[sustran] Comments on the Eric Brun Profitability Posting

[Wendell Cox]

Re Eric Brun comments on my previous posting (Wendell Cox)

Offered in the best of humour....
>
>Regarding Zegras and Cox' obsession with profits:

No obsession here with respect to profits. My obsession is obtaining the
most public transport (transit)
service possible with the available money. That way the good transit can
achieve is maximized.
>
>The answer is that the conditions are right in many places to turn
>a profit. It depends upon what the conditions are like for the 
>competition, namely cars, not just whether there is a public sector
>that is unionized.  

Unionization is irrelevent --- the operative factor is monopoly. The
Amagamated Transit Union represents workers that drive buses for Seattle
Metro and private contractor drivers for services under the auspices of
Community Transit, for services operating into downtown Seattle from the
northern suburbs. The latter are paid market rates, while the former are
paid well above market rates. This story is repeated virtually everywhere
there is competitive tendering in the US.

Virtually all European and Australian comeptitively tendered services employ
unionized drivers.

>But just because it is possible does not mean
>that one should necessarily charge enough to make a profit. 

Agreed. 

>Usually
>subsidizing transit keeps total expenditures on transportation down and
>makes cities more livable.  

Given the fact that most of the transit subsidy money in the US has not been
used to lower fares or increase service levels, this may be somewhat
difficult to prove... surely value for money has not been received in the US

>That is, people do not drive
>as many cars as often and there are economies of scale in transit
>operations.

Economies of scale is something that there definitely is not in US transit
--- federal studies and others have demonstrated this.
>
>The London Underground is turning about a 20 percent operating profit last
>I heard and is using it for capital investment.  They can do it because
>the conditions for driving are so miserable. 

If that were so Paris metro and NY subway would be profitable. The reason
for LU's cost effectiveness has a lot  to do with the Thatcher-SonofThatcher
reforms, which will likely be continued if not intensified
by Blair & co.

>But it is still stupid
>policy to encourage people to drive through high prices, not to mention
>very difficult for the low income people.  LU have had little choice,
>given the Central Governments bias in favor of road building under
>the Tories. Even the NYC subway is up over 80 percent of operating
>costs due to a high fare policy combined with poor alternatives. 

Is there data available on NY subway fare recovery? Only data I have is
system wide, including buses. Would be interested in this.
>
>Covering capital costs in addition to operating costs is much rarer, but
>Hong Kong is an example (they own all of the real estate over the
>stations.)  

Amazing what you can do with 250,000 per square mile densities --- at Hong
Kong densities, the urbanized area of Seattle could accomodate more than
half the population of the United States.

>I suspect that Zagres and Cox solution to covering capital
>costs is just not to have many of these; they seem to be advocating
>bus/jitney only systems even in big cities. 

You are putting words in my mouth..... Advocated nothing on either score.

>Show me a big city in the
>industrialized world without rail transit that tourists want to see; the
>three biggest metro regions without are all in the US: Houston, Detroit,
>and Seattle. (I am a native of Seattle, and it is now completely
>gridlocked.)

Not sure what this has to do with anything....

Nonetheless, the following offered in jest...
        I have noted the lack of gridlock in European rail cities........
        I have also noted a distinct increase in tourism in St. Louis since
rail opened.

>It is simply not true that increased car use and decreased transit
>use is inevitable with increased prosperity.  Munich, Stuttgart,
>Freiburg, Zurich, Oslo, Stockholm, etc., have seen increased
>ridership of transit in the 1990s through a combination of (heaven
>forbid) capital investment in transit, physical redesign of streets
>and cities to favor transit, and disincentives to car use.  Meanwhile,
>in the United States, where over half the public has seen a DECREASE
>in real income in the last decade, 

What is the basis of this claim? (decrease in real income) --- you may be
right ... my recollection of the data is different.

>transit has nevertheless seen a
>decline in most regions and car use increases faster than population 
>growth. So, income is certainly not the deciding factor.

Perhaps not inevitable, but there appears to be a rather strong
relationship. Is auto use and trend data available  for the cities above.

There is also the matter that US cities are just a bit different "animal'
than European cities --- urbanized population densities of 3000 per square
mile on average, not 10,000 and up.

>I strenuously disagree with Cox' analysis of why transit investments have
>been made in the US.  It is not because of powerful rail transit
>investment lobbies. With the notable exception of California, all
>transit lobbies are laughably weak.  

Serve 8 years on a transit board and see if you still hold that view.

>The real reasons that particular
>projects have been chosen are because of the disenfranchisement
>of cities and the poor in general.  Almost the only kind of investments
>allowed are for suburban commuting systems. Look at Atlanta, BART in the
>San Francisco Bay Area, and Washington's MetroRail: all are suburban
>commuter systems disguised in rapid transit technology and operations.
>Almost all of the new light rail lines make a beeline to affluent
>suburbs with very little coverage of the city proper. The Federal
>Government has also contributed to the bias against city investments by
>using a narrow criterion of incremental cost per new passenger that favors
>long trips and high income communities.
>
(an incremental cost per new passenger standard, by the way, that is as
expensive than leasing each such new passenger a new mid-sized car every
three years)

Actually the federal criterion had little to do with it. Most federal
spending decisions for new starts were fully political, through "earmarks"
in federal legislation. The systems themselves were designed by local
officials, so if there was a suburban bias it was not federal, but local.

More to the point, the issue is the ineffetiveness of rail. It is not that
better systems should have been chosen, it is a monstrously expensive and
ineffective strategy for serving US urban areas --- for reasons having to do
with land use, urban form and density. Transit's market share has fallen in
all US metropolitan areas with more than one million population since 1980
--- including the old rail and new rail cities. But it's getting worse....
During the 1990s, transit's market share loss has already equalled that of
the entire decade of the 1980s.

>I am not saying that these investments were a waste, because 
>the alternatives would not have been better bus services or
>intracity rail systems inherently more efficient than suburban
>peak-hour peak-direction oriented rail systems. At least these new 
>systems have been attractive enough to get people out of their cars. 
>The real alternatives would have been more freeways and a more decayed 
>central city. 
>
>What rail transit bashers have failed to explain is why even areas that
>could easily support rail transit do not have it; SF and Seattle have
>corridors with 50,000 bus rides a day, the Philadelphia streetcars have 
>not seen a dime of upgrade towards Light Rail standards in over 15 years,
>Chicago's Green Line was allowed to decay so far it was almost abandoned, etc. 
>
>I do agree that the existence of the jitneys in Miami and New York 
>shows that transit is inadequate, but the solution is to integrate
>them, like is now being done in Miami, not throw away the existing system. 
>The jitneys do not serve the same markets as the rail system;
>affluent suburbanites will ride MetroRail, they will not ride a 12
>passenger van.  If anything the Miami experience only supports my
>point that the needs of the low income city dweller have traditionally
>been ignored.

Integration is hardly the term to use for Miami. If Metro Dade were
interested in the poor, it would have encouraged jitney service to expand.
Instead it has undertaken efforts to minimize and prohibit this crucial
service to the poor. My point in the Metro Rail comparison is only to show
how singificant an impact the jitneys  had at one point. Whether or not
suburbanites would use good jitney service will not be known until it is
tried.  Certainly evidence from a similar service, the Kendall Area Transit
system that provides connecting service to Miami's rail system suggests that
suburbanites might be more open to such service than one might think.
>
>Finally, the only thing I seem to agree with Cox about is that 
>contracting saves money. In the case of Stockholm or Helsinki,
>contracting saved money without cutting wages through operating
>and work rule changes. In other cases, the savings come from
>busting unions and converting jobs that pay a living wage into
>ones that don't.  I am not too enthusiastic about
>saving money in this way.
>
The issue, as noted above, has nothing to do with unions or living wages ---
it has to do with market rates and monopoly.

There is never a justification for paying more than market --- the result is
that you get less service than you could have otherwise --- the money spent
over market is for private purposes, not public, and is taken under false
pretenses from the public.

It is a violation of the principle of equality under the law for government
to pay some workers more than market and not to guarantee the same right to
others. There are two ways to go. Either we pay market rates to all
employees, and perhaps establish a minimum wage to take care of
circumstances where the market pays too little (I do not support minimum
wages, but at least they don't violate the principal of equal protection ---
you offer the same to all in certain circumstances --- such as all persons
making less than "x", regardless of their employer). Or, the second is you
pay everyone above market wages. Not only would bus drivers make 2-3 times
markets, but so would fast food clerks, bank clerks, and every other
employee. But this doesn't work, as the failed economy  of Argentina
pre-Menem shows. Government is incapable of guaranteeing all above market
wages without creating inflation of such a dimension that virtually all of
the gain would be consumed. Indeed, paying above market rates to everyone
would eventually get us back to market, as the market would inflate, leaving
everyone at virtually the same relative position as they would have been in
the first alternative. The international competiitiveness implications are
another matter.

If  "living wages" are a prerequisite, let them apply to all, not just
transit workers or other public sector workers who through their unions are
able to directly access the political process to aggrandize themselves at
the expense of all others (rich and poor) --- let the minimum wage be
increased to whatever level is necessary, say $25,000 per year for everyone.
Though, as indicated above, that will get us back to market, after a good
bit of inflation.

The simple point is this. Is the purpose of transit policy transit, or is it
employees? If it is the latter, then let us move it into the arena of labor
policy, and recognize the reality that transit will make net incremental
contributions to society only to the extent that any excess is left over
after labor has been paid its monopoly profits. Transit's obligation to its
employees is the same as that of any other organization --- to provide
working conditions that meet legal requirements and market rate
compensation. If they fail to do the latter, they will have no employees.
But where the interests of employees become controlling, as in the US, there
is simply no hope for transit to do more than it does today.... things will
only get worse (and they are).

Best regards,
Wendell Cox
WENDELL COX CONSULTANCY
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