Can High Speed Railways Put The North Back On Track?

The proposed new rail service (named HS2) has got some people in Britain as frustrated as the current service it intends to replace- that is, very frustrated. Yet the government continues to claim that it will ultimately benefit people of the North, by bringing them on a more level playing field with the South and London. So, who is right?

What is HS2?
In a nutshell, HS2 is a planned new rail system that will connect the Northern cities of Leeds, Manchester and Birmingham and the capital, London, with high speed trains. Going up to expected speeds of 250mph, these trains will drastically cut travel times between the North and the South- for example, reducing the length of the Birmingham to London train journey from 1h21m to just 49 minutes.

How HS2 could bridge the regional gap...

This diagram highlights the impact of the North-South divide
in Britain. [The Sunday Times]

If you visit London, it can seem at times a country of its own, separate from the rest of England- with not just its own transport system, but crucially its own thriving economy. In 2014, Office of National Statistics data shows London's GVA (Gross Value Added, a measure of economic productivity) per capita was 42,666. This is a figure well over the national average of just over 25,000 and the North East and North West figures of 18,000 and 21,000 respectively.

There are numerous reasons for London's extraordinary economic performance, such as the presence of some of the world's biggest financial and insurance institutions in the City, but that's a whole other article. What is relevant here is that one of HS2's primary objectives is to redistribute some of this economic activity to the rest of England, especially the North. "HSR can rebalance the economy", according to the taskforce behind the project.

While London has thrived since the 1980s thanks to its blooming services sector, the North has suffered massively as a result of the outsourcing of the majority of the industrial employment that it had relied upon for the past century. Since the 1960s, industrial employment has consistently been falling in the UK- almost a third of jobs in industry were lost between 1983 and 2010 alone.

It is hoped that HS2, in connecting cities of the North with each other and London, will enable businesses to relocate or expand their activity from London to the North. With its extremely high property prices and costs of living, some businesses may seek to relocate to the cheaper but rapidly developing cities of the North if the quick, convenient transport links are in place.

According to consultancy firm KPMG, HS2 could also boost national productivity- creating an "additional output of £15bn per year for the British economy" by 2037.

...and how it could expand the gap....
While there is little debate over whether the North will economically benefit or not from HS2, there is a sizeable question mark over whether the project will effectively realise its target of reducing the regional economic inequality between North and South.

A report from the World Conference on Transport Research analysing the implementations of High Speed Railways in China and throughout Europe, concluded that the profit-orientated nature of the companies running the railway service may be to the detriment of the smaller economies currently along the railway lines from London to the North. According to Vickerman, Loo and Cheng, "the creation of profit-oriented subsidiaries to run high speed rail services may be incompatible with providing a level of service to all potential stations which can impact on their economic development". The idea is that to achieve the quick journey times, between London and Birmingham for example, the railway operators are likely to rule out smaller stations as economically unviable- thus having a negative impact on these smaller economies.

Research suggests that France's high speed rail system
has not significantly reduced regional inequality- in fact,
it may have benefit Paris disproportionately.

Furthermore, some argue that the development of high speed rail and other improved transport links between cities can further imbalance the economic growth in the country towards the city that is most economically developed- in our case, London. Evidence from France has suggested this may well be the case. The HSR rail between Paris, Lille and Lyon contributed to flight and train journeys to Paris increasing by 144%, and those in the opposite direction increasing by just 54%. This study by Daniel Albalate and Germà Bel concluded that HSR has not "promoted... economic decentralization from Paris".

Considering that costs of living are far less up North than in London, it seems reasonable that London would benefit more from an increase in workers. People who want to work in Manchester or Birmingham would be far more likely to live there already, than people who want to work in London. HS2 could open the doors to people wishing to work in London, commuting from the North, but there are very few people who would be willing to live in London and deal with the high costs of living, to commute to work in the North.

In Conclusion...
There is no academic consensus as to whether HSR can reduce regional inequalities. The Government's Sustainable Development Commission argues that "Ultimately, the fairness impacts of a HSR network will depend on the detail of implementation plans", almost acknowledging the argument that HS2 will not effectively rebalance regional inequality, but entertaining the possibility that it can succeed in doing so. However, evidence from implementations of HSR in other countries, such as in France, and the reasoning behind some of the World Conference on Transport Research's arguments suggest that while nothing is certain, in reality, High Speed Rail 2 would be more likely to tilt the game towards London and increase regional disparities within the UK. 

What Tesla Motors Must Do To Make The Model 3 The American Car Of The Next Decade

If Tesla Motors play their cards right, their upcoming Model 3 could be the defining car of the next decade.



The Model 3 could define the future of automobiles- a fully electric, tech-packed compact executive car from the Californian firm that is expected to go head to head with established models from Mercedes, Audi, BMW and Jaguar.

Its older, bigger, more expensive sibling the Model S is already doing a fantastic job of taking on Germany and Britain's finest- but it could be the Model 3 that brings Tesla Motors to the mass market. Especially because, as Elon Musk announced yesterday, it will start at just $35k. To make the Model 3 into potentially the best-selling car in the USA, however, Tesla will need to keep in mind the following things...

1) THE CAR
Of course, the most crucial factor. If the car is terrible, no one will want it. The car, of course, must be comfortable, spacious (for its class) and be practical- easy to use on a daily basis to ferry the family around, or go on business trips.

Design-wise, the Tesla Model 3 has some tough competition. The interiors of the Mercedes C-Class and Audi A4, two of its major rivals, are setting the benchmarks for the compact executive class of car, and in order to match these, Tesla will have to take into account some criticisms of the current Model S' interior quality.

The Model S has excellently capitalised on current
technology trends.

Technology is key, too. Tesla have already set a great example with the Model S- they have effectively capitalised on our modern habits, of spending time looking at screens (it has the biggest infotainment display of any car on sale today), and basically doing nothing (as well as driving itself on the highway, the Model S can now park itself and be 'summoned' back to you when you return). This autonomous aspect of cars is a massive trend right now, and with companies like Mercedes and BMW beginning to get in on the action in their more premium cars, Tesla needs to push on and implement these on the Model 3 to stay ahead in the compact executive class.


The most crucial factor, however, in the Model 3's sales may well be pricing. At a price of $35k (including incentives, potentially $25k), the Model 3 is set to be a bargain compared to its premium competitors. The Model 3 will be even cheaper than some of its non-electric rivals (see image), let alone its few electric/hybrid class competitors in the USA. So if the quality is right, Tesla can expect to cause some disruption to its competitors' sales.

The Model 3 will be cheaper than even the non-electric cars from its competitors BMW and Mercedes.

Given that the expensive Model S and new, even more expensive Model X have established Tesla as a premium carmaker, one could question whether such a drastically cheaper new model could tarnish this image. However, take a company like the phonemaker OnePlus- their phones are substantially cheaper than the competition, though the quality of the product and their branding and marketing is on par, if not better, than other phonemakers. Consequently, its image is not tarnished by the price of its phones, perhaps the contrary- they are in fact admired by many. It is possible that Tesla, if they maintain their marketing and branding efforts, could be in the same position.

The overall quality of the Model 3 will be crucial. If the quality is too poor, the Model 3 will not be seen as a viable competitor to the cars from Germany and Britain. And if the quality is too high, at such a low price, Tesla Motors runs the risk of cannibalising sales of its more expensive Model S. So, balance is key.

2) Infrastructure

Tesla has a sufficient number of Supercharging stations, but
will require a larger network if the Model 3 is to succeed
in capturing the mass market.

One of the biggest gripes about electric cars right now is that they are inconvenient to live with on a daily basis, primarily due to the (lack of) charging facilities. Of course, by the time the Model 3 comes out there will not be as many Tesla Supercharger stations as gas stations, but Tesla needs to prepare in advance for the potential growth of their customer base. Few customers will be persuaded to put down a deposit for a Model 3 with a promise of a Supercharger somewhere near them coming in the next few years. They want it to be there, ready for when they get the car. So Tesla needs to expand its Charging network sooner, even if for a short while there may be too many chargers. Because if the Model 3 succeeds, there won't be too many chargers for long.

Tesla Motors needs to prepare their production facilities, too. Production delays caused by a lack of preparation left some customers of the Tesla Model X waiting 3 years after having paid a $40k deposit for their car to be delivered. This had terrible implications for the company, contributing to Tesla Motors stock falling by 38% ($12bn) in market value so far in 2016 alone. With a far cheaper car like the Model 3, Tesla needs to anticipate the volume of demand and ramp up its production facilities far in advance of orders. People purchasing cars as expensive as the Model X are arguably more used to lengthy waiting times for their cars- the more mass market potential consumers of the Model 3, not so much.

3) Incentives
Tesla, unlike many other car companies, have established incentivising referral programmes for its cars in the past. For example, anyone who used a referral link from a Tesla owner last year would get $1000 off the price of their new Model S. The people who gave out the most referrals in each continent would receive a top of the range, 'Ludicrous' Tesla P90D Model S and VIP access to the unveiling of the Model 3. If you were the first person to convince 10 others to buy a Model S, you'd get a free Model X. And so on.

Tesla is developing its family of cars with the addition of the
Model X (right) and Model 3 to the Model S (left).

Perhaps with the Model 3, however, Tesla could introduce a more long term incentives program. Something I was pondering over was the idea of a 'Tesla Upgrade Program'. Here's the idea: you buy your Tesla Model 3 on a contract (giving monthly payments for 3-5 years), before you're offered the opportunity to give back the Model 3 and go up the ladder to purchase/lease a Model S, at a discounted price. Keep that for 3-5 years, paying monthly, before being offered the chance to get a Model X at a discounted price.

If you think about the typical expected buyer of a Model 3, this program could make sense for Tesla. Young professionals will no doubt be big buyers of the Model 3, people aged 27-35: lawyers, consultants, doctors, financiers. These people probably wouldn't be able to afford a Model S or X, but they could get into the Tesla brand through the Model 3. Then, as they get older, their salaries are likely to increase. They may also develop their own families, and thus the need for a bigger car- and they may well be able to afford it. So they upgrade to a Model S, then after another few years they could even need space for 7- so they upgrade to Model X. This incentive upgrade program would keep buyers of the Model 3 in the Tesla family, and adapt to the developing lives of these loyal customers. This loyalty will become incredibly important for Tesla in the coming future, as other carmakers catch up and begin releasing electric cars of their own.

To conclude, the Tesla Model 3 definitely has the potential to be a key player in electric cars truly becoming the norm in the US mass market. As long as Tesla makes sure the car is of a good enough quality, puts the pricing just right, develops the right infrastructure for the production and maintenance of the car, and perhaps establishes a good incentive program for buyers, it could become a, or even the, best-selling car of the next decade.

Please Note: All images of the Tesla Model 3 are purely speculative illustrations. The car is expected to be unveiled next month in March 2016.

WhatsApp's Excellent Business Move

WhatsApp, the popular mobile messaging service used by almost a billion people worldwide, has recently announced a massive decision that will affect all its users- for the better.



In what seems rare in a world of monetisation and prices generally rising, the Facebook-owned firm has announced that it will be making the application free to use- forever. The established system was that users got the first year free, and would pay 99p for each subsequent year of service (on Android, iOS users only paid 99p once for lifetime use). But now, we won't have to pay a penny for using the app.

So, the usual story of such a 'demonetisation' goes onwards with the app becoming home to various advertisements, and the availability of a 'premium' paid version without these. But, as promised many years ago by WhatsApp, there will be no such advertising, and no such paid version.

Some might be surprised that the company has sacrificed what seems like a sizeable subscription revenue, but this decision makes great business sense in multiple ways.

Firstly, WhatsApp is owned by Facebook, so it's not exactly desperate for greater revenues. The $19bn acquisition of the company by the social media giant reflects the fact that WhatsApp is not in shortage of money to further develop their app and services, so they can definitely afford to take a financial hit.
And that financial hit is not exactly substantial, either- with each Android user paying just 99p a year, iOS users 99p just once and millions of users still in their free first year, WhatsApp is not a massive money maker, especially for a business as wealthy as Facebook.

Furthermore, WhatsApp is replacing, rather than removing, its income streams. Plans have been announced to earn revenue from introducing a commercial side to WhatsApp- features that allow businesses to contact individuals via the app. In contrast to ads, these will be services that the user subscribes to- it is about functions such as "communicating with your bank about whether a recent transaction was fraudulent, or with an airline about a delayed flight". Unlike most advertisements, these services will actually be useful for users. And it has massive potential- as well as from your bank or airline, you could receive texts from your pizza place about your order being sent out, or from Amazon about the status of your order.
These businesses will be expected to pay WhatsApp for such services to its customers, thus enabling WhatsApp to continue making money- perhaps even more money than its past subscription model.

This is also a great PR move for WhatsApp. As mentioned earlier, it's rare for businesses nowadays to revert from paid to free services, especially without some form of advertising involved. And the move away from subscriptions to free service will enable a great expansion of the user base, especially in developing markets where access to debit/credit cards for payment may have prevented many users from signing up. Such a rise in user numbers would consequently make the planned expansion into services for businesses more lucrative.

Do you use WhatsApp? How do you feel about this change and the planned new commercial aspect? Leave a comment with your opinions down below!

Failures of The American Education System - The American Inequality Series #5

In this final instalment of the American Inequality Series, we analyse how responsible the USA's education system is for the nation's growing economic inequality.

The quality and level of education is seen worldwide to be a strong determinant of an individual's future socioeconomic status. 

fig.1

Take a look at this graphic (fig.1) from the US Bureau of Labour- a clear positive correlation exists between level of education and earnings, and a clear negative with the level of education and unemployment rate. 

According to the Institute of Education Studies, the median earnings for young adults with a bachelor’s degree was $46,900- the equivalent for high school dropouts was less than half, at $22,900. It’s been getting worse for high schoolers: those who have only graduated from high school have seen their real incomes decline by over a quarter in the last 25 years.

So a correlation can be observed, but is there a causality between the two? The general consensus among academic seems to answer yes- in a well-known study by David Card, of UC Berkeley confirms the causality, concluding that “individual returns to education are declining with the level of education”. Education was proven to be a major factor in unemployment during the recent recession- nearly 4 out of 5 jobs lost during the economic crash belonged to workers with a high school diploma or less. Furthermore, 63% of US jobs now require a postsecondary degree- up from 28% in the 1970s. So education, now more than ever, seems to provide a safety net from both unemployment and low earnings.

Sometimes even a bachelor’s degree is not enough: according to Elena Bajic, CEO of online executive job recruitment site IvyExec, “when an employment recruiter looks at an Ivy League degree, they will look at it more carefully”.

Nevertheless, clearly advanced education of some level plays a role in one’s future economic prosperity. The ‘American Dream’ dictates a desire for opportunity for all to become prosperous- so if education is a key (though not the only) to the door from poverty into prosperity, do all Americans have this opportunity?

fig.2

The greatest barrier for many Americans to college education (in particular elite the Ivy League elite) is financial. The Higher Education Research Institute at UCLA observed choices made by students with regards to college- in particular those who had been offered a place at their first choice. HERI noted that only 56.9% of students enrolled in their first choice college in 2013- and compiled the most significant factors for why so many students didn’t enrol in their first choice, even if they got an offer. Fig.2 shows the 4 most notable reasons- all of them centering around college fees highlights how much finances matter to students wishing to go to college.

Public colleges hold relatively little clout over the education ‘market’ of the USA. Only 5 of the top 20 universities in America are public (state-funded)- a damning statistic, though it must be considered that there are almost three times as many private 4 year institutions as there are public equivalents.

But there is still an increasing pressure among the young people of America to go to top universities- and the majority of these are private colleges, whose national average total fees (for a typical four year study) in 2013-14 were $40,917, $9,000 more than the public equivalents. 

Two conclusions can be drawn from this data:

1) The poorest of society are struggling to afford a college education, and therefore are more rarely enrolling. 

2) Those who are only able to afford a public college education remain at a disadvantage when it comes to post-graduate employment.

fig.3

Colleges have attempted to lower economic barriers of entry via financial aid; for example, 70% of students at Harvard University receive such aid from the college. 

However, the effect of this has been minimised by rapidly rising college tuition fees- fig.3 shows how in the past decade, fees have inflated at a rate disproportionate to most other goods and services- and at a strongly contrasting level to real household income, which has in fact fallen in previous years (fig.4). 

fig.4

This has led to a widening gap between education opportunities for the poor and wealthy. The wealthy are mostly in the best position to provide their children with good quality education, which in turn benefits their future income, so they can educate their children well, and so on.

Socio-economic mobility is not dead- successful ‘rags to riches’ stories are not unheard of- however for many lower class people the environment and opportunity is not present to help them succeed academically- and the state of the US jobs market means they often remain poor for their whole life as a result.

Pros & Cons #4: The Minimum Wage

The Minimum Wage is something that has often been a focal point of the left vs right debate over economics and the government's role in managing its economy.

So let's have a look at both sides: both at those who say the minimum wage is an unnecessary, harmful form of government interference, and those who say it is necessary for the welfare of the working citizens of developed nations.

PRO: Worker Protection

Arguably the most significant reason for the existence of a minimum wage is the fact that it can prevent the abuse of workers desperate for employment by lean, restrictive employers. People desperate for a job can often be manipulated by employers into jobs in which the employee is strongly underpaid, often resulting in these people falling into poverty despite being employed. The minimum wage seeks to prevent such people falling into poverty, by giving them a wage that is calculated every few years to be supposedly enough to cover living costs for an individual and perhaps one or two dependents.

A study done by David Neumark and William Wascher of the American National Bureau for Economic Research (NBER) concludes that "over a one to two year period, minimum wages increase... the probability that poor families escape poverty" due to the increase in household income post-implementation of the minimum wage.

A higher minimum wage could reduce the need of
food banks like this.

Not only does escaping poverty help those fortunate enough to climb out, though. According to The Centre for American Progress, raising the minimum wage from $7.25 to $10.10 would reduce money spent on federal food stamps by $4.6bn a year, lifting off a great debt on the government.


CON: Shrinking Wages

However, Neumark and Wascher are careful to explain that their findings suggest separate stories for the poorest in society (who will benefit) and the rest- notably those just above the poverty line, who they claim would be harmed by a minimum wage.
An argument exists that the minimum wage could create a 'vortex' effect around the poverty line- while sucking the poorer up to and perhaps over the poverty line, it could simultaneously pull down those above the poverty line.

One could argue that despite the 'spirit' of the minimum wage, that is to raise the living standards of the poor, it could conversely provide a benchmark of acceptable pay for people who should be earning more. A company may reduce the pay it gives to employees to the minimum wage, reducing the income of those perhaps just above the poverty line and according to Neumark and Wascher, perhaps even dropping them below.


PRO: Productivity

Prominent psychologist Ivan Robertson summed this up very simply: "Improved psychological well-being (PWB) leads to a more productive and successful workplace". The link between income and this psychological well-being is further explored in a study by Princeton economists Daniel Kahneman and Angus Deaton- they conclude that, up to an income of $75k, "emotional wellbeing rises with log income". This means that, to an extent, money does often buy happiness- particularly when we're talking about those on the minimum wage, a figure far less that $75k.

Combining the two conclusions of Robertson, Kahneman and Deaton, it appears that the minimum wage's effect of increasing the wages and thus living standards of those below it can indeed have the effect of increasing productivity in the workplace. Wage is ultimately a great contributor to job satisfaction- and the higher the job satisfaction, the higher the likelihood of an employee being enthusiastic in their work, being present when needed and ultimately being more loyal to the employer.


(?): Lost Jobs

The reason why there's a question mark on this one is because this is perhaps one of the most contentious points in the whole minimum wage debate.

Some argue a minimum wage forces businesses to spend more on staff, meaning many will have to reduce staff numbers to keep the wage expenditure from increasing too much. This means fewer jobs, and consequently higher unemployment.

Their historically low pay has left fast food workers
among the most sensitive to any minimum wage regulation.

According to the American Enterprise Institute, this was the case in Seattle in the first half of this year- during which an increase in the minimum wage to $11 was said by many to have been responsible for the post-recession record loss of 1,300 restaurant jobs in the area. Author of the report Mark Perry highlights in particular how 1,000 of these jobs were lost in May alone, following the minimum wage increase in April- "the largest one month job decline since a 1300 drop in January 2009, during the Great Recession".


On the other hand, there is much evidence to suggest the minimum wage has little impact on unemployment levels generally. A famous study by David Card and Alan Krueger from 1990 compared restaurant employment in neighbouring states New Jersey (where the minimum wage was set to rise) and Pennsylvania (where the minimum wage was unmoved). "We find no evidence that the rise in New Jersey's minimum wage reduced employment at fast-food restaurants in the state", the study concluded.

A study in the British Journal of Industrial Relations set out to test the results found by Card and Krueger in 2009, and concluded the same- that they saw "little or no evidence of a negative association between minimum wages and employment".


CON: Price Inflation

Card and Krueger's findings that minimum wages had little effect on employment, however, did not absolve the minimum wage of any negative impact. In fact, upon investigation they concluded that "much of the burden of the minimum-wage rise was passed on to consumers", when restaurants would increase their prices to compensate for higher wage spending.

The idea of price inflation following minimum wage implementation arguably discredits the notion that the minimum wage causes unemployment. Theoretically, it would seem more likely for a restaurant to not risk all the potential issues that come with a shortage of staff, but instead retain staff (on the new minimum wage or above) and instead make the customers pay for the new burden.

Many businesses have laid the blame for price increases on minimum wage increases. One high profile example was Mexican food chain Chipotle, who, following a minimum wage increase in San Francisco, raised the price of their menu on average by 10%. Here in the UK, following the announcement of a new 'living wage' of £7.20 last month, Whitbread (the group including brands such as Costa Coffee and Premier Inn) announced they would be raising prices as a result of the supposedly "substantial cost increase" of operating as a business under the new minimum wage.

One could argue that such price inflations are simply selfish acts of protest by these businesses against minimum wage regulations that increase their expenses. It probably often is the case- but whether it is a selfish or 'necessary for survival' move, either way prices do increase for us as consumers.

Franklin D. Roosevelt championed the minimum
wage in an economically struggling USA.

PRO: Economic Stimulation

The minimum wage could have positive effects for the national economy, firstly in the form of stimulating consumer spending. A study by the Chicago Federal Reserve Bank examined 23 years of household spending statistics, concluding that for every dollar the minimum wage increased, the average worker received an extra $2800 for consumer spending. The 2009 study noted that spending on cars in particular increased as a result of increasing the minimum wage.

President Franklin Roosevelt was a huge proponent of the minimum wage for this reason- he famously stated "the best customer of American Industry is the well-paid worker", during his push to enact the federal minimum wage in the USA in 1938, during a recession following the Great Depression.


The Minimum Wage- Help or Hindrance? Put your opinions in the comments below!