. Of course I did, I’m an economist, but I’ve tried to come up with the measure of the quality of housing and I estimate the housing that’s getting built now about 50% higher quality in terms of the input materials than housing about 20 years ago.
So I don’t think that’s true, but I’m sympathetic to the argument that if you build poor quality housing, you are creating future problems. So we should be rigorous in terms of housing. Now there’s an opportunity cost, which gets to the distribution point, the higher your minimum standards, the more of the income distribution you’re pricing out. And I estimate that say Dublin city’s minimum standards around 2015 priced at 90% of the income distribution and that’s pointless, right? It’s pointless having minimum standards that only allow 10% of people to enjoy new housing, because what you do is you create segregated markets. So from a distributional point of view, I think new housing shouldn’t be the preserve of the market or shouldn’t be the preserve of the state or whatever, I think we need a holistic approach that says, if you think of it as three groups in the population, you’ve the group that are rich enough based on current standards and prices to afford housing in the market.
You have a group that are poor enough based on whatever the standards are for providing social housing, that they qualify for social housing. And then you’ve got a group in the middle who are not rich enough to afford market housing and not poor enough to qualify for supported housing. And really if I were a housing minister or a secretary, I mean, that is your goal. Your goal is to make sure that group doesn’t exist, that they’re either in the market or in the supported housing sector. And for both in order to achieve that, you need both those groups, the market housing segment and the social or supported housing segment to be responsive to underlying need.
So that’s an argument where basically social or supported housing is a compliment to market housing. It’s not a substitute and I think that’s one of the...one of my get out of jail cards when some of my critics come along and say, "You’re just like a shield for developers and it’s all about profit for you." I have one guy who likes calling me a money astrologist because I’m an economist or whatever. I’m like, my estimate of housing need is high enough that I think the state should be supporting the construction of maybe 15 to 20,000 homes a year. So I don’t think...I don’t know of any competitor in Ireland’s case that has a higher estimate of socializing than me. I also have a higher estimate of market need, because I believe the underlying need say for one and two person households, as we get older, as we start our families later, all that kind of stuff is adding new housing need, diversity of housing need.
So I think on quality and distribution, there are points to be listened to. I’m super reluctant to take into account…I think of this, right. I live in central enough in Dublin, I can see the Guinness tower, right? From my bedroom window. I can look at it and go, "There’s the Guinness Storehouse," which is like one of the most popular tourist attractions in Ireland. Now, it’s not particularly attractive, but suppose it were super attractive and I’m like, "That’s part of my view, right? Across the road, there’s a site that’s going to get redeveloped and they’re going to put in, I think, five or six stories in group of apartments. I think I should be entitled to say, "Well, yes, I don’t think you should build that because I have a lovely view.” Now I think that observation on the new development should be given a weight of close to zero, right? It is effectively irrelevant for society, right, that I have a view of the Guinness Storehouse from my bedroom window.
It’s nice for me, I didn’t buy the property because out of the window, I can see the Guinness Storehouse or whatever it might be. I think we need to be a lot more clear about the weight we give to arguments that are effectively arguments to keep housing prices high.
Tamara Winter: As you look across Ireland and then maybe more broadly across the world. Are there reasons for optimism on housing?
Ronan Lyons: In Ireland, I think there are because things have been so...I mean, things were up and down for different reasons, but things have been so bad for the last 10 years that if you think of...just take the case of Dublin, Dublin is a city of about one and a half million people, about a half a million dwellings and the rental sector is about 150,000 rental dwellings, right? So not quite a third, but not far off. As things stand, they actually recognized this a couple years ago policy makers, they said, "We need to boost the supplier rental accommodation.” We are now in the opposite of the sweet spot. We’re in the eye of the storm at the moment because those plans have been lodged to build about 50,000 new rental homes but very few of them have come on stream.
So you’ve people saying, "Look, you changed these rules three years ago," and of course COVID came in and didn’t help. And you changed these rules three years ago and nothing has changed. In fact, rents have gone up. Things are getting worse, not better. And I look and I see about 40 to 50,000 rental homes coming down on stream over the next five or six years. And I say, Dublin is going to be such a better city for having 200,000 rental homes rather than 150,000 rental homes. And yes, the new 50,000 are going to be expensive, but we have made them be expensive because we have high standards. And I know some people will disagree with that but I do believe that that’s true. We have high standards and the new rental accommodation is going to be expensive, reflecting that. So that’s the...I’m a natural born optimist.
I see things getting slightly better and I do, and again, in the case of Ireland, I think the things were so bad in providing which you might think of as social or supported housing over the last 20 years. It was a decision in the early 1990s, implicitly, nobody ever stated this, but implicitly, it was let’s stop providing lots of social housing by the state and by lending more and more risky mortgages that we...and the US did the same thing effectively that that will step in, the market will step in for the state. And we know post 2007, that that’s not a reliable way to provide housing for all, but for about 10, 12 years in Ireland’s case, there was not a huge amount of progress. And just in the last 12 months or so, there’s been a bit of progress in terms of cost rental.
So Jane Jacobs writes about this in her book about how would you provide housing for all…the Death and Life of Great American Cities. She talks about what we would call cost rental is that, if a third of your income is the most you can spend on housing, how could, what do you do for people for whom that’s not enough to cover the cost in new housing? And you got to top them up to get to that point. And Ireland is introducing a system a bit like that. And I think that’s going to make social housing or non-market housing, more responsive to underlying need. So I’m an optimist for Ireland, even though I could also give you the list of clouds in the horizon or things that I think are wrong, let’s go with optimism.
More globally, if I’m an optimist it’s earlier in the pipeline of optimism, it’s hard to point generally. And it’s hard to summarize generally about housing. And there’s a couple of books actually, that I’ve seen coming out recently, one’s called Mass Housing, I think, and it’s trying to synthesize across countries. And actually some of my own work...I’m working on a project that’s funded by the National Science Foundation looking at housing prices in the US since the civil war and trying to measure prices at a city level. And in doing that and in doing the same for Ireland and in doing the same for Canada to contribute to an international, not debate, because I think that sets us up in the wrong, but International evidence base around what’s happening in housing markets now and how it fits into a longer term picture.
But I’ve digressed a little bit. The drawing, I suppose, drawing conclusions about the global housing system or even the housing system in the high income world, if I’m optimistic, I think it’s because there’s a lot more people who believe housing to be important to research. And we know so much more than we did 10 years ago, so that’s on the research side, that of optimism. I think that will filter through into the policy side, but I do think that every country is going to have to come up with its own way of wrestling with the, yeah, the promiscuous veto with the power of incumbents and some of it, some countries may not be able to solve that until you’ve...things have got so bad. You’ve got a majority of renters in certain key parts of your country and then the power switches.
Tamara Winter: Ronan, that’s all I have. Thank you, so, so, so much.
Beneath the Surface is a production of Stripe Press. The senior producers for the series are myself and Everett Katigbak. This episode was produced by Jack Rossiter-Munley. Whitney Chen was our production manager. Our associate producer and editor was Astrid Landon. Our sound mixer and sound designer was Jim McKee. Original music for this episode was composed by Auribus. Additional editing support was provided by Emma Jackson.
To learn more about Stripe Press our books, our films, and more, visit press.stripe.com.
Okay. That’s it for this B-side, I’ve been your host Tamara Winter. This is Beneath the Surface B-sides.
Growing Pains and Bullet Trains: The Art and Science of Moving People
Archived audio: Is it for real? Oh, it’s for real now.
Tamara Winter: It’s New Year’s Eve 2016. Then governor Andrew Cuomo and his wife descend an escalator underneath second avenue in the New York City borough of Manhattan. Behind them, ride a gaggle of men in suits and women in evening gowns. Cuomo flashes a smile to one of the dozens of cameras followed by a thumbs up and a wave. They turn to board a colorfully decorated new subway car emblazoned with the words second avenue. It’s the kind of grandiose ribbon cutting moment that every politician dreams of.
Archived audio: We needed to show people that government works and we can still do big things and great things, and we can still get them done.
Tamara Winter: But this was no ordinary transit project. It took nearly a century to finish, and it was the most expensive per-mile subway project ever.
Welcome to Beneath the Service, a podcast from Stripe Press all about new ideas and big questions in the world of infrastructure. I’m your host, Tamara Winter. In our last episode, we looked at rising housing costs. Today we’re looking at what could be considered the other side of the same infrastructure coin, transit. I grew up in a suburb of Dallas, Texas. We have the Dart, or Dallas Area Rapid Transit, but its efficiency and convenience leave a lot to be desired. According to census data compiled by homearea.com, the share of commuters in the Dallas Fort Worth Metro area that use public transit is—1.4%. And that tracks with my experience.
Growing up, I would take a train once in a while, but only on special occasions to the Texas state fair or the stockyards in Fort worth. Trains were a special treat, not something that was part of my main transportation diet. By contrast, I moved to New York City in 2021 and the city subway has just become a part of my daily life, as it is to 3.1 million other New Yorkers.
And I learned that only a few years before I arrived, a new subway line opened underneath second avenue in Manhattan. It was a rare new addition to one of the largest and oldest subway systems in the world. Phase one of the project was completed in 2017. It is a modest two miles of track and three stations. It runs through the upper east side neighborhood. The price tag was around 4.4 billion dollars, and that’s just one of the four phases of construction. Phase two will extend the line north into East Harlem and is expected to open sometime between 2027 and 2029. The cost of phase two is expected to surpass that of phase one. Phases three and four would extend the line along Manhattan’s East side, all the way to the financial district at the Island’s Southern most point. These phases currently have no funding commitments or timelines.
I guess the thing that gets me is that this subway line was first proposed in 1920, over 100 years ago. So, why has it taken so long to construct? Why is it costing so much? And what can we learn about public transit? Not only where the Second Avenue Project got it wrong, but where other places get it right.
Sarah Kaufman: In New York city the subway is the lifeblood of the city.
Tamara Winter: This is Sarah Kaufman. She’s the Associate Director of the Rudin Center for Transportation at New York University
Sarah Kaufman: At NYU I do research, I conduct events, and I teach mostly around the topic of transportation and technology.
Tamara Winter: She’s also worked at the city’s transit agency itself.
Sarah Kaufman: I previously worked at the MTA, which is the Metropolitan Transportation Authority here in New York, which is the organization responsible for New York subways and buses, as well as several bridges, tunnels, and highways.
Before COVID the subway was handling about five and a half million people per day. And then we also have the largest bus system in the country. And before COVID, it was handling about 2 million people a day. New York City does not function without its subway and bus systems, because that is how everyone gets around. In a lot of US cities, the only people who take buses or trains are lower income people, but here in New York you could be sitting next to a multimillionaire or someone who is very low income and everyone’s riding it together. It’s a great equalizer.
Tamara Winter: Today, the subways might be the city’s lifeblood, but a quarter century before the first trains began running underground, elevated trains rumbled above Manhattan’s busiest avenues.
Archival audio: Gleaming skyscrapers are traditional landmarks of New York, but there are other landmarks like the grimy ribbon of steel [inaudible 00:06:37].
Tamara Winter: They were loud, dirty, and choked the city’s street life under a canopy of metal.
Archival audio: For 76 years, L trains clattered by carrying people to work and home again. But the old steel skeleton outlived its usefulness. Passengers dwindled, and so the L is being torn down.
Tamara Winter: The city began phasing out these elevated trains, known to New Yorkers at the time as the L because the more modern underground subway lines were being built. Well, most of them were being built anyway.
Sarah Kaufman: So the first concept for the Second Avenue Subway was published in 1920. And it was just an idea. And the city planned to start construction in the early 1930s, but as you know, the depression hit. And so there was no funding for a new subway line. Once the country recovered...
Archival audio: Second Avenue. Miles of new housing need miles of new track.
Sarah Kaufman: Different capital project amounts went into repairs and other subway lines and so there wasn’t funding for this project. There were fits and starts over time in the ’40s, ’50s, and ’60s based on federal funding and state funding, as well as governance changes for the MTA itself.
Archival audio: Much of the transportation future will be hidden below the ground in more than 50 miles of new subways. Soon, there will be a new two track subway that will run the length of Manhattan on Second Avenue, right up to the Bronx.
Tamara Winter: The city did actually start construction in the early 1970s. However, New York City soon fell into severe economic and political turmoil, leading to high unemployment and rising crime.
Archival audio: New York City Subway System. It has turned into a nightmare for the millions who ride it each day. The reason for the crime wave? The city says it doesn’t have the money to pay for transit police.
Tamara Winter: Again, the Second Avenue Subway was put on the back burner.
Sarah Kaufman: New York was left with several mini tunnels under Second Avenue, but nothing that connected and nothing that was yet able to have a train because these tunnels were not contiguous.
Tamara Winter: The 1980s and ’90s saw the city crawl itself out of the fiscal hole and finally start to bring down the crime rate. In December 2001, just three months after the 9/11 attacks shook the city, research began on the impact of constructing the Second Avenue tunnels to the city and the environment. These impact statements were finished in 2004, and plans were developed for the next two years.
Archival audio: One, two, three.
Sarah Kaufman: So finally, construction resumed in the 2010s.
Archival audio: We’re here today, starting up the tunnel boring machine, which you see behind me for the Second Avenue Subway. This is a tremendously exciting day.
Sarah Kaufman: It was seen as a shovel ready project in the 2010s. A lot of it had to do with federal investment because this project was just too large for local or state investment to have completed. And so once there was a real federal commitment to transit, mostly thanks to Obama, the city was able to work on this project.
Tamara Winter: That leads us to then Governor Cuomo’s grand opening gala. Unveiling a stretch of track from 63rd street to 96th street underneath Second Avenue.
Archival audio: Thank you and God bless you. In a few minutes and we’re going have a great New Year. Thank you.
Tamara Winter: So yes, nearly a hundred years later, the Second Avenue subway was eventually built. Well, one of four parts were built. And pre pandemic, the line saw around 200,000 weekday riders. That’s more than the entire Atlanta Rapid Transit System. So sure it’s doing its job, but then there’s the issue of cost.
Sarah Kaufman: The Second Avenue subway was the most expensive subway built in the history of the world in mile-per-mile basis.
Tamara Winter: The total cost was around $2.6 billion per mile.
Sarah Kaufman: There’s a lot of great research done about construction costs in the US being just astronomically high. If you look at the work of Alon Levy...
Alon Levy: Okay, I found the sound recorder. My name Alon Levy.
Tamara Winter: Alon Levy is a transit researcher. They run the websites, Pedestrian Observations, and the Transit Costs project. Alon’s interest in transit costs started when they were studying for their PhD in New York.
Alon Levy: I got an interest in the subway. It’s just a thing that people do in New York, they ride this train. And I saw, okay, this is how this system laid out and started thinking about maybe gaps in the system. What could we edit? What would we change? And somehow this has gone to trying to compare it with a lot of other big systems. And this is when I realized, just through a little bit of Googling, that the construction costs of subway construction in New York, the Second Avenue subway were very high.
Tamara Winter: That led them to look at other subway projects.
Alon Levy: They checked a bunch of huge global cities.
Tamara Winter: Alon found that the global average cost of transit projects was around 400 million dollars per mile. The Second Avenue project was six times that. This led them to start the Transit Costs Project. It’s a website that catalogs the costs of transit projects around the world.
Alon Levy: Right now we have a database, it’s something like 600 items. We have close to complete coverage of subways built in the last 20 or 25 years.
Tamara Winter: The Second Avenue subway is extreme, both in timeline and cost, but it’s not unusual in the US for transit projects to fall behind schedule and go over budget. According to the Transit Costs Project, transit projects in the US are the sixth most expensive in the world. The countries that are one through five are New Zealand, Hong Kong, Qatar, Singapore and the UK respectively. However, there’s an important caveat to the data here. Digging tunnels and building underground rail, like a subway, make construction much more expensive than simply laying down rail over land. The five countries I listed are building projects that are more than 80% tunneled. New Zealand and Singapore’s projects are a hundred percent tunneled. In the US only 37% of track is tunneled.
Alex Forrest: I think among countries which are capable of developing rapid transit, I would say the US performs pretty badly. It’s not that it’s without any bright spots. There are so many little things and big things that are broken about transit in America.
Tamara Winter: This is Alex Forrest.
Alex Forrest: I’m a transit planner for the Pioneer Valley Planning Commission in Springfield, Massachusetts.
Tamara Winter: We met online several years ago, through Twitter, naturally. I immediately became a fan of his insight and how he communicates his ideas about transit
Alex Forrest: As with how transit got to be in its current state in America, there are so many culprits here. It’s hard to know where to start.
Tamara Winter: Culprit one: labor costs.
Alex Forrest: With our construction crews, we need them to be professional trained, doing the best work possible. So we don’t want to sell them short, but at the same time, we need to come up with contracts that can actually ensure that there will be future contracts or else, what are we doing here?
Tamara Winter: Here’s Sarah Kaufman.
Sarah Kaufman: As compared to most other countries that have transit systems, employers in the US have to pay out worker benefits, which significantly adds to the cost. Subway construction happening in France for example, the cost would be somewhat lower because the employer would not be responsible for the health and wellness of the workers.
Tamara Winter: Culprit number two: practice. You know that old saying, “practice makes perfect”?
Alex Forrest: The USA had a first rate best in the world transportation system, well into the 20th century.
Archival audio: And here’s one of the most wonderful things about this vast country of ours. No matter where we want to travel, there are trains. Beautiful, comfortable…
Tamara Winter: At its peak in the early 20th century, the US had over a quarter million miles of railroad tracks. Nearly every major US city, from Atlanta to Los Angeles, had either street cars or subways that a majority of commuters took to work. For more reasons than we have time to get into in this episode, the latter half of the 20th century saw the tides begin to turn.
Alex Forrest: At that point, we have another host of structural decisions coming into play that kind of limited our ability to rebuild the system or to modernize it properly. And that kind of led us where we are today.
Tamara Winter: There’s no consistent new building of transit projects. And so everyone is all kind of out of practice. So when a new project does need to get underway, it’s like starting from square one every time.
Alex Forrest: A lot of transit agencies in the US should be developing in-house capability. The less you need to contract your plans, your operations, et cetera, out to external vendors the better you are just at the industry in general. The more things that we can be good at, the more effectively we can spend our money. It always sucks to see a huge chunk of your budget that isn’t even entering the transit system is just being paid to you to give to a consultant to do work that you should really know how to do yourself.
Tamara Winter: Culprit number three: transit agencies. Often in the US, a patchwork of different agencies all have different motives.
Sarah Kaufman: Here in New York, and this is true in several other US cities. We have this division of jurisdictions that is hard fought. The subways and buses are run by one organization, the commuter rails, Metro North and Long Island Railroad another. Meanwhile, we have the path train, which is one of the commuter trains to New Jersey run by the Port Authority, and then New Jersey Transit, which runs other trains to New Jersey. It’s pretty incredible how many different organizations needs to come together. And frankly, they don’t. When you look at other countries, they have more of a regional and national perspective on coordinating interests across boundaries.
Tamara Winter: Lastly, perhaps the most guilty culprit: Us, the public. There’s that other old saying, time is money. Well, in the case of transit projects, the longer these things go on for, the more expensive they get. These delays are often a result of NIMBYs. People who favor projects in general, but when they happen near them, they say not in my backyard. We discussed NIMBY attitudes around new housing development in our previous episode. And the same issues can be seen when it comes to transit projects, too.
Sarah Kaufman: We do have a public engagement process where people can oppose transit and here in the US, people wildly oppose transit. They do not want buses and subways coming to their neighborhoods and overwhelmingly they come to community meetings and oppose it. Whereas in other places, the community has less input because it’s seen as a community betterment project. And so that process, which can take years here, is a non-issue elsewhere.
Tamara Winter: Residents will often weaponize regulations such as environmental protection laws in an attempt to stop what they see as an encroachment on their neighborhoods.
Alex Forrest: People are loathed to have large construction projects. And so, tremendously excessive measures have to be taken to make sure the project is as not disruptive as possible, which perversely can end up dragging it out and making it disrupt people for longer. Trying to keep up with people’s demands about any given projects, not the least of which is the ability to block any given project or just modify it endlessly, which also adds costs.
Tamara Winter: All these factors add to transit costs in the US. Excessive labor costs, a lack of in-house planning expertise, multiple out of step transit agencies, and NIMBY’s dragging out project timelines.
Part of the reason that Alon Levy started the Transit Cost Project was because they believed that if the US was able to look outside it’s borderers, the shared knowledge and learning from other global cities will help transit projects everywhere. Even New York.
Alon Levy: There’s this unfortunate tendency in New York to say, oh, New York, especially, you don’t have anything to learn from. So we don’t have anything to learn from to a degree. We don’t have anything to learn from Milan. We don’t have anything to learn from Stockholm.
Tamara Winter: Every transit system has things it does well and things it can improve on. But the more I dove into the world of transit, the more I realize that all roads, or all railroads, lead to one place. Japan.
Tamara Winter: This is the sound of Shinjuku station. It stretches for more than a half a mile through the Shinjuku ward and the heart of Tokyo. The area is a major commercial and administrative hub. Every day it sees 3.6 million passengers making it the busiest public transit center in the world.
There are five railway and subway companies that intersect here. They link the Tokyo Metro to lines that service the suburbs West of the city. By one account, there are 53 platforms and over 200 entrances and exits to this massive complex. There’s also long distance bus service. While Shinjuku is the busiest station, it’s hardly alone. There are nearly a dozen other major transit hubs spread across various wards in Tokyo. Each of these services 1 to 3 million passengers daily. The rest of the world doesn’t even come close. Take New York’s Penn Station, the busiest train station in the entire Western hemisphere. It sees over 600,000 weekday passengers. That’s one sixth of Shinjuku station. In fact, of the 50 busiest train stations in the entire world, 45 are in Japan.
Train ridership can only get to these high numbers when the system runs effectively. In fact, in Japan it’s nearly perfect.
Junichi Sugiyama: So desu ne. Hai, hai.
Tamara Winter: This is Mr. Junichi Sugiyama.
Junichi Sugiyama: I live in Yokohama, Japan.
Tamara Winter: He’s a journalist who writes about train, travel and business. And he’s ridden on every single rail system in Japan.
Junichi Sugiyama: Next I’d like to like to ride the Amtrack across the United States. I will practice my English to help with my travels.
Junichi Sugiyama: [in Japanese]
Junichi Sugiyama - Translator: Japanese people feel proud that the railroad system is so reliable and punctual, and when they can say there’s a train station close to where they live. Punctuality and accuracy is the most important thing so that people know exactly when to leave the house and when they will arrive at their destination.
Tamara Winter: Let’s look at the Long Island Railroad, which operates out of Penn Station. The system considers a train on time if it arrives or departs within 5 minutes and fifty-nine seconds of the scheduled departure. Even with this generous measure, nearly 20,000 trains run late every year. Now contrast this to Tokyo. Every year the city’s entire system experiences accumulated delay of 20 seconds. Even these precious few seconds are an infraction worth an apology, like this statement that went viral in 2017.
Archival audio: A company in Japan is apologizing after one of its trains left 20 seconds early. The company released a statement that reads in part, we deeply apologize for the severe inconvenience imposed upon our customers. That’s incredible. For comparison, to review [inaudible 00:24:28].
Tamara Winter: Imagine a trained company in the US making a formal public apology for leaving 20 seconds early.
Junichi Sugiyama - Translator: By increasing the frequency of trains, it will be more convenient for residents in the area. And subsequently, the town will develop. Ultimately, the goal is to have an accurate and efficient operating system.
Tamara Winter: Tokyo also manages to integrate its various train operators very well. Here’s Alon Levy.
Alon Levy: Tokyo has something very precious, which is that it manages to integrate urban and suburban transit very well. So the commuter rail lines in Tokyo run through the subway system and moreover the subway system was built to form a tight mesh within the city, but also connect with these commuter lines. So Tokyo essentially built a subway system at metropolitan scale.
Tamara Winter: The system in Japan is not without its drawbacks. For example, in Tokyo the high number of competing transit companies leave riders paying with a jumble of different methods. But it’s efficient and on time, and the high quality of Japan’s transit system extends into the smallest details. Here’s Alex Forrest.
Alex Forrest: There’s something much more every day about the train in Japan. It’s not considered the purview of only the marginalized in societies. It’s what everyone uses and everyone expects the best of it.
I remember one time in my most recent visit in 2018, I rode a train out to one of the suburban terminals, got off, the train went out of service and the driver immediately got out of his cab and began walking down the entire length of the train, something like 11 cars and just picking up every little bit of trash that he found. That wasn’t the final cleaning. Obviously they’re going to have a crew deal with it, but on his way out, he’s just going to pick up everything and then let the next crew take over. And so that kind of attention to detail and just insistence on regular cleaning and maintenance goes a really long way. And I think that kind of focus also helps with other things like maintaining punctuality. If you care about the details, the details work themselves out.
Tamara Winter: Clearly, the Japanese love their trains. And like so many love stories, it started in a time of war.
Following its defeat in World War II, Japan was occupied by the American military. In Japan this is referred to as GHQ, or General Headquarters. Its aim was to establish democracy and rebuild the country
Junichi Sugiyama: [in Japanese]
Junichi Sugiyama - Translator: Prior to the war, the Japanese National Railways, or JNR for short, was built and operated by the federal government. But, when the war ended, JNR was relaunched by GHQ in order to make the railway system more sustainable. Converting it into a public enterprise.
Tamara Winter: The government operated railway became a government owned public corporation.
Junichi Sugiyama - Translator: JNR incurred a large deficit of 37 trillion yen, which almost exceeded Japan’s national budget.
Tamara Winter: On top of mounting debt, confrontation increased between management and the labor unions leading to numerous strikes. Fares were up, ridership was down. It all came to a head in 1987.
Junichi Sugiyama: [in Japanese]
Junichi Sugiyama - Translator: The country couldn’t support it anymore. So they made a drastic reform. All of this debt was settled and the private company was created. This was the beginning of the JR Group.
The corporation was split into six private passenger companies. Each was designated a different region of the country. There was also a freight and research company created. Most of the JR Group companies were granted the freedom to operate as private entities. And so they made efforts to lure back passengers.
Junichi Sugiyama: [in Japanese]
Junichi Sugiyama - Translator: From the perspective of the rider, the staff have become kinder. After becoming JR, they started to focus on service. Because it’s an independently profitable and private company, they felt that they had to make a profit. And in order to make a profit, a lot of customers have to feel comfortable and satisfied. So the employee education was reviewed and the service was improved.
Tamara Winter: There was also a marketing push. One example is this now famous series of JR Group Christmas commercials in the late 1980s.
Archival audio: Christmas express.
Tamara Winter: The train companies were allowed to capture the upside of their own service.
Junichi Sugiyama: [in Japanese]
Junichi Sugiyama - Translator: It was stipulated by law that the national railway should not actually do business beyond building and managing railways. They were told that they could not invest in hotels, real estate, or super markets, as it would put pressure on private companies. However, once JR became a private company, it was possible to expand into new businesses, such as hotels, ski resorts, and real estate.
Tamara Winter: And so JR Group companies had a larger financial stake in the areas around their train stations succeeding economically.
Junichi Sugiyama - Translator: The biggest business is to use stations to build shopping centers or condominiums. The station is not just a train station, but a base for business. It’s where people gather together. So you can have a lot of different businesses there. When Japanese railways developed, they bought a lot of land at a low price first, and later put down a railroad track and then the price of the land would go up. So they would sell it. Many urban railways in Japan have operated not only as railways, but also by diversified management.
Tamara Winter: Today JR East, the JR Group company that operates through Tokyo is the largest, fully privatized passenger rail company in the world.
Alex Forrest: This method of assuming the future added value that a rail line will bring to an area and then developing based on speculation on that value around the station to guarantee your ridership in the future, which they call value capture nowadays.
Tamara Winter: In fact, this is not that different from how railways in the US were built. However, there are several key differences.
Alex Forrest: When a lot of people hear this idea, they think that is the only way that Japanese companies are making money. A lot of them are diversified. A lot of these inter urban operators also run department stores, which they plant at their main stations. They also run smaller convenience stores. They are property developers and they sell apartment buildings and things like that, but they make most of their money from transportation sales. The part that makes them the money is everybody riding those trains. This was usually not the case in the USA where the main goal was just to make a killing off the speculation, and then you didn’t really care what happened next. That was very good at getting things built and really bad at getting things to stick around.
Tamara Winter: And given his own background, Alex Forrest actually has a unique perspective on this.
Alex Forrest: When I was born, my parents were still students and they were both studying Asian languages. And so very early in my life, my family moved to Japan. I lived there for two years in a suburb of Tokyo called Mishara.
Once a week, we would head down to the train station, which is maybe a twenty to thirty minute walk and take the train two stops over to go to church. This train, even though it is ostensibly a commuter rail service, but it runs like eight car trains using electric overhead power, every 10 minutes. At the higher frequency stops, it’ll be coming every 2 to 3 minutes. This is the first train that I ever rode. I moved out before I was even five years old.
And so I came back to America and lived in the Boston area at this point. And the great news was there were still trains to ride, but even as a kid, I could tell the difference in terms of the noise of the vehicles on board. They were clearly very old. The stations were pretty grimy at best, and often a lot of things weren’t working. The whole thing seemed to be shambolic compared to how incredibly organized and punctual everything was in Japan and clean. From that point on, I’ve always been interested in what transit is out there in the USA, in Japan, in the rest of the world. By the time I was in middle school, I had kind of already cemented a personal goal for myself to make transit in America, or at least in Massachusetts, as good as transit in Japan.
Tamara Winter: It’s now 2022 in New York.
Archival audio: This is the 96th street train. The next stop is 72nd street. Stand clear. Closing doors.
Tamara Winter: The first phase of the Second Avenue subway has been running for just over five years.
Archival audio: Good afternoon. We certainly meet in the most unusual places here in New York. Very delighted to be here beneath the second avenue subway. Something that we’ve been talking about for a very long time...
Tamara Winter: Governor Kathy Hochul has moved forward phase two of the project, largely thanks to president Biden’s $23 billion infrastructure investment and jobs act.
Archival audio: Ladies and gentlemen, next stop 125th street. With that, I’d like to introduce a gentleman...
Tamara Winter: And the investment will go even further at this time. While phase one served mainly a high wealth area, phase two will extend into East Harlem, a neighborhood, largely working class and highly reliant on public transit. According to the governor’s office, 70% of residents here use public transit to commute versus the citywide average of 55%. For the people along the next phase of Second Avenue, this development would be a huge life change. And that’s the thing. Transit is the type of infrastructure with the power to change people’s daily life. Whether in New York, or a city like Dallas, where I grew up.
Alex Forrest: New York, you get this great mixing of social strata on the train, unlike you found in Dallas. And what’s the critical difference here, right? Is it that New Yorkers are cleaner and more polite than people from Texas? I don’t believe that’s the case. I think what’s going on here is just that New Yorkers have a much more useful service around. There are lots of problems in the New York subway, but just the fact of its availability, that’s still useful enough to be pulling people from all realms of society together to take advantage of it. And it becomes just an everyday part of life. And I feel like this is probably the single largest thing that I wish I could convince more American transit operators to take seriously, the idea that you’re not offering a service for any subset of the population. You’re trying to offer a general purpose service, which is therefore useful to every subset. Anywhere there’s a person, there’s at least a potential rider.
Tamara Winter: In the end, I am perhaps foolishly optimistic about the prospects for a more transit oriented feature in the US. For one thing, young people are becoming more vocal about their desire for alternatives to driving. And as America continues to age, developing these alternatives will be increasingly important for seniors who don’t want to be relegated to their homes in their later years. I see bright spots like Cul-de-Sac, a new car-free city development being built in Tempe, Arizona and private companies like Brightline in Florida and Texas Central are also developing intercity rail projects in places that have long been deeply car-centric. I’m hoping we’ll see a lot more experimentation in the years to come.
Alex Forrest: I’ve always said, inertia is the hardest thing to overcome, and it’s not that there’s anything technically infeasible about modernizing transit here. It’s just, we haven’t done things differently in so long. Even convincing people if they need to do things differently can be very difficult.
Sarah Kaufman: America has a real addiction to cars and most of our communities are built around use of cars. And so it can be very hard to give up car usage, even if somebody tried. At the same time, I think that the younger generations in the US are seeing that and taking advantage of transit and biking and other options as better ways to get around. I hope that the interest in transit continues.
Tamara Winter: Beneath the Surface is a production of Stripe Press. The senior producers for this series are myself and Everett Katigbak. This episode was produced by Dave Yim. Additional production support was provided by Lisa Yamashita Allen, Naito Ichiro, and Ben Southwood. Whitney Chen is our production manager extraordinaire. Our sound engineer is Swat Ayash and our sound mixer and sound designer is Jim McKee. Original music by Auribus. For more on Stripe Press, our books, our films and more episodes of this podcast, visit press.stripe.com.
All right, that’s it for this episode of Beneath the Surface. I’ve been your host, Tamara Winter. We’ll see you next time.
Episode 05 B-side
Interview with Alex Forrest
Tamara Winter: Welcome to Beneath the Surface B-Sides, where we bring you full interviews with infrastructure experts. On the most recent episode of Beneath the Surface, we focused on the state of public transit in the US, and we compared it with one of the most train loving countries in the world: Japan.
For this episode, I interviewed Alex Forrest. He is currently a transit planner for the Pioneer Valley Planning Commission in Springfield, Massachusetts. I’ve been a fan and a friend of Alex’s for years. He’s cultivated a community of trained fanatics on Twitter…train Twitter that is, where he shares his thoughts on the state of train travel in places like the US and Japan, where he lived for several years as a child. His username is @380kmh, which might seem a bit random, but it’s the top design speed for most high speed trains.
In our conversation, we discussed his current work in Springfield, the formative years he spent in Japan, the history of train development in the US, and more. So here is my conversation with Alex Forrest, which has been lightly edited. I hope you enjoy.
So the first question is always the hardest. Introduce yourself. Tell me your title and why are we talking today?
Alex Forrest: My name’s Alex Forrest. I’m a transit planner for the Pioneer Valley Planning Commission in Springfield, Massachusetts. And we are talking today about transit around the world and how to do it well.
Tamara Winter: Tell me a little bit about your current work as a transit planner. When we were chatting about this episode a little bit, you told me that you just won funding for two lines. Is that right?
Alex Forrest: Two bus routes, right. So my work in transit is limited to bus operations. That’s the transit provider that I work for, operates out of three bus garages in Western Mass, about 35 to 40 routes. It varies a little bit by time of year. And in the past couple years, I was able to win funding from MassDOT to operate two new services. Both are kind of longer range intercity kind of services. One of them runs on a roughly hourly frequency on the Interstate. The other is just a three times a day through a state highway connecting to Worcester, it’s a service that we’ve had a lot of interest in riders from. And I’m a little disappointed that we couldn’t provide more than just these three round trips, but it was great to be able to get that running.
Tamara Winter: Talk to me about the transit situation broadly in Massachusetts, and also kind of how does the transit system in the broader north-east differ from the rest of the US?
Alex Forrest: Massachusetts works nicely as kind of a microcosm of the rest of the country in that you have Boston, which is our north-east, I suppose. And then you have the rest of the state, which I mean, the rest of the state was settled very early. So it doesn’t necessarily have the same town patterns that you’ll find in the rest of the country. But in terms of transit availability, I think it’s a working analogy, it does the trick, which is to say MBTA is the transit provider in Boston. They run four subway lines, one of which doubles as kind of a surface streetcar route. They run a myriad of bus lines, including some nominal BRT routes. They also run ferries and commuter rail around Eastern Massachusetts. So very extensive network. One of the top performing networks for ridership in the USA. There are also, I want to say, maybe 15 or so regional transit authorities elsewhere in the state.
Most of which have sort of one central city and a defined service area. And their job is to provide exclusively bus operations. Now it’s not written in, but that’s just how it works out, throughout the other parts of the state, not a bad model conceptually, but one of the oversights of it is that they made no account for travel between the regional transit authorities, which is why this route to Worcester was such a big deal. I mean, in Eastern Mass, the various regional transit authorities at least can get close to Boston or connect to an MBTA service. But beyond Worcester, that starts to become impossible and broadly speaking, the RTAs obviously get a lot less money than the MBTA. They have much cheaper services to run in the first place, but one of the consequences of this is that very few...it might only be PVTA, which is the one that I work at, very few RTAs actually offer weekend service. Most of them only offer service on weekdays. I think until recently, that was the case, even in Worcestor, which would be the next largest after us. But you will want to look into that. I’m not sure, they might have started running weekend service recently.
Tamara Winter: It’s kind of wild though. You said this is sort of a microcosm for the rest of the US. Talk to me about how you would rate the US public transit system kind of compared to other countries specifically in regards to rapid transit. And when you decide on a rating, I’m curious why the US merits that rating.
Alex Forrest: I think among countries which are capable of developing rapid transit, just because that is an admittedly pretty high bar, and so a lot of countries are still working on that or don’t really need to, I would say the US performs pretty badly. I don’t know about a out of 10 score and it’s not that it’s without any bright spots, but just there are so many little things and big things that are broken about transit in America. As far as the analogy goes for Massachusetts, one of the issues is that transit is very much a localized affair. And so where it exists at all, you might have reasonable transit, but anywhere else as kind of a national system, it’s sorely lacking. So connections between city areas are probably the worst component in the USA. And then within cities, there are various other issues just concerning schedule availability.
Like I talked about the no weekend service, that’s hardly unique to Massachusetts, it’s true all around the USA. Even some rail systems. I want to say the Los Angeles commuter rail, I’m not convinced they run on weekends, or if they do, most commuter rail systems which do run on weekends, offer greatly reduced service. So, they prioritize specifically the times when they think it’s most likely people will ride. Which again, that sounds very reasonable, but that’s not actually the best way to run a transit network and we have empirical evidence to suggest otherwise. So we don’t need to be led by assumptions there.
Tamara Winter: To ask maybe a silly question, because there are theories that I can see, for example, for why this is the case. The US developed much later than its peers, the decision-making power to create transit, particularly between cities is kind of difficult to, I guess, manage because of our Federalist system. Why is our transit so lacking?
Alex Forrest: As you kind of suggested, it’s definitely one of those path dependent problems. The system is lacking here just because we sort of evolved this way through various small decisions. But the part of the reason we’re lacking now is because we’re actually very, very far ahead of the curve, about a 100 years ago. And it’s not quite as simple as the success went to our heads and we thought nobody could do it better than us, and so if we can’t do it well, we don’t even need to bother. It’s not quite that simple, but that’s definitely part of it. And the USA had a first rate, best in the world transportation system, well into the 20th century. But even before that, even before the early 20th century, there were some fundamental problems in how we developed our system.
And those problems led to complications when the original developers of railways and local transit networks in America started to run into cost issues, not entirely just because of a lack of business, but also because they were hamstrung in their ability to set their own fares. A lot of municipal ordinances would require transit providers to operate a flat fare across an entire region, which is not best practice. You really want to charge by distance traveled. And also, that flat fare was limited. At the time, I think it was a nickel or a dime, just because we’re talking about the 1920s, ’50s here. The inability to raise fares to deal with drops in revenue kind of ensured that the old railway operators couldn’t survive and a handover would be necessary. So then we get to kind of step two, which is the mid-20th century handover when a lot of the trolley companies were replaced by bus companies and the intercity private railways got out of the passenger business entirely with the formation of Amtrak.
And so at that point, we have another host of structural decisions coming into play that kind of limited our ability to rebuild the system or to modernize it properly. And that kind of led us to where we are today. There have been various attempts, no shortage of money spent, although at the same time, kind of not enough, it’s complicated. I guess you could say they spent the money on not the best things for keeping the system going. And even to this day, a lot of baked in costs like that, just from the way we’ve done things so far. I’ve always said, inertia is the hardest thing to overcome. And it’s not that there’s anything technically infeasible about modernizing transit here, it’s just, we haven’t done things differently in so long, even convincing people they need to do things differently can be very difficult.
Tamara Winter: It’s funny, if we were re-cutting a trailer for the podcast today, most of what you just said would be kind of a prime target for it, because I think this is kind of the crux of creating infrastructure. From the outside, as I’ve been talking to people, whether they’re building new cities, so talking about kind of what is it about Lagos that would necessitate a new city? Or for example, the Salton Sea and its potential to be kind of a lithium mine, it’s interesting. There isn’t kind of one culprit for why things aren’t better than they are or why some things worked. It really does appear to be kind of pack dependence in inertia all the way down.
And you add into that, infrastructure typically doesn’t have...it needs a policy entrepreneur, but it’s very difficult to kind of just make large scale changes even when we know what it is we need to do. And I guess speaking of cost, you kind of mentioned this in your last answer. I’m curious, if you could elaborate, in your experience, why are transit costs in the US so much more expensive and why does it take so much longer to develop transit in the US than in other similarly situated countries?
Alex Forrest: Before I get started, I want to just break down the two main sides of cost in transit. One being the operating expense, just to pay the drivers, maintain the vehicles, keep the service on the road. And then the other being capital expense, which would be to replace the vehicles, get new ones to build any stations, garages, any kind of train service requires capital expense on its track. Both are more expensive in the USA, but the operating costs are, I would say, a lot more defensible by and large. They’re not perfectly defensible. There’s some problems there too. Really, it is the capital costs that are the biggest problem. It’s the large infrastructure projects. Those are the ones where the costs are just wildly inflated. And again, as with how transit got to be in its current state in America, there are so many culprits here, it’s hard to know where to start.
There is the kind of NIMBY angle where people are loath to have large construction projects. And so, tremendously excessive measures have to be taken to make sure the project is as not disruptive as possible, which perversely can end up dragging it out and making it disrupt people for longer. So it’s trying to keep up with people’s demands about any given project, not least of which is the ability to block any given project or just modify it endlessly, which also adds costs. Part of it has to do with staffing and what, I guess, I can only call unrealistic agreements with labor. Which, again, this comes back to the inertia thing, it’s obviously critical that we have well paid and compensated drivers for any of our vehicles. You don’t want people crashing on the road.
And likewise with our construction crews, we need them to be professional, trained, doing the best work possible. So we don’t want to sell them short, but at the same time, we need to come up with contracts that can actually ensure that there will be future contract. What are we doing here? This is a problem that Japan had a crisis with in the late ’70s to 1980s, which ultimately led to the privatization of their national railways. There were various causes, it boiled down to a labor dispute and they were able to work it out and solve that issue back then. So yes, in the USA, right, we have just regulations. People’s ability to interfere with the project can ramp up the cost tremendously. We have relatively expensive labor, not even the expensive labor is the issue, but the overstaffing, where you just have way more people on a crew than you particularly need to do it.
This also shows up in transit operations where you might have...the practice of having conductors on a train to pick up tickets is definitely not the way they do it in Japan, for example, where either if a train line is so quiet that you can’t just have fare gates at the station, then the driver of the train will check the tickets instead of having another guy wander around to do it, needless to say, those are only on the quieter rural lines. So I guess that’s only two subjects right now. There are more, I don’t even want to get started on the EBA and requirements for environmental impact statements, which, again, depending on how zealously the jurisdiction wants to push the issue, they can take years, if not...I don’t think any have taken more than a decade.
Tamara Winter: Well, speaking of a transit project that took more than a decade, this episode begins with the Second Avenue subway in Manhattan, which was first proposed, I believe, in a little over a 100 years ago. I wonder, are there other transit projects you can think of in the US that have similarly been extremely, exorbitantly expensive and also taken forever just to get off the ground?
Alex Forrest: Yes. I think, frankly, you would’ve a much harder time finding projects for which that isn’t the case. I know that just recently in Boston, there’s a lot of celebration as a extension of the Green Line into Somerville, Mass opened. This goes to Union Square in Somerville, which is very close to where I lived in the mid ‘90s, living just on the border of Somerville and Cambridge. So it’s very heartening to think that finally, my old neighborhood has its own stop. I don’t remember the exact year, but I do remember when this project was being discussed back in at least 2004, if not earlier, I think versions of it have been on the drawing board since at least the 1940s. This particular round was finally authorized and it began construction sometime around also 2004, I want to say. And it was originally slated to open in 2011.
So here we are now, it’s part open. There’s still more of it to open, which I think will open later this year, but they haven’t even finished opening it yet. And I’m as happy as the next guy that it’s finally here, but well over budget. I mentioned neighbors getting involved to just jack up the costs. Sometimes that does produce nice fruits, even if it does inflate the cost significantly. In this case, it involved connecting to a multi-use bike path, which branched off the Green Line Extension. There was already a bike path branching off it. They just wanted to run the bike path parallel to this new extension and connect it into the larger city bike network. A nice addition, but again, not strictly related to this project, did not need to get bundled in, inflated the timelines and the planning process, led to constant revisions. And so finally, here we are, halfway through 2022 and we’re not even done opening it.
Tamara Winter: By Second Avenue Subway standards, that’s actually very, very impressive. But, of course, we are grading on the world’s biggest curve. Alex, I’ve known you for a few years and you have kind an unusual story with how you came into transit. Tell me a little bit about your unusual childhood and why you got so interested in transit in the first place.
Alex Forrest: When I was born, my parents were still students and they were still kind of moving around quite a bit and they were both studying Asian languages. And so very early in my life, my family moved to Japan. This was in 1991, and I lived there for two years in a suburb of Tokyo called Machida. And I would describe Machida as on one hand, very much a suburb, outside the city proper, mostly single family housing, but also, it has nearly half a million residents right now. And it’s got its fair share of large buildings as well. So it’s a suburb, but a Tokyo suburb, to be clear. Anyway, living out there for two years, I was about old enough to go to preschool. I attended a preschool a short walk from my parents’ apartment, but every week, once a week, we would head down to the train station, which is maybe a 20 to 30 minute walk, shorter on a bike or a bus, and take the train two stops over to go to church.
And so this train, even though it is ostensibly a commuter rail service, it’s far out in the suburbs, I don’t know, maybe 15 miles away from Tokyo, I’m not sure. But it runs eight car trains, using electric overhead power, every 10 minutes. And that’s where the local stops at the higher frequency stops, it’ll be coming every two to three minutes. So to have this out in the suburbs, this beautiful train, this is the first train that I ever rode, of course. And so if you look at Japanese culture, there’s certainly a carve out for the train nerds. They’re generally photographers. They like to take photos of trains and they know everything about them. I can see why kids growing up there would do that because the same effect hit me.
The only difficulty was I moved out before I was even five years old. And so I came back to America and lived in the Boston area at this point. And the great news was there were still trains to ride. I was so happy. I didn’t have to abandon trains forever. The downside was they were American trains and that did not at all dim my enthusiasm as a five-year-old, six-year-old kid. I still loved riding them, but even as a kid, I could tell the difference in terms of the noise of the vehicles on board.
They were clearly very old, the stations were pretty grimy, at best, and often a lot of things weren’t working. Just in general, the whole thing seemed to be shambolic compared to how incredibly organized and punctual everything was in Japan, and clean. So anyway, just from that point on, I’ve always been interested in what transit is out there in the USA, in Japan, in the rest of the world, just always taking the chance to ride it whenever I can. But by the time I was in middle school, I had kind of already cemented a personal goal for myself to make transit in America or at least in Massachusetts, as good as transit in Japan.
Tamara Winter: It’s so crazy because the way you talk about Japan, I literally thought you had grown up there for many, many years. It’s amazing that all it took was two years and two of the most formative years in your childhood for you to kind of catch the train bug.
Alex Forrest: Right. Well, and I have siblings as well and they didn’t quite catch the bug either. So it certainly depends on the person, but it was, I guess...you said it best, it was a very formative time in my life. And so those at the stage when I was just beginning to form memories, so basically, my earliest memories are of living in Japan, but I was also not so young that the whole thing was a blur. I had pretty concrete memories, for instance, of our trip on the last day when we were heading to Narita Airport, I remember the train we were on because it had a nice LED animated map showing the route we were going. And so I was just mesmerized, I could check off every station as we stopped on it and see the train in advance.
Tamara Winter: You mentioned that you could clearly see, even at that age, the differences between US trains and Japanese trains. In your opinion, what are some of the main, maybe social and cultural differences that affect kind of how the US and Japan treat public transit?
Alex Forrest: I think Japan has a reputation for very good manners and that’s incredibly well-deserved. In general, Japanese people are just very polite and they’re very social in public. They’re not going to make a mess in general or make a lot of noise or have a loud conversation, which is just kind of broadly refreshing, but hard to really imitate here. As far as kind of attitudes, social and cultural attitudes, there’s also sort of the impression that...and I mean, it helps to be on the cutting edge of the technology to do this, but there’s something much more glamorous and just every day about the train in Japan. It’s not considered the purview of only the marginalized in societies, it’s what everyone uses and everyone expects the best of it. Part of the reason that any reformers had any leverage here was that the public expected and demanded better service of the railways than they were delivering at that time. I’m hard pressed to come up with any more...you’ve heard the saying, "Why take a shower? I’ll just get dirty again."
Tamara Winter: Yes.
Alex Forrest: When, in fact, the point of taking a shower is precisely because you will get dirty again, so you want to be clean until that happens. I feel like that is kind of the attitude just as far as general maintenance goes. When I’m in Japan...I was visiting some years ago, I went to my old train station and they just had a guy...he was a part-timer apparently, but this is a very common thing there. They just had a guy walking up and down the staircases at the train station, just wiping down the banisters and walls, in the middle of the afternoon, it was 2:00 PM.
He looked like he might have even been a retiree, which is why I gathered he was a part-time worker because senior citizens will often end up taking just odd jobs like that. But the fact that they actually have a position for this, you’re the guy who just wipes the station down every few minutes or so during the afternoon, they probably have another guy for the evening. But that kind of constant maintenance, much more so than people’s cultural inclination not to litter, is what makes the difference there.
I feel like despite the well-deserved reputation for manners in Japan, people also tend to forget that they’re just human. People absolutely do litter there and they’ll leave things behind just out of forgetfulness, of course. I remember one time in my most recent visit in 2018, I rode a train out to one of the suburban terminals, got off, the train went out of service and the driver immediately got out of his cab and began walking down the entire length of the train, something like 11 cars and just picking up every little bit of trash that he found. That wasn’t the final cleaning.
Obviously they’re going to have a crew deal with it, but on his way out, he’s just going to pick up everything and then let the next crew take over. And so that kind of attention to detail and just insistence on regular cleaning and maintenance goes a really long way. And I think that kind of focus also helps with other things like maintaining punctuality. Just if you care about the details, the details work themselves out.
Tamara Winter: There’s something kind of interesting too. I don’t know the extent to which Japanese people just care more about their services, but it does seem like they expect more of their services than maybe we do. You can see those differences, we don’t have to just look at Japan and the US, even in say Dallas, where I grew up, and New York, where I live now, in Dallas, it’s expected that you really only ride the light rail if you need it as a connection downtown, let’s say you work downtown or just, if you can’t afford your own private transit, whereas in New York, I wouldn’t say it’s like Japan in that it’s totally ubiquitous, but it’s pretty ubiquitous, right? It’s not unusual to see people of very different kind of socioeconomic statuses riding the train together. And so even in the US, you can kind of see, and people in New York, of course, are accustomed to, and sort of demand much more.
Alex Forrest: New York, you get this great mixing of social strata on the train, unlike you found in Dallas. And what is the critical difference here? Is it that New Yorkers are cleaner and more polite than people from Texas? I don’t believe that’s the case. I think what’s going on here is just that New Yorkers have a much more useful service around. And as you said, it’s not necessarily as useful and ubiquitous as in Tokyo, although certainly, it comes closer than anywhere else in America. And it’s also, certainly not as well-maintained as what you have in Tokyo. There are lots of problems with the New York Subway, but just the fact of its availability. As terrible as these trains are, as dirty or as overheated or whatever the problem is, that’s still useful enough to be pulling people from all realms of society together to take advantage of it.
And it becomes just an everyday part of life. And I feel like this is probably the single largest thing that I wish I could convince more American transit operators to take seriously, the idea that you’re not offering a service for any subset of the population, you’re trying to offer a general purpose service, which is therefore useful to every subset. Whenever a new bus route wants to get proposed, you’ll usually have some interested party who says, "Ah, we need bus service here. There’s a lot of jobs here. There’s a lot of houses here." And generally, in this assumption is not just that there’s a lot of jobs or houses, but, "There’s a lot of low income houses here. We need a bus here." "Oh, there’s a benefit center here. We need a bus to go there."
And so if you have a bus line that only goes between those two places, between the low income apartments and the Social Security offices, that doesn’t particularly do a good job of addressing the needs of people in those apartments or those offices, let alone anybody else. The people in those apartments also need to go to the doctor. They also need to go to the grocery store. They also would like to visit friends. These are all trip purposes that are being completely ignored in the calculus of where to put the bus and you can solve all these issues if you just stop thinking of, "Ah, we only need to worry about these particular people who are going to ride." No, you have to think about anywhere there’s a person, there’s at least a potential rider.
Tamara Winter: I love that tagline. If there’s a person, there’s a potential rider. I want to talk about Japan a little bit more. Can you explain sort of briefly...although I don’t know if this is a brief kind of question, how Japanese rail companies operate as private companies? You’ve mentioned this earlier, but specifically around real estate speculation and development.
Alex Forrest: It’s actually not that different, at least superficially, from how a lot of the railways in the USA were built up. Although there are, I think, a couple of critical differences that I hope I can get to, but the premise of the land use speculation really was something that happened around the time that the cities were still growing. And the railway industry was still pretty new in Japan, but you had suburban streetcar operators in say early 1900s Tokyo and Osaka. Some of which became quite successful and began running what in America, we would call interurban lines, which are not mainline freight, but they basically have the same standards in terms of their heavy rail operations. Generally running electricity, even for the USA back then in the 1900s. But in America, the interurbans all ultimately got shut down more or less, a few survivors, modern transit lines.
But in Japan, a lot of them were founded as private companies. Most of them were able to stay as private companies and gradually phased away from streetcar operations to focus on their interurban lines, which over the years, were extended, branches were added, through service onto the subways was added. And so these interurban lines evolved into modern suburban rail. These are for companies that remain private the entire time. Japan also had a national railway industry, which originated as an amalgam of government funded lines and privately built lines, was run by the Imperial Japanese government through the war, and then by the reconstruction government after the war, and which was ultimately privatized in 1987 and broken up into several subsidiary companies. So the premise is you build a line out of the city, you develop the land around that line and therefore you plant passengers for yourself who will then use your line to go back and forth to the city.
This is indeed how a lot of rail in America got built too, at least at the commuter level, not necessarily at the intercity level, but one of the most critical differences that a lot of people who are interested in this method, which they call value capture nowadays, assuming the future added value that a rail line will bring to an area and then developing based on speculation on that value around the station to guarantee your ridership in the future. When a lot of people hear this idea, they think that that is the only way that Japanese companies are making money. A lot of them are diversified. A lot of these interurban operators also run department stores, which they plant at their main stations. They also run smaller convenience stores. They are property developers and they sell apartment buildings and things like that, but they make most of their money from transportation sales.
Cannot emphasize this enough. If you look at a suburban operator in Japan, yes, they are invested in land use. Yes, they do take steps to make sure that their own ridership will be there, but that’s not the part which makes them the money. That’s just the background work. The part that makes them the money is everybody riding those trains or buses. And this was usually not the case in the USA where the main goal was just to make a killing off the speculation and then you didn’t really care what happened next. You’d have a success where they take over the company. And that was very good at getting things built and really bad at getting things to stick around. And so, I think, that at least was part of why you had these interurban operators and streetcar operators in America running into trouble.
I don’t mean to say it’s entirely their fault either. We cannot underestimate the impact of having tons of cars on the road, since a lot of American transit operators didn’t have dedicated rights of way, and so they’d be slowed down by anything that got in their path. But that’s also to say, I don’t want people to think it was entirely the evil car companies that did this. There were some really serious structural problems with American railway operators, which really doomed their efforts in the passenger rail business. Might have been overcome, but would not have come from the railways themselves, I don’t think. You would’ve needed a government intervention, which was a very, very tough sell and remains that to this day.
Tamara Winter: That’s kind of the natural next question for me. So you say you might have an operator in kind of a regional line or a smaller line. Yes, they might invest in land and they might be speculating, but that’s really not where they make their money. How does that model compare to how transit agencies across the US are expected to function? Are there any US agencies that work like that?
Alex Forrest: I don’t know if you could say there are any agencies that work like that, but there are, at least recently, some prominent private railway companies that have started operation. There’s Brightline in Florida, which is a private intercity railway line, which is, as far as I know, doing its best to develop the areas around its stations. You may be familiar with the term transit oriented development.
Anyway, Brightline has taken advantage of value capture and TOD to build up its station areas. This is why they’re so interested in Miami and making sure their station location is close to downtown. Unlike the Amtrak Station, which is more peripheral. I know that Brightline is attempting to add a high speed line to Vegas from near LA. I’m not sure where that project stands. I just know that many operators have tried to do that route and the latest ones to step up to the plate are Brightline, so I wish them the best.
The other one is actually a Japanese venture in America, where one of the companies that resulted from the breakup of the Japanese national railways is currently invested in developing a high speed railway line in Texas, between Dallas and Houston. In America, this is called the Texas Central Railway. It’s a subsidiary or partner company for the Central Japan Railway, which operates the busiest high speed line in Japan. The one from Tokyo to Osaka. And generally, as operations are, rural operations in Central Japan and commuter metropolitan operations around Nagoya, Japan’s third city.
Tamara Winter: That’s one I’ve been hearing about for years. I didn’t realize it was a Japanese company behind that, which gives me a lot of hope for it.
Alex Forrest: That has definitely improved my impression of the project as well. At the very least, I understand that the people who are working on it are technically very knowledgeable with literal decades of experience running the busiest high-speed railway in the world, whether or not that will be able to translate to Texas is still kind of anyone’s guess. But I don’t think you could find a better crew to do the job ultimately.
Tamara Winter: Tell me, what do you think are the lessons and learnings for the US, as you kind of think back to your own experiences in Japan, and then now as a transit planner yourself, what do you think that US cities should aim to learn from the way that many Japanese cities operate transit?
Alex Forrest: As far as learning from Japan, I’d already mentioned about planning for a general population. That’s pretty critical, but just as far as operations go, I think I would encourage them to not give up on the concept of farebox recovery. Even the most ardent transit advocates in America will frequently drop the line that there’s no transportation service that pays for itself. And this is where the reference to the Japanese providers, not only making their money from value capture is very important because usually the people who say that no system is profitable, will bring up the value capture argument to hand wave Japan’s example away, but that’s literally not true. A lot of these are publicly traded companies. You can look up their books and see where they’re getting their money from. I’d make a point to check the Odakyu Fact Book whenever they update it, which is once a year, that’s the line that I used to ride when I was a kid in the suburbs there.
So we can confirm that it is indeed possible to make more than 100% of your operating costs from your fares. And the question is just, how do you do this? And there are so many ways to approach this that just don’t even get entertained because in America, they don’t think it’s an ideal worth pursuing. They don’t think there’s any finish line to that race. They think if you start focusing on your farebox recovery, you’ll never hit a 100%. You’ll waste a lot of time. You’ll have to make austere cuts on anything that isn’t profitable immediately. That’s really not how this works, really. If you’re only making 10% of your budget from fares, think about what you can do to get that to 20%. That’s not much, you don’t need to raise your fares necessarily, right? You might just need to change your fare structure.
You might offer a discount on passes, which gets people to buy passes more often, which gets them to use the system more often. And then, hey, they don’t always have a pass or they might not ride the pass as much as the pass is paying for. And so you’re still making more money than if they never rode at all, right? Put it like this. If you buy a monthly pass for $50 and $50 pays for, let’s say, 30 trips on the bus, and you only use that monthly pass 20 times, transit operators has made a lot more money off those 20 trips than if they were all sold individually.
And so, little steps that can be taken to improve farebox recovery. It’s not just about raising revenue, it’s also about reducing your costs. Obviously, you don’t need to change your fares at all if you can come up with a way to bring your operating costs down by, say, 5%, right? Again, it’s just that they don’t even entertain the idea that you could ever hit 100% profitability that they won’t take the smallest step in that direction. On the contrary, a lot of providers are talking now about trying to go fare free, which I admire where that’s coming from, but I can’t say that that would work out very well for us, even in the medium-term, let alone the long-term.
Tamara Winter: It’s interesting because in the same way that a lot of the challenges that you see in infrastructure are not things that have a single cause, similarly, if you wanted to kind of fix sort of broken systems or even systems that are just operating suboptimally in some regard, these little changes...I wouldn’t necessarily think, "Oh, if you’re making 10% of your operating costs, maybe try and make 20 in revenue." That seems very doable. And I guess, as you look across the United States, do you see pockets of optimism?
Alex Forrest: Yes. Not the least of which is my own local situation. It was nice to get a couple of routes approved. One of them’s doing badly, one of them’s doing well, but both of those were what I expected when I went into this. So I guess just things are going as expected there.
Tamara Winter: Tell me again, just what did you get approved? And congratulations by the way.
Alex Forrest: Oh, thank you. Thank you. And I should emphasize, I did not work on these grant proposals alone at all. So I had the collaboration of my great coworker over at PVTA, the director of planning over there. But one of the routes was a thrice per day, five days a week weekend-focused service, connecting Amherst, Mass. and Worcester Mass. The other is a roughly hourly to half hourly service along Interstate 91, between Northampton, Holyoke, at the Holyoke Mall and Downtown Springfield. Like I said a minute ago, the Springfield one has been a success.
The Worcester one, not so much, but both are extremely well received. And the shortcomings of the Worcester route, I was well aware of when I went into designing the schedule with the very limited funds that were on the table. We, again, at the end of the day, only provide as much as people pay for, which is one of the reasons I think it’s so important that transit providers try to maximize their farebox revenue because the more your riders are paying for you to exist, the more you will be responding to the needs of your riders in continuing to exist.
When you get all of your budget from state allocations, taxpayer funding, that money is just as good as any other money. The problem is that you have to address the concerns of the people giving it to you in order to get it. And their concerns may or may not line up with the actual interests of riders. Sometimes they do, sometimes they don’t. The more of your money is coming from riders, the less likely you are to get paid to do something you wish you wouldn’t do, which happens all the time, I got to say.
Tamara Winter: It’s a bit of a principal-agent problem. If the money isn’t coming from people that are actually using the service, it may or may not be useful.
Alex Forrest: Right. Essentially, you’ll always reflect the priorities of whoever’s paying you to do your job. You want those priorities to line up with the users of your service, ideally, but as far as pockets of optimism, there are a lot. I think the thing which has had my attention the most in the past few years has been this phenomenon of bus network rationalizations. There’s a well regarded transit planner called Jarrett Walker who runs a private consulting firm, which I would say specializes in these network redesigns. Some of the fruits have been great. One of the first cities they went at was Houston. I know they’ve also done work in at least Miami, I want to say Seattle, and I want to say Rhode Island as well, at one point, or they might be doing Rhode Island now. I don’t quite recall, but these redesigns, essentially, they aim to have a cost neutral redeployment of existing resources.
So you have X number of buses. You can pay X number of driver hours and X amount of fuel. Could you, just by changing where the buses are running, get a more effective system? Focusing on allowing people to transfer outside the central hub, as well as the central hub. Having services more frequent on more routes, even if that means having slightly fewer routes. The routes that you have will be higher quality. They’ll more consistently attract people to them because they’re more useful. And so this tendency doesn’t seem to be losing any steam. More and more cities are picking it up. The results have been very good where they’ve been attempted. This was pre-COVID, so I don’t know what happened after that, unfortunately, but pre-COVID, I do remember that any articles that would decry the general crisis of transit ridership in America would have to overlook Houston, which despite being a generally bus network, was actually improving its ridership at that time, while most of the country was struggling and losing ridership year after year, and it hadn’t been doing so before the redesign.
So something clicked there and I want more cities to get this opportunity. I’ve taken a crack at it in my spare time, looking at our local network, but I don’t know. I feel like I’m maybe a little too in the weeds to do a good job. I’m already too accustomed to the usual special demands, special concessions, that I can’t quite bring myself to say, "Ah, well, rationally speaking, we shouldn’t do that." I know these guys too well, they’ll come yelling at me the next week if I mess it up. So it can be nice to have some outside eyes looking at it.
At the same time, I think another thing that a lot of transit agencies in the US should be prioritizing more and some of them are, and doing a very good job at it, is developing in-house capability. The less you need to contract your plans, your operations, et cetera, out to external vendors, the better you are just at the industry in general, some of these Japanese suburban railway companies, one of them in particular, happens to also be one of the largest manufacturers of rail cars in Japan. So they make trains for themselves, but also for other companies in Japan and also around the world. Again, just the more things that we can be good at, the more effectively we can spend our money. It always sucks to see a huge chunk of your budget that isn’t even entering the transit system. It’s just being paid to you to give to a consultant to do work that you should really know how to do yourself.
Tamara Winter: Alex, this has been honestly a delight. It’s crazy, I’ve known you for years, but I feel like I’m just meeting you again for the first time. It’s really wonderful to know that there are people working, not just in kind of the big transit systems, like in New York or in WMATA, in DC, but also in places like Springfield. And I appreciate so much that you gave us your time.
Alex Forrest: No, thank you again so much for having me. It’s been a pleasure. It was great to catch up. We should definitely talk again soon.
Tamara Winter: Beneath the Surface is a production of Stripe Press. The senior producers for this series are myself and Everett Katigbak. This episode was produced by Dave Yim and Jack Rossiter-Munley. Whitney Chen was our production manager. Our associate producer and editor was Astrid Landon. Our sound mixer and sound designer was Jim McKee. Original music for this episode was composed by Auribus.
To learn more about Stripe Press, our films, our books, and more, visit press.stripe.com.
Okay, that’s it for this B-side. I’ve been your host Tamara Winter. This is Beneath the Surface B-sides.
People and Ideas: Populations as Infrastructure
Commercial: Why you eating a mint, baby?
So I can kiss you on the face.
Because it’s National Night.
Tamara Winter: That’s an ad for Mentos, the breath mint. It’s also kind of an ad for Singapore. It was launched in 2012 to coincide with Singapore’s National Day.
Commercial: I’m talking about making a baby, baby. You ready? Let’s go.
Tamara Winter: National Day is celebrated on August 9th, the day that Singapore gained independence after separating from Malaysia. Traditionally, it’s marked by fireworks, official speeches and a massive parade.
Ladies and gentlemen, let’s welcome our cabinet ministers, senior ministers and deputy prime minister to The Float @ Marina Bay.
Here come our cabinet ministers streaming into the…
Tamara Winter: Dignitaries wave flags and the prime minister gives a National Day address, a little bit like the State of the Union in the US. In fact, in 2012, the same year as the Mentos ad, Prime Minister Lee Hsien Loong discussed Singapore’s falling birth rates in his address.
Lee Hsien Loong:
But alas, we are having too few babies and therefore we have a problem. The long-term trend is down, but we cannot give up. We’ve got to do something about it. Married couples are having fewer children. On average, now, each married woman has two kids. Previously, it was more, so this number has also been coming down.
Tamara Winter: So, Mentos to the rescue?
Commercial: It’s National Night. Let’s make Singapore’s birth rate spike.
Birth rate ain’t going to spike itself. Singapore’s population, it needs some increasing.
Tamara Winter: In the US, we aren’t used to ads like that, or to hearing politicians talk about these issues in the way that Prime Minister Lee Hsien Loong does, even though similar trends are at work here. The birth rate in the United States is also falling. Personally, I’ve always been drawn to these questions about populations. Birth rates, changes in the age of a population and what those numbers might mean. It always felt like a natural fascination to me.
See, I grew up in a large family, and when I say large, I mean large. I’m not exaggerating when I tell you I don’t even know precisely how many cousins I have, and that’s just first cousins. Who knows how many second or third cousins I’ve got running around out there?
And even though I haven’t met all of my cousins yet—they’re scattered across a few continents—I feel extremely fortunate to have an international support system that spans generations.
I also want to have my own kids someday. And by the standards of most people my age, I want to have a lot of kids. But of course, the decision to have children is intensely personal. It’s also one that governments around the world try to influence in subtle and not-so-subtle ways. So I wanted to understand what impact these kinds of personal decisions can have at scale, and why governments have so often tried to influence their citizens when it comes to having children.
Hello and welcome to Beneath the Surface, a podcast series from Stripe Press, exploring new ideas and big questions in the world of infrastructure. I’m your host, Tamara Winter. So far on the podcast, we’ve looked at a lot of physical infrastructure: housing, transportation, cities, container ships. But why do we need all this infrastructure in the first place? People. It all comes down to people. So, in this episode, we’re looking at how a country’s population, its size, its growth or lack of growth, are perhaps the most critical infrastructure. Along the way, we’ll dig into one of the thorniest questions about populations. What happens when governments try to influence population growth and size through policy?
Countries around the world put policies in place that influence their citizens’ reproductive choices. The United Nations Department of World Economic and Social Affairs keeps track of these policies. In 2021, their report listed 143 governments with fertility policies intended to either raise, lower or maintain population size. For example, Kenya has had government-led efforts to slow population growth since the 1960s. These programs, which began by providing basic contraception and family-planning information, evolved into healthcare systems for mothers and infants.
By contrast, Hungary has recently made headlines for a distinctly different goal. Prime Minister Viktor Orbán has spoken openly about wanting to raise Hungary’s birth rate, which is among the lowest in Europe. In 2015, the Family Housing Allowance Program created subsidies that increased based on whether a couple was married and how many children they had. The most benefits were available to married couples with three or more children. But Hungary has actually had policies in place to raise birth rates since the late 1940s.
One country that has tried to both speed up and slow down its population growth through policy is Singapore, first by discouraging citizens from having large families and now by pursuing pro-fertility policies. So with that Mentos ad still ringing in my ears, I set out to understand what it was like to live with these ever-changing policies. How did people having kids in Singapore experience their government’s evolving attitudes towards procreation?
Titus: My name is Titus. I’m 69 years old now. I have been in the government service for 25 years with the Housing and Development Board in Singapore. So that’s a little bit about me, and my wife and I, we have three children.
Vimala: I’m Vimala and I’ve been a teacher all my life, taught for about 30 years, 35 years.
Titus: We’re both born in Singapore and we have lived here for all our lives.
Tamara Winter: Titus and Vimala have seen both sides of Singapore’s policy on family planning.
Vimala: We lived through the times when we had this policy of “Stop-at-Two” family planning.
Tamara Winter: After World War II, Singapore’s population was rising rapidly, much faster than its economy was developing. Even the introduction of family planning in the 1940s didn’t slow it down. In 1950, the population was barely more than one million. But by the time of independence in 1965, it was almost 1.9 million, close to double. Add to that, Singapore is a tiny island nation. It’s just 281 square miles. For comparison, the city of Los Angeles is about 500 square miles. A booming population, little room for expansion. So by the early 1970s, the government took action.
Titus: You know, during our teenage years, I think the Stop-at-Two policy started somewhere the early ’70s.
Tamara Winter: 1972.
Titus: And we were our teenage years at that time.
Vimala: No, it was early twenties.
Titus: In our twenties, sorry. We were in our twenties at that time. That’s the purpose of the policy, to reeducate you on what is right and then what is wrong. I thought it was quite intuitive as well. One child, the child will be lonely. Two children, okay, he’s got a playmate. Three, if some mistakes are made then you have three.
Tamara Winter: The Stop-at-Two policy, a combination of incentives and disincentives for families.
Vimala: We got married in 1980. So my first child was born in ‘81, and after I gave birth immediately, I think the next day, the nurse comes to me and asks me, "What plans do you have for family planning?" So it was very strict at that time, and they wanted us to keep at two. So if you stopped at two, you had a lot of incentives. Like, they got us at places where it mattered a lot to us, which was the housing and health. If you had two children, both the children would get X number of dollars in school for them. But if you had a third child, then the third child would have nothing, that sort of thing.
Titus: So you had to fund it yourself.
Tamara Winter: Along with the policies came an aggressive PR campaign.
Vimala: Maybe it was kind of a propaganda. There were campaigns, and very sadly, you’re told, "Two is enough," and "Because of two, you get X number of things." And so after a while, and we were young at that time, maybe in our late teens, early twenties, and then you start to see that, eh, it makes sense. Actually, I remember this poster very, very vividly in my mind with the father, mother and two daughters. And they say, "Boy or girl, two is enough."
Tamara Winter: And those posters were inescapable.
Titus: Once you have a government policy, the posters are everywhere, in government offices.
Vimala: Bus stops.
Titus: Public places, bus stops.
Vimala: Yeah. Malls, everywhere. They just have different versions of it, but the idea is the same.
Tamara Winter: Some other posters from the time directly promoted more drastic measures like sterilization, calling it "the best method for family limitation."
Vimala: So if you stopped at two and if you sterilized yourself, the lady, she could get the best school for her child, whichever school she wanted for her child. And also the family could stay in some of the better areas in Singapore. So it was a very serious thing then, and most people adhered to that policy of "keep at two."
Titus: Some of the ladies, actually, were sterilized, though of course, they took the more drastic action to stop at two. Many years later, when the government started encouraging people to have more children, there were some bad feelings that, "You had actually prevented me from having more children and now you’re telling me to have more children." So there were some of these undercurrents.
Tamara Winter: So the Stop-at-Two policy in Singapore was more than just economic. Sterilizations took place on a mass scale with a peak of more than 10,000 procedures carried out in 1976. The Stop-at-Two policy was far from the only effort to limit population growth in developing countries. China’s one-child policy, which was put in place in 1980, is probably the most well known, but countries like India also put similar policies in place as far back as the early 1950s. But these kinds of policies often came at a heavy cost. One that has disproportionately impacted women. In Singapore, mothers, afraid they might be unable to bear the costs of a third child, were forced to make permanent, life-altering choices about their bodies.
This was also the case on a much larger scale in China. Millions of women were sterilized as part of the government’s efforts at population control. Others were forced to undergo abortions. In some rural areas where there was a long-standing preference for male children, female infants were abandoned. And as a result, in China today it’s estimated that there are nearly 35 million more men than women.
In economically-developed countries, the notion of having fewer children by choice gained traction, starting in the late 1960s, sometimes with an environmental argument attached. This anxiety about the world’s growing population was in large part because of one extremely popular book written by a husband-and-wife team.
Johnny Carson: It was about 10 years ago this month that Dr. Paul Ehrlich made his first appearance on the Tonight Show, and it elicited probably more mail than any guest at that time we have ever had on a show. It had to do with his book, The Population Bomb, and it was a major factor in launching the ZPG, which is zero population growth in this country. And since that show, he’s done about 25 shows with us.
Tamara Winter: The Population Bomb, coauthored by Paul and Anne Ehrlich, was a sensation. Published in 1968, it predicted famine, drought and mass death due to overpopulation, all within the next 20 years. These ideas weren’t entirely new. Economist Thomas Malthus made a similar case in his 1798 book, _An Essay on the Principle of Populatio_n. But it was Ehrlich’s writing that brought these concepts to a broad, contemporary audience. Some paperback copies of The Population Bomb carried the typewritten warning, "While you are reading these words, four people will have died from starvation, most of them, children." Ehrlich’s argument, "Let’s make sure that the existing population cannot just survive but thrive before worrying about adding more people to the planet." Here he is in 1980.
Paul Ehrlich: We have a little over four billion today. Large numbers of them are undernourished. We don’t have enough energy to go around. People think the environment is deteriorating and so on. Why don’t we try doing a really good job with four billion people, see if we can do that?
Tamara Winter: The legacy of this book, for better or for worse, lives on today. In 2019, a statement on the need for climate action, endorsed by over 11,000 scientists, was published in the Journal of Bioscience. One of the statements’ recommendations: stop global population growth. Now, the methods of population limitation proposed in this statement were mainly about personal choice, like increasing access to family planning services. They were not advocating restrictive government policies, but the anxieties that Ehrlich brought to mainstream attention are present. So I wanted to know, what is the state of population growth like today? I called up Clara Piano.
Clara Piano: Alright. So my name is Clara Piano. I am currently an assistant professor of quantitative analysis at Samford University. My area of research is family economics, although I’ve also published in the history of economic thought and the economics of religion.
Tamara Winter: In addition to being an expert on family economics, when we talked, she was also about to become a mom.
Clara Piano: Yes, yes. I am eight months along with our first. She’s a little girl, and it has convinced me that no one is ever ready. I just really do feel like it’s been a privilege to not only be researching what I find most interesting, which is how families form and function and interact with society, but to be living it right now as well.
Tamara Winter: So I asked her: is the world’s population still growing?
Clara Piano: The world’s population is increasing, although much less than it was in the past.
Tamara Winter: World population growth reached a peak in the 1960s. Since then, it has fallen. And within the next 100 years, the world’s population is actually projected to shrink.
Researchers like Clara are keeping a close eye on these global trends because unlike Erlich, they see potential in a growing population. When we talked, she referenced the work of economist Julian Simon.
Clara Piano: As Julian Simon would say, the ultimate resource is people. And of course, there are values of people beyond economics. I want to acknowledge that completely, and he does as well in his work. But basically, it comes down to the fact that people are not only hands. They also have brains and they have ideas, and population growth, even from the economic perspective, is not just a replication process but a diversification process. So the people who are being born now are going to have different ideas of how to do things that will generate technological progress, which is actually the source of economic growth.
Tamara Winter: This is another view of population growth also captured by economist Michael Kremer in his 1990 paper, Population Growth and Technological Change. The paper is worth reading in full, but the takeaway is that as populations increase, so does technological advancement, which in turn increases economic growth, and more concretely, raises living standards.
So population growth can possibly be a key to solving the existential challenges that Erlich described: like food and energy scarcity, and climate change. The theory goes, if there are more people out there trying to solve big problems, more possible solutions can be found.
Shruti Rajagopalan: You live in New York City, right? That’s the greatest example of this. These kinds of places is where progress really quickens, where ideas multiply. That’s what we really need.
Tamara Winter: That’s Shruti Rajagopalan.
Shruti Rajagopalan: I lead the India policy research at the Mercatus Center at George Mason University. I’m an economist by training. I also direct the India grants for the Emergent Ventures grants program also at Mercatus. I’m a fellow of the Classical Liberal Institute at NYU Law School because, in another life, I did get a law degree and I work a lot in the field of law and economics.
Tamara Winter: Her research on developing economies is rooted in India, a country with a massive and growing population.
Shruti Rajagopalan: So India’s population currently stands at 1.35 billion. I know that’s sort of a hard number to even imagine. The United States, for comparison, where we are recording this, is about 330, 340 million people. So the Indian population is 18% of the world.
Tamara Winter: India is projected to surpass China as the most populous country in the world within the next decade. While a growing population can put stress on a nation’s infrastructure, Shruti sees India’s numbers as one of its greatest assets.
Shruti Rajagopalan: India already has the resources of a large number of people. Now we need to make sure that these people are healthy, that they’re educated, that they’re prosperous, that they can actually go into the ideas part of the economy and bump into each other. The ideas can have sex, and that can become the new engine of growth for not just Indian prosperity, but global prosperity. Because in the future, one in five people joining the workforce, globally, is going to be Indian.
Tamara Winter: But not all countries are growing so rapidly, and some aren’t growing at all. So the fundamental question remains: how to ensure that people can have the number of children they want to have. Here’s Clara Piano.
Clara Piano: So this is the billion-dollar question. There is an element of mystery about all of this, in terms of the declining populations around the world. However, there are some things that we know. We do know that as people have become more educated, particularly women, we see lower fertility, and this could be a variety of reasons. Some people think it’s better knowledge about family spacing, fertility decisions. I, from an economic perspective, the most compelling reason for me seems to be that just the opportunity of the cost of their time increases.
Tamara Winter: With the kinds of economic benefits that Clara and Shruti describe in mind, by the mid 1980s, Singapore was changing its policies.
Titus: The reversal in policy to have more children came in 1986. I think.
Tamara Winter: It was in 1986 that the policy officially changed. As a snarky headline in the New York Times put it, "Singapore decides it wants lots of children after all." But the policy change didn’t happen overnight.
Titus: 1984, the thinking was already quite clear. They started this graduate-mother scheme, graduate-mother policy, where if you are a graduate mother, you get more incentives—
Vimala: School, education.
Titus: For education for your children, tax incentives, including subsidy for even hiring a foreign maid. These were some of the incentives that were given for graduate mothers to go out and work, and also to have more children. At that time, anyway, there was a belief that smart women produce smart children.
Tamara Winter: The shift wasn’t just from Stop-at-Two to, everyone have as many kids as you can. The new policy slogan was: have three or more, if you can afford it. And even then, the government preference was for highly-educated women to be the ones having children. The slogan and program were a little harder to distill in a soundbite than Stop-at-Two. It also had to convince a generation that grew up with Stop-at-Two messaging.
Vimala: Among my siblings, we’re the only two who have three kids. All the rest have two. Even my brother, who married twice with each wife, he had two children. So it’s just like, "Oh, that’s the best number. It makes sense."
Tamara Winter: When thinking about the intuitive power of Stop-at-Two, Vimala recalls a family night out at a restaurant.
Vimala: When I had my second daughter, she kept telling us, "Oh, four of us, that’s just fine." I still remember we were at the restaurant, she said, "You see, there’s a table for four? That’s just nice for us." And so when I told her I was having my third one, she wasn’t happy at all because she felt that was really not the plan. So I think all of us had that in mind. We are very subtle... there’s subtle messages that they sent to us.
Tamara Winter: Skeptical parents were only one of the barriers to Singapore’s new policy efforts. Another force was at work, a result of the country’s rapid economic growth over the years that the Stop-at-Two policy was in place. In the field of demography—the study of human populations—one of the major concepts is what’s called the “demographic transition.” This is the name for a phenomenon that has been observed in virtually every country around the world: it describes the shift within a country from high birth rates and high death rates to low birth rates and low death rates.
There's an ongoing debate about what exactly causes this transition. Social and economic development—things like improved sanitation and better education, especially for women and girls—are correlated with declining fertility and increased longevity.
The result: a more slowly growing population and an aging one, sometimes even one that shrinks. During the 1970s and into the 1980s, Singapore’s economic development was rapid, moving it further along the journey to, you guessed it, demographic transition. Since then, Singapore’s population has continued to grow, but the rate of growth has slowed and is projected to continue falling for the foreseeable future.
So what does it mean to have an aging or declining population? Well, for starters the costs of supporting such a population can strain national budgets. And put more financial pressure on younger working-age people to support the elderly. Both individually and through expanding social programs. There’s also quite a lot of evidence that aging populations are less dynamic. And more hostile to new ideas.
So as Singapore was going through its own demographic transition, it decided to work against the trend with policies that encouraged fertility.
Some thinkers are encouraging economically developed countries to fight the demographic transition. To understand more about why Singapore and other countries are concerned about slowing population growth rates, I called up Matt Yglesias.
Matthew Yglesias: I’m Matthew Yglesias. I write a newsletter called Slow Boring. I’m a senior fellow at the Niskanen Center, and I wrote a book recently called One Billion Americans.
Tamara Winter: If you’re on Twitter, you probably didn’t need that introduction. The full title of his book is One Billion Americans: The Case For Thinking Bigger. And Yglesias certainly thinks big when it comes to the United States population.
Matthew Yglesias: In some way, the population is the most important infrastructure of all. We’re talking about tripling the population density of the United States in this book. That would put us on a par with France. We’d be at about half the density of Germany. Most of the country is not unspoiled wilderness. It just has room for more people in it.
Tamara Winter: He argues that a larger population in the United States would be beneficial to more than just technological development.
Matthew Yglesias: I think it also matters for innovation and for culture that, part of the strength of the United States is that a lot of people come here to try to pursue their biggest dreams. And that can be technology entrepreneurs. It’s also movie directors. Like, if you do really well in New Zealand cinema, you get to go make a movie in America because we have a big audience, we have a big enterprise here.
Tamara Winter: That New Zealand cinema example feels especially on point. Just a week ago, while we were finishing this episode, the biggest movie in the world was Thor: Love and Thunder, directed by Taika Waititi, who got a start making indie movies in New Zealand and had his international breakout with a mockumentary about vampire flatmates in Wellington. Now he’s in Hollywood making Marvel movies and scheduled to write and direct a Star Wars film.
In his writing, Yglesias brings up a particular statistic, that many women in the United States end up having fewer children than they say they want.
Matthew Yglesias: What’s interesting, though, is that in the ’70s, there was a really big decline in how many children American women said they wanted to have. For the past 20 years, you have not seen that decline in intended fertility, but actual completed fertility has kept ticking downwards.
Tamara Winter: Listening to Yglesias, I was reminded that Clara Piano, who we heard from earlier on this episode, made a similar point.
Clara Piano: Educated women in developed countries, in particular, have the highest fertility gaps, which essentially means that, although they say when they’re around age 25, "I’d like to have, maybe, three children," on average they end up having two. So that’s a pretty big gap and it’s, for me, a signal that there’s something going on that we don’t really understand.
Tamara Winter: So what can governments do? Clara offers an answer that touches on some of the physical infrastructure discussed in previous episodes of this podcast.
Clara Piano: At the end of the day, I think that, really, just the best way to think about this is to increase freedom quite literally. Because women and men, in general, are saying, "I would like to have more children." There are some barriers that are preventing them from having children, and so just basic things like increasing economic freedom, labor mobility, freeing up people to fulfill their plans, whether or not that’s economic or for their families. For housing, to be able to move and to increase the supply of housing so we can have rooms for the children. These are more promising approaches.
Tamara Winter: So what does this look like in practice? The promising approaches Clara mentions point towards options beyond government policies aimed at directly encouraging or discouraging citizens from having kids.
Maybe the problem is that people are being prevented from having the number of children they say they want because of rising costs of living, housing, social support, or any number of other pressures.
So while building more housing, further expanding the child tax credit, increasing labor mobility, ensuring paid maternity and paternity leave, and promoting workplace flexibility might not solve every problem—I think they're policies worth pursuing anyway.
Back in Singapore, Titus and Vimala ended up having three children. And though their third was born after the Stop-at-Two policy ended, there were still challenges and a lack of support.
Vimala: When I had my third child in 1990, I had no maternity leave or whatever. I didn’t get a salary for two months if I decided to go on leave.
Tamara Winter: Luckily, they have the kind of financial stability that allowed them to feel comfortable having a third child.
Titus: Well, for us, actually, we were about to get married. Our idea was we would have children and, of course, at that time it had been ingrained in us two children. That was proper number to have. Even if we had three, we did not have an issue with that. We had our two children. First child was born in ’81, second one in ’85. And then, five years later, we were blessed with a third daughter.
Tamara Winter: Titus and Vimala are both well educated and have stable jobs. The financial incentives and disincentives of the Stop-at-Two and have-three-or-more-if-you-can policies were a part of their lives, but they didn’t have to change their family planning decisions because of them. Today, they have three grown daughters with families of their own.
Vimala: My mother was maybe my role model. My mom was a housewife and she worked, she was a very hard-working housewife, so I used her as, "Okay, I want to be a bit like her also." Because I read a lot, I’m a literature teacher, teacher of English and literature, so for me, having three girls, I tried to impart quite a lot of things that I enjoyed in my life to them, like poetry and taking them to plays. Seeing them come full-circle, like having their own families, I think that in itself is a joy.
Titus: Yeah. I suppose when they were young, of course, there’s the joy as they developed and progressed. Achievements in school, achievements in other areas of art or whatever. That brings joy to us. And as my wife said, when they found their life partners, you know…
Tamara Winter: Reflecting on the various policy programs he’s seen over the last 50 years in Singapore, Titus remains optimistic about the country and the future.
Titus: We have lived in a fairly strict country. The standard of living is reasonably good. Salaries are reasonably good. And I think we are quite happy to have been born and living in Singapore.
Tamara Winter: And Singapore continues to promote policies that support families that have more children. In 2008, paid maternity leave was increased to 16 weeks. And in 2013, one week of paid paternity leave was added. The government also offers tax breaks, housing subsidies, and even cash payments. Maybe this set of incentives will be enough on its own, or maybe, in 2022, the government will still be looking for all the help it can get and we’ll see a return of the Mentos ad.
As we’ve been researching and preparing this episode, I’ve been saying that this one is for the mothers, because when it comes to decisions about having kids, the people who carry them for nine months are often the ones who pay the highest price, physically and economically.
And I hope to be one of those people. So while it’s easy to get lost in the economic theory or the global-level demographic statistics, this is personal for me. And so many aspiring parents around the world. And very, very real. The kinds of policies we’ve been talking about in this episode could directly impact my life when I have kids of my own.
Vimala didn’t receive paid time off to have her third child. The United States, where I will likely have my children one day, is one of the only industrialized nations that does not have a national standard for paid family leave.
But what years of research into the causes of declining fertility rates have demonstrated is that economic policies, even very generous ones, aren’t necessarily enough to move the needle on birth rates. Extended families, communities and other layers of social support also really matter. They certainly did for my family. And at least in my circles, this fact is increasingly acknowledged. Some of my friends are even making concrete plans to raise their children together. So I’m hopeful. Hopeful that there can be policies and social structures in place that ensure everyone has the freedom to make their own independent choices about how, when and with whom to have children.
Beneath the Surface is a production of Stripe Press. The senior producers for the series are myself and Everett Katigbak. This episode was produced by Jack Rossiter-Munley. Whitney Chen was our production manager. Our sound mixer and sound designer was Jim McKee, and we had editing support from Astrid Landon. Original music for Beneath the Surface was composed by Auribus.
Visit press.stripe.com to learn more about Stripe Press. That’s it for this episode. I’ve been your host, Tamara Winter. This is Beneath the Surface.
Episode 06 B-side
Interview with Shruti Rajagopalan
Tamara Winter: Hello and welcome to Beneath the Surface B-sides where we bring you full interviews with infrastructure experts.
If you listened to the most recent episode of the podcast, you heard a brief snippet of my interview with Shruti Rajagopalan. She is a Senior Research Fellow at the Mercatus Center and leads the Indian political economy research program and Emergent Ventures India at Mercatus.
In our conversation we discuss not only the economic implications of India’s population growth, but also she gives personal insights into India’s history, sharing some of her experiences growing up in socialist India and witnessing its economic transformation firsthand.
So here is my conversation with Shruti Rajagopalan which has been lightly edited.
I’m going to have you first introduce yourself and your relevant affiliations.
Shruti Rajagopalan: That is relatively easy. I lead the India policy research at the Mercatus Center at George Mason University. I’m an economist by training. I also direct the India grants for the Emerging Ventures Grants program, also at Mercatus. I’m a Fellow at the Classical Liberal Institute at NYU law school, because in another life, I did get a law degree and I work a lot in the field of law and economics. I host a podcast called the Ideas of India, which is an attempt to bridge the gap between academic ideas and political economy, real world problems in India. And my main area of research is writing about Indian political economy, more specifically, my training is in public choice economics, law and economics, constitutional economics. I’m a very classic George Mason University trained economist. So, that’s all my affiliations, I think.
Tamara Winter: Wow, is what I’ll say. Wow. Shruti, I want to start off with some context about India. So, how big is India, both in size and population? And I’m curious, for somebody who doesn’t have an immediate picture of how large India is, how does it compare to the rest of the world? So I think it’s something like 17% of the world’s population?
Shruti Rajagopalan: Exactly. So India’s population currently stands at 1.35 billion. I know that’s sort of hard number to even imagine, right. The United States for comparison, where we are recording this, is about 330, 340 million people, right. So, the Indian population is 18% of the world. Having said that, India is a very young country, right. So the median age is about three to four years lower than most developing countries and much lower than the developed Western world, which has an aging population. It’s the second largest country, in terms of population and barring natural disaster or existential risk, nuclear war, asteroid hit, it’s likely to be the most populous country in the world.
It’s the sixth largest economy just because the size is so large. I think nominal GDP is about 2.7 trillion US dollars, something like that. Having said that, in terms of GDP per capita, it’s still relatively a low to middle income country. It’s about $2,000 GDP per capita. Just as a point of comparison, China is about 5X the GDP per capita of India. South Korea is about 15X, right. And the United States is about 30X. So, in terms of being rich, it’s great to have a very large country, but it’s even more important that it’s a very large number of people who are also very, very prosperous.
Tamara Winter: I actually want to add one more question for context. So, I was born in Nigeria, we’ve talked about this a little bit and I saw a tweet forever ago, basically pointing out the futility of talking about a country like Nigeria as though it were one country, something like 200 different ethnic groups within the country. And I wonder to what extent is this also true of India?
Shruti Rajagopalan: Absolutely. I mean, I think Nigeria and India are great examples of this kind of diversity, but also how difficult it is to paint the country in one color. So just as an example, Uttar Pradesh, which is the largest state in India, it’s the size of Brazil. The smallest state in India, Sikkim, is closer to the size of Bhutan, which is like a really small Himalayan Kingdom country, right. India’s richest states like Goa, which is a great place. All the tourists love to go to Goa. It has a GDP per capita closer to Jordan, right. And India’s poorer state, Bihar is closer to Haiti. So, that’s basically the difference, right. And there are some Southern states like Kerala, which have...great on human indicators, 100% literacy rates. Again, Uttar Pradesh and Bihar, which are relatively poor, they’re barely at the halfway mark.
And in terms of linguistic diversity, there are 18 or 19 official languages, but they’re technically thousands of dialects. Very similar to Nigeria in this sense. The caste system is another point of fragmentation. There’s a lot of religious fragmentation, of course. Hindus are the majority in terms of population, about 83%, but it’s about 13, 14% Muslims, right. It’s one of the largest Islamic countries in terms of absolute numbers. I think it’s the second largest. So, in terms of religious diversity, caste diversity, ethnic diversity, it’s really, really big. You’d love this, the Cambridge economist, Joan Robinson, she once said that, "The frustrating thing about India is whatever you can rightly say about India, the opposite is also true." And I think this is really true also of Nigeria, in the sense, right. Anything you can say about one tribe, you can get the exact opposite example in another end of the country in a different state, in a different city.
So I think that point is very well taken. So India, when we say...it’s just, I’m talking about a geographical boundary and a state entity and a certain kind of common culture, a democratic framework, those are things that hold Indians together, but you’re right. We got to get specific really quickly with countries like India.
Tamara Winter: Well, now that we’ve said that, we’re going to zoom back out then. For anybody who hasn’t read How India Can Use Its Numbers, your excellent article, could you maybe summarize the argument and tell folks the context in which it appeared?
Shruti Rajagopalan: I grew up in socialist India and at that time, the economic rates of growth were relatively low, but population was growing really quickly, because post World War II, with all the advances in medicine and infectious diseases or battling infectious diseases, suddenly you saw infant mortality drop, you saw people living much longer lives. There’s this huge boom in population. But if the size of the economic pie is not growing, it means you’re basically redistributing the same size of the pie with more and more people.
So in this context, it becomes very easy to have a Malthusian point of view, which is people are the problem, right. Wherever you look, you think in terms of zero sum games, because that’s how socialist economies operate. There isn’t a positive sumness that comes from create and openness, but also, all the infrastructure is crumbling, right.
There are too many people. Every time you need to get on a bus, you see that you got to elbow 15 people to even get on a bus, right. Or school admissions, right. Every single basic public service that you use, whether it’s roads congestion, whether it’s water runs out the moment you go to the public well or the public tap. So these kinds of problems led people to blame population and the government intervened in so many different ways. At one point, even policy called for sterilizations during the undemocratic time of the emergency.
But usually, more benign ways of essentially reducing the population, right. And this has led to, I think, a basic misconception. We need to bring the focus back now that India has liberalized and now it’s actually a trading economy, it’s plugged into the global economy, that more people are actually a good thing, right. So as Julian Simon said that, "People are the ultimate resource." right. And why do we think people are the ultimate resource? I think that’s the insight which is a little bit harder for people who come from the Malthusian point of view. And this comes to why or where we think economic growth comes from, right. And it’s not coming from just more physical resources. Economic growth comes from new ideas.
Tamara Winter: We take for granted the idea that having a large population is beneficial. You and I are doing this interview in the United States. You’re from India, I’m from Nigeria. So I’ll ask you directly, why is having a large population beneficial?
Shruti Rajagopalan: This is a great question and it’s unintuitive to most people, right. Because most people just think, "Oh, there are more mouths to feed," right. Especially in socialist economies or developing countries, but economists and more and more economists who worked on growth theories, whether it’s Paul Romer or Michael Kremer, right. Their idea is that the central or the key to economic growth is new ideas, right. New ideas are more important than just some form of capital, physical capital or labor or something else, right.
Once you recognize the power of ideas, the value of the population comes into focus, right. People, especially well educated people, healthy populations, smart, creative people in a space where they’re constantly bumping into each other, are the source of not just new ideas, but also how to combine these new ideas into more and more and more applications and that is really where economic growth comes from. And this is not just true of today’s tech economy or Silicon Valley or something very specific, right. Michael Kremer has this great paper, it’s called Population Growth and Technological Change: One Million B.C. to 1990. This is a generalized trend for all of human history. And you can even see this, you go to small island countries for tourism or something like that, you’ve seen that these populations can tend to stagnate. They need outside people to come in and trade with them all the time, otherwise they do stagnate, right.
Whereas large connected populations, you live in New York City, right. That’s the greatest example of this. These kinds of places is where progress really quickens, right. Where ideas multiply. Matt Ridley has a great phrase, he says, "Where ideas can have sex," right. That’s what we really need, right. So now fortunately, India already has the resources of a large number of people, right. Now, we need to make sure that these people are healthy, that they’re educated, that they’re prosperous, that they can actually go into the ideas part of the economy and bump into each other, their ideas can have sex, and that can become the new engine of growth for not just Indian prosperity, but global prosperity. Because in the future, one in five people joining the workforce globally is going to be Indian.
Tamara Winter: Shruti, in your article, you identified, I think it was three policy areas in which a large population could, if utilized well or if allowed to flourish, could really unlock other gains. What were those policy areas?
Shruti Rajagopalan: Yeah, so I’ll tell you a little bit about India before jumping into the policy prescription, because I think it’s important to also specify the problem. So, as I said, the people exist in India, right. And India thankfully, is a democratic country with free movement, so that is a wonderful thing, unlike China, right. That’s the closest example of a country which has large numbers of people, but they’re not allowed free movement, free assembly and so on. But in India, there are a few really major problems. The first is that India’s internal market is completely fragmented. One of the reasons the United States has been such a huge economic success is the United States was one of the first and largest free trade zones. You can trade anywhere within the United States. That never quite happened for India because states had a lot of different taxation regimes.
They used to have internal tariff regimes. If you’re shipping apples or banana chips from one state to another state, you have to not only pay tariffs and taxes, but the differential tariffs and taxes come with a lot of corruption, long lines at highways where bureaucrats and corrupt inspectors can extract lots of bribes from you. That was the economy, and that naturally fragments the economy into smaller and smaller parts. And the greatest losers in this are obviously the poorer states, right. Because they’re kind of getting cut out of the market. So the number one thing is how to make sure that India’s internal market stays unified. So for this, the Indian government already took one step, which is unifying the tax regime, right, from this splintered, many-state system to a unified value added tax, it’s called the goods and services tax, but they did it the Indian way.
It has eight different tax rates. It’s very complex, it’s a complete mess. So, if they streamline that, that’s going to be a huge improvement. India also needs far better infrastructure and this is where the good news is. We know that if India unifies a single market, there’s going to be so much more trade and therefore, so much more revenue for the government that actually, the additional infrastructure is just going to pay for itself, right. It’s not a net loss to build more roads, right. Or to build more ports or railways and transportation systems, coal storage, warehousing. These are things that will pay for themselves, so that’s one major part of it. The second is India’s labor market is a complete disaster, right. And this is, again, goes back to the socialist history of...there are just about, I think 40 or 50 federal level labor laws and regulation, and every state has its own rules and own regulation, which means at any given point, if you’re a countrywide firm, you have to follow 200, 300 different codes of regulation.
And there’s a labor inspection system, which is of course, very corrupt and can completely extract rents, but what that does is it makes it very costly to hire people in a labor surplus economy, which is a terrible, terrible thing. And therefore, and you’ll be familiar with this from the Nigerian experience, it gets pushed into the informal market. And what I mean by the informal market is that it’s basically just escaping taxes and regulation, right. There’s nothing poor quality of the informal market. My engagement ring, I’m showing it to Tammy right now, comes from the informal market, right. So you can have very high quality, very, very expensive jewelry, leather goods, artwork, all this manufacturing happening in the shadow of India’s regulation. And what that does is it doesn’t allow it to scale, right. When things can’t formalize, they can’t get access to credit.
And more importantly, in the labor market, people can’t get gainfully employed in sensible jobs that are salaried. They’re basically working daily wage labor, right. So this really needs to get fixed. 80% of India works in the informal economy. So they need to be brought back in a way out of the shadows, into the light. And the only way to do that is to deregulate in a meaningful way, countrywide, so that it becomes very easy to hire labor and it becomes very easy for actually people to invest and develop their skills.
And the third thing is India, for its state of development, got connected to the internet, right, very, very quickly. This has again, got something to do with its numbers, right. When you need to lay the pipes, right. Or to put down the infrastructure for internet or telecom connectivity, a very large size market helps, right.
Because very large number of subscribers means that you can put in the capital expenditure required to lay the pipes. So in India, that happened really quickly. I believe 816 million people are connected to a mobile phone in India. So it has fantastic mobile phone penetration. I think three out of four households has at least one phone. So the household has access. And that means that...and data is so cheap in India that I believe at one point someone was telling me, I met someone who used to work at HBO and they told me that Game of Thrones is super popular in India, though, it never launched by then. Everyone was watching it on torrent or something because data and streaming is so cheap in India that HBO decided that, "Okay, this is a very large market. We need to simultaneously start releasing this in India because there’s this huge fan base."
So I think because India got connected, a lot of the network goods as we call them, this is platforms, right. Especially...I mean, you work at Stripe, so you completely understand what I’m talking about, but even more basic, like Twitter, Facebook, any kind of platform good, Uber, all this has a massive market potentially in India, right. People should get used to how you and I speak because more and more stuff on Netflix is going to sound like you and me, right. Because that’s where the eyeballs are going to come from in the future. So I think this is an underappreciated insight and for some things, you just need more eyeballs, right. For things like subscription services, for things like Twitter. For some things, you also need purchasing power. So as India gets richer, then more people are also going to use Stripe Press, right. Not just Stripe, right. As India gets more educated. So I think this is an insight that’s really valuable. So these are three areas where massive amount of investment is going to help India in a meaningful way.
Tamara Winter: I’m curious about the 1991 reforms in India and what effect they had on the Indian economy.
Shruti Rajagopalan: Oh, this is great question and my current passion project. So, I should plug this because we run a project called the 1991 Project at the Mercatus Center right now. It started last year in July on the 30th anniversary of the reforms and the website is the1991project.com. So basically, India was a socialist economy and was increasingly growing more and more socialist, since let’s say about World War II until 1990. That meant that India was basically hugely impoverished, right. And there were years or decades when the rate of economic growth didn’t even keep up with population growth, right. So there were years of negative GDP per capita growth. And this was obviously not sustainable, but in the late ’80s and early ’90s, what actually brought the country to crisis was a balance of payments problem, right. India simply did not have enough currency to afford its huge imports, especially its oil imports and energy imports, and it didn’t export enough, right. It didn’t have enough foreign exchange.
So it was this crazy economy where a lot of short term debt and ballooning interest payments, which could basically topple the currency and therefore, in a meaningful way, bring down macroeconomic stability. So something had to be done. And those years, the IMF and World Bank used to have something called the Washington Consensus and they would have this long list of prescriptions for countries who were going through this macroeconomic crisis. We’ve known about this in the East Asian countries or Latin American countries. India had had similar talks and exchanges before with the World Bank and IMF when this didn’t succeed, but in 1991, something very curious and interesting had happened. A lot of the people who were in the Indian government at that time had gone and seen the growth miracle in South Korea, in Taiwan, in Singapore, right.
They had been to Western countries. They had worked at the World Bank and IMF as technocrats. They had studied in American universities and they brought back this idea that, "Hang on, markets and trade are not such a terrible thing." So there was a major shift away from these hard entrant socialist values towards, "We need to open up trade." So what India did in 1991, I’ll give you the Cliff Notes version and those who are deeply interested can go to the website, is it reduced import tariffs, it devalued its currency, right, in a meaningful way, and when I say reduced import tariffs, I mean, some of the average rate of tariffs was I think 155% and the highest tariff rate was over 350%, right. So it started bringing those down in a sensible way, so now people could actually import, and this is again, not so intuitive.
If you can import better, you can export cheaper, because your imports just became more efficient and higher quality and so on. So India’s total, entire chunk of trade as a part of GDP started increasing. India started getting richer. But on the other hand, another major reform that happened was India had crazy industrial licensing. The kinds that you read in economic textbooks that are talking about the socialist calculation problem. The Indian Planning Commission would tell its industrialists or entrepreneurs, how many bicycles they can produce, how many Vespas they can produce, right. How much paper can be produced or printed in a given year? So this import controlled economy where they were told what they can produce basically became a shortages scarcity economy, right. Long lines for everything.
Overnight, industrial licensing was completely eliminated in India by end of July 1991, except a few select industries where they controlled some things. This basically...I mean, now you say that, "Oh, you can produce as many bicycles as people are willing to buy?" And you can imagine the gains that just unleashes, right. So these were some of the reforms that happened that brought India out of a very strictly controlled economy, internally and externally, and integrated it to the global market. And I’m a huge beneficiary of it. At the time, I was seven, eight years old when the reforms happen and overnight, I went from choice between two chocolate brands, which weren’t even that good, now there were dozens of different kinds of chocolates I could eat, right.
And Michael Jackson, who my sister adored and I adored, used to drink Pepsi, and now, we could get a Michael Jackson CD, right. We could buy a CD player and we could get Pepsi, which is what he used to drink. So my memory of liberalization is also very visceral, right. Even as a kid, I knew that something major’s happening and my life is so much better. Of course, I come from a very privileged, upper middle class background, but for poorer people, it meant shortages and lines went away. When they’re standing in line for their rations, now they’re no longer getting terrible quality. Now, they’re actually getting good quality rations or they’re getting better t-shirts to wear because they were imported from China or Taiwan, right. I mean their clothing bill just got cheaper, when people are very poor, that matters. So at every level, right. It brought this huge change in India and we’re working on a year long project. We are recording oral histories with technocrats. We’re trying to understand why these ideas changed. We’re trying to show the growth that it unleashed.
India went from an economy that was growing at 3% or 4% to an economy that eventually started growing at 7, 8%. And for 25 years, India grew...sustained at about 6 to 7% on average per annum, and it has lifted 270 million people out of poverty, right. That’s the size of...it’s like creating a new prosperous country almost, right. That’s an extraordinary achievement. So, I think the 1991 reforms, after Indian independence from colonial powers, if there is one major thing that’s happened in India to make everyone’s life better, globally and for Indians, it would probably be that moment.
Tamara Winter: I mean, that’s incredible and I encourage anybody listening to go to the 1991 Project and also, to keep following your work. Could you speak a little bit more to how the Indian government reacted to perceived overpopulation?
Shruti Rajagopalan: Absolutely. So, it started in a benign way, right. It initially started with education programs. We need to tell people to have fewer kids and that sort of thing. And a lot of those educational programs were linked to women’s health, right. This is a huge stress on women, right. This kind of reproductive stress. Then, there were campaigns that encouraged more people to adopt birth control or use condoms and things like that, right. So at that stage, and this is all pre-AIDS, right. So this is not use condoms for safer sex, this is use condoms to birth fewer children, right. So this was what was going on in the heyday of socialism under Mrs. Indira Gandhi, who was then prime minister, at one point, India suddenly moved from a democratic to an authoritarian regime for about 22 months.
This was the famous episode of the Indian emergency. So India called a national level emergency and civil liberties were completely disrupted or no longer guaranteed and the government became very oppressive, right. The entire opposition of India was jailed. One of the major policy programs at that time, which her son initiated in her name, was for sterilization. And they would just capture young men, young military age men, peak reproductive age rather, and they would take them away to these clinics and make them forcibly have this procedure. So it was just crazy for a little while, right. And it was obviously a hugely unpopular move. It went away immediately after the emergency. India has never done anything that terrible since the late 70s, but it did happen. Now, I want to talk for a minute about some of the unintended consequences.
So in a poor country, which has a relatively high birth rate or fertility rate, and this is mixed with very high son preference, right. Culturally, countries like India and many countries in Africa too, including Nigeria, son preference. I mean, this is not uniform, but there are parts of Nigeria, there are parts of India where son preference is incredibly high. So not only should India have more people, it should have a lot more women. So this is one of the unintended consequences. I think this as a policy regime, has now been...it’s gone completely out of vogue. It comes up, some politicians will bring it up.
In Uttar Pradesh recently, they said, "Oh, we need to limit to two children." Something like that, but this is no longer a major war cry of the socialist era. And I think there has been a lot of learning from China’s forced one child policy and how now it has this aging demographic that can’t quite carry...the next generation can’t quite carry the weight of this skewed demographic that’s going to age. So I think that is a learning globally, that you need to walk away from these very strict population control policies and I think India’s learned something from it.
Tamara Winter: I just have two more questions because I know I’ve taken a lot of your time. To what extent does immigration matter for India, whether that’s in-migration or emigration?
Shruti Rajagopalan: I think hugely. Indian diaspora does incredibly well abroad, right. And I mean, America’s a great example of this. There’s a fantastic book by Devesh Kapur and Sanjoy Chakravorty, it’s called The Other One Percent, right. And it’s basically talk about how the Indian diaspora in the United States is one of the most high performing groups anywhere, even within the States or anywhere in the world, right. So in terms of outmigration, Indians have done very, very well abroad and they have assimilated very well in a lot of different cultures. I think that really matters, right. That there is a group of people who are entrepreneurial, who are well educated and are syncretic and who can assimilate.
In terms of in-migration, India’s neighboring countries, depending on which neighbor, may or may not have porous borders, right. So with Bangladesh, it’s a very porous border. In fact, there are millions of daily wage workers who cross the border, work in India and go back. Now, this is going to be lesser and lesser of a phenomenon, because I believe Bangladesh’s GDP per capita just overtook India’s, right. So as Bangladesh gets richer, we are not going to have an in-migration issue with daily wage labor, it might even be out. It might be Indians crossing the border to go to Bangladesh to look for work. In terms, but a lot of the borders are very, very strict, because it borders with China and there are conflict areas or it borders with Pakistan, which has been a very long running conflict area. So because of that, you don’t have this foot movement across borders, but India for all practical purposes has a pretty open immigration regime.
It’s just a question of who would wish to come and work in India and naturally assimilate in that environment. So, it has to be someone who is...it’s very easy for someone who is English speaking, relatively elite, gets very easily plugged into the formal part of the economy. It’s quite easy to move to India and immediately find work and things like that. And India has so many examples of people coming in as BBC reporters and just staying back, right. Because they’ve assimilated almost too well.
On the other hand, if you are looking to come from some of the poorer parts of Asia or Africa, it can be difficult to integrate into a country if you don’t know the lingua franca, and India is so specific in terms of its caste and religious and linguistic relationships that it’s not easy for outside groups to just immediately mingle on say, a factory floor or just come and buy agricultural land and become a farmer or something like that. So, the very typical migration that you see from an even poorer country in India to come to India and start picking cotton or something like that, you don’t see much of that happening in India. And as a percentage of population, it’s a blip. India has just got so many people that migration is not the route that changes numbers, meaningfully.
Tamara Winter: One, I appreciate so much that you took the time and we’re both optimists, I think, and I wonder, to close this conversation out, what are, to your mind, the most potent reasons for optimism about India’s future?
Shruti Rajagopalan: Lots and lots of people, right. And lots and lots of people who are getting better and better and get integrated into the global economy. And this is because of India’s own regime of relatively free speech, democratic systems and access to the internet. So, I should give you this example. Recently, I like collecting a lot of Indian art, especially tribal art. I bought a particular piece of art, it’s made on textile. It’s called Mata ni Pachedi. I can send you the picture and it’s by a wonderful artist called Sanjay Chitara. I hope I’m saying his name right, and he’s from Gujarat and it was...I mean, he’s basically vegetable dye on textile and it was sold on an online auction platform. I bought it sitting in a Washington, DC suburb and the payments were processed by Stripe, right.
And so, this kind of integration has now made an artist who works on folk art in India so much richer because we have been able to connect with him and there’s massive gains from trade. Those are the sorts of things that make me incredibly optimistic about India.
I think what is preventing India from reaching its full potential is basically, very poor regulation, bad government regulation. Government just needs to get out of the way and let Indians be entrepreneurial. And the second is just very poor health and education systems, which always...I think that really hampers people from reaching their full potential, right.
How many wonderful artists and Einsteins and Mozarts and geniuses are hiding in India because they are not plugged into the global network, either because they couldn’t access education or they’re not healthy enough, or they’re not rich enough to afford a phone and an internet connection and so on, right. So I think those are the things, if India can manage to fix, I’m just very, very optimistic about its future, but most importantly, because of its numbers.
Tamara Winter: Beneath the Surface is a production of Stripe Press. The senior producers for this series are myself and Everett Katigbak. This episode was produced by Jack Rossiter-Munley. Whitney Chen was our production manager. Our sound mixer and sound designer was Jim McKee. We had additional editing support from Emma Jackson. Original music for the series was composed by Auribus.
Visit press.stripe.com to learn more about Stripe Press. That’s it for this B-side. I’ve been your host Tamara Winter. This is Beneath the Surface. B-Sides.