Fat-Free Econ 14: Traffic, Car-pooling and LTFRB

This is my article today in TV5's news portal,
http://www.interaksyon.com/article/35395/fat-free-economics-traffic-car-pooling-and-ltfrb
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Traffic congestion is an engineering problem with an engineering solution, or a market problem with market solution. Government regulation needs to be kept to the minimum as it often creates more problems than solutions.

One major cause of traffic congestion is the big volume of private vehicles on the roads. And one major reason why people drive their cars in going to work or bringing their kids to school, is because the public transport system is inefficient in many places. If one will take three to four rides from house to office, and take the same number of transfers going back home, many people who have cars would rather drive their vehicles than endure such inconvenience and high fare costs.

One transport innovation that was invented in many private elementary and high schools is car-pooling via school bus or vans. These well-marked vans, accredited by the government and the private schools, would pick up young students from their house to their school and back. It frees the parents and guardians of precious time, fuel and car maintenance in driving the kids to school and back. The kids are also able to socialize with each other inside the vans.

This system can apply to university students and working people. House-to-house pick up of passengers and bring them to a few drop-off points near their universities or offices.

Presently, the government, through the Land Transportation Franchising and Regulatory Board does not recognize or approve this scheme The closest scheme that they allow is the garage-to-terminal or terminal-to-terminal system. This means that people who live in gated villages or in faraway subdivisions, still need to be brought to the buses’ or vans’ terminal by car, tricycle or jeepney.

If the school bus type of car-pooling will be applied, many university students and working people will not be driving their cars or motorcycles everyday. If car-pooling is made more convenient, then many people will gladly leave their cars at home and just sleep or do something else while inside the vans. And road congestion, parking congestion, will be significantly reduced. They can use their cars on weekends or in evening activities.

This new scheme will require new changes on the public transportation system. One, transport branding (bus or van line A, B, C, etc.) will be encouraged and these companies will become more transparent and more accountable to their passengers and clients, as well as to government law enforcement agencies.

Two, route monopoly and oligopoly – by tricycles, trisikad/kuliglig, jeepneys and buses – as assigned by the LTFRB - and the municipal/city government in the case of tricycles – will be disbanded.

Three, fare regulation will be abolished too. Competing brands or bus/van lines will offer good quality units at reasonable fares in order to attract more clients. There will be no need for the government to mandate certain fares as the passengers themselves will decide which bus/van line will offer them the cheapest or more reasonable fares based on certain quality of services (new vans, wider seats and legroom, etc.).

Four, the procedures, taxes and fees to get a bus/van line franchise should be kept to the minimum. Offering a service to the public like car-pooling is not a criminal activity and hence, should not be penalized with circuitous processes, multiple taxes and fees, and bureaucratic red tape.

It is possible that certain public transportation modes (tricycles and jeepneys), the LTFRB and local government units, will not support this scheme, at least initially. People are rational; if demand for tricycles and jeepneys will decline while demand for vans and buses will increase, then operators will get those vans and join the competition.

It is the LTFRB that will most likely offer the stiff opposition because their regulatory powers to (a) give franchise to individual jeepneys and vans, (b) set route monopoly or oligopoly, and (c) set fares will be diluted if not abolished.

Fare setting should be depoliticized and debureaucratized. Companies that offer better services like more modern and more comfortable vehicles, more courteous drivers and fare collectors, drivers who obey traffic rules and have minimal to zero involvement in major accidents, can charge higher fares. Those who have older and less comfortable vehicles can charge lower fares.

The commuting public, support groups like NGOs, media and local politicians, can convince the LTFRB and LGU bureaucracies, to drop their opposition. The scheme is working well for private school car-pooling, it can work in car-pooling for working people and university students.

This does not mean zero role for the government transportation agencies like the LTFRB and DOTC. If public transportation providers violate their contracts with their passengers – say hiring reckless drivers or not maintaining their vehicles in good condition, resulting in some major accidents causing injuries if not death to passengers – government comes in to enforce contracts, to promulgate the rule of law.

Public transportation is 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.

Less government intervention and monopolization, and more economic freedom, more competition among private enterprises, is the best way to lessen traffic and pollution.
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See also:
Transport Econ 1: Public Transpo Regulation, December 19, 2007
Transport Econ 2: Small-Scale Monopolies, April 22, 2010

Transport Econ 3: Brand Competition Among Jeepneys and Buses, August 20, 2010

Transport Econ 4: Tricycles, November 15, 2010

Transport Econ 5: Trisikad, June 22, 2011

Fat-Free Econ 11: GDP Growth and Private Sector Role, June 02, 2012

Fat-Free Econ 12: Privatizing PAGCOR, June 08, 2012

Fat-Free Econ 13: P2 Trillion of Election Spending and Taxes, June 15, 2012

Transport Econ 3: Brand Competition Among Jeepneys and Buses

A friend, Benson Te, posted a good article today, Can Government Prevent Disasters? It's about his reaction to new government moves to further regulate buslines and bus drivers in order to "prevent future accidents."

Benson observed that

regulators are obsessed with rules and NOT with pleasing the consumers. Yet rules don’t and won’t incorporate everything that is known for the benefit of society. The fundamental premise of which anew is the Knowledge problem and of the interest of diverse groups involved in shaping the laws.


So instead of looking for the welfare of their clients or the consumers, industry providers will be forced to pay attention FIRST to comply with the web of laws.

And he made this concluding statement,

you don’t need more government intervention, what you need is more competition and judicious facilitation of tort laws.

I agree with many points that Benson wrote, especially on the role of allowing more competition among more industry players. But I will suggest that we specify and qualify the term competition: that there will be brand competition.

Jeepneys, tens of thousands of them in the Philippines, compete with each other on various routes, but they have no corporate brand, they compete as individual units. Thus, they can be reckless and discourteous (like stopping in the middle of the road) and they risk not losing any credibility or brand reputation.

Bus lines compete on brand: Victory, Five Star, Philtranco, Penafrancia, Dagupan, Ceres, Jam, other local bus lines. When just one bus of any of those bus lines meet an accident, especially involving death to many passengers, the whole brand or the entire bus company is affected. Passengers would shy away from that busline, thinking that drivers of that bus company maybe over-worked and over-fatigued, or underpaid and have low morale, or the company hires undertrained and underqualified drivers, and so on.

With competition among buslines that keep their brand reputation, internal control among bus companies become strict. The pressure to bus drivers not to be involved in any accident -- zero accident goal -- is high. And this protects passengers.

Zero government regulation will be needed there as self-regulation is strict and efficient.

Back to jeepneys. I think either we abolish the Land Transport Franchising Regulatory Board (LTFRB), or we change its mandate to promotional, not regulatory, of transpo franchises. All jeepneys should belong to a jeepney corporation or cooperative, they should belong to a particular jeepney brand. A jeepney brand, say brand A, will have a distinct corporate or coop entity, will have one design, and can field jeepneys in various routes. Operators and owners of individual jeepney units will pay to the jeepney corporation or cooperative, the brand, and the brand will provide various services to the jeepney operators. Like continuing driver education and training, good maintenance of units, advertising the brand to attract more passenger loyalty, etc.

Passengers will remember the brand -- more courteous drivers, they don't over-charge, they follow traffic rules, they don't stop in the middle of the road, more comfortable units, drivers don't overload their jeepneys, etc. Those brands that have ugly record and have no reputation will go bankrupt. Or they will be forced to improve their services to regain passenger loyalty.

There is practically zero government role to improve the services of jeepneys. Government comes in only in disputes like accidents and there are casualties. Government enforces the rule of law -- laws to protect passengers' right to life, right to safe travel.
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* See also:

Transport Econ 1: Public Transpo Regulation, December 19, 2007

Transport Econ 2: Small-Scale Monopolies, April 22, 2010

Transport Econ 2: Small-Scale Monopolies

(Note: this is my article for "People's Brigada News", last week of March 2010)

When we talk of monopolies and oligopolies, people often think of the large ones, like power and energy monopoly, airline and shipping monopoly, telecommunications and water monopoly, and so on. People seldom talk, even "forgive", small-scale monopolies. Like jeepneys, tricycles, and pedicabs or "trisikad".

It is true that there is no single jeepney (or tricycle and trisikad) operator that monopolizes the industry. But they as a group monopolize a particular route. That is, jeepneys from various owners/operators and drivers monopolize a particular route, buses and vans are banned there. Tricycles from various owners/operators and drivers also monopolize a particular route (usually from village gates to the main road), jeepneys, vans and buses are banned in that route.

When a route is granted by the government to be monopolized by buses or jeepneys or tricycles (ie, only one of them can take that route, all other public transportation except taxis are banned), commuters have no other choice except to bring their own cars, or take the cab. Both options are expensive considering the high prices of fuel products, traffic congestions, high parking fees, and dangers of carnapping or towing by some local governments, if one brings his/her own car.

The monopolists almost always do not strive to improve their vehicles anymore. Even if their units are old and dilapidated, smelly and mutilated, they often do not care. They know that non-rich riders and commuters have no other option but take their dilapidated and/or over-loaded vehicles, so why bother and spend money to improve their vehicles? Better use the money to bribe government officials so they will keep the route monopoly and keep away competition from more modern, more comfortable public transpo like air-con vans, new and more modern bus lines.

Take the Ayala-Washington route in Makati, for instance. Ayala Avenue is the country's prime financial district. While there are buses and air-con vans from the northern part of the metropolis that pass this road, there are none coming from the southern part. So passengers from the south get off from the MRT Ayala station and take the jeepneys that ply the Ayala-Washington route. There are no alternative air-con vans, only taxis and the often rickety and smoke-belching jeepeneys.

So you can see in the country's prime and famous financial district, sometimes dilapidated side by wide with new model and expensive cars, competing for road space. What is worse is that jeepney drivers overload their vehicles. A jeepney that can comfortably seat 8 passengers on one side is being packed with 9 passengers, otherwise the driver will not move the vehicle. Again, jeepney owners and drivers do not bother if their jeepneys are smelly and ugly, they are aware that passengers who have no cars and cannot afford to take taxis, have no other alternative but ride their jeepneys.

Some people propose that government should phase out jeepneys and tricycles in many areas of Metro Manila. I do not agree with this proposal because this will involve coercion and charges of government “favoritism”. A better option is that the government will (a) not grant or create monopoly franchises to jeepneys and tricycles in particular routes, (b) allow various options of public transpo, the air-con vans and buses in particular, to compete with jeepneys and tricycles, and (c) deregulate fares. This way, it will not be the government that will phase out -- or at least force the improvement -- of those jeepneys and tricycles, but the passengers themselves. When many people will not ride jeepneys and tricycles, the latter will be forced to either improve their units, or bring down their fares to attract passengers, or abandon the route and bring their jeepneys and tricycles to areas and routes where the vans and buses are either absent or have weak presence yet.

Many countries with big population do not have jeepneys and tricycles, only buses and trains. Even for rich countries with small population, like Singapore, Hong Kong and Malaysia, they do not have small-passenger public transpo like jeepneys and tricycles. They only have buses and trains.

The Philippines need not jump into the extensive and expensive train system. The government needs only to step back a little and de-monopolize certain routes to allow the entry of more comfortable vehicles to serve passengers who do not have cars and are poor enough to take the taxi everyday. Competition among various public transpo providers will empower passengers.

* See also Transport Econ 1: Public Transpo Regulation, December 19, 2007