* This is my article in BusinessWorld last Monday, July 16.
Government has the tendency to throw its weight around,
especially affecting people and private enterprises that it regulates. If
players are deemed “friends” or crony of the administration in power, they
enjoy kid-glove treatment, allowing them to get off lightly in terms of
penalties and fines. Otherwise, if the players are outside the circle, they get
hefty fines or threatened with closure.
When Uber was still operating in the Philippines, the
Land Transportation Franchising and Regulatory Board (LTFRB) slapped it with
multiple penalties: (a) Suspension of operation for about a month or two, (b) a
fine of P190 million, and (c) required Uber to give allowances to their drivers
while the suspension was in effect.
Taken together, these fines plus legal costs have been
estimated to reach P500 million or higher, a huge amount.
Last week, the LTFRB fined Grab P10 million for charging
two pesos per minute on trips taken by its passengers, saying that it didn’t
approve these fees.
Meanwhile, passengers have agreed — and continue to agree
— to pay for these fares, even before they take trips using ride-sharing
platforms, including Grab.
If passengers are unable to afford ride-sharing services,
they have the option to take regular taxis, UV expresses, or a combination of
other modes of transport.
Most commuters have refrained from using ride-sharing
services owing to their cost. Only about 2.7% of the total number of commuters
use ride-sharing.
FARE CONTROL
The LTFRB uses two price control policies: (a) surge
price control to twice the fare amount, which was later cut down to 1.5x, and
(b) abolition of P2/minute charge as a mechanism to offset the big decline in
(a).
We now try to show the effect of these two measures on
both passengers and drivers.
In the graph below, Pm and Pc means Market Price and
Controlled/Capped Price. Likewise, Qm and Qc means Market Quantity and
Controlled/Capped Quantity.
When there is no price control, when Pm prevails,
passengers and drivers agree at point A and passengers get a ride soon,
resulting in short waiting times.
When price control is imposed, when Pc prevails, those
policies remove incentives of many drivers to go to high traffic areas to pick
up passengers. This reduces the supply of drivers during the times when they
are most needed and makes the supply curve shift from D1 to D2.
Passengers’ waiting times become longer, prompting some
of them to take regular taxis — assuming these are readily available — or take
multiple transport modes to reach their destinations.
So passengers’ demand curve also adjusts to the left,
from D1 to D2. Only those desperate to get a ride-sharing service would stay
and wait longer until a car arrives, and they meet at the new equilibrium or
market-clearing price at point B.
The move from point A where Pm prevails to point B means
movement from Qm to Qc. The difference between the two represents the unserved
passengers and bookings, people who are forced to either take cabs or multiple
rides.
Taking multiple rides is fine if one is wearing casual
attire, or not carrying valuables such as laptops, documents, and cash, or not
accompanying a child or an elderly person.
Are passengers given more “safe, convenient, affordable
ride” at point B than point A?
If LTFRB Chairman Martin Delgra and party-list lawmaker
Jericho Nograles are asked this question, very likely they will say: Yes.
After all, they have drivers and vehicles, all funded by
taxpayers and are not subjected to long waits to get a ride.
If the ordinary passengers and ridesharing companies and
their partner-drivers are asked, very likely they will say No. Passengers are
forced to wait longer, even if they are willing to pay higher prices for their
trips and drivers experience lower income.
FRANCHISE CONTROL
A related issue is the franchise control policy of LTFRB.
It limits or puts a cap to total number of cars available for ridesharing
platforms.
When Uber exited the region last April, it had 19,000
drivers in the Philippines but only 11,000 were absorbed by Grab because LTFRB
did not accredit the remaining 8,000. This alone created a huge backlog in
terms of getting rides.
If the LTFRB removes its franchise control policy, at
least 10,000 new drivers and cars would be on the road.
That decision will help entrepreneurship and allow
Filipino workers abroad to finally stay at home with their families.
The graph can also apply here.
No franchise control means the supply of cars will be at
Qm and passengers and drivers can “meet” at point A. With franchise control,
the supply of vehicles will be at Qc and the supply curve moves from S1 to S2.
Passengers will have longer waiting times under S2 and some
will take other transportation services like regular taxi and multiple rides.
So passenger demand will move from D1 to D2. The shift from Qm to Qc means more
inconvenience, more unsafe passengers even if they have the extra money to pay
for higher fares.
If government via LTFRB is sincere in helping the public
get “safe, convenient, affordable rides,” it should remove its fare control and
franchise control policies.
If LTFRB officials are retiring soon, they should aspire
for goodwill from the passengers and ridesharing companies they are regulating.
Retiring with ill will from the public is not a good way to leave.
Bienvenido S. Oplas, Jr. is President of Minimal
Government Thinkers, a member-institute of Economic Freedom Network (EFN) Asia.
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See also:
BWorld 228, Fare control makes it difficult to get a ride, July 15, 2018
BWorld 230, US-China ‘trade war’ and PH federalism, July 17, 2018
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