Wednesday, December 19, 2007

Transport Econ 1: Public Transpo Regulation

In many countries around the world, public land transportation is either a government monopoly or privately-run but highly regulated. The logic of government monopolizing public land transportation (or air and sea transport or health care or education, etc.) is along socialist and central planning philosophy: prevent “chaos” by the free market and unregulated competition. Thus, government will plan which roads and places will have public buses and/or trains and which ones won’t have; which time of the day the buses/trains will ply, and which time they won’t be available; how much will be charged to passengers as fares and how much to be charged to taxpayers as subsidies to those buses; and so on.

In the Philippines, all those buses, jeepneys, vans and tricycles are not government-owned and controlled. They are privately-owned but government-regulated, so competition is often limited. Here’s how.

One, routes are regulated and certain sectoral monopolies (like tricycles or jeepneys) are created by giving certain routes exclusively for them. Passengers on the monopolized routes have no other option to take other public vehicles unless they take a taxi which is more expensive.

The effect of route regulation and monopolization is this: Some people who live about 20 or more kilometers from say, Makati, take 3 or 4 rides: (a) tricycle from their village or barangay to the main road, (b) jeepney or van or bus to the train station; (c) train (MRT or LRT); then (d) jeepney or van again to designated stops near their offices or schools. Tricycles are monopolies created by the municipal or city government; train is a “natural monopoly” and some routes are often monopolize by jeepneys, like the Ayala-Washington route.

The various transfers alone from tricycle to jeep or van to train to jeep again are already very inconvenient; total fares are relatively high too, and many of those tricycles and jeepneys that were assured route monopolies are ugly if not dilapidated and notorious smoke belchers. They also tend to squeeze passengers, like forcing a 16-seater jeepney to pack 18 passengers. These inconvenience force many people to buy and use their cars from their house to their office, or school for their children.

Two, getting a license or franchise to run and operate public vehicles is highly regulated, bureaucratic and costly. Some businessmen, possibly friends and buddies of those in franchising regulatory agency, get a franchise, others don’t. So some of those in the latter group operate illegally, the so-called “colorum” vehicles.

Three, fares are regulated, like minimum fares for tricycles, jeepneys, taxis, vans and buses. Fare regulation discourages some private bus and taxi operators to introduce newer and more convenient units because there is a cap or maximum fare that they can charge passengers. Some bus operators do introduce newer buses but they have to take in as many passengers as possible to maximize revenues, which results in over-crowding of these new bus units, which discourages some people to ride those new buses and force them again to use their cars or motorbikes.

If fares are deregulated, some bus lines can charge higher fares so that they can give better service to their passengers (like non-crowded and comfortable buses), then many of those car-riding people may be encouraged to leave their cars behind and take the buses. Those bus lines cannot “over-charge” their passengers because the latter have the option to take other bus lines that are cheaper, or ride their cars or motorcycles. Budget-conscious or poorer passengers will patronize cheaper bus lines which may have older and non-air-con units, and tend to pack their buses with squeezing passengers.

Fare regulation in taxis work against passengers. Petroleum prices have increased several times over the last few months yet the fares have remained unchanged, because the government’s franchising and regulatory board has not approved any fare hike yet. One can conclude that fare-setting is not a function of the price of petroleum products and other operating costs, but of approval by the government regulatory office. That is, fare-setting has become politicized, something that should not be done. So some taxi operators do not maintain their units well to save on operating costs, and their taxis are ugly and dilapidated. Also, some taxi drivers always ask for “additional charge” on top of the fare reflected in their taxi meter to reflect the higher cost of gasoline, which makes taxi fares less transparent and subject to arbitrary setting by some taxi drivers. If the passengers will not agree with this, the taxi drivers can opt not to take them in. And so some people are again forced to bring their cars to avoid “over-charging” taxi drivers.

It is evident that it is the government – through its various regulation and monopolization plicies – that force many people to buy and use their cars more frequently, which worsens traffic congestion, which increases gas emissions, and which worsens global warming situation. And government says it wants to “fight” global warming too, something that is improbable because all it does is resort to more regulation, if not more monopolization and more taxation.

Public transportation is essentially a “contract” between passengers and public utility operators and drivers. Those that offer bad service (including frequent incidence of passenger hold-up) or unreasonable fares will lose their passengers and they will go bankrupt naturally. Those that offer good and safe service even at higher fares will keep their passengers and their business will naturally expand.

Let there be less government monopolization, regulation and intervention, and more enterprise competition, in public land transportation.

No comments: