[sustran] Comments in Re Chris Zegras on Profitable urban transit

[Wendell Cox]

Comments from Wendell Cox (US) on following.....

>Dear sustran-discussers, another relevant posting from the alt-transp list.
>
>From: Christopher Zegras <chris at mailnet.rdc.cl>
>Date: Mon, 18 Aug 1997 16:29:52 -0400
>Subject: Profitable urban transit
>
>Dear all,
>
>Recently, the following was included in an Abhay posting:
>
>>There will never be for profit private transit because it is virtually
>>impossible for transit in middle income (eg. Israel) and rich countries to
>>break even.  Transit costs 5x times autos per passenger mile including
>>social costs and access times.
>
>Is it really *impossible* for transit in middle income and rich countries to
>break even? I recently read an article (which was also recently referred to
>another alt-transp posting) on "illegal" jitney services in the nyc area;
>while not legal (according to the article I read, transit unions refuse to
>allow these services to be legalized), they are surely profitable transit.
>And, if legalized they would probably become a lot more safer and perhaps
>more widely used, even beyond low-income users.
>
>
Not impossible --- Miami had a very successful jitney operation, driven out
of business by the transit authority's political influence in the state
legislature. In early 90s was carrying more people than the area's $1
billion metro system --- and with not a farthing of public subsidy.

There is doubtless considerable market for similar services in some (not
all) US metropolitan areas, but almost without exception laws and
regulations simply prohibit their operation.

Don't forget the UK outside London, where 75 percent or more of public
transport services are profitable, with the balance secured through
competitive tender by public authorities. I have been critical of this model
because of its apparently poor record in maintaining ridership compared to
the London model, which is full conversion of the system to competitive
tendering.

In London, LT bus services are close to covering their operating and capital
costs --- something over 90 percent. Achieved by the ongoing conversion to
competitive tendering --- about 60 percent complete now. No unreasonable to
think that LT bus services could eventually be profitable as the conversion
is completed. This has all been accomplished since 1985 while bus kms have
expanded by 30 percent and ridership has been maintained at slightly above
preexisting levels.

I ask this question, though, wondering the fate of the profitable transit
>services operating in Chilean cities, other latin american cities and other
>parts of the developing world.  History from the industrialized world
>suggests that as auto ownership continues rising, passenger mode share
>shifts, and the famous vicious circle of transit decline ensues.  Indeed,
>the primary cause of Chile's profitable bus operators is their "captive"
>market; demand is inelastic since no real subsititue exists.  So, do we
>accept Abhay's "never" as a fait accompli, that in the future the privately
>run and profitable buses plying Santiago's (chile) streets will soon become
>reliant on subsidies for survival?
>
Not necessarily. The critical issue is to ensure that the public transport
system is delivered at market costs. The western European-US model that
developed from the 1930s-1970s failed grandly on this score. When Herbert
Morrison established London Transport he assumed that public ownership would
produce better service at lower costs because there would be no profit
motive and the workers and managers would work for the public good. This was
(in retrospect) naive --- the missing ingredient was the recognition that
human beings populate both public and private organizations --- that they
all are interested in their own good more than the good of society (well at
least most of them). The result is the same thing that happens when
government sanctions private monopoly --- costs rise above market rates and
service suffers.

It is true that increasing auto ownership has a devasting effect on public
transport ridership --- this is vividly shown by the recent experience in
former east Germany, documented by John Pucher at Rutgers (US) --- I believe
that his analysis shows auto market share to have converged to former west
German levels in considerably less than a decade.

That does not mean however that unprofitable operation is pre-ordained.
Major portions of public transport systems in the US would be profitable if
operated at market rates. The same might be true in Europe (certainly is in
the UK).

>Even though the case for some level of subsidy for bus systems has been
>effectively argued for decades (Mohring, Herbert, 1972, "Optimization and
>Scale Economies in Urban Bus Transportation," American Economic Review.),
>the implementation of subsidies has been much less than optimal in most
>places and the neo-liberal Chilean market considers such discussion
>anathema.  So, the quesion becomes what will become of the Chilean bus
>market as it loses its "captive" market?  We can only hope that Chile's
>moderately regulated public transport market can respond as good capitalists
>should do and offer services which can continue to compete with the
>competition.  The possibilities for this to occur will soon be seen with the
>launching in Santiago of a luxury "Executive" bus service to attract upscale
>auto commuters.
>
>We should be careful in assuming that what has happened in the United States
>and other industrialized countries is the inevitable future for all.  I
>cannot agree that it is virtually impossible for transit to break even and
>would argue that Chile is already a working example, since it is now defined
>as "middle income" (whatever that means, its per capita income is still less
>than one-half of Israel).  The interesting thing will be to see where Chile
>and similar countries go; I would argue that the U.S. could already learn a
>thing or two about public transportation system management from the Chilean
>model.  Might bus companies in the U.S. some day again turn a profit?
>
Possible... see above.

What has happened in the US is a scandal. Public transport policy has become
nationalized through federal porgrams that are driven by special interests
--- most importantly organized labor. One provision requires six years
severance payments to redundant (laid off) employees. Infrastructure
development interests --- including both contractors and public officials
--- have hijacked capital development programs in such a way that rail
systems are routinely chosen to improve public transport. This in an urban
environment where such systems provide capacities well in excess of need,
and thereby make it impossible to provide the type of metropolitan area wide
improvements that might expand public transport ridership.

During the 1980s, public transport market share dropped in 37 of 39 US
metropolitan areas over one million. From 1990 to 1995 market share dropped
as much as in the 1980s (1980-1990). Yet advocates of more public funding
for transit tend to paint a picture of success and growth that is not
supported by the facts.

This illustrates the driving force in US public transport --- its purpose
(based upon its performance and apparent priorities) is the acquisition of
additional public support. Never mind that more than 3/4 of the new
subsidies received since 1970 have gone to higher unit costs (such as cost
per KM). LIttle attention to customers --- little attention to markets ---
and marketing departments that perceive their role as encouraging people to
use the services that the public transport agency provides, rather than
providing the services that the public wants. The demise of US public
transport has primarily to do with the fact that the pursuit of public
subsidies has become more important than the pursuit of customers (and the
pursuit of public money --- while very successsful, has resulted in
virtually no ridership growth and substantial market share loss).

A good deal of US public transport data will be found on our website noted
at the bottom of this message.

Best regards,
Wendell Cox
WENDELL COX CONSULTANCY
International Public Policy, Economics, Labour, Transport & Strategic Planning
The Public Purpose: Internet Public Policy Journal
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