Sagacity central
21 August 2017 23:37 (South Africa)
Opinionista Ivo Vegter

Public mass transit: Nobody gets it right

  • Ivo Vegter
    IvoVegterBW
    Ivo Vegter

    Ivo Vegter is a columnist and the author of Extreme Environment, a book on environmental exaggeration and how it harms emerging economies. He writes on this and many other matters, from the perspective of individual liberty and free markets. He is seldom wrong.

Public mass transit has rarely been a profitable proposition. Governments around the world sink billions into their favourite transport systems, and almost always, the taxpayer foots the bill for a constant drain on the public purse.

In the Mail & Guardian of 27 July, Ghalieb Dawood asked whether we’re getting public transport right. Dawood is the manager of provincial budget analysis at the Financial and Fiscal Commission, a statutory body that is required by the Constitution to advise Parliament on matters related to public spending.

In his article, he answered his own question: “Projected operational shortfalls of urban transport networks are well in excess of what most cities can afford.”

Clearly, then, we are not getting public transport right. A system that is a constant drain on the public purse, to the extent that it becomes unaffordable, is one that will inevitably decay and, if not bailed out, collapse.

South African Airways is an infamous example. It extracts billions of rand in bailouts from government every few years. In return, we get an airline that has unaffordable fares on monopoly routes, and predatory fares on competitive routes in order to force out private rivals. Many valiant airlines have tried to offer better and cheaper services, but not being supported by lavish taxpayer bailouts, most have failed: 1Time, Flitestar, Nationwide, Sun Air, Velvet Sky.

It is no different when governments or municipalities try to implement rail or bus networks. Most major international public mass transit systems do not run at a profit, and are heavily dependent on public funding. Meanwhile, they crowd out private competition.

Perhaps the most famous exception to the rule is the Hong Kong subway system, which turns a profit of $2-billion per year. However, this profit is built on an egregious subsidy from its majority owner, the government, in the form of free land. It receives parcels of land to build its stations and then has the right to develop the property above and around these stations. This makes the operator a major property developer with a competitive advantage that nobody can match. The subway system really acts as a loss leader for the profitable business of running malls and skyscrapers.

Worldwide, there has been a fever for building new mass transit systems among those who advocate a “new urbanism” to combat sprawl and reduce pollution. Everywhere, their ideas appeal to politicians and their corporate cronies who have never been able to say no to multibillion dollar gravy trains.

Many successful public transit systems developed long ago, in symbiosis with the cities they served. They allowed workers to live closer to the country where the air was clearer and property was cheaper, while still being able to commute to work in the city. They supported property development along their routes, or did the property development themselves.

But governments could not leave well alone. They began to regulate public transit fares, and soon forced operators into bankruptcy. Most public transit systems ended up heavily subsidised or taken over by governments entirely.

Tacking a public mass transit system on to an existing city that developed without this symbiotic relationship is even more difficult than allowing a private system to develop and then annexing it to the government.

Dawood mentions a common problem: transport distances in typical South African cities are long, especially between working-class townships and employment in the industrial or commercial hubs of cities. And because our cities did not develop around public transit corridors, in between there’s nothing worth stopping for.

To solve this problem, Dawood proposes “transit-oriented development” which would “create land use patterns that are able to drive a more sustainable demand for transport”.

But that is absurdly ambitious. Redesigning cities, shuffling factories, offices, shops and residents around to better suit public transit would be an insanely expensive and disruptive undertaking. One might hope such a reorganisation would eventually happen organically, but if precipitating such a radical transformation in the short term is the price for effective mass transit, we will not have it for many decades to come.

Dawood cites other problems with new public transit systems. The government mandates requirements for buses and trains that make them very expensive. It also mandates low ticket prices, which improve affordability to the public, but makes these services hard for private contractors to operate profitably. This leads to operational cost shortfalls which inevitably get dumped upon the taxpayer.

Low ticket prices have another effect: undermining the incredibly successful private taxi industry, which has been ferrying poor people between townships and jobs since apartheid first declared blacks to be third-class citizens and dumped them in the sticks without transport. It will also undermine metered taxis, and ride-sharing services such as Uber and Lyft which are rapidly increasing in popularity because they better meet the market’s needs. One might have an ideological or public planning preference for mass transit, but it isn’t right to use government force to destroy private businesses that were built with blood, sweat and tears, and sustain many workers and their families.

Low fares for urban mass transit systems are designed to enable buses or trains to undercut minibus taxis, just as SAA exploits government subsidies to undercut its rivals. Yet Dawood notes: “Poor regulation and inadequate law enforcement allow illegal competition to undermine the urban transport system.”

In his eyes, private operators are the villains. But why should it be illegal for anyone to provide a transport service, provided that their vehicle is safe and their competence is assured? Instead of a profitable transport industry driven by entrepreneurs that go where the demand is, mass transit systems give us a loss-making public boondoggle that costs billions, forces customers to go where the supply is, and squashes private competitors like bugs.

Mass transit systems rarely work, even in rich countries. New York, for example, accounts for 40% of all US mass transit trips, despite trillions of dollars having been sunk into transit systems in other US cities. Expanding services, at huge public expense, does not appear to translate to expanding ridership. There is evidently a ceiling on how many people can be tempted onto mass transit. Expanding such systems merely turns them into financial liabilities, and makes any public policy their expansion might theoretically support – such as lower congestion, or lower pollution – unrealisable.

Economic models to justify investment in public mass transit are notable only for their myopic focus on the transit system itself:

Both capital and operations spending on public transportation lead to impacts on the economy through three categories of economic impact. They are:

  • Direct effects” on workers and businesses engaged in the manufacturing of vehicles and control equipment, construction of guideways and station facilities, and operation of public transportation services;
  • Indirect” effects on supporting industries, i.e. those that supply goods and services to enable the direct spending – including workers in industries supplying the engines, equipment parts, and the steel, concrete, wood and plastic materials that are needed for building vehicles, guideways and station facilities; and
  • Induced” effects on the re-spending of worker income on consumer goods and services – including food, clothing, shelter, recreation and personal services.

You could argue the same thing for absolutely any government scheme. Consider the impact on the economy of a plan to dig a million holes and fill them in again. Such a project would employ lots of people, both in the digging and manufacturing of digging implements. Their wages in turn are spent on consumer goods and services, which boosts the economy around them. Economists would gleefully add their work to the gross domestic product. Yet they produce nothing of value. All this “economic impact” is just a mirage conjured up by wealth transferred from one group of citizens to another, for no economic benefit at all.

Not that the South African government would understand this argument. After all, they require road crews to employ thousands upon thousands of flag-wavers, despite the fact that people are vastly more expensive than flashing warning signs, and produce diddly-squat to justify their wages. If it was up to the government, they would consider the hole-digging project a great success, and would be excited to improve it even further by issuing workers with spoons instead of spades.

Reading Dawood’s article, it is clear that public mass transit systems in South Africa are unaffordable boondoggles, as they are around the world. And that’s before we even count the cost of all the fruitless and wasteful expenditure, maladministration, corruption or fraud that so often accompanies multibillion rand government projects.

Some of the obstacles to affordability which Dawood raises hardly seem surmountable. Yet he concludes hopefully: “If South Africa wants to develop a world-class transport system serving all its people, national government will have to take strong action to implement transport policy. Vested interests in public transport should not be allowed to hinder progress in transport development.”

Translated from bureaucratese, that means government should enact bigger budgets to benefit crony contractors and more coercive regulation to suppress existing private transport entrepreneurs and force more citizens to become riders.

Dawood’s employer, the Financial and Fiscal Commission, has a constitutional duty to advise government on matters of spending. It is curious that instead of advising caution in the face of the serious threats to the fiscus he describes, Dawood appears to encourage local governments to double down on unaffordable projects in the hope that “strong action” will make them affordable.

It so happens that the Financial and Fiscal Commission is itself under police investigation over allegations of fraud, corruption, fruitless and wasteful expenditure, and maladministration. Perhaps its fiscal advice, which seems entirely inexplicable to me, is not the best the government could get, after all. DM

  • Ivo Vegter
    IvoVegterBW
    Ivo Vegter

    Ivo Vegter is a columnist and the author of Extreme Environment, a book on environmental exaggeration and how it harms emerging economies. He writes on this and many other matters, from the perspective of individual liberty and free markets. He is seldom wrong.

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