Upon his decisive re-election victory in April, President Joko Widodo wasted no time launching his second term in advance with a grand vision for Indonesia to be the world’s fifth-largest economy by 2045. In 2017, his leadership brought Indonesia into the “One Trillion Club” of countries with a gross domestic product exceeding $1 trillion. According to estimates from the International Monetary Fund, Indonesia today sits 16th in the GDP rankings, accounting for 1.21 percent of the global economy.
This, by and large, can be attributed to economic growth that has averaged 5.6 percent during the past decade. However, there are concerning signs that Indonesia might be stuck at a 5 to 5.2 percent growth rate, falling short of the 7 percent target set in 2014 when Joko took office. A 7 percent growth rate would double Indonesia’s GDP in the next 10 years; finally, a middle-income country with a GDP per capita upwards of $6,000 per annum. The question before all of us is how to get it done. What path should Indonesia take to become the economic power President Joko envisioned before our centennial in 2045?
There has been much discussion about the roles of consumption, investment, government expenditure and trade balance in GDP growth. So, too, the impact of labor productivity, poverty reduction and health on economic development. While they are, without question, worth contemplating, these concepts lack spatial context. Economic development does not occur in a vacuum. In fact, economic development has been inextricably linked to urbanization; more urbanized countries tend to have higher levels of income. Indonesia is no exception. World Bank estimates indicate that jurisdictions with a larger share of urban population tend to be more prosperous. However, the same study found that Indonesian cities underperform their global peers – most notably their Malaysian cousins. In other words, at the current level of urbanization, the Indonesian economy should be performing better. This indicates that while we are doing quite well, we could do a lot better if we managed our cities better.
Urban mobility manifesto
At the core of the urban economy, in my view, is urban mobility. The urban economic engine relies on the concentration of productive activities, spatially interrelated in a web of agglomerative forces, where, in oversimplified terms, firms compete for the most productive workers. These workers, who are nested in households, trade off commuting costs with housing consumption and other goods. Herein lies the underappreciated role of urban mobility. Robust economic growth demands high labor productivity, one that does not spend inordinate amounts of time stuck in traffic. As important as education is to labor productivity, and while education and health tend to get better with the economy, traffic conditions flow in the opposite direction.
As income grows, households can afford higher-quality education and health care. At the same time, holding household size and other idiosyncrasies equal, they typically want larger housing, which comes cheaper away from city centers where top-paying firms colocate. Holding wages equal, the compensating differentials accrue in commuting costs. At the end of the day, workers who prefer larger single-family housing will have to drive farther out from the city compared to their peer earners who don’t mind getting crammed into an apartment complex a hop and a skip from the office.
Motorization – the growth of vehicle purchases per capita – is one way that increases commuting costs manifestly. A household preference for large lot housing implies lower-density neighborhoods, giving rise to sprawling suburbanization. Suburbia is typically car-dependent because transit service is less
likely to provide a viable alternative when patronage is low. Unfortunately, high-density housing does not necessarily abate motorization. Poor walkability in high-density (and often substandard) neighborhoods nudges Indonesian households to purchase motorized two-wheelers that are much cheaper than a four-passenger car. These motorization trends are worryingly prevalent in much of booming Asia.
We also know that we can’t pave our way out of congestion. Studies have shown that building more road lanes induces more car trips, often at the expense of pedestrian safety and overall quality of life. Motor fuel subsidies, as we all know, only exacerbate the distortion. They incentivize workers to live farther out, buying larger homes at the expense of farming and agriculture, drive and, in effect, pollute
more each day. The consequences of unabated motorization can’t be more dire in Jakarta, where combustion engine vehicles account for upwards of 75 percent of air pollution. Babies born in Jakarta’s hospitals are breathing, quite literally, the worst possible air in the world. How can we expect our labor force to be globally competitive in the future when we deprive our children of clean air? In my view, car-dependency does not signal progress. On the contrary, it indicates a dead-weight loss in the economy.
This much is clear: decoupling economic growth from traffic congestion, and its attendant externalities, is essential to achieving our development goals. Going forward, urban mobility planners will have a much bigger task than previously understood.
From crisis to cure
Urban mobility in Indonesia is in severe crisis. Indonesian cities are no exception to the development patterns in much of booming Asia, where income growth is giving rise to suburbanization and increasing motorization. Each year, at least one million new cars and upwards of six million new motorcycles hit the already congested roads. According to the World Bank, tailpipe emissions from urban transportation in Indonesia accounts for 78 million tons of CO2 each year, putting Indonesia sixth on the list of world’s largest emitters of greenhouse gases.
The corresponding social-environmental cost is estimated at $2.8 billion (Rp 39 trillion). The health impact of pollution in Jakarta was estimated at more than $200 million in 2004, and traffic congestion cost the urban economy $916 million in loss of time value, wasted fuel and deterioration in quality of life. The national development agency estimated that the economic loss due to congestion in Jakarta is around $4.6 billion, or roughly 72 percent of the Jakarta provincial government’s total annual budget. In all, the average commute time in Jakarta is twice that of Tokyo.
The damage does not stop there. In Jakarta, where motorcyclists behave as if they are exempt from the “rule of traffic law,” the resulting chaos is a deadly carnage. Some motorcyclists are too young to ride, are riding dangerously above the speed limits, sometimes without the protection of helmets and, most notoriously, encroach on sidewalks at the expense of innocent pedestrians. It is outrageous that riding on the wrong side of the road has become a common occurrence. Along with texting while riding, this incivility seems to escape enforcement. According to data from the National Police, the sheer disregard of common-sense safety regulations corresponds with more than 98,414 traffic accidents across Indonesia in 2017 – an average of 270 accidents per day. These accidents, of which the highest proportion involved motorcycles, claimed 24,213 lives and injured a further 16,410 people.
With few exceptions, public transportation is not attractive. Pedestrians lack safe access to
high-quality transit options. Conflict on urban road space is fierce as pedestrians, bicyclists and motor vehicle users jostle for right of way, leading to increased unequal fatality risks for pedestrians and transit users. The situation is worse for vulnerable members of society: women, children, the elderly and people with disabilities.
Off to a good start
The good news is President Joko and his team are up to the task. In the capable hands of Bambang Brodjonegoro, the national planning agency, or Bappenas, has prepared a technocratic draft of the 2020-24 Medium- Term National Development Plan. The plan recognizes the strategic role of urban
agglomeration as an economic engine. In 2017, six metropolitan areas accounted for 41 percent of the national economy, and this number is expected to grow as more Indonesians call a city home. Since 2012, the median Indonesian is urban. According to the Central Bureau of Statistics, in 2015 54 percent of Indonesians lived in cities. That number is projected to go up to 67 percent and 73 percent by 2035 and 2045, respectively.
The planning agency also recognizes that, compared to peer global cities, investment in urban mobility infrastructure is not quite where it needs to be. Jakarta had just opened its first 10 miles of a high-tech Mass Rapid Transit line in April, whereas Singaporeans, who have been riding since 1987, today enjoy a network of 125 miles of grade-separated urban rail. Workers in Hong Kong and Tokyo are served by 116 miles and 189 miles of a comparable high-quality rail network, respectively. This corresponds with the modal share of public transportation in these cities. Less than 20 percent of trips in Jakarta, Bandung and Surabaya are made on fixed-route transportation modes, compared to 61 percent in Singapore, 51 percent in Tokyo and 92 percent in Hong Kong.
Bappenas has identified four key focus areas in addressing the investment backlog. First, cities rarely have coherent urban mobility plans in place. Until recent years, cities were overly reliant on entrepreneurs to design, plan and operate bus routes. All the while, unreformed transportation agencies seem to be content with reaping concessions from these smallscale private operators, and often run as an informal business with virtually zero financial management. The main issue with this scheme is that bus operators are not reliable socialplanners; they do not have society’s best
interests in mind.
When privately operated, bus services tend to be undersupplied in less dense areas and are oversupplied in areas where demand is dense. In both areas, service is likely to be offered at a lower quality, minimizing costs to the point it is no longer attractive to those with access to private vehicles. In turn, this results in a rapid decline in ridership and revenue, forcing operators to lower costs even further. In response, more and more people will consider purchasing and using private vehicles for their daily commute. It doesn’t take long before this vicious cycle turns cancerous.
This laissez-faire approach to “privately provided” public goods does not work because fixed-route
transportation exhibits strongscale economies. As such, economists have long predicted that unfettered competition in the urban bus industry will not yield socially desirable outcomes. Coherence in urban mobility plans must begin with wholesale reform in the bus industry. Bus operators shall no longer operate as informal businesses, and nor can cities continue to extract rent from operators in the form of route licensing. In fact, municipalization – city ownership of bus operations – offers a promising future.
This approach allows for centralized route planning, equitable and sustainable fare-setting, and service integration, and can effectively reverse the aforementioned vicious cycle. Stronger control over transit services also allows urban planners to better shape their cities. However, maintaining a high-quality service at an affordable price may require substantial subsidies. This brings us to the second key focus area.
The second challenge that needs to be addressed is fiscal in nature. One of the fundamental problems in promoting sustainable urban mobility is that public transportation does not typically generate
sufficient revenue to cover its capital and operating costs. Municipalities, even after two decades of considerable autonomy, typically lack the fiscal resources to finance and fund high-quality bus services. At the heart of this issue is the lack of creativity and economic planning capacity at the city level.
Cities can and should be able to generate revenues in ways that are socially equitable and acceptable to private businesses. Investments in high-quality public transportation are not only beneficial to fare-paying passengers, they also benefit property owners indirectly through improved access. As such, they too should contribute to funding public transportation infrastructure through property taxes, betterment levies and other land-value capture mechanisms. According to a study by the Asian Development Bank, the biggest financing gap in the public sector comes from transportation infrastructure. Land value capture mechanisms are appropriate because they give the benefit of a land price uplift back to the public. In other words, under these mechanisms, property owners are paying their fair share of urban amenities procurement.
Another stream of revenue should flow from users of private motor vehicles, this time under the polluter-pays principle. Motorists should bear charges designed to internalize the attendant externalities of their driving in the form of air pollution, congestion and noise. Since driving is proportional to fuel consumption, full implementation of these concepts will require substantial reform in our energy and fiscal policy. Fuel should be taxed, not subsidized. Taxing vehicle ownership is a poor substitute for fuel taxation. Under the former, owners are charged a fixed annual fee for the vehicle regardless of the amount of driving and subsidized fuel they consume. This creates a perverse incentive for overusing your vehicle at the expense of society in general.
Finally, cities should reform their parking policies. City managers must understand that public parking is a misnomer. While there is a myriad of issues, the first step is to acknowledge that underpricing and non-enforcement of parking infringements are hidden subsidies benefiting motorists. Instead, parking should be priced to reflect the resource-inputs: scarce urban land, especially in cities’ central business districts. Flat parking fees do not reflect this scarcity, and as such do not offer any incentive for commuters to park their cars at the nearest station and continue by transit to their downtown destinations. The good news is some cities have made strides by imposing parking maximums on office and retail buildings to discourage driving. The logical next step is subjecting parking to levies that are inversely proportional to the distance from transit stations. This policy sets in motion a virtuous cycle where more riders will use public transit, generating more direct revenue in the farebox. Transportation planners and engineers have long proposed these policies as demand management measures.
Third, urban mobility improvements have to overcome trans-boundary administrative issues. While urban agglomeration does not respect jurisdictional boundaries, decisions that affect urban mobility are confined within municipal polities. Agglomeration areas are characterized by close economic and social linkages, between core employment clusters and residential neighborhoods. The geographical scope of these linkages often reaches beyond the jurisdictions of individual municipal governments. This implies that no single municipality has the tools to address all the challenges and opportunities within an agglomeration area on its own.
Urban mobility is no exception. Officials representing low-density, car-dependent suburbanites do not have the incentive to alleviate congestion downtown. Conversely, officials representing the metropolis core lack the legal authority to extend transit investment beyond their jurisdictional boundaries, even when they have the resources to do so. The resulting distortion is a hairpulling frustration; resources that could have otherwise been put into good urban mobility uses had to be spent on lesser priorities, leaving both suburban voters and their urban peers worse off.
This known problem is not without cure. Models of and approaches to bottom-up metropolitan area governance exist. The task at hand is to explore which model is best suited for our cities. At this point, it suffices to say that the current top-down setup, where the socalled transportation authority answers to the minister of transportation instead of elected officials from subnational and municipal entities, does not work. This brings us to the final key area: the role of the Indonesia government in urban mobility.
National urban mobility policy
The final question is about the role of national government in the whole scheme of things. Historically, Bappenas has had a strong central planning function in Indonesia. Working closely with the Ministry of Finance, Bappenas is responsible for preparing development plans and budgets and maintaining technical relationships with sectoral ministries. At the national level, at least in theory, urban mobility is the responsibility of two ministries: the Ministry of Transportation and the Ministry of Public Works and Public Housing. In reality, they have tended to work with minimal interface.
At the subnational level, this has resulted in difficult communication among the transportation agencies that deal with public transportation and traffic management and the public works agencies that are responsible for roads and sidewalks. No one is assuming the leadership role in providing subnational and municipal governments with a coherent framework for urban mobility planning.
Several elected mayors with strong visions for urban mobility have been able to repair the national disconnect within their own jurisdictions, pushing forward an integrated approach toward urban mobility improvements. However, cities typically lack the fiscal resources to implement these plans and are likely to rely on national government funding in some way, shape or form. Given the role of cities as economic engines, national funding for urban mobility is justifiable. In this regard, a national policy on urban mobility would provide a strategic vision on how mobility needs will be fulfilled sustainably, and a framework to enable and strengthen the capacity of cities to plan, finance and implement urban mobility projects. That is, to deliver all the above.
In closing, we Indonesians have much to be hopeful about. We have made large strides in infrastructure development in the last five years and are looking forward to more in the next five. We have a big economic agenda for our 2045 centennial and, to that end, we need to re-energize our most formidable economic engines: our cities. This, as I have argued, translates to keeping the diseconomies of agglomeration at bay and investing in high-quality public transportation infrastructure. For urban mobility planners in Indonesia, this would be a role of a lifetime.