15 years of new growth economics: what have we learnt?

I want to highlight a few passages from Xavier Sala-i-Martin's paper titled "15 years of new growth economics: what have we learnt?" 

"Abstract
Paul Romer’s paper Increasing Returns and Long Run Growth, now 15 years old, led to resurgence in the research on economic growth. Since then, growth literature has expanded dramatically and has shifted the research focus of many generations of macroeconomists. The new line of work has emphasized the role of human capital, social and political variables, as well as the importance of institutions as driving forces of long-run economic growth. This paper presents an insight into the theoretical and empirical literature of the past fifteen years, highlighting the most significant contributions for our understanding of economics."

A good part of the paper discusses the technicalities of economic data modeling. While interesting, they are not the key teachings I wanted to bring out in this blog entry. 
I only quoted the parts which are my key takeaways...

First quote:   "The cross-country regression literature is enormous: a large number of papers have
claimed to have found one or more variables that are partially correlated with the growth rate: from human capital to investment in R&D, to policy variables such as inflation or the fiscal deficit, to the degree of openness, financial variables or measures of political instability. In fact, the number of variables claimed to be correlated with growth is so large that the question arises as to which of these variables is actually robust.
Some important lessons from this literature are:

1. There is no simple determinant of growth
2. The initial level of income is the most important and robust variable (so conditional convergence is the most robust empirical fact in the data)
3. The size of the government does not appear to matter much. What is important is the “quality of government” (governments that produce hyperinflations, distortions in foreign exchange markets, extreme deficits, inefficient bureaucracies, etc., are governments that are detrimental to an economy)
4. The relation between most measures of human capital and growth is weak. Some measures of health, however, (such as life expectancy) are robustly correlated with growth
5. Institutions (such as free markets, property rights and the rule of law) are important for growth
6. More open economies tend to grow faster"

Second quote:
   "Notice that since technology is non-rival, it must be produced only once (once it is
produced, many people can use it over and over). This suggests that there is a large fixed cost in its production (the R&D cost), which leads to the notion of increasing returns. The average cost of producing technology is always larger than the marginal cost. Hence, under perfect price competition (a competition that leads to the equalization of prices with marginal costs), the producers of technology who pay the fixed R&D costs will always lose money. The implication is that in a perfectly competitive environment, no firm will engage in research. Put another way, if we want to model technological progress endogenously, we need to abandon the perfectly-competitive-pareto-optimal world that is the foundation of neoclassical theory and allow for imperfect competition. And this is another contribution of the literature: unlike the neoclassical researchers of the 1960s, today’s economists deal with models that are not Pareto optimal."

Third quote:
   "The new growth models of technological progress have clarified some important issues
when it comes to R&D policies. Perhaps the most important one being that, despite market
failures (because of imperfect competition, externalities, and increasing returns), it is not at all obvious whether the government should intervene, what this potential intervention should look like and, in particular, whether it should introduce R&D subsidies. This is important because there is a widespread popular notion that countries tend to underinvest in technology and that the government should do something about it. The models of R&D highlight a number of distortions, but it is not clear that the best way to deal with them is to subsidize R&D. For example, the one distortion that is common across models is the one that arises from imperfect competition: prices tend to be above marginal cost and the quantity of ideas generated tend to be below optimal. The optimal policy to offset this distortion, however, is not an R&D subsidy but a subsidy to the purchases of the overpriced goods.
(...)
The main point I wish to highlight is that, although the new generation of growth models
are based on strong departures from the old pareto-optimal neoclassical world, it is not obvious that they call for strong government intervention and, when they do, it is not obvious that the intervention recommended coincides with the popular view that R&D needs to be subsidized."

Fourth quote:
   "Another important lesson we have learned from the new economic growth literature is
that “institutions” are important empirically and that they can be modeled. By “institutions” I
mean various aspects of law enforcement (property rights, the rule of law, legal systems, peace), the functioning of markets (market structures, competition policy, openness to foreign markets, capital and technology), inequality and social conflicts (the relation between inequality and growth has been widely studied)13, political institutions (democracy, political freedom, political disruption, political stability), the health system (as previously stated, life expectancy is one of the variables most robustly correlated with growth), financial institutions (like an efficient banking system or a good stock market) as well as government institutions (the size of bureaucracy and red tape, government corruption).

   Institutions affect the “efficiency” of an economy much in the same way as technology
does: an economy with bad institutions is more inefficient in the sense that it takes more inputs to produce the same amount of output. In addition, bad institutions lower incentives to invest (in physical and human capital as well as technology) and to work and produce.
(...)
   Although the new economic growth literature has quantified the importance of having the
right institutions, it is still at its early stages when it comes to understanding how to promote
them in practice. For example, the empirical “level of income” literature mentioned above has demonstrated that the “institutions” left behind in the colonies directly affect the level of income enjoyed by the country one half century later: colonies in which the colonizers introduced institutions that helped them live a better life in the colony, tend to have more income today than colonies in which colonizers introduce predatory institutions. This seems to be a robust empirical phenomenon. However, it is not clear what the lessons are for the future. In other words, can we undo the harm done by the “colonial predators” and, if so, what can we do and how can we do so.
Although these are important questions currently being dealt with in the literature, the answers are still unclear.

   Indeed, we are still in the early stages when it comes to incorporating institutions to our
growth theories. Empirically, it is becoming increasingly clear that institutions are an important
determinant of growth."

"15 YEARS OF NEW GROWTH ECONOMICS: WHAT HAVE WE LEARNT?"

Working Paper #172, Central Bank of Chile, July 2012
Xavier Sala-i-Martin, Columbia University and Universitat Pompeu Fabra

Cities are the engine of economic, social, and cultural progress

Here are a few interesting articles and research papers on the economic angle of one of my favorite subjects; the link between urbanization and economic, social and cultural progress.

URBANIZATION AND THE WEALTH OF NATIONS
2008, David E. Bloom, David Canning, Günther Fink, PGDA Working Paper No. 30
"The proportion of a country's population living in urban areas is highly correlated with its level of income. Urban areas offer economies of scale and richer market structures, and there is strong evidence that workers in urban areas are individually more productive, and earn more, than rural workers. However, rapid urbanization is also associated with crowding, environmental degradation, and other impediments to productivity. Overall, we find no evidence that the level of urbanization affects the rate of economic growth. Our findings weaken the rationale for either encouraging or discouraging urbanization as part of a strategy for economic growth."
http://www.hsph.harvard.edu/program-on-the-global-demography-of-aging/WorkingPapers/2008/PGDA_WP_30.pdf

THE PRODUCTIVITY OF CITIES 
1975, Leo Sveikauskas, The Quarterly Journal of Economics
"This paper examines one possible reason for the prevalence of large cities; we consider the possibility that productivity may be systematically higher in large urban centers.' The empirical evidence indicates that a doubling of city size is typically associated with a 5.98 percent increase in labor productivity. These productivity gains are likely to be a central influence on the existence and prevalence of large cities."
http://qje.oxfordjournals.org/content/89/3/393.full.pdf

SETTLEMENT SCALING AND INCREASING RETURNS IN AN ANCIENT SOCIETY
2015, Scott G. Ortman, Andrew H. F. Cabaniss, Jennie O. Sturm, Luís M. A. Bettencourt, Science Advances
"A key property of modern cities is increasing returns to scale—the finding that many socioeconomic outputs increase more rapidly than their population size. Recent theoretical work proposes that this phenomenon is the result of general network effects typical of human social networks embedded in space and, thus, is not necessarily limited to modern settlements. (...) these results provide evidence that the essential processes that lead to increasing returns in contemporary cities may have characterized human settlements throughout history, and demonstrate that increasing returns do not require modern forms of political or economic organization."
http://advances.sciencemag.org/content/1/1/e1400066

NEW IDEAS IN THE AIR: CITIES AND ECONOMIC GROWTH
2014, GERALD A. CARLINO, Business Review
"While many factors contribute to growth, economists believe that educating workers plays a critical role. (...) For example, the collaborative effort of many educated workers in a common enterprise may lead to invention and innovation that sustains the growth of the enterprise. Some economists believe there is an important link between national economic growth and the concentration of more highly educated people in cities.These economists argue that the knowledge spillovers associated with increased education can actually serve as an engine of growth for local and national economies. They also argue that the concentration of people in cities enhances these spillovers by creating an environment in which ideas flow quickly amid face-to-face contact."
http://www.philadelphiafed.org/research-and-data/publications/business-review/2014/q4/brQ414_new_ideas.pdf

DO BIGGER CITIES CONTRIBUTE TO ECONOMIC GROWTH IN SURROUNDING AREAS?
2011, Yan Liu, School of Economics, Fudan University. Xingfeng Wang, China Academy of Urban Planning & Design. Jianfeng Wu, School of Economics, Fudan University
"This paper focuses on the role of city interaction in influencing local economic growth using county-level data in China. (...)The empirical evidence in this paper illustrates that higher-tier cities have positive effects on economic growth for nearby counties, suggesting the dominant growth spillover effect over agglomeration shadow effect. This analysis also reveals the negative effect of institutional barriers associated with spatial deprivation and local protectionism on the interrelationship between a higher-tiered city and its neighboring counties."
http://www.ires.nus.edu.sg/researchpapers/Visitors/Do%20Bigger%20cities%20Contribute%20to%20Economic%20Growth%20in%20Surrounding%20areas.pdf

Reducing Potentially Excess Deaths from the Five Leading Causes of Death in the Rural United States
Garcia MC, Faul M, Massetti G, et al. Reducing Potentially Excess Deaths from the. MMWR Surveill Summ 2017;66(No. SS-2):1–7. DOI: http://dx.doi.org/10.15585/mmwr.ss6602a1
"In 2014, the all-cause age-adjusted death rate in the United States reached a historic low of 724.6 per 100,000 population (1). However, mortality in rural (nonmetropolitan) areas of the United States has decreased at a much slower pace, resulting in a widening gap between rural mortality rates (830.5) and urban mortality rates (704.3)
(...)
Barriers to health care access result in unmet health care needs that include, but are not limited to, a lack of preventive and screening services, treatment of illnesses (25) and timely urgent and emergency services (26). Residents of rural areas experience many of these barriers. Specifically, rural counties in the United States have a higher uninsured rate (27); experience health care workforce shortages (approximately only 11 percent of all physicians choose to practice in rural settings) (28); often lack subspecialty care (e.g., oncology), critical care units, or emergency facilities (29); have limited transportation options; and experience longer time to services caused by distance (26). Differential access to quality health care (25), including timely access, likely contributes to rural-urban gaps in mortality rates and potentially excess deaths. For example, persons with CLRD and unmet health care needs in rural areas can experience serious life-threatening respiratory episodes, and the lack of timely access to emergency care could affect survival"
https://www.cdc.gov/mmwr/volumes/66/ss/ss6602a1.htm

Opinion piece: Big consumer electronics vendors in search of the next gizmo

Big consumers electronics vendors are in search of the next gizmo that will drive-up revenues. Looking at the past few years in tech, it seems that many don't know how to introduce technology nor what makes it great for their target customer. Let's start by listing a few examples.

Curved screens

Let's give them a curved TV and curved phones, because we can, and because there's an odd chance people may find them cool. This was a failure from the get-go and the reason for it is quite simple; the designers and marketing guys didn't focus on answering the primordial question; are we significantly improving the user experience with this product?
The answer is a resounding no and here are a few reasons why:

• A curved screen doesn't significantly enhance the viewing experience; large TVs are still used in the living room where they are watched by more than one person, which defeats the purpose of a curved screen that requires the viewer to sit at a special focal point to be most effective. For smartphone screens, it just is too small to make any difference whatsoever
• A curved TV screen imposes a configuration of the environment surrounding it instead of the other way around: a curved screen has a narrower viewing angle which means furniture will need to be placed accordingly. Furthermore, the screen almost needs to be placed on a pedestal (it looks silly otherwise) which prevents or makes it cumbersome to use any kind of wall framing. This rigid framework is too limiting for most people
• Seems that the hard-curved screen goes against the other trend of providing ever thinner screens. A curved screen is by definition going to be requiring more depth or real-estate

• Existing protective covers no longer fit on that fancy curved smartphone you just bought. Quick personal branding is more difficult

The technology itself does have its applications: computer monitors may benefit from 180 degrees screens, the obvious Imax-type theaters were the screen can surround a large audience, soft-screens which be easily customized to their physical environment, etc. Similarly, for applications such as a watch face, a curved screen makes sense. But as a mass market TV or smartphone element, curved screens were dead-on-arrival. Hint Samsung: your S6-edge smartphone will fail if the only differentiation from the regular model are the curved edges.

3D screens and movies
A screen that has a reduced resolution, viewing angle, and/or requires goggles. Is the experience significantly enhanced by being 3D? Not for a fixed-plot story... Videogames will benefit significantly as the player is immersed in an universe it interacts with, and a visual story-line created in real-time (VR-headsets will be successful), while a movie/TV is a linear and 3rd person medium where 3D detracts from the narrative. Unless the plot is strictly eye-candy, in which case it is a sub-market which may or may not justify the premium.

Smart watches

My question for the big consumer tech vendors is; when are you going to make one?
I would argue that the current Samsung/LG/Motorola/whathaveyou smartwatch offerings are not smartwatches at all. That is, they are not watches that are smart. They are smartphones with a wristband. Because they lost the essence of what a watch is; to tell time in the easiest, prettiest and/or ruggedest way possible.
I mean easiest in the largest possible sense of the word; a watch that you don't have be concerned about. You should be able to put it on in the morning and not worry about it being scratched, being destroyed because you forgot to take it off in the shower, being unable to read time because of viewing angle/abundance or lack of light. And certainly not have to fiddle with it to get the very basic of its function... giving you the current time!

What comes closest is still the Pebble which has not compromised on being a watch for the sake of becoming a smartphone-on-a-wrist.

Now, maybe it will be that consumers will make the shift and ditch watches altogether and replace them all by smart-wrist-gizmos, but I doubt it.

Apple might have done it by appealing in to the very highest segment with super-premium, uber-expensive watches. But then, the question is whether a smart-watch will have the same appeal and timelessness as a proper "dumb" timepiece. Provided that in 5 years, a smartwatch you bought today will have zero residual value, and when compared to a proper "time-piece" which is likely to increase in value with time, I would say it is highly unlikely...

The race to increasingly ludicrous smartphone pixel density

The meaningful limit on the number of pixels that makes sense to put on a screen should, at least in theory, be what your eyes can see. I would argue that it translates to about 200 pixels per inch. This is plenty to make any curved or diagonal line appear smooth as if drawn (as opposed to being made of little square-ish dots).
That limit was reached with full HD screens for smartphones of size around 5 inches. But when the 4k screen technology became available, big tech decided to package it into their phones as a differentiator. The results is that customers get very little additional viewing benefits, yet have to pay the price in terms of battery consumption, reduced performance, and higher cost.
I see little evidence that demand has supported 4k smartphone screens. True, users keep buying those newer phones but they are also doing so for a myriad of other reasons.

Smart wear
2014 saw the "failure" of Google Glass. I double-quoted failure because Google Glass didn't fail to provide compelling enough technology. Being able to see, at a quick glance, which restaurants surround you (with superimposed reviews, menu highlights, then make a reservation by looking at it), receive a warning that you are about to cross a street and  there's a car coming, automatically and transparently translate a foreign language ... Those are all very desirable and marketable applications of smart-glasses. Having an augmented reality environment is something that will eventually become mainstream in one form or another. It is not a question of "if" but rather one of "when" and in what form. The problem is that Google Glass failed to provide it in a container that customers wanted. The glasses portion was mostly a support for a bulky computer and screen. It screemed "nerd"!

Any wearable is a reflection of the person wearing it. No matter how cool the technology may be, it also needs to be visually acceptable to the person wearing it.

To be fair to Google, greenfield inovation always need some tweaking and there are indications that they will come back with a better end-user product soon.

Technology for the sake of it won't drive demand

In all the examples above, we see big tech pushing for technology for the sake of it, seemingly without asking itself some basic marketing questions about demand, in the hope that something sticks. That sometimes work. Most often it doesn't.

I am not saying that technology cannot be its own driver for customer demand, it can and it has (numerous times) in the past. We can think of Apple introducing the iPhone; it provided a compelling technological solution to a world need that was mostly created. So did Facebook. There are countless others...

The difference is that between a successful technology push and a failed one is those key questions that should always be answered as part of a go-to market strategy:

• Who's going to use our product?
• Why are they going to use it?
• How enhanced is the user experience of this technology? (in terms of enjoyment and ergonomics)
• What is the image/branding of this technology? And does the branding conflict with the values and personal branding of our target customer? (the projected image; that is, what the promoter of technology intends, and the experienced image; what the product makes one feel)
• Are there a lot of people who are likely to be interested by and buying that technology, and at what price-point (can we build it at that price?), and how do we find out?

Apple has been quite good at this fine balance of design-marketing and technology. Their branding is so good that they can release average products (iPhone 5) and still command a huge premium... and adulation. But that's another story...
Tesla Motors is another example of this fine balance. Tesla didn't just make an electric car because technology was available, as many other vendors have; they understood that to command the premium that electric cars do, they had to make not only a premium branded car, they had to make the sexiest, best darn car you can buy for that price.

Looking ahead... If I apply the same trends and questioning in a forward-looking manner, I would venture to say that we'll see the following over the next few years:

• 8k screens which will be successful for TVs, 4k might be abandoned for smartphones (or become so cheap that there's no cost incentive in offering lower resolution)
• 16k screens will be tried and will fail for mass consumption. There is no life beyond 8k
• Augmented reality contact lenses. Should have some success if the ease of use can be dealt with (basically, putting them on)
• 3D TV screens will go the way of the Dodo. And hopefully in theaters too
• Modular smart wear-ables; smartbands with standard-size easy clips to an existing watch, with dedicated functions (GPS, camera, heart monitor, etc). Bands that will attach to other body parts for activity specific functions (running, hiking, swimming, etc). Essentially, we'll see the equivalent of Project Ara for wear-ables.

Blog mergers and somewhat new direction...

Blog mergers and somewhat new direction...

I merged my Quebec/Hong Kong blog into this one. Not that I may post more often, but the content was similar albeit more subject focused for Quebec/Hong Kong.

However, I also want to post content where opinions and hypothesis have a greater place now and then...

JC

STM vs MTR; mass transit can work, and how Montreal could do better

Having lived and worked many years in Canada and then Hong Kong, I have been able to get what I believe is a deep understanding of what really makes mass transit a true alternative to cars.
I can only think of two group of people that would chose one mode of transportation over the other, everything else being equal: people who prefer driving over being driven for the sheer enjoyment of it, and people who will use mass transit no matter how inefficient it is as a matter of principle.
I believe those cases to be marginal.
I believe that when given equal choices, people will chose a mode of transportation that (in order of desirability):

1. Gives them independence of movement, implying:
   a- can get anywhere they want or need to be (work, home, recreation, shops)
   b- can do so reliably and predictably
   c- can do so efficiently (ie. quickly)
   d- can do so without requiring advance planning
2. Won't expose them to additional risks or inconveniences:
   a- is safe
   b- won't expose them to vagaries of nature (cold/hot/rain/snow/etc)
   c- will shield them from vagaries of the transportation system (modal shift, payment modalities, lack  of comfort, etc) 
3. Is cheapest for the individual, or at least, within what they can afford
4. Align with their values (protecting the environment, sharing, etc) and lifestyle (individual, outgoing, importance of ownership, social class distinction, etc)

I also believe that failure to acknowledge that the first two points trump the third is one key reason for under-performing mass-transit system. Another one is the over-emphasis of the fourth point in promoting one mode of transport over the other.

Comparing Hong Kong and Montreal can give us great insight as to what works and doesn't in building a successful mass-transit system (in this case, our focus is on the subway). Note that I picked both because I know them. Hong Kong just happens to be the most efficient mass transit system in the world. Montreal is middle of the road.

Hong Kong's mass-transit has been the natural option as the land-mass is small and urban development is constricted by its landscape. So, while we will see later that judicious mass-transit development choices were made, geography has forced efficient use of land, conducive to mass-transit.

40% of Hong Kong's territory is occupied by country parks which are not and cannot be developed

The vast majority of Hong Kong is mountainous, which has forced development in valleys, naturally lending itself to rail transit.

On the other hand, Montreal is mostly flat land with little natural obstacles to urban development and sprawl, making it difficult to service with efficient mass-transit.
So while a lot of the new development in Hong Kong is dense as a matter of necessity, it is less so in Montreal as a matter of choice and development costs.

But while Hong Kong's topography gave it a mass-transit edge, deliberate choices made it the most transit-efficient place in the world. The MTR corporation is entitled to develop and profit from areas surrounding its train stations. In return, development around its stations ensures a critical mass of users for its transport operations. The integrated functions of development of rail, housing, commerce and offices, combined with the limited government red-tape in approval of projects generates of virtuous circle which has led to the development of mass-transit facilitating initiatives such as:

• development of elevated, covered walkways segregating pedestrian from car traffic, ensuring fluid and safe traffic flow for both, and protecting pedestrians from the elements when transiting between their home an the MTR network, or to work
• development of transport hubs over or under the train stations
• development of commerce/office hubs over or under the train stations

The shops, offices, apartment buildings within 500m of stations become destinations in themselves while in Montreal, the stations are merely entry points in and out of the transit network.

From top-left, clockwise: Hong Kong elevated walkways map, examples of walkways in Central and Mongkok, and a 3D map of the protected pedestrian network around the IFC mall in Central

In contrast, the Champs-de-Mars station, in downtown Montreal is isolated, sparsely developed, and has weak connections to workplaces, entertainment, housing, shops within a 500 meters radius

Similarly, in one of the densest area of Montreal, the Mont-Royal station, while architecturally attractive, has a single function of in-out gateway to the Metro, with no development above, little in the way of shops, and virtually no connectivity to work within 500m. While there is decent amount of housing within those boundaries, there is no protected direct connectivity with the Metro

As we move farther from downtown Montreal, the situation gets worse. The Rosemont station has a parking and significant space that can be better leveraged as TOD (transit-oriented development)

In contrast, even Hong Kong's Fanling station, about 20 km north of what could be referred to as "downtown", still maintain the same TOD principles; housing, recreation and commerce (in red) directly connected to the station (in green), and serving as a transportation hub for collector buses, mini-buses, and taxis(1)

Another example, in Ma On Shan, a remote area of Hong Kong.
High density housing, leisure, commerce within 500 meters

In fact, in 2012, 43% of Hong Kong's population, and 57% of its jobs, were within 500 meter of a MTR station, compared to 22% & 43% in London and 25% & 37% in NewYork. Although I do not have the statistics for Montreal, we can suppose it would be lower than any of those cities.
When taking into account that the metro service is complemented by bus and mini-buses networks which feed it, it is no a surprise that 90% of all motorized journeys are completed via public transport in Hong Kong.

Another virtuous circle created by density and use is the convenience related to the frequency of service; in order to handle the volume of people caused by high use of the network at any hour of the day, the passenger collection frequency needs to be high. This ensures, in return, a great user experience as wait times are short (usually less than 4 minutes) and journey time planning unnecessary (as it is constant each time).

For anyone living in Hong Kong, it becomes rapidly evident that not only is your workplace and home close to a MTR, everything else in your life is; markets, grocery stores, movie theaters, restaurants, art center, etc. There is truly no place that you may want to go in Hong Kong that is not reachable by mass-transit. Mass-transit de-facto becomes an alternative to the car. The same cannot be said of Montreal.

Last but not least, I believe that Hong Kongers market-driven spirit has also played a big-part in the ultimate success of MTR Corporation: while in Montreal, the profit motive is virtually existent, it is at the center of the operations of MTR Corporation. This is not meant to say that MTR Corp doesn't take the needs of the population and its core mission to move people, but rather, its structure and impetus promotes fiscal efficiency; the Hong Kong government gives it a social direction (I would say, the "collective strategy") as a majority shareholder, and the private operator gives it its drive and efficiency (the profit motive). Even the MTR's. I doubt that the Octopus payment would have seen the light of day and taken the amplitude it has without that market-driven spirit. Fiscal and system efficiency go hand in hand and it is only logical that at one point, the payment system for your daily transit would also extend to most of your daily activities, as the Octopus card does.

So, now that we have briefly compared both systems in terms of the benefits they deliver to their users, what about the costs?

MTR Corp is highly profitable...

... while the STM is not. And it is not getting any better, even as usage is forecast to increase

As those charts from MTR and STM's financial reports attest, the fiscal differences are important. Not that this is a problem specific to Montreal; many occidental cities have let their mass-transit systems become engines of highly protected job creation, rather than keeping to the unique vision of efficient transportation.

Cost of staff compared (HKD)

The chart above (my calculations based on 2012 financial and activities reports of the various transit corporations) clearly highlight the staff cost structure differential; it costs about 2.6 times more to offer the same service in Montreal as it does in Hong Kong.

Unless human resources costs are reigned in, there's little advantages in increased ridership, which is opposite to the very concept of mass-transit.

In conclusion, here are my recommendations for Montreal:

• Change the corporate culture at STM (might have to be privatized to achieve such goal) so as to focus on the goals of fiscal and system efficiency as well as increased ridership. 
• Reign-in operational costs of its system so as usage increases, cost per passenger can and should actually go down instead of staying constant or worse, increasing. There are many ways to achieve this, including increased competition and automation
• Target a minimum level of workplace, commerce, recreation and housing within 500 meters of any Metro station.
• Grant the development privilege around metro stations to private developers so that development is market-driven, to respond to a true demand rather than social-engineering
• Streamline the approval/development process so as to make turnaround time on projects shorter and more accessible to smaller developers, thereby fostering increased competition and lower development costs
• Explore ways to further facilitate the development of measures making the system more competitive to car ownership in terms of comfort, convenience, safety and protection from the elements (rain, snow, extreme temperature) by making it easier to build protected links between the various modes of transportation, stations. Sky bridges, underground Montreal extension, sheltered bus stops
• Zero-tolerance and immediate action for behaviors such as graffiti-making, begging, littering, loitering, destruction of property. A clean metro projects a sense of safety. Until a culture of respect for shared-use property exist, why not crowd-source the supervision? (ie. install web cameras and have the public report infractions in real-time). The key to change is not the severity of punishment as much as it is about addressing crime as it occurs
• Building true transportation hubs at places of work, leisure, and residence

Sources:
www.epd.gov.hk
www.efcd.gov.hk
www.census2011.gov.hk/en/district-profiles.html
http://www.theatlanticcities.com/design/2012/08/hong-kong-city-without-ground/3000/
Montreal Census tracts
2012 activities report, p30
Going Green, How cities are leading the next economy, Rode and Floater, 2013, London School of Economics

Quick stats: homelessness

It is evaluated that there are 1400 homeless people in Hong Kong (2012), compared to about 28,000 in Montreal (1998) which makes the ratio of homeless to population in Montreal about 75 times higher.

However, this picture is somewhat twisted as there seems to be a much greater cultural acceptance of homelessness and unemployment in Montreal than there is in Hong Kong (the need to provide for family). This translates into a much greater ratio of working poor in HK.

Hong Kong poverty statistics and chart from 'Feeding Hong Kong'

The official homelessness chart/stats (lower) in Hong Kong from The Hong Kong Council of Social Service

Sources:
http://www.scmp.com/news/hong-kong/article/1461195/1400-homeless-hong-kong-double-government-estimate-study . South China Morning Post, Monday, 31 March, 2014
http://www.santemontreal.qc.ca/en/support-services/services-by-type/homelessness/
http://www.socialindicators.org.hk/en/indicators/housing/8.10
http://feedinghk.org/hunger-stats/

Vehicle usage

For anyone who has spent a minimal amount of time in Hong Kong, it becomes quite clear that it has a much lower number of cars on the roads than comparable cities/areas around the world, that serious traffic jams (other than due to the occasional multi-car accident) are virtually unheard of, and that mass transportation is safe, cheap, clean and extremely efficient.

Let's dig into the data a bit more...

Click to enlarge

Some findings worth pondering:

• For a population roughly equal to that of Quebec, Hong Kong has 1/10 the number of vehicles
• For a population 3.75 times that of the island of Montreal, Hong Kong has 245,000 less vehicles than Montreal does (28% less)
• While between 2001 and 2011, the population of Quebec and Hong Kong have grown 8.3% and 6.3% respectively, the number of private cars in Quebec has grown by 26.2% while Hong Kong's only grew by 14.2%
• There is, not surprisingly, a strong correlation between the number of vehicles and the number of vehicle-related accidents
• In 2011, SAAQ, the single-payer no-fault vehicle-related personal insurer in Quebec has paid-out CDN $730 millions in claims to Quebecers. I do not have the data for Hong Kong as there is not equivalent body has the SAAQ but everything else being equal, it is probably safe to assume based on the findings above that Hong Kong insurers do not have to pay much more than 1/10 of what it cost Quebecers. 
• Once its vast parks (40% of the territory) are accounted for, Hong Kong's population density is much greater than Montreal's and an order of magnitude greater than Quebec's. Furthermore, the density of its mass transportation offering is also an order of magnitude greater. It is therefore logical that private vehicle use is far behind mass transportation use
• "Researchers found that people living in Hong Kong were the most active walkers, given the city’s better infrastructure, density and personal safety levels"

Sources:
https://www.bloomberg.com/news/articles/2017-08-24/indonesians-may-be-the-most-reluctant-walkers-in-asia-chart
Hong Kong in Figures, 2013 Edition, Government of the Hong Kong Special Administrative Region, February 2013
Données et Statistiques 2011, ISBN 978-2-550-65632-6 (PDF), Société de l'assurance automobile du Québec
Hong Kong Transport Department
Ville de Montreal. http://ville.montreal.qc.ca/portal/page?_dad=portal&_pageid=6897,67889677&_schema=PORTAL

National ID Card

All Hong Kong residents aged 11 or over are required to register for an identity card. The card is provided by the Hong Kong Immigration Office.

Actually, most of the world's countries have some form of mandatory ID card (different from the passport) and it is baffling that Canada has yet to have one. Well, actually, commonwealth countries seem to be resistant to the idea in some form of misplaced "big brother" fear concept.

The benefits are numerous and the card is another testimony to Hong Kong's efficiency:
- Can be used for individual clearance, which makes going through airport custom a breeze
- Makes interaction with all government entities much faster as there are no needs to produce multiple different proof of ID.
- Can be used by external systems such as the library system and avoid card clutter
- Water/heat resistant so it is very resilient
- Makes identity theft harder

Additional benefits in Canada:
- Would make US borders crossing faster as the bio-metrics could be processed automatically
- Reduce borders custom costs as it could be automated rather that have agents that are mostly doing the same routine all the time (hi, read, scan, stamp, thank you. At a slow pace)
- Merge all the various type of Canadian ID system (Permanent Resident's Card ("Maple Leaf Card"), the Citizenship Card, Social Insurance Number card, birth certificate, and why not, driver's licence and health cards). So, in theory, while there would be initial setup costs, the long-term costs should be lower than maintaining all those separate ID systems
- Authenticate a person's entitlement to government services
- Make voting registry simpler and faster

Data that is stored on the HK ID card:
- Holder's name in English and Chinese
- Age group (11-17, >17) and HKSAR Re-entry Permit illegibility.
- Date of birth
- Sex
- Date of registration

- Immigration status
- Birthplace details
- Holder's picture
- Holder's thumbprints bio-metrics
- ID number
- Commercial code (if any)

Border crossing efficiency

Winner: Hong Kong


One has to to live in Hong Kong for just a short while to realize how efficient the city is. Actually, for a resident with an ID card, they are reminded of that fact every time they leave or come back to Hong Kong; crossing the borders take at most 2 minutes.

The Hong Kong ID card, which every resident must have, has a chip which seemingly has some of your biometrics, such as your thumbprints. There are no documents to fill-up at the customs. You spot the e-Channel booths and go. Each booth has two sets of doors. To open the first set of doors, you just enter your ID card in the outside slot. The system will scan your card and open the doors when approved. Once inside, the doors behind you close and you must apply one of your thumbs to the thumb scanner which will recognize your identity and open the doors to the other side.
The whole procedure takes about 20 seconds. Then, you collect your luggage and just go out through the 'Nothing to Declare" section. No signature required, no paperwork to fill-out or handout unless you do have something to declare.

In Montreal (or anywhere in Canada for that matter), one has to lineup behind tens of people (if you are flying on a 500  passenger A380, you will wait) to show your travel document to the custom officer who will take a minimum of 30 seconds stamping this and that, checking for this or that. If you had the lineup-time, it can be anywhere between 1 minute and an hour. But that is not all, you must have filled the arrival card which, 99% of the time, just states that you are not bringing guns/goods/diseases/plants/etc and that you have nothing to declare. All of this so you can hand it out to another person who just collects those papers.

I can't, for the life of me, understand how we still have such archaic border crossing system in Canada. Why would 99% of the people have to fill and sign the declaration form if 99% have nothing to declare. It makes no sense at all. Sure, Hong Kong is a free port but that doesn't change anything; the system is one of self-declaration either way so why the inefficiencies?
The Hong Kong system provides a faster, more scalable, more pleasant, less intrusive and, most likely, much cheaper system (all the customs agents have to be paid, and my guess would be that you need 10 times less agents in the HK system)

Car ads on TV.

During my last trip to Montreal, something that strike me and made me wonder:

There are a huge amount of car ads on TV in Montreal and I can't remember ever seeing a single one in Hong Kong, be it on English or Cantonese stations.

Health care comparisions statistics: On the dangers of jumping to conclusions

I have been wanting to write an entry about this for a few years actually but just couldn't find the time. Now that I have had the time to spend digging into the data, I'm quite happy that I did because my initial gut feeling about what was reported was actually right; it is often necessary to dig deeper into research and really try to understand what the information that is presented to us really means.

Have a read:

New York Times, November 4, 2007

ECONOMIC VIEW

Beyond Those Health Care Numbers

(www.nytimes.com/2007/11/04/business/04view.html)

By N. GREGORY MANKIW

“STATEMENT 1 The United States has lower life expectancy and higher infant mortality than Canada, which has national health insurance.

The differences between the neighbors are indeed significant. Life expectancy at birth is 2.6 years greater for Canadian men than for American men, and 2.3 years greater for

Canadian women than American women. Infant mortality in the United States is 6.8 per 1,000 live births, versus 5.3 in Canada.

These facts are often taken as evidence for the inadequacy of the American health system. But a recent study by June and Dave O’Neill, economists at Baruch College, from which

these numbers come, shows that the difference in health outcomes has more to do with broader social forces.

For example, Americans are more likely than Canadians to die by accident or by homicide. For men in their 20s, mortality rates are more than 50 percent higher in the United States than in Canada, but the O’Neills show that accidents and homicides account for most of that gap. Maybe these differences have lessons for traffic laws and gun control, but they teach us nothing about our system of health care.”

If you read these paragraphs without thinking about it too much, what do you take from it? Essentially that a very large part of the difference in mortality rates between the U.S. and Canada is due to accidents and homicides, isn't it? Well, if you do, then you would have been misled. Not that I believe that is was intentional but rather, the author has written the piece in such a way that readers can easily overlook what is bone-fide information, and what is undue extrapolation.

The O’Neill report merely points out two factors as evidence that using life expectancy is not the best tool to compare both systems:

“Life expectancy shares similar problems as a measure of a country’s quality of health care. It is influenced by infant mortality and at older ages and does not delineate between causes of death susceptible to improved medical treatment ad those that are not (deaths from homicide, auto and other accidents).” (O'NEILL, 2007, p7)

That is the main point, and the accidents/homicides is merely an example of how the life expectancy statistics is the not a great tool to be used as a comparator of medical system outcomes.

Actually, once one reads Mr. Mankiw’s carefully, the conclusion is that “The bottom line is that many statistics on health outcomes say little about our system of health care”. But in the process, he highlights facts that lead the reader towards the wrong logical path.

What bothered me is that the O'Neill report got quoted in a few blogs as evidence that most of the gap between life expectancy in the U.S. and Canada is due to accidents and homicides (or, in a broader sense, all non-medical events causing death). But beyond the fact that the report doesn't say that at all, I thought it would be worth taking some time to dig into the data that the O'Neills are using to see if I can start from where they left off and see if the non-medical events can explain the large mortality gap.

(Note: Click on the charts to get larger/readable versions)

Table 4 (above) is the principal data piece in the O'Neill report which shows evidence that at least a portion of the gap has a non-medical cause.
Something that peeked my curiosity is the fact that the chart didn't show the weight of each age-group in the overall mortality numbers. Because, obviously, as the non-medical deaths happen at a younger age, they would significantly drag average death years down, but only if the number of non-medical death relative to the total number of deaths is high. The data actually shows us that it isn't.

The next two charts were constructed by me based on the same data the O'Neill used. The first chart contains data for Canada and the second, for the U.S.

The age groups are on the left hand side. The 'Age group used for average' is the age used for computation of the overall average age of death (see my notes for additional details).
Next column lists the total population in each age group. Note that this column is there for your reference only as I do not use it for any calculations. The other columns are self-explanatory. The 'Unadjusted age total' is simply the number of death in the age group times age group age used for average, used for the sake of final average computation. The 'adjusted Nb of death' and 'adjusted age' remove the non-medical events to compute an 'adjusted average death age'.

With a more detailed chart such as this one, it is quite easy to see that although accidents might explain a large portion of the gap for the 20-40 age group, the proportion of those death relative to the total number of deaths is minimal, and therefore has not as great an impact of average age of death as one could be led to believe based on Table 4.

But, by how much does it really impact the average age of death?
Including all causes of death, I arrive at an average age of death of 72.29 years for the U.S. If we exclude all non-medical causes of death and re-calculate the average age of death, this number is now 74.17 years. The gain is therefore 1.88 years. This is quite significant. It means that if the U.S. could have figured a way to avoid all non-medical fatalities in 2004, the average age of death could have been 1.88 years higher.

Doing the same calculation for Canada, I arrive at 74.15 years pre-adjustment, and 75.46 years with the non-medical causes removed. The gain here is 1.31 years.

Therefore, the 1.86 years delta between the U.S. and Canada unadjusted average death years, falls down to 1.29 years once all non-medical causes have been removed from the data.
This essentially suggests that 31%, or one-third of the difference between the average age of death in Canada versus the U.S. can be explained by non-medical events. Quite significant but not quite sufficient to state that non-medical events explain why there's such a large gap in life expectancy between the two countries.

The O'Neill study also hints that higher obesity in the U.S. might explain the remainder of the difference. In their study, O'Neill used the 'diseases of heart' (table 4) from the data to show that they were a significant percentage of the gap in the older age groups.

However, when I remove the 'Diseases of heart' from my adjusted average age of death calculations (in addition to removing the non-medical causes), I obtain the following interesting data: the non adjusted U.S vs Canada still remains 1.86 years (obviously) but the adjusted age is now 1.65 years, a difference of just 11%.

To me, this highlights the danger of drawing conclusions based on multi-variable inputs; in this case, while obesity is undeniably a factor in the prevalence of heart conditions, it also will impact other diseases. But the health system can also have impacts on obesity through prevention and education. In fact, I'm sure we could find a thousand ways how to either use the medical mortality data to have stats say one thing or another. There are many variables interacting which can be hard to isolate and therefore, it makes any conclusion hazardous, while in the case of non-medical events, it is quite clear-cut: the deaths occurred outside of the system altogether.

Now, one last thing. Since the matter of infant mortality has also been brought up in the report, let's see what my model says about this: If we remove infant deaths and non-medical deaths? (by completely removing all 0-1 age group deaths in both Canada and the U.S.), the unadjusted death death delta (Canada minus U.S.) is 1.5979. The adjusted delta is 1.055, or, a reduction of the Canada/U.S. mortality delta of 34%
A large chunk for sure, but still not the cause. Again here, the reason is that the total number of death in the 0-1 age group is not large enough as a proportion of total death to have a truly game-changing impact on the results.

In conclusion, I would say that for the same reason that using 'Diseases of heart' as a tool to explain the differences in health outcome between the U.S. and Canada, using the life expectancy as the sole indicator and evidence of the 'superiority' of the Canadian system is very risky. However, the point of this blog entry was to dispel the myth that the higher rates of accidents and homicides in the U.S. could explain the large gap in mortality rates. The 2004 data referenced by the O'Neill report actually doesn't support that assertion. Nor does it support the assertion that 'infant mortality' nor 'Diseases of the heart' account for all of the gap. What the O'Neill report says is that the life expectancy statistics are an inadequate tool to compare systems. But although life expectancy is a weak measure of comparison of health care system, the large mortality gap between the U.S. and Canada that remains, even once adjusted to remove non-medical events, certainly highlights the need to identify the causes of this gap.

While the data cannot provide evidence that the health delivery system is the cause, the 2004 data also cannot exclude this explanation.

Notes:

• 94 was used for the 90+ average as it is roughly the calculated median age of death based on the 90+ population mortality figures. From mortfinal2004_worktableipt1.pdf, the U.S. figures were: 90-94 years...... 227,661. 95-99 years...... 87,446. 100 years & over. 18,526. I tried some other figures to make sure I wasn't introducing too much of a bias but varying this figure had little impact on the results.
• 0.1 has been used for the '0-1 year' mortality population as opposed to the average which would be 0.5 as most infant mortality happens at birth. 0.1 seems good enough a proxy. The percentage of total death attributable to that age group is relatively small (1.2%) which indicates that changing the average age group figure will not have a significant impact on the results.
• As the U.S. data was not readily consumable as the Canadian one's, I had to merge from multiple files to get the absolute mortality numbers and therefore, some absolute numbers are reconstituted from rates. They are highlighted in grey in the charts. The error margin this process introduces is not significant.
• The areas highlighted in cyan are reconstituted by totaling their table sub-components as the consolidated number was not available. However, some tables were not available from the US data. To assess the significance of those missing data pieces, I totaled the sub-components for the consolidated number where data was available to the reconstituted one with some tables missing. The difference was less than 0.25% and I therefore concluded that the partial figures were within a reasonable error margin.
• Discrepancies between my age figures and official life expectancy ones are due to the fact that my numbers are not actuarial life expectancy figures but rather, figures derived from death events and therefore, do not represent the life expectancy at birth of an individual born in 2004 but rather, the average lifespan of individuals in 2004.

List of sources:

• CDC/NCHS, National Vital Statistics System: LCWK1. Deaths, percent of total deaths, and death rates for the 15 leading causes of death in 5-year age groups, by race and sex: United States, 2004
• Worktable I. Deaths from each cause, by 5-year age groups, race, and sex: United States, 2004
• http://www.cdc.gov/nchs/nvss/mortality/gmwki.htm
• http://www.cdc.gov/nchs/nvss/mortality_tables.htm
• http://www.cdc.gov/nchs/data_access/Vitalstatsonline.htm
• Statistics Canada, Catalogue 84F0209XIE, "Mortality, Summary List of Causes", 2004. (Stats used start at page 64 in the PDF file)
• HEALTH STATUS, HEALTH CARE AND INEQUALITY:CANADA VS. THE U.S., NBER Working Paper 13429, June E. O'Neill and Dave M. O'Neill, 2007

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