Rory Sutherland

Hailo matters more than HS2 – but we just can’t see it

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One of Britain’s exam boards was attacked last year for a question in a GCSE religious studies examination: ‘Explain briefly why some people are prejudiced against Jews.’

Is this really a theological question? Or does it belong in biology? Or psychology? Or economics?

The Canadian evolutionary psychologist Steven Pinker in The Blank Slate devotes a few pages to the issue of prejudice, including not only anti-Semitism but also hostility towards trading groups and intermediaries everywhere: from Chinese shopkeepers in Malaysia to Armenians, the Gujaratis and Chettiars in India and Korean store-owners in the United States.

Pinker partly attributes this to what economists call ‘the physical fallacy’. We have evolved an innate sense of value that makes us far more content when we pay money for physical goods than for services or intangible benefits. Regardless of the usefulness or advantages these services bring, we are much more begrudging of money we spend (and hence of the money other people make) on intangible things than we are when we pay people for, say, manufactured goods or agricultural produce.

Shopkeepers and merchants may add great economic value — through transportation and storage and scale — but it is not value you can touch. The same goes for lawyers, bankers, landlords and so forth. Hence, if any group prospers through creating intangible value (sometimes because they are forbidden from owning land), it is easy to portray their wealth as parasitic — which is exactly what Nazi propagandists did.

We may not currently be planning a Kristallnacht against Tesco, but this innate bias seems no less potent in other decisions we make. We tolerate subsidies to farmers in a way we would never accept if they were paid, say, to mobile phone network operators.

The almost limitless appeal of economically inert forms of investment, such as art, gold and property, is probably attributable to this fallacy. Some fairly important industries are threatened by it. Will people ever be as willing to pay as much for music or newspapers or books if they are delivered in a non-physical form?

Perhaps there is nothing we can do about this — after all, it is not really anyone’s business to tell people what they should pay for things, even though there would be obvious environmental gains if we could persuade people to be as happy to rent more and buy less. But one thing we could do to counter the physical fallacy is to encourage government to broaden its definition of ‘infrastructure’ beyond its current obsession with building railway lines.

Take a technology such as Hailo, an application which allows you to find and book a nearby cab using a mobile phone. People who have regularly used this service (which has expanded beyond London to eight other cities from Toronto to Tokyo) would probably agree with me when I suggest that it may be as significant an improvement to London’s transport network as a new tube line which might cost 10,000 times more to implement.

Similarly, the really significant improvements to rail travel over the past 30 years have mostly been intangible improvements. Intelligent pricing which charges more for using trains at busy times — and far less at other times — has reduced overcrowding. Wi-Fi on trains, as I have said repeatedly, might be more valuable to travellers than money spent on faster trains.

Railway signals seem a ludicrously Victorian idea, relying on line of sight — and requiring enormous distances to be maintained between trains travelling on the same line. Why are we spending £30 billion on HS2 before we have spent £10 million investigating the intangible alternative?

Rory Sutherland is vice-chairman of Ogilvy Group UK.