Economic growth requires more investment in infrastructure. But while more and more people buy more and more vehicles, governments are not spending enough to build or manage the transport system, simply because there are less opportunities in it for corruption

All investors love growth for obvious reasons. Growth means money. For most of this decade emerging markets have been very successful in delivering a great deal of growth. But all investors know that for growth to be sustained, a country has to make continuing investment in its infrastructure. The question is which infrastructure?
 
An excellent paradigm for economic growth is traffic. When a country's economy is growing and creating wealth, its citizens spend that wealth on cars. Cars are wonderful things, but they need roads. Developing and developed countries are involved in a constant battle to keep up with the growth of automobiles to make sure traffic does not come to a dead stop.

A good example is Russia. Prior to the fall of communism Russia had very few cars except for those elites who could command them. That all changed with the collapse of communism. Now Moscow's streets have been populated with so many cars that often they simply go nowhere.

Billions have been poured into creating new roads for Moscow's traffic. A third traffic ring, proposed since the 1960s, was recently completed at great cost. It hasn't helped much. In fact it is now considered one of the most congested roads in Moscow, which is saying something. Moscow has a horrendous commute. The average delay is up to two and half hours. But the Russian government has come up with a solution to the traffic nightmare: more roads. They now propose to build a fourth Ring Road to solve all the problems.

While the traffic in Moscow is certainly awful, it has some tough competitors. According to a study by IBM, the world's winner for the worst traffic is Beijing-a city that beat tough competition from Mexico City, Johannesburg, New Delhi and of course Moscow. It is not that Beijing fails to spend money on infrastructure. It is in the process of building a sixth Ring Road which will be ready in a few years. The process of building this road has made things worse, as evidenced by a 60 mile traffic jam that lasted for weeks last summer.

According to Japanese traffic expert Kiichiro Hatoyama, who just published a book on Moscow's traffic, there are three reasons for the mess. One is quite understandable and is part of the history of a city. Newer cities like New York have been constructed on a grid, which makes traffic flow much easier. Ancient cities like Moscow, Beijing and New Delhi grew organically and radially from the centre. Going round about is always more difficult than going straight.

The two other reasons why the traffic in these cities is so bad has to do with the country's other infrastructure; its legal infrastructure. For traffic to move efficiently all drivers have to obey the law. In Moscow this is rarely the case. The reason is obvious. There are no legal disincentives.

Although Moscow is one of the most expensive cities in the world, parking in the city is free. The result is that cars park on crosswalks, sidewalks, traffic islands and any place else. There are signs indicating no-parking zones, but the rules are only occasionally enforced and the fines are minimal.

Hatoyama's third point has to do with the nature of the society. Ordinary drivers do not obey the law because of minimal enforcement. Elites are not subject to the law at all. In Moscow cars belonging to one of the federal security agencies, Duma deputies, or simply wealthy and well-connected individuals, have the right to run red lights, use emergency lanes and ignore road rules. This has not only snarled traffic, but resulted in injuries and death.

In contrast, the law in China has created a mess because it is being obeyed. Chinese officials have an incentive to use road construction projects to mandate conversion of agricultural land to commercial or industrial use. Once converted, the land can be sold to private or state-owned developers for a huge profit, which provides local governments with important revenue streams, but also enormous opportunities for corruption. Since there is no profit in public transportation, it has essentially been ignored except for some frantic building before the Olympics.
 
To solve this problem, cities like Beijing have simply mandated fewer cars. But this can have a contrary result. Last December, when the city published a draft plan, the public assumed that everything had been decided and panicked. They went on a car-buying spree and the official responsible found himself shipped to Xinjiang, China's version of Siberia.

What works? Simple: markets. In Singapore, traffic moves smoothly because the city has the world's most comprehensive road-user charging system. Motorists are charged according to their speed and so have economic incentives to move at the optimum speed and flow is maximised. So next time you are stuck in traffic, you know who to blame.

(The writer is president of Emerging Market Strategies and can be contacted at [email protected] or [email protected])