[sustran] Re: The Private Provision of Public Transport

[Brendan Finn]

Some further thoughts on the mail of Eric Bruun on the topic of private
provision of public transport. I would like to stimulate discussion and
argument from people throughout the Sustrans community, especially in Asia
where there is such diversity of situations and responses.

I have avoided putting in examples to keep the e-mail reasonably short and
focus on issues. A paper that I presented at TRB in Washington earlier this
month covers some of the material, and I will e-mail it on request.

1) First, a warm thanks to Eric for getting to the kernel of the issue with
practical examples, and challenging simplistic ideas that private provision
of transport is best without defining what "best" actually means, and who
are the beneficiaries.

2) After Jonathon Richmond posted his advert to Sustrans I visited his
website and read his conclusions chapter. It's a reasonable read, since
anyone familiar with the area can easily see where the supported facts end,
and the opinion begins. Even though I don't agree with all his opinions,
nothing wrong with him having them. The facts are useful and interesting.

3) Eric's key point is one that I have also encountered in researching
regulatory frameworks and meeting transport authorities in developed
countries over the last year. Where containing cost is the key motivation
for competitive tendering or other forms of private participation in the
transit market, then contracts are won on price (sometimes subject to
certain defined operator competence and quality).

Since labour accounts for 60-75% of total bus costs (depends on ratio of
labour to capital costs, local economy, staffing levels) then the only way
to win is drive down labour costs. And since it's an awful lot easier and
quicker to just pay lower wages than to build productivity and quality, it's
not surprising that competitions are won through shedding labour, shedding
senior staff, cutting hourly rates and overtime, deskilling etc.
Value-adding functions are stripped out along with other overheads, so the
operating company reduces to being a unit of production.

This situation lasts until :

a) The economy picks up and the labour market shrinks. Then, there is either
an upward pressure on labour rates or you cannot recruit and retain the
quality of staff needed for bus services.  Either the contract price goes
up, or the quality suffers badly.

b) The basis for competition is eliminated through domination, consolidation
or collusion, and bid prices rise in the knowledge that there is little
prospect of real competition.

In four cities that I recently visited, bid prices have shown a big increase
in the last year.

4) Some commentators will argue that the market always responds. My
observations are that this is not the case in urban public transport. Once
there is a dominant operator, or staking out of turf among the incumbents,
there is no motivation for them to hurt each other competing for each
other's core business, and they will quickly see off any newcomer.

5) The alternative approach is to make price just one of a number of
criteria, thus reducing the focus on wage cutting, and instead concentrating
on the qualities of potential bidders in terms of quality, market
development, innovation, integration, stability, investment in mobile and
human assets. This means that big public purse savings cannot be made up
front, more modest savings can be achieved while keeping quality and
stability. Transport authorities need to ask themselves, do they want cheap
transit, or good transit ?

6) Incidentally, public provision is often beset by problems as well.
Unresponsive, inefficient services at high public cost are often the result
of unmotivated management and intransigent labour, and a lack of a clear
vision of the role to be played by transit. Advocates of the public sector
will have to admit that reforms and efficiency often only come as a result
of actual competition - legal or illegal.

7) But what of cities in developing countries, or where the economy is weak
or in turmoil ? Here, the public provision may be quite weak, and the
private sector participation is necessary to meet the needs of the citizens.
In some cases this is well structured, in others it is chaotic. Is the
experience of the developed countries relevant for them ? Or indeed, what
can developed countries with their protected markets learn from the
diversity of private sector participation in countries they consider to be
less developed ?

8) One thing is for sure. Private entities have no public sector
motivations. They will by their nature seek profit at lowest cost and risk,
will tend towards domination and monopolistic behaviour, and after an
initial competitive phase will seek to secure their markets and minimise
risk. They will not innovate unless they have to. Over time, they also tend
towards inefficiency, and may require drastic reform to regain
competitiveness.

There is nothing wrong with engaging such entities for provision of public
transport as long as their nature is understood, and the public purpose is
assured through the transport authority by way of contract/franchise
conditions and intervention mechanisms.

Sorry for the length of this e-mail. I welcome any discussion or argument on
these points. It would be useful to get the strands from different parts of
Asia and South America, and see where this leads us.

For the sake of the members of this discussion group, please remember that
specific questions (or requests for my paper) can always be sent directly to
me, rather than posted to the group as a whole.

With best wishes,


Brendan Finn.
______________________________________________________

Please note contact details as follows :

Address : 28, Leonie Hill, #02-28 Leonie Towers, Singapore 239227
Mobile : +65.94332298     Tel : +65.7340260   Fax/Tel : +65.7340412
e-mail :  bfinn at singnet.com.sg        Website  :
http://www.europrojects.ie/etts
----- Original Message -----
From: <BruunB at aol.com>
To: <sustran-discuss at jca.ax.apc.org>; <sustran-discuss at jca.apc.org>
Cc: <pucher at rci.rutgers.edu>; <eds2 at columbia.edu>; <nhmw at mit.edu>;
<vuchic at seas.upenn.edu>
Sent: 01 February 2002 00:56
Subject: [sustran] Re: The Private Provision of Public Transport


>
> I am familiar with some of Jonathon Richmond's writing. He can not be
> characterized as "non-ideological" and therefore "objective". He is
> right-wing in his political viewpoint. Much of the benefit of the
> privatization follows only if you share his values.
>
> I will be the first to admit that a dose of competition through
contracting
> out could improve some of the big-city public transport operations in the
US
> and elsewhere. I see it every day at my local agency SEPTA in
Philadelphia,
> where nothing ever seems to improve. Even if the wages were about the
same,
> competitive contracting would decrease the featherbedding and improve the
> manners of the large minority of rude employees who have contact with the
> public.
>
> On the other hand, the benefits from privatization are often just from
> cutting wages, which should be distinguished from other efficiency gains.
> Believing that driving wages as low as possible is good and disrespecting
the
> right of workers to collective bargaining is not "non-ideological".
Richmond
> listed 5 agencies in the US to discuss as positive examples of private
> contract operation. I know something about 4 of them, and want to add some
> additional considerations.
>
> Indianapolis has rock-bottom wages but also has by any standard one of the
> worst public transport offerrings of any major US city. Does he show equal
> concern for the skeletal service being offered as he does for the high
> "cost-efficiency"?
>
> Las Vegas may keep costs down on a per service hour basis, but service is
> quite slow, unreliable, and minimal for a city its size. A faster service
> would serve the community better. At the same time, the efficiency of the
> system would go up. Does Richmond advocate public policy to favor buses
with
> bus lanes, signal priority, etc. if he is so concerned about efficiency?
One
> could pay higher wages yet still operate as many kilometers every day.
>
> Again, San Diego's efficiency stems largely from low wages including the
use
> of prisoners to clean vehicles. But it also stems from light rail lines
that
> operate on separate rights-of-way and from operating truncated bus routes
> that connect to it. This kind of network is not possible when there is
> free-entry market and deregulation. While Richmond may be right that there
is
> room to fill service gaps with locally run smaller buses, the UK
experience
> shows that deregulation causes uncoordinated and unconnected services and
> consequently large overall ridership losses.
>
> The Los Angeles MTA, like SEPTA, is an example of big-city operations
where
> well paid unionized workers have opposed efficiency increasing measures.
But
> Foothills Transit, the contract operator that was awarded part of the
> previous MTA service area, in my opinion, is going too far in the other
> direction. It is a low wage operation in a very high cost of living area.
>
> Furthermore, there are often hidden costs of low-wage operations. In
London,
> Transport for London has taken to supplementing wages of bus drivers of
> contract operators in order to slow down turnover, since staff have a hard
> time living on the going rate of 350 pounds per week. My experience is
that
> many agencies in the US are incurring high training and administrative
costs
> from very high turnover rates. When I say "low wages" I mean wages that
are
> so low that people feel compelled to move on when they have a chance,
since
> the income is too low to support a family.
>
> My point is that public transport should be more viewed as an engineered
> system that requires some public investments and coordinated services, and
> less viewed as merely vehicles operating in mixed traffic that consume too
> much subsidy because of "high wages" while ignoring community needs.
>
> Eric Bruun