Who's Driving This Public Transit System?

Todd Litman's picture
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Virtually every modern economy is mixed: governments produce some goods and services and private companies produce others. Governments generally provide those goods and services that are either considered essential and should be available to everybody regardless of ability to pay, or that require strategic coordination, including police protection, basic education, transportation infrastructure, parks, and public health services.

Transportation facilities and services are among these basic government functions. Transport is all about connecting things, and it is generally not feasible for private companies to create the infrastructure needed to make these connections. Most experts conclude that transportation infrastructure does not lend itself to complete privatization because transport systems have network effects (economies of scale and scope) and external impacts, so pure privatization without regulation or subsidy generally leads to an inefficient transport system. Some functions can be contracted out, but most experts recommend that governments maintain strategic planning, management and performance standards, and provide subsidies needed to achieve strategic objectives.

For example, our local private airport shuttle service charges $19 for a 20-kilometer trip, operates uncomfortable cube vans, serves limited destinations, pays drivers low wages resulting in high turnover and requests for tips, has a loose schedule (vans leave about hourly, after sufficient passengers accumulate), and cannot accommodate wheelchair users (who must pay $60 for a taxi). In contrast, our public transit agency charges $2.50 to numerous regional destinations, has more comfortable vehicles, more professional drivers, more reliable service, and accommodates wheelchair users. Even accounting for subsidies (about $2.00 per trip) it is far cheaper per passenger-mile. This is just one of many examples illustrating the superior service and efficiency provided by public transit.

Private, unsubsidized transport services are sometimes cheaper or higher quality than public transit on a particular route, but these are exceptions, operating on a few corridors with high demand. They cannot provide an integrated network of transit services needed to achieve strategic planning objectives, such as basic mobility for non-drivers, reduced automobile traffic on congested urban corridors, or more accessible, multi-modal land use development.

A recently paper, Fixing Transit: The Case For Privatization, published by the Cato Institute argues that public transit is costly and inefficient and so recommends complete privatization and self-finance. It claims this would improve service quality and efficiency.

My report, Contrasting Visions of Urban Transport: Critique of "Fixing Transit: The Case For Privatization" challenges these claims. All examples cited in Fixing Transit of private, self-financing transit systems are either low quality or high price; there are no examples of high-quality, low-cost, unsubsidized transport systems comparable to what exists in most economically developed cities. Without public coordination and subsidies, private companies will only provide limited public transit services on a few corridors with high demand. It is true that in some situations private companies do provide inexpensive transport service, but this skims the cream, leaving public transit agencies with the less profitable routes, which results in less total service. Private companies lack incentive and resources to provide more services or to efficiently integrate transport services. As a result, they cannot achieve important community objectives such as providing basic mobility for non-drivers, reducing traffic problems, and supporting accessible land use development.

Fixing Transit makes numerous analytic errors. It is unrealistic when comparing automobile and public transit costs. It assumes that if transit were unavailable users could easily shift to automobile travel, rather than more costly taxi travel. It implies incorrectly that many public transit agencies are inefficient, although average public transit employee wages are comparable to private industry, and many of the agencies it criticizes have superior performance (measured as cost per passenger-mile or cost recovery) than national averages.

This is not to suggest that I oppose private industry involvement in public transit. In fact, I am a strong supporter of Bus Rapid Transit, a type of public-private partnerships that optimizes efficiency and service quality; governments build and operate bus lanes and stations, and define performance standards, and contract out bus service to private companies (many of which are cooperatives) based on their cost efficiency and service quality.

Public transit quality affects all residents, even people who do not currently use it. The trips it serves tend to be high value – basic mobility for non-drivers and efficient mobility on major travel corridors – and transit service quality can leverage transport and land use changes that affect a city's overall economic productivity and quality of life. Purely privatized, self-financing public transit provides less service than socially optimal, creating a cycle of declining service quality and ridership.

Todd Litman is the executive director of the Victoria Transport Policy Institute.

Comments

Comments

I had a pleasurable evening

I had a pleasurable evening reading "Fixing transit: ..." - I had this feeling that yes, there is hope; there still are some people out there who have common sense and ability to analyze facts and figures to deliver clear, logical review of the problem and its potential solution.

But as soon as I finished reading it, I brought myself back to reality by reminding myself that there must be someone out there who disagrees. And oh boy, was I right.

It is a little too late now for me to start reading your opus (which I promise I will do), but one point I want to raise is this: our country (USA) has tried socialism in a number of directions - transportation; health care (even before Obama, the amount of gov't involvement in HC was staggering); etc. And in almost every case, the result is a complete and catastrophic failure. Now, I'm not sure how much failure is enough to make people start treating it as a failure, but in case you did not know, there already are so many billions of dollars in debt and work backlog in transportation, which you can't deny, but more importantly, when it comes to the country as a whole, there's a national debt comparable to annual GDP and a annual deficit which doesn't seem to be going away any time soon - with people around the world already starting to question our country's economic power and dollar's long-term stability, a previously un-thought of possibility.

I mean, yes, we can wait until the federal government calls quits and declares bankruptcy... but don't you think that you yourself will be affected in a big way by that? I don't know how much you are paid to write what you write right now by the unions or whatever other political force is interested in you spreading the leftist opinions, but don't you understand that once the thing explodes, all the dollars that you accumulated will be worthless? and that all of the property you bought will be worthless too, because there will be so much looting and crime, that you won't be able to hold on to it anyways? (partially thanks to socialists wanting to prohibit gun ownership, by the way)

Don't you think that we have to stop now?

Sincerely,
Tahir

Todd Litman's picture
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Useful Contributions To Discussions

Dear Tahir,

In a professional forum such as Planetizen it is generally best to read a document before commenting on it, and only contribute if you have new information or insights to share. If you disagree with something I post, please be very specific, explain exactly what you disagree with and why, preferably with supporting evidence.

You seem to be concerned about broad ideological issues - capitalism versus socialism - which only indirectly relate to my column which concerns private versus public management of public transit systems. If you truly consider public infrastructure management harmful then you have much more reason to criticize public ownership of roadways, since their financial costs are far larger in magnitude.

Todd Alexander Litman
Victoria Transport Policy Institute
www.vtpi.org
"Efficiency - Equity - Clarity"

Free markets - flawed but still "the best bet we've got".

I'd be quite interested to hear if Tahir Ahmadov has previous personal negative experience with hubristic socialist regimes. He might be quite interested in a lot of what I say about urban planning on THIS thread:

http://www.planetizen.com/node/47212

I agree with Tahir Ahmadov about government involving itself in ever more sectors of the economy and running up ever more debt. (Has there ever been a government anywhere that ran something instead of the private sector, at a profit?). But I side partly WITH Todd on the inability of fully private transport infrastructure to adequately provide for economic growth and societal welfare. I understand where Todd is coming from re the need to "integrate" transport funding at least. I think there is currently far too little connection between "who pays" and "who benefits" - and for the latter it is only necessary to look at land values. I am all in favour of enterprise structures that incentivise property owners who stand to benefit the most, from paying the most towards transport infrastructure from which they will benefit.

To discuss a topical example, Gov Christie was quite right to refuse to use New Jersey taxpayer money to pay the lion's share of cost of a rail tunnel that would have fed property capital gains at the Manhattan end, of DOUBLE what would have been gained at the NJ end. The property capital gains would actually pay for the project. Someone needs to make it happen that way, not by imposing a bill on all NJ taxpayers.

Trying to use gas taxes or tolls as a sole means to fund roads or any transport in fact, is just a wealth transfer to property owners, especially in CBD's.

I am dead against any "monopolies" in public transport. The authoritative Colin Clark calls it "incoherent" to support monopolies AND claim to be concerned about resource efficiency. Tahir Ahmadov is right to touch on these points. It is absurd to forgo free market efficiencies across an entire market just because of social objectives in a few areas and on the part of a few people. Meeting these ojectives with 60-seater buses driven by highly inflexible unionized workers, is far more expensive than just providing level playing field subsidies to local private operators. In fact, the more local the operators, the better for social outcomes, the better the operator understands the local need and even knows the people involved.

If you really care about efficiency rather than imposing ideology, nothing would be better than a fully deregulated market in public transport. For one thing, there are millions of empty seats in passenger vehicles that modern GPS based schemes could partly fill with low-fare-paying passengers. It is absurd to forego this efficiency, even if only at a small proportion, on ideological grounds. Many objectives that planners THINK they need to "plan" for today, might have been achieved by the free market anyway if regulations and monopolies and embedded inefficient work practices didn't hinder them.

Interesting point on the

Interesting point on the rail tunnel between NJ and NY. Did you try thinking about it under a different angle - why is it that NJ's well being depends on being able to get people into NY? Why doesn't NJ create an environment where business would move from NY? Aside from NY's "super-coolness" which draws a bunch of people into a dirty, overpriced, overcrowded place, what are the advantages of doing business in NY as opposed to NJ? (not talking about local businesses like stores, etc.)

And I do agree that the railway tunnel would've made the situation even worse, due to more business opening in NY, real estate both in NY and NJ costing even more, railway not being able to handle the ever more load of passengers, etc.

P.S. Regarding the need to cater to a small percentage of people who just can't pay neither for a car, not for a private mass transit service - the CATO article addressed that; there is social security, unemployment insurance, a number of other programs - additional benefits for transportation can be provided as part of those programs to people who really need help - the elder, disabled, etc. - like food stamps, maybe, with a special card, maybe, as part of a separate program, doesn't matter. The point is, there's no reason to make an entire industry, which has great profit generation potential, publicized, just because of a small percentage of people.

Tahir

Todd, I did read the

Todd,

I did read the document since then - thanks for taking the time to write it. One point that I noticed was brought up repetitively was the social part of public transportation, meaning, the need to provide the less well-off parts of urban areas with access to cheap transportation. I'd like to answer that point (1) and also your comments on ownership of roadways (2).

1. The target audience of this social initiative normally lives in one or more suburbs of a big city, and generally needs to be transported to work. Metros usually have some offices in downtown area, which is usually a relatively compact and quick to navigate part of the city, and some other mixed businesses on the outskirts, generally organized in "business parks" of sorts, with companies also located one after another. Now, I'm not saying this is how it is everywhere and that all businesses are in either one of these groups, but most economic activity-generating ones usually are.

If private companies were able to run bus services from residential areas to business areas (no gov't monopoly), then those routes would've been fought for by multitude of companies, leading to very efficient operation and low prices even in the short term.

Now, the question that you brought up was that, what about all those folks who can't afford a car and happen not to live in an area that these private companies want to serve? Well, there are 2 answers to that. First, if you are poor and you can't buy a car, then it should be part of your residence choosing process - are there buses, that will take me to where I need to go on an everyday basis? And people already do that because even the public systems rarely cover 100% of all of the suburbs; that percentage will most probably go down with privatizing, and that brings me to my second answer - if there are any people at all who want to go from point A to point B, there always will be someone with a small van who's going to want to transport those people (provided that it's legal to use small vans for mass transit, or in this case, "not so mass" transit, which it should be).

Yes, if a person is poor and can't buy a car, and chooses to live in a remote area, and no bus company wants to serve that area, then they're probably going to experience difficulties, but hey, nobody made you live so far away? Move closer to other people, maybe?

2. I believe that all freeways have to be leased to private companies with government regulating the prices (because roadways are a natural monopoly) and road quality (again, because a company will have no natural stimulus to maintain the roads). The gov't could say that, for every road, it should cost $0.10 per mile or w/e, and road needs to be 95% smooth at all times (or w/e). If a company operating a road fails to meet these obligations, their lease is terminated and the road is back to public operation until a new operator is found.

Why not transfer the ownership of the roads to private companies? Well, if we did that, the companies might decide to build a casino on one part of the road, because it would get them more money, with no regards to the drivers. With private ownership, there'd be very little the gov't could do to make a company properly operate this infrastructure object.

Consequently, all gas/road taxes should be repealed, and local roads have to be maintained by municipalities, and/or even by groups of individuals living on that particular street, for ex.

Having privatized mass transit and roadways, we can reap the benefits; the most efficient system will win, and that's what everybody wants, because efficient systems will cost less, and will definitely cost much, much less than gov't monopolies.

Tahir

External Costs

"Having privatized mass transit and roadways, we can reap the benefits; the most efficient system will win..."

Are you familiar with the idea of external costs, a fundamental concept of economics?

Charles Siegel

Charles, Yes I am, and my

Charles,

Yes I am, and my point here is that, with NO government intervention into transportation (except for, perhaps, municipalities maintaining local roads, which can be partially avoided too), free market will take into account all of these hidden costs and the equation will be solved automatically.

Emissions from cars' tail pipes? Sure, but cars usually produce exhaust proportionally to their fuel consumption, which is naturally limited by the drivers' wallets. That and mandatory emission testing, which is already in place, covers that. Buses and even trains (in Boston, MBTA runs diesel trains) produce toxic emissions too; the government could tax based on toxic emissions (note: not CO2, because CO2 is not toxic).

I guess the broad answer is, yes, the government does need to be involved, but only where free market laws tend to ignore certain parts of people's well-being on a general level (vehicle emissions, making sure privatized roads keep being roads, etc.). The government has to be the regulator and the protector, not the actor.

Tahir

No You Are Not

"with NO government intervention into transportation (except for, perhaps, municipalities maintaining local roads, which can be partially avoided too), free market will take into account all of these hidden costs"

If you believe that, you do not understand the concept of externalized costs. You may have heard the phrase, but you do not understand it.

"the government could tax based on toxic emissions"

This contradicts your earlier point. First, you say the market will take the external costs into account. Second, you say the government should tax toxic emissions: the only reason the tax could be needed is because the market does not take these external costs into account.

"(note: not CO2, because CO2 is not toxic)."

Once again, you show you do not understand the concept of externalized costs. You are willing to recognize one external cost, but you arbitrarily refuse to recognize another.

You have got it exactly backwards. Toxic emissions are the one form of externality that you often cannot handle with a tax. Eg, coal burning power plants emit toxic mercury. Currently, mercury emissions are directly regulated, so they are limited to a level that is safe for the health of people who live nearby. If, instead instead of direct regulations, you taxed mercury emissions based on their cost to health, the tax would to protect the health of the average person, but people who live near the power plants would become extremely sick or would die because of the emissions.

Economists generally agree on the very obvious point that we should tax to internalize external costs that are diffuse, such as CO2, and that we should directly regulate external costs that are acute hazards, such as mercury and many other toxics.

Charles Siegel

Yes, I do

Charles,

"First, you say the market will take the external costs into account. Second, you say the government should tax toxic emissions: the only reason the tax could be needed is because the market does not take these external costs into account."

There are some external costs that the market will take into account and some that it will not.

Toxic emissions, like mercury from coal plants, are NOT taken into account by the market; that's why there's regulation - the mechanism of the regulation is not important, the point is that it's regulated (whether by limits or by taxing). The government here acts as the "protector and regulator", by limiting the amount of toxic substances that other people (and other living organisms) have to consume because of others' actions (power plants, cars, etc.) I'm fully supportive of this role of the government.

CO2, on the other hand, IS taken into account by the market, because CO2 is produced proportionately to the amount of a hydro-carbon fuel burned; the more fuel you burn, the more CO2 is output. The operator has no economic interest in burning more fuel, quite on the contrary.

I can't think of any other external costs associated with transport other than toxic emissions which fall outside of the "equation". If you can think of any, you are most welcome to contribute.

Tahir

No, You Don't

Tahir:

The price you pay for hydro-carbon fuels covers the cost of producing, refining, distributing, etc. the fuel.

It does not cover any external costs, neither the cost of toxic emissions nor the cost of climate change caused by CO2 emissions.

Try reading a basic economics textbook to clarify your understanding of external costs.

Charles Siegel

Maybe I do after all

Hi Charles,

The cost of the hydro-carbon fuel by itself does not cover neither toxic nor CO2 emissions. However, since CO2 is produced pretty much proportionately to the amount of fuel burnt, the best RESTRAINT from over-filling the atmosphere with CO2 is the MARKET, because it doesn't make sense for the consumer to burn more gasoline, it fact, it makes sense for the consumer to burn as little as possible. And toxic emissions are already and should continue to be regulated by the government.

Now, could hydro-carbon fuel be taxed, and those tax revenues used to pay for the problems that are caused by the evident climate change? Yes - 1) if it's PROVEN that CO2 is causing the climate change, which hasn't been done yet; and 2) if everything is taxed (oil, wood, gas, ethanol, etc.), not just gasoline; and 3) if the tax revenues are guaranteed to be used to solve these problems ONLY (now or in the future), and not for any other purpose, like subsidizing an industry which some bureaucrat decided to be more "green", or paying for social security/pension.

Tahir

political characterizations--or validity of data?

From the perspective of discussing Todd's remarks, I have to say I haven't the least bit of interest in whether Tahir has had personal experience with socialism. And honestly, it's a little hard to swallow Wodehouse's comments about preferring a "free" market.

What free market? I don't know what passes for a free market in New Zealand, but here in the U.S. (acknowledging Todd is Canadian) we haven't got a bit of a free market. What we have is tax money that is applied to subsidize whatever and whoever the appropriations committee wants--or whoever provides financial support to those who serve on the appropriations committee and their buddies.

I submit that free markets are most closely approximated in countries and locales within those countries where government is functionally nonexistent. Been to Mali lately?

It's utter nonsense to suggest that transit would turn a profit if only it were privatized. If that were so, then it would have turned a profit when transit was ALL privately owned and operated in the early 20th century. Only it didn't. If privatization is what it would take for transit to turn a profit, then where are all the private carriers competing with public buses? In the U.S., the parts of transit that private companies want to run are indeed run by private companies--and paid for with public money. Out where I live in the San Joaquin Valley, nearly all Dial-A-Ride is subcontracted to private companies, paid for with tax dollars.

If Tahir wishes to be taken seriously, he should inform himself and discuss the issues without throwing around "Fox News" mischaracterizations and misdirections. No one who does that will be taken seriously.

Sorry to rant, Todd, you've been as gentlemanly as possible in this situation. I can't be as kind--this is one of the few places I expect to escape ignorant American political foolishness and debate the issues with thoughtful people.

"What free market? I don't

"What free market? I don't know what passes for a free market in New Zealand, but here in the U.S. (acknowledging Todd is Canadian) we haven't got a bit of a free market. What we have is tax money that is applied to subsidize whatever and whoever the appropriations committee wants--or whoever provides financial support to those who serve on the appropriations committee and their buddies."

And that's the problem! The problem is that more and more profitable industries are taxed to pay for non-profitable industries that should've been killed, like the passenger trains with the recent $53 billion worth of corruption announced by Biden. The end result? Huge unemployment and huge deficit and no end in sight, at least with the current IQ level of the government and the people who chooses it.

"It's utter nonsense to suggest that transit would turn a profit if only it were privatized. If that were so, then it would have turned a profit when transit was ALL privately owned and operated in the early 20th century. Only it didn't."

Again, because the government forced operators to carry people on trains, WHICH IS A BAD IDEA. So most companies subsidized their passenger train operations from profits in other sectors, and that disparity grew to a point where companies were no longer able to compete effectively, hence the gov't stepped in. The solution would've been to eliminate trains (note: not the subways/light rails typically found in metro areas) altogether, but because it's dictated by a bureaucracy, we now have this hugely inefficient, slow, unreliable method of transportation that just won't die off because of government taking money away from people and giving it to trains. Buses, on the other hand, are easily profitable, as demonstrated by Greyhound and Peter Pan and co.

Michael Lewyn's picture
Blogger

Private transit once was profitable...

Until it was driven out of business by government-subsidized highways and anti-transit zoning, both of which gave a huge advantage to the competition (the car industry). If we returned to a 1900 street network (by which I mean, tearing down every road built since then, and re-narrowing the ones that were broadened with government funds), and abolished every zoning code, I'm sure private transit could be profitable again But until then I am not optimistic.

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