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Would the HSR project have made us happier?

Ben Paul
Ben Paul • 8 min read
Would the HSR project have made us happier?
SINGAPORE (June 11): In the bad old days, when Singapore Airlines and Malaysia Airlines dominated flights between Singapore and Kuala Lumpur, a return plane ticket between the two cities could cost some $400. For a flight that takes less than an hour, it
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SINGAPORE (June 11): In the bad old days, when Singapore Airlines and Malaysia Airlines dominated flights between Singapore and Kuala Lumpur, a return plane ticket between the two cities could cost some $400. For a flight that takes less than an hour, it felt like a rip-off. So, I would often take a bus, which was less salubrious but a lot cheaper and offered a variety of conveniently located pick-up and drop-off points. And, if I ever stumped up the money for a flight, I would do everything I could to ensure that I boarded a dual-aisle plane operated by SIA rather than a single-aisle plane belonging to MAS, because it felt as if I was getting better value for what I was paying. Through it all, I longed for a frequent and comfortable highspeed train.

However, by the time plans for a high-speed rail link between Singapore and KL got underway, everything had changed. SIA and MAS were no longer the only players on the KL-Singapore route, and plane fares had collapsed. These days, budget carriers such as Jetstar offer return tickets to KL that are well under $100. Still, I initially thought the HSR could be useful to me, depending on what the train fares would be, and taking into account the time and expense of travelling to and from the airports.

Then, I realised the HSR would not actually take me directly into the CBDs of Singapore and KL. In fact, Jurong East, where the Singapore terminus for the HSR was to be located, is not that much nearer to the CBD than Changi Airport. So, when Malaysia’s Prime Minister Dr Mahathir Mohamad began making noises about cancelling the RM110 billion ($37 billion) HSR project, I was not terribly disappointed.

To put it in terms one would find in an economics textbook, my “economic welfare” has already been enhanced by the liberalisation of the KL-Singapore air route. More flights have become available, and prices have come down. Conceptually, this resulted in a larger “consumer surplus”, which is the difference between the total amount that consumers are willing and able to pay versus the market price. Students of economics will know this concept of consumer surplus is represented by the area below the traditional downward sloping demand curve and above the market price. It is not clear to me how my life will improve with the HSR, unless the train fares end up being less than the cost of a budget flight, which seems unlikely.

Yet, big infrastructure projects such as the HSR are often justified on the basis of economic activity that they can potentially create and support over the long term. This past week, former Malaysian prime minister Najib Razak said in a video that his defeated Barisan Nasional government had conducted years of studies on the HSR project and found that it would contribute about RM206 billion to Malaysia’s GDP. He added that the project would create about 442,000 jobs and probably lift property values.

But is that a good enough reason to press on with the project, given concerns about Malaysia’s level of indebtedness? Or, can the funds (after paying compensation to Singapore) be applied elsewhere to deliver a more efficient boost to GDP growth? Is GDP growth even a relevant consideration?

Waning relevance of GDP

GDP is the value of all goods and services produced during a period of time. It was devised in the wake of the Great Depression and the Second World War, and influenced by the ideas of John Maynard Keynes. Today, the rate of growth of GDP is a major preoccupation of governments as well as financial markets.

Yet, there are many obvious drawbacks of using GDP as a barometer of economic progress. GDP growth could be accompanied by growing inequality, or unsustainable indebtedness and environmental degradation. Economists also like to point out that GDP growth could get as much of a lift from the construction of schools as the construction of prisons. And, simply because contributions to GDP from a particular sector is high does not mean that it is serving people well. For instance, rising spending in the healthcare sector does not necessarily mean that patients are receiving good and affordable treatment.

More importantly, the impact of new technologies on economic welfare are often not captured by GDP and, consequently, not appropriately prioritised by governments. Take the example of ride-hailing apps, which essentially provide a car and driver on demand. How much would we have been willing to pay for such a service 10 years ago? Today, the service is often available for less than the cost of taking a taxi. Similarly, devices such as smartphones and platforms such as Google are likely to have created big consumer surpluses in the past decade, even though their impact on GDP is not as obvious as building a bridge, or a road, or a railway line. In that context, one might argue that big infrastructure projects like the HSR should be less of a priority for Malaysia than some of the Pakatan Harapan government’s other stated initiatives — for instance, doubling internet speeds across Malaysia and liberalising the business of importing rice.

Nevertheless, GDP growth is such a widely used measure of economic progress that it has become a target for governments. It might be worth pointing out here that GNP (or gross national product) was once also a closely followed measure, but it seemed to fade away in the 1990s. What is the difference? While GDP is the output in a country, GNP is the output of people in the country. A classic example of why the difference matters is a foreign firm that develops mines in a country but pays only a small royalty to the local community and leaves behind an environmental mess. One might argue that if Asian governments were more focused on GNP than GDP, they might be less interested in approving big infrastructure projects spearheaded and funded by China.

Focus on happiness?

To be clear, I am not suggesting that investing in infrastructure is not important, or that GDP growth is entirely irrelevant in judging economic progress. Yet, the shortcomings of GDP data in capturing the big issues of our times ought to be recognised. And, alternative metrics of progress should be developed.

This already seems to be happening. This past week, Credit Suisse published a report called “The Future of GDP”, which examines the various ways this measure falls short, and suggests ways to account for environmental issues, the impact of technology and social factors such as inclusivity and equality. “The fixation on GDP as ‘the’ indicator of progress by both public and private decision makers has led to a neglect of multiple side effects of economic growth. Also, with an increasingly digital global economy, we tend to become less capable of precisely measuring productivity of entire sectors,” says Urs Rohner, chairman of the Credit Suisse Research Institute and chairman of the board of directors of Credit Suisse Group, in a statement accompanying the report.

Among other things, the report highlights The World Happiness Report, which posits that the difference in happiness among countries is largely due to six variables: GDP per capita, life expectancy, trust in business and government, social support, perceived independence to make life decisions and generosity. The “happiest” countries — which include Finland, Norway, Denmark and Switzerland — tend to score highly across all these six factors. “China, on the other hand, presents a cautionary example: Despite a startling increase in GDP, Chinese citizens are no happier than they were 25 years ago,” according to the Credit Suisse report. “This is why, rather than ignoring GDP growth or obsessing over it, it is best to supplement it with other indicators that will provide a better overall picture and more insight for policymakers.”

Interestingly, Singapore ranked 34th globally out of about 150 countries in the latest happiness index, according to the statement accompanying the report. In particular, Singapore scored highly on trust, life expectancy and GDP per capita, but not quite so well on freedom to make life choices and social support.

As for Malaysia, backing out of mega projects like the HSR might well be causing unhappiness among its partners and contractors. And, it may well be negative for its GDP growth in the immediate term. Yet, most Malaysians seem to be happier now that they have a government they can trust. On balance, it looks like a worthwhile trade-off to me.

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