“there’s no reason why you should assume that because something owns something privately, it’s going to be any better run. Private businesses make mistakes, too.”
-Michael Cullen, Ex-Minister of Finance, New Zealand
Public transport issues are a mainstay in the local sociopolitical discourse. In a country where privately-owned vehicles carry a hefty price tag (think of all the acronyms COE, PARF, ERP, etc..), the majority have to rely on buses and trains to commute. Given the size of Singapore, as well as the costs of machinery/infrastructure, the public transport business is a natural oligopoly (duopoly, if the other minnow-sized private operators are discounted.) The market power to determine prices that the transport giants hold is only kept in check by strict regulations by Public Transport Council, which conducts fare adjustment exercises annually.
The cap to which fare revisions are allowed “is based on a formula that takes into account current economic conditions, average wage increases as well as productivity gains of the public transport companies. It also allows fares to be lowered when the economy is in deep recession.” (Source: The Straits Times, 23 March 2007) A list of fare revisions from 1990 onwards can be found here at PTC’s website. There hasn’t been a revision that decreases fares from the available data. It seems that the 1997 Asian Financial Crisis, and the 2001-2002 Global Recession are not considered to be “deep” enough to warrant the lowering of fares. Another point to note is that “In the past two years, the operators cited higher oil prices as the main justification for a fare rise.” (Source: The Straits Times, 23 March 2007) However, Transport Minister Raymond Lim explained: “This is because the public transport fare is not directly linked to the oil prices. We link it to national factors, like the inflation level in Singapore, and the wage level in the whole of Singapore.” (Source: Channel NewsAsia, 21 December 2008)
Most recently, talk has been centered around the Transport Minister’s comment that public transport can be free with a 1.5% increase in GST, which reportedly will cover the S$1.2 billion it takes “to run the bus and train systems annually.” (Source: Channel NewsAsia, 21 December 2008) A bit of background: GST is a consumption tax, which unlike direct taxation (e.g. income tax), is not charged separately, but is concealed in every end-consumer’s purchase price, which is how it earns the nickname “stealth tax”. However, unlike how progressive income tax where the high-earners pay most of the tax collected, the tax effect of GST is felt harder by the lower income as spending on necessities form a higher percentage of their income.
However, since expenditure on public transport is the only option that these lower income earners have, having the raise in GST would more than offset the savings from free transport. With some arbitrary assumptions, transport costs of $4/day*5days*52weeks=$1040 is much more than a GST increase of 1.5%*$2000/month expenditure*12months=$360. Of course, this is contingent on the Minister’s comment being roughly accurate, and notwithstanding the actual realities of implementing said proposal.
“Competition enhances efficiency and keeps costs competitive.
…
Our intention is to introduce competition “for” the market, where operators compete periodically for the right to provide a package of bus services designed by LTA. They will have to fulfil service obligations or risk being replaced when their term is up. This is different from competition “in” the market or head-on competition for market share, which would be detrimental to an integrated public transport system where the emphasis is on co-operation to grow the overall pie.(Source: SPEECH BY MR RAYMOND LIM, AT THE LAUNCH OF THE LAND TRANSPORT GALLERY, 18 Jan 2008)
Competition is only as efficient as it it close to perfect. The less perfect the market, the higher the profits to business, and the lower the public good. The two transport corporations have been making growing profits over the years, despite claims of rising costs. Does this reflect that perhaps the public transport market is less suited to the free-market? I guess the answer lies in whether public transport exists as a public good, where the citizen is the customer, or a private service, where maximum profits are the objective. In all optimism, I’d like to believe that public transport should be a public good, as with public utilities, defense, telecommunication, which was why these industries originated as public companies. Reasons for being state-owned vary, ranging from national security (defense), unprofitability (common goods like street lighting), to monopolies (utilities). The only reason for departure from the status quo, to privatization, would be if the free market would be able to do a better job. Efficiencies from competition come about only from efficient competition. Anything less requires regulations to prevent collusion and cartels, in an attempt to restrict Smith’s “Invisible Hand” from straying.
So then could the indicators of low competition and high profits signal that the government could do a better job at running the system? SMRT and SBS made a combined operating profit of close to $200million for FY2007. Free public transport might be a bit of a stretch, but public transport as a public service could definitely be more efficient with a world-class government right? (We ARE paying them top-tier corporate salaries no?)
Indeed, any argument against privatization is almost heresy, when then de facto economic school of thought say the opposite. Yet how it became dominant is puzzling, when its introduction is recent relative to civilization, and its results inconsistent. Perhaps now, in the midst of recession, would it be properly evaluated.
