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Musings

Why Regulation, Not Nationalisation, Should Be The Way Forward For Singapore’s Public Transportation System

Nationalisation does not appear to be a constructive solution to our plethora of woes.

Yes, change must be the new constant for our system of buses and trains; however, nationalisation does not appear to be a constructive solution to our plethora of woes.

The following segments will explore a few key areas: one, why better regulation, and not nationalisation, should be the way forward; two, failure of the Land Transport Authority (LTA) and the Public Transport Council (PTC); and three, tangible, sustainable recommendations for our public transportation system.

Why Nationalisation Is Not The Panacea

The Workers’ Party has been the biggest proponent of nationalisation [1] for Singapore’s public transportation system, but there is a host of potential pitfalls to the plan.

1. The possibility of X-inefficiency [2], with efficiency objectives not taken seriously; furthermore, the presence of possible safety nets – in the form of subsidies or bail-outs – might encourage greater inefficiency.

2. Principal-agent problem, in which the operators on-the-ground are more cognisant and competent than the administrators.

3. There is the challenge of raising capital for long-term investments (since private investments are not feasible, and if industrial relations are poor), and the need to compete with other government agencies or department for budgeted funding

4. Conflicting bureaucratic opinions might render decision-making cumbersome.

Firms, like individuals, respond to incentives. The notion of the profit incentive would encourage public transport operators (PTOs) to render their operations more cost-effective, delve into research and development to produce productivity gains, as well as to improve service efficiencies. Within the privatised industry, SBS Transit and SMRT Corporation are essentially individual natural monopolies [3], because their routes and responsibilities do not overlap.

Profit-orientation? Healthy finances build up administrative stability, generate additional dimensions for innovation, and ensure that (along with current fare regulation) unforeseen costs – in the form of infrastructural enhancements or asset purchases – are not passed onto consumers.

Adequate cost savings must go back to the public, and it is the government’s duty to ensure that complacency, obstinacy and laissez-faire attitudes do not set in.

Unfortunately, my gut feel is that the PTOs’ executives have concentrated upon the aspect of driving costs down per se, and have not maximised revenue gains to raise long-term economies of scale, or to heighten productivity. Adequate cost savings must go back to the public, and it is the government’s duty to ensure that complacency, obstinacy and laissez-faire attitudes do not set in.

Failure Of The LTA And PTC To Monitor Service Standards

Transport Minister Lui Tuck Yew’s assertion that the current regulatory framework is a “robust” one is, naturally, perceived to be farcical and detached from day-to-day realities.

There are two more bureaucracy-based concerns: first, the LTA and PTC are supposed to regulate the various networks to ensure that service standards are not compromised, but anecdotally seem to have failed to do so [4]; second, the relevant government agencies – in their reviews and checks – might have neglected the technical aspects of maintenance, tests and checks [5]. Not surprisingly, against this background, many commuters cannot reconcile the consistently high financial returns achieved by the providers, with the observed service incompetency or fare discrepancies on the ground.

Present responses – such as the knee-jerk investigations along train railway lines and the recent assembly of an independent committee of inquiry – have been painfully reactive, and reflect a clear oversight on the part of not just the PTOs, but also the bodies that were supposed to keep the latter in check. Without active reinforcement of these standards, the PTOs have had their priorities grossly misplaced, and are getting away – behind a façade of cost-maximisation – with the bare minimums in operation, maintenance capabilities.

While the managements of the service providers should take serious responsibility for the assortment of weaknesses, the LTA and PTC are equally culpable.

Making The Land Transport Masterplan A Reality

The PTC needs to be fundamentally strengthened with an expanded and more authoritative mandate, so that greater regulation can be enforced.

Heightened Authority And Expanded Mandate Of The PTC. The PTC needs to be fundamentally strengthened with an expanded and more authoritative mandate, so that greater regulation can be enforced. This needs to go beyond the basic tasks of fare management and vaguely-defined “service standards”, with more robust explorations (together with the LTA) into operation and maintenance abilities. Reviews should be done to ensure that profit gains from cost-savings are invested into sustainable economies of scale, including but not limited to research, staff development and productivity courses.

Have Smaller Bus Providers Involved In High Volume Routes. In specific bus routes that are overly-crowded (especially when passengers opine that the present capacity is simply insufficient), smaller bus providers can be engaged to provide parallel services.

Most Robust Public Discourse On Service Standards. Representatives from different constituencies, or random groups of passengers should be engaged through regular quantitative and qualitative studies. These independent surveys – beyond the pedantic, traditional reliance on newspaper forums or post-incident conversations – will tangibly keep PTOs on their toes, and allow genuine frustrations to be articulated properly.

Concessions For Disabled Persons, And Polytechnic Students. With the profits and economies of scale, concessions for these groups of individuals – which have been repeatedly called for – should be introduced.

* * *

[1] Mr. Gerald Giam, in his online commentary “Overhauling Singapore’s Public Transport Model” (July 19, 2011), explained the Party’s proposal “for a not-for-profit National Transport Corporation”; this recommendation, with its corresponding points, has been reflected in the Party’s 2006 and 2011 Election manifesto.

[2] X-inefficiency (sometimes also known as technical inefficiency) occurs when cost controls become lax. This can bring about overstaffing, unnecessary expenditures, failure to keep up with technological advancements, and general stagnation.

[3] A natural monopoly refers to an economic situation when long-run average costs (LRAC) would be lower if an industry was under monopoly instead of being shared between competitions. Economies of scale can be reaped over a large output range.

[4] Common complaints include chronic overcrowding during peak-hour travels, the irregularity of bus and train services, poor customer service interactions, security breaches of the train depots, the lack of transparency in communications et cetera.

[5] For instance, MRT service disruptions between December 15 and 17, 2011 were attributed to a possible alignment problem in the rail system, as well as other infrastructural or maintenance oversights.

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About guanyinmiao

A man of knowledge lives by acting, not by thinking about acting. Carlos Castaneda.

Discussion

6 thoughts on “Why Regulation, Not Nationalisation, Should Be The Way Forward For Singapore’s Public Transportation System

  1. Glad to see you’re back writing.

    The Workers’ Party has been the biggest proponent of nationalisation [1] for Singapore’s public transportation system, but there is a host of potential pitfalls to the plan.

    I don’t really support their proposal, because they don’t make a distinction between the bus services and the trains. Both are actually very different, and you also can’t lump them together to analyze.

    SMRT and SBS don’t actually face direct competition in bus services – for instance, in my estate only SMRT runs a feeder service. The barriers to competition are artificial. Is it a natural monopoly? I don’t think so. But look at trains – the maintenance of infrastructure, stations, trains etc – the MRT seems to be a natural monopoly because a single operator is better placed to reap economies of scale to do all these.

    You cite X-efficiency, principal-agent problems etc – but these are conceptual tools which you haven’t applied to real-life scenarios.

    I’ll focus on MRT. What’s the purpose of a MRT? To move many people quickly, reliably and safely. Now, what’s the purpose of SMRT Corp – as you wrote, “Unfortunately, my gut feel is that the PTOs’ executives have concentrated upon the aspect of driving costs down per se, and have not maximised revenue gains to raise long-term economies of scale, or to heighten productivity”. SMRT Corp’s objective is profit-maximization – reduce costs and increase revenue. Look at the shops being rented out at MRT stations – they are trying to increase revenue.

    Simply, there’s a contradiction between the objectives of train services and SMRT Corp. Let’s use one economic concept – moral hazard. If a bomb blows up in a train, the govt will be facing the flak – crisis management, finding casualties, responding to media and even paying for repairs to infrastructure – SMRT Corp can be lax in its security because it knows the govt can and will step in. Look at past security breaches at its depots, it was fined, but who got the heat in the end? The Transport Minister, unfortunately.

    You also mention, “Concessions For Disabled Persons, And Polytechnic Students. With the profits and economies of scale, concessions for these groups of individuals – which have been repeatedly called for – should be introduced.”

    Unlikely, because SMRT Corp, aims to increase revenue. But would a nationalized train operator do so? A nationalized train operator would be fulfilling national and public objectives – not private ends, as the SMRT Corp does by virtue of being a listed company which is accountable to shareholders only, not the public.

    But I don’t advocate nationalization of bus services, which is another story.

    Posted by eternalhap | January 4, 2012, 11:20 am
    • A little rusty with the writing, but great to be back nonetheless.

      I agree that it is a little too convenient to lump bus and train services together when one is considering the economic implications; however, in Singapore, collective analysis seems inevitable given that the two PTOs handle both aspects simultaneously.

      How different – economically – are the bus and train networks? Other than the fact that train services have higher fixed average costs or start-up costs (which then approximates it closer to a natural monopoly), both services are essentially monopolies of their own. As you highlighted in your example, bus or train services do not overlap, and there is no real instance of competition. Then again, another solution to overcrowding on buses would be to allow smaller companies to offer parallel services during peak-hours, and to provide some form of competition.

      In all fairness, the management team of SMRT Corporation has – over recent years – managed to maximise economic benefits and make considerable profits from different endeavours. These financial gains are necessary for long-term economies of scale to be reaped. My real gripe is that government regulators, in the form of LTA and PTC, have not been active in their pursuits to make sure that the companies comply not just with service standards, but with maintenance capabilities too. They don’t seem to be mandated strongly enough to administer change, or to keep the PTOs actively in check.

      On the issue on concessions, my gut feel is that it is the government that is blocking the proposals, not the providers (for reasons I am unsure of). If the government insisted upon the introduction of concessions, I see no reason for the PTOs not to relent.

      The argument for nationalisation (yes, the contentions against are conceptual and theoretical) seems to be premised upon the public’s interest, but I am not convinced that direct involvement from the government would yield the same financial sustainability and benefits of the status quo.

      Jin Yao

      Posted by guanyinmiao | January 4, 2012, 12:17 pm
  2. Another unsubstantiated piece of rhetoric. Please use some stats instead of recycling broad concepts of how a privatisation is more efficient than nationalisation. For example, start by explaining how the $200 plus million operating profit of SMRT will likely be wiped out by inefficiency if it had been a public operator.

    Posted by bluex | January 4, 2012, 7:37 pm
    • It’s not possible to use relevant statistics or actual figures since nationalisation is a hypothetical scenario, but profits can be wiped out by administrators (the “agents”) who have no incentive to cost-minimise and profit-maximise. I also contended that “the challenge of raising capital for long-term investments (since private investments are not feasible, and if industrial relations are poor), and the need to compete with other government agencies or department for budgeted funding”. But of course, you would be right to dismiss it as “unsubstantiated … rhetoric”.

      I could also point you to the rail transport history in Britain, when nationalisation yielded falling passenger journeys and poor technological decisions resulted in economic losses (data, if you are interested, is available in Railway Archives on Google). The service did become more cost-effective later on, but was privatised before the turn of the century. You cannot really draw parallels given the varying backgrounds, but it does show that nationalisation is not the panacea.

      The main point, however, about the commentary is about regulation (or rather, the lack of it in Singapore). I suppose that is one perspective we both can agree on at the moment.

      Jin Yao

      Posted by guanyinmiao | January 4, 2012, 11:53 pm

Trackbacks/Pingbacks

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