Tuesday, 15 February 2011

Will the UK Ever Move to the Right?

(Despite the title, this article is not about politics. Read on to find out more.)

Ever wondered why your computer runs on Windows operating system and why the keys on your keyboard are arranged the way they are? Why some mobile phones don’t work when you try to use it in the US or Japan? Why cars drive on the right in some countries and on the left in others?

These are all examples of standards. Often, there are several alternative standards and some users or countries choose one while others may choose a different one. Sometimes, multiple standards may be used in parallel to one another. For instance, you can use Windows on one computer and Linux on another. With other standards, you may not have much of a choice: it’s very much in your interest to stick to the same side of the road as other road users when driving, even if you prefer to drive on the other side.

Sometimes, standards are chosen for a good reason but often their origins are unclear and probably arbitrary. For instance, it is said that the Japanese convention of keeping to the left side of the road was originally adopted so that two samurai could pass each other without their swords – worn on their left side – knocking. In North America, on the other hand, wagon drivers preferred to keep to the right as the driver would usually sit on one of the last two horses (heavily laden wagons were pulled by multiple pairs of horses). Since most drivers were right handed, they preferred to sit on the left rear horse which allowed them to control the horses with the whip held in the right hand. Being seated like this, they preferred to keep to the right when passing wagons going in the opposite direction so that they could make sure that the two wagons’ wheels did not collide. In England, instead, horse-driven wagons and carriages had a driver’s seat and therefore keeping to either side of the road offered no particular advantage.

Once adopted, standards are often maintained even if subsequent progress makes them obsolete or inefficient. A particularly poignant example of this is the ubiquitous QWERTY keyboard, discussed in a well-known article by Paul David (American Economic Review, 1985). A common problem with early typewriters was that pressing two keys in close succession resulted in the keys jamming. Therefore, the keyboard layout, which originally had the keys arranged alphabetically, was modified to make this less likely. In other words, the keys were rearranged to slow the speed of typing. Subsequent typewriter designs made jamming of keys less of an issue (part of the problem with the early designs was that the paper was placed into the typewriter face down so that the typists could not actually see what they were typing and did not necessarily notice when the keys jammed), but the QWERTY layout stuck. This was despite the fact that an alternative design, the Dvorak keyboard, was later proposed, which is said to be easier to learn to use and allows typists to reach faster speeds: the world’s fastest typist ever, Barbara Blackburn, for example, used to use the Dvorak keyboard.

The continued prominence of QWERTY keyboards over potentially better designed alternatives appears perplexing at first sight, even if we discount the claims of Dvorak keyboard’s superiority (a subsequent article by Stan Liebowitz and Stephen Margolis, Journal of Law and Economics, 1990, argues that neither keyboard design offers a significant advantage over the other). The reason for the persistence of an inefficient standard is a combination of sunk costs and network externalities. Originally, much of the sunk costs were in the value of QWERTY typewriters that firms and individuals owned which would become worthless if everyone switched to the Dvorak keyboard. These days, keyboard layout can be changed very easily on any computer: Windows, for instance, comes with Dvorak keyboard as one of the available alternatives. However, switching is still costly – anyone used to QWERTY will experience a sharp though (hopefully) temporary fall in productivity after switching to the Dvorak keyboard. Network externalities present an additional barrier: if most computers use QWERTY while you are used to Dvorak, you will struggle whenever you use someone else’s machine. The same argument also explains why many of us hate Windows and Office applications yet we continue using them.

Standards are thus path dependent: an initial choice of a standard tends to be persistent and makes subsequent changes or upgrades more difficult. This, for example, is one (though not necessarily the only) reason why Britain, once the first country to introduce a railway network, is stuck with some of the slowest trains in the developed world.

This brings me, finally, to the question posed in the title. These days, most countries drive on the right. As a result, UK drivers are more likely have accidents abroad or be involved in accidents caused by foreign drivers in the UK. It is also more difficult to move to another country in Europe if you own a car made for driving on the left – you may have to sell the car or make costly modification (replacing the headlights and mirrors and you will still be stuck with the steering wheel on the wrong side). Moreover, car manufacturers are in a better position to charge higher prices in the UK market because UK consumers cannot easily import cars from abroad. Prices in the second hand market, similarly, are probably lower given that the option of exporting used cars abroad is limited. Hence, switching to driving on the right would bring a stream of small yet probably significant gains to UK residents and foreign ones alike. However, doing so would imply high one-off switching costs. Those costs would arise because of the need to replace road signs, rebuild intersections and roundabouts, refit buses with doors on the other side, as well as because most of the existing car stock would drop in value dramatically overnight. There would also be important non-pecuniary costs due to increased frequency of accidents immediately after the change. Crucially, these costs would be borne by UK residents only, unlike the gains.

While there are probably no reliable estimates of switching costs for the UK, according to Wikipedia, the Japanese government spent $150 million in 1978 to switch back to driving on the left in Okinawa (a Japanese island which was controlled by the US government between 1945 and 1978). This would be equivalent to $0.5 billion in today’s prices (the population of Okinawa is 1.4 million at present) and the costs would be probably several times higher today because more people own cars and cars and buses tend to be more complex now than in 1978.

Few countries ever switched from one side of the road to the other voluntarily. Contrary to what most Europeans probably believe, most if not all of Europe used to drive on the left. The legend has it that the French switched after the French Revolution, to symbolize the beginning of a new era (although others insist that the French always used to drive on the right). Thereafter, Napoleon imposed driving on the right onto the countries that he conquered or otherwise controlled: Belgium, Netherlands, Germany, Italy, Spain, Poland and Russia. Most of the remaining European countries continued to drive on the left (as did some provinces of Canada and half of China). Many contemplated switching to right-hand driving during the interwar period but only Portugal did so, in 1928. Austria was an especially peculiar case: some provinces chose to switch to driving on the right while other, including Vienna, the capital, continued driving on the left. Czechoslovakia similarly contemplated the switch but never implemented because of a popular opposition to it. The change eventually happened in Czechoslovakia – and was completed in Austria – only because of the German occupation: instead of listening to the popular sentiment, the invading Germans simply ordered everyone to drive on the right.

Sweden, which was not invaded by Germany, held a referendum on this issue in 1955: 83% favored to keep driving on the left while less than 16% voted for the switch. The Swedish case for change was especially compelling, as the country shares a long land border with Norway (with few border posts thus making it easy for drivers to cross the border without realizing that they have done so), a border with Finland and is near Denmark, all of which drove on the right. Moreover, most cars had the steering wheel on the left even before the switch so they could be driven more comfortably on the right – yet the people still overwhelmingly voted against it. The Swedish government learned a lesson from this failure of popular democracy – and dully ordered the country to switch anyway in 1967, without asking the voters a second time.

So is there any hope that the UK will ever move to the right? Unlike Sweden, the UK as an island is more isolated and therefore the rationale for the change is less compelling. The public would be vehemently opposed to any change. This is not surprising: the costs would be large and immediate while the gains would be small and would only accumulate over time: it is very well possible, that a social planner maximizing expected utility with an infinite horizon would conclude that the switch has a negative net present value. The governments are not social planners with infinite horizons. Instead, they want to get reelected some time during the next four years. It is well possible that any government that would contemplate going Swedish on this would be brought down before the change would be effected. Unless the French finally manage to invade, I see only one possible solution: a massive subsidy from the EU to alleviate the switching costs. This would address the fact that the rest of Europe would benefit from the UK switching too: think of all the Polish, German and French immigrants living and working in the UK and, most importantly, driving their cars here. Admittedly, this outcome is not very likely and the UK seems bound to keep left for the foreseeable future.