Wednesday, August 31, 2005

ctb, three wheelers and subsidies

so we are going to have ctb again. and it will fail again too. until we recognize the real problem with our public transport service and address that we will be stuck with the service we deserve.

economic theory says that if a price of a good or a service is kept artificially low a shortage and/or deterioration of quality will result. our public transport service is a perfect example of the validity of that theory.

one has to compare the price of a bus ticket, with the cost of the same journey by any other method of transport, adjusted for number of passengers per vehicle, to see how absurdly low the fares are. this means any reputable business playing by the rules will not make money operating a bus service. only unregulated individuals willing to cut corners (by hiring unqualified drivers and conductors cheaply , by breaking the road rules for a few extra passengers etc.) can make any living from it. that also explains the non emergence of larger private bus companies in spite of government encouragement.

nor will a reestablished ctb make any money any more than the current cluster bus companies, it will be just a larger mouth gobbling up ever more subsidies. i am not saying that there will not be any advantages from establishing a centralized entity, in place of, for the most part hopelessly managed cluster bus cos. if the management is good and some voluntary retirement scheme is introduced loses may be cut marginally, but i am not hopeful given the track record.

some people argue that ctb will be a good counterweight for the private bus 'mafia'. while it may help to break another bus strike or two, it will not work in the long term because interests of the private bus operators and the ctb will coincide eventually and the government will end up giving more subsides to both parties to prevent a complete breakdown. and given that ctb will cost higher subsidy wise, government will prefer private operators to continue in spite of all appearances to the contrary.

in addition ctb will have the inevitable trade union troubles.

while the ctb service may be a little better, so will subsides and thus the strain on the budget will be higher too.

only way out of this mess is,

  1. to give freedom to the bus operators to set the fares (giving them a option to chose freely without any restricting criteria between several fare bands say (instead of present three - normal, semi luxury , luxury with restricted quality criteria for each band), with the band indicated outside the bus, so passengers can recognize the fares before getting in)

  2. to let anybody enter the market as long as the vehicle is roadworthy (doing away with route permits etc.).

of course the AVERAGE cost to customer will go up initially but eventually we will have various quality bus services with corresponding fares.

you will get what you pay for.

some will say this is unfair to the poor. but if anybody wants the government to help the poor (a debatable point) its better to help them directly, as in direct cash payments to them instead of through indirect subsides that helps the rich too.

three wheelers

as if we don't have enough subsidy problems the finance minister suddenly starts to give a 300 rupee subsidy to the three wheelers each month (it's rather unclear whether there is a requirement to have a new meter installed). WTF!

if the general bureaucratic incompetence doesn't kill this in infancy, we will soon have a new class of dependent beggars clamoring for more subsidies instead of rather independent entrepreneurs we had so far. soon we will be treated to the sight of politicians promising higher and higher monthly payments in order to get votes. we will have low fares, less vehicles and poor service with passengers instead of three wheelers lined up, as the consequences become apparent.

some people never learn.

28 comments:

Chandare said...

Hi Sittingnut,
I'm really interested on the subject .Please check http://chandare.blogspot.com/2005/07/colombo-check-out-mexico-city.html , http://chandare.blogspot.com/2005/07/highway-network.html
and
http://chandare.blogspot.com/2005/04/public-transportation.html
No disrespect man ,please show me a public transportation system not subsidized by the public.
I think this is one of the areas libertarianism wouldn't work.

sittingnut said...

thanks, interesting and informed posts.

show me a subsidized public transportation system that actually meets its economic aims.
subsidies do not make sense economically but they make sense politically, i admit.
but can we in sri lanka afford to pay for these politicians' ambitions with our or rather our children's (we are getting deeper in to debt after all) earnings?
libertarianism MAY not work but the present system definitely doesn't.

you are free to be disrespectful, don't worry about it! :-)

bipartisan said...

sittingnut: do the rail networks of Germany and Switzerland qualify ?

The objective of the private bus operators is profit maximisation. It's a business, after all. They also have an effective monopoly on transport; in that the state run services are ineffectual and incapable of catering to 20% of demand, never mind being a viable replacement. Therefore, allowing the private bus mafia to set their own prices will effectively lead to price gouging. If they cut corners to make profits now, how will allowing them unlimited pricing options change that ? The way they'd see it is that "higher prices = more profit".

Secondly, there is a admittedly non libertarian argument to be made that utilities and services such as transport being run cost effectively - supported by subsidies - is in the public interest. (see here for an interesting discussion of public interest in the context of the EU)

I'm not saying the present system is wonderful or even that it should continue, but my experience with a free market that is not backed by a regulatory authority with powers of enforcement is ... mayhem. I'm not sure the cure would be much better than the disease in this case.

Ashanthi said...

Ah - here you are sittingnut - very interesting - by the way have you had an opportunity to investigate the statistics on road accidents & deaths in SL?

Do you think a there will be an impact on these terrible figures.

A lot of my friends & certainly I have experienced the whole thing first hand feel very concerned about the state of our roads. As you would know - people die on SL roads when taking just simple trips from A to B.

So - we can have a debate on whether public transport shoud be subsidised or not - however there is a lot more involved in providing a service to those of us who are totally reliant on public transport to get from A to B....

sittingnut said...

bipartisan: i cannot comment specifically on the rail networks of germany and switzerland because of the lack of information. but can you prove they are better than a non subsidized rail service in a purely economic sense (if so they will be unique in the world). in fact the vast majority of economists hold the view, that subsidies are highly inefficient at achieving their purported economic goals. in this they are amply supported in theory as well as in practice.

as i said earlier there may be perfectly rational 'political' reasons for maintaining subsidies. but can we afford to be as wasteful as the e.u.

you talk about a bus mafia monopoly. as i said in the original post along with the freeing of price setting mechanism, market should be opened up so that 'anybody can enter .. as long as the vehicle is roadworthy' without any other restriction whatsoever. in other words competition is essential. libertarians accept that there should be a regulatory authority to police anti competitive practices. follow the links given in the first post of this blog to learn more.

as for 'higher prices = more profit' you obviously has limited real world experience, there can be lower prices = more profit too. and the real people who will operate buses in a competitive environment will be aware of that. if you reject profit maximization on principle (i hope not for your sake :-)) there will be no point in continuing this argument.

if you are afraid of the cure you will die from the disease.

ashanthi: i too have 'experienced the whole thing first hand' and agree about the terrible conditions prevailing at present. my point is these conditions will continue as long as we fail to be realistic, and persevere with subsidies we can't afford.

bipartisan said...

sittingnut: at the outset, I'd like to make clear that I'm engaged in dialogue and am not really interested in confrontation. So please note this isn't personal. I really don't have any interest in flaming a random stranger on the internet :)

Having gotten that out of the way, don't you think the onus of proof is on you to substantiate your (to me, ridiculous) assertion that public services should be justified in a purely economic sense ? Government doesn't make sense in a purely economic sense either, should we all go back to caveman era politics as a result ?. My point is expounded in that earlier link. Efficient (subsidized if need be) public services serve as a facilitator. How many knockon effects can you envisage in the event of a breakdown of public transport ? As the strikes recently would have told you, there is a justification for public money to facilitate efficient public transport. Note, I make a distinction between propping up lumbering behemoths and facilitation. In my view (and here I agree with you), SL is feeding the maw of an insatiable subsidy hungry beast right now.

And you're absolutely right, we can't be afford to be as "wasteful" as the EU. Unfortunately, we're possibly more reliant on efficient transport than they are, and having experienced their transport systems; I can assure you that they're doing something right.

Now to the substance of your third paragraph, where you make the first grandiose claim. Libertarians may "accept" the existence of a regulatory authority, but in my opinion, we wouldn't need the extreme measures espoused by yourself if we actually had such a body. We don't, and I see that as the root cause of the transport crisis. Can you prove this isn't the case ? Why would we need to open the doors for rampant abuse and a chaotic lack of regulation to solve a transport issue ? And yes, I do claim that the definition of "roadworthy" is bent more often than not, minimum standards of comfort and safety must be enforced and competition must be allowed, but only while playing within certain rules. Those points were not made in your original post deriding the existing transport system and proposing your radical overhaul. Are we (myself, specifically) supposed to assume these details as part of an overall libertarian package ?

And unfortunately, I think it does your line of argument ill to assume the extent of my real world experience. As a point of fact, you yourself claim that "there can be lower prices = lower profit". With the benefit of your experience, could you tell me which is more likely ? Please. Intellectual snobbery is all very well to emotional teenagers, but rational substantiated arguments make for better reading and I've not seen those from you yet :) I don't reject profit maximisation at all, but I do reject the fact that sans regulation, real people (what an interesting phrase) will be honour bound to run a service without cutting corners. The same corners that are cut today at the consumer's expense.

Odd. If I had to pick a single political leaning, I'd probably be a libertarian myself. Perhaps it's just your cure that I don't agree with.

bipartisan said...

I mucked up reproducing your quote.

You said "lower prices = more profit". My point is still intended, though. I just didn't reproduce your quote accurately. It's uncommon to see the effect of lower prices being passed onto the consumer. This isn't the norm in Sri Lankan industry as far as I can tell.

The only example I can remember is SL telecom reducing IDD rates for consumers.. and they immediately raised local rates to compensate for the 8% loss of profit to them.

I'd say the chances of an effective transport monopoly reducing prices "because they can" aren't that good.

sittingnut said...

i will reply shortly as soon as i am free meanwhile for those interested here is bipartisan's corrected link

ivap said...

I don't know if it's even efficient for the federal / central government to manage an island wide public trasportation system. I'm more inclined to advocate for a more decentralised public transport system by making it the resposibility of the provincial councils / regions.

A plausible argument can be made that the local regions would have better local knowledge of the public traportation needs in those areas as well as having better knowledge of tayloring a solution more appropriate for the locality.

Of couse some federal involvement / agreement will still be needed to maitain inter-state transportaton needs.

sittingnut said...

bipartisan: don't worry, i have a life and as a result don't take this kind of argument personally.:-) but i will express myself freely and if others take them personally that's their problem. in this forum everybody is free and if anybody goes beyond the general accepted decorum(if there is such a thing) its up to the readers to judge not for me..

I posted the corrected link recisely because i wanted interested people to read it and judge how biased the so called discussion(in actual fact a political tract) is.
thankfully nobody in eu seems to be reading it.

don't you think the onus of proof is on you to substantiate your (to me, ridiculous) assertion that public services should be justified in a purely economic sense ?
in other words you want people to judge a public service by other criteria as well. but since this discussion is about public transport service what other criteria are there? you fail to give details.
anyway by above question and the statement quoted below you seem to accept that it cannot be justified in a economic sense!
Government doesn't make sense in a purely economic sense either, should we all go back to caveman era politics as a result ?
in fact government makes perfect economic sense. libertarians are not anarchists.
public services serve as a facilitator.
for what? you have to give details and why a efficient competitive private service won't be.
How many knockon effects can you envisage in the event of a breakdown of public transport ?i agree, thats one reason why we need a healthy competitive private transport service.
As the strikes recently would have told you, there is a justification for public money to facilitate efficient public transport it did say no such thing it said we need less government interference, regulation, realistic prices and competition.

I make a distinction between propping up lumbering behemoths and facilitation. In my view (and here I agree with you), SL is feeding the maw(sic) of an insatiable subsidy hungry beast right now. as long as we have unrealistic prices the government will have to pay the difference.
having experienced their (eu) transport systems; I can assure you that they're

doing something right.
it seems eu itself is of different opinion, from your own link- .. progressive privatization within European Union member states; .... the EU or EU-commission actively promoting liberalization and privatization in its European and
international policy
- they(eu that is, not the authors of the tract ) clearly think deregulation and privatization is necessary

Libertarians may "accept" the existence of a regulatory authority, but in my opinion, we wouldn't need the extreme measures espoused by yourself if we actually had such a body. We don't, and I see that as the root cause of the transport crisis. Can you prove this isn't the case ?..- so you think we would not be having a problem if the government or a suitable regulatory
body is able to enforce regulations on the private operators? as long as regulations distort a market, any regulatory body how powerful, will not work, endless confrontations and
useless strikes will be the result, as experienced all over the world. what i propose is quite different, a anti monopoly authority to ensure competition, which being purely a market facilitator will find it easier to enforce its writ -since what it will be doing is getting rid of anti-competitive regulation such as road permits etc. and letting new
players enter the market unhindered, this works all over the world.

And yes, I do claim that the definition of "roadworthy" is bent more often than not, minimum standards of comfort and safety must be enforced and competition must be
allowed, but only while playing within certain rules. Those points were not made in your original post deriding the existing transport system and proposing your radical overhaul. Are we (myself, specifically) supposed to assume these details as part of an overall
libertarian package ?
you are quite lost or confused. what i said was,
from original post,
..chose freely without any restricting criteria...
to let anybody enter the market as long as the vehicle is roadworthy (doing away with route permits etc.).
from my previous reply
market should be opened up so that 'anybody can enter .. as long as the vehicle is roadworthy' without any other restriction whatsoever.

as you can see i don't propose any new regulations whatsoever, i did NOT mention , minimum standards of comfort and safety or about playing within certain rules .in fact the only condition is roadworthyness meaning just that. if you want me to be more specific it must be registered with rmv THATS ALL, nothing else, i don't care whether it has seats , standing room, a high roof etc etc.
what i propose may be extreme and radical but it will work. as for higher prices = more profit , lower prices = more profit, lower prices = more profit ... you seems to have got entangled in your own argument and lost coherence.
to clarify (you would know this if you have any real world experience and i am saying this again intentionally :-)) that profits do not depend on price alone.

I don't reject profit maximization at all, but I do reject the fact that sans regulation, real people (what an interesting phrase) will be honour bound to run a service without

cutting corners.
honor ? who said anything about such a thing!:-) that just shows your ignorance of how free markets work and what is meant by profit maximization.; i recommend you read

a good elementary economics text book. you will then see 'honor' has nothing to do with it and is not required what we require is some really selfish entrepreneurs bent on getting the highest profit and a competitive market place.
I'd say the chances of an effective transport monopoly reducing prices "because they can" aren't that good. your point being ?..i hope read words competitive, free market, deregulation etc. in my posts and know their meaning?:-)
Odd. If I had to pick a single political leaning, I'd probably be a libertarian myself. Perhaps it's just your cure that I don't agree with. you are free to disagree and call yourself what you will (in my opinion socialist will fit) but it's always better to know what
those labels mean? huh?

sittingnut said...

ivap: you are right if we accept that goverment/federal authority is going to manage the system. but as you may have read i think government(central or regional) should get out of it altogether .

sorry for the formatting will see what i can do about it .

ivap said...

sittingnut - It appears that I wasn't quite clear in my previous post. Where I refer to "Public Transportation System" I am referring *only* to planning and / or regulatory agencies whether it be roadworthy, safety, or whatever. My point is to be read on top of your arguments. For example, if it’s localised we may well see differing roadworthy requirements in the hill-country as opposed to low-country.

In your reply to bipartisan I can’t see you clearly addressing his points about safety or certain rules. Comfort is meaningless, consumer preferences will take care of that. However, for the above two, isn’t the Libertarian argument to be made along the lines of proper application of the Rule of Law (ie. overloading, speeding, etc) ?

ivap said...

Above I meant his or her argument.

sittingnut said...

ivap: thanks for clarifying. i personally think less government agencies (for whatever purpose at whatever level) we have the better.

with regard to safety government regulation can only be justified if these regulations help stop a form of coercion by one individual on another to prevent that individual from exercising their rights (political and economic) and since reckless disregard for others safety can be included within this criteria some minimal regulations can be justified but even then enforcement will be effective only when people who play by the rules are allowed to profitably provide a transport service in a free competitive market. however much the government increases the fines and punishments for breaking road safety rules (as the present government recently did) in a restricted market like present effect will be negligible..

ivap said...

So your proposal needs competant enforcement of the limited number rules too?

however much the government increases the fines and punishments for breaking road safety rules (as the present government recently did) in a restricted market like present effect will be negligible..

agreed

sittingnut said...

with regard to safety yes. but it will be like enforcing laws against theft and murder.

dextr said...

Not everyone is as rich as you. Many people in Sri Lanka (students, pensioners, single mothers, disabled people) can't even afford the bus fares we have right now.

So what do you propose that they do? Walk? You'd love that won't you.

sittingnut said...

dextr:
if you read at least the orginal post you will not ask such a question.

from the orginal post:
if anybody wants the government to help the poor (a debatable point) its better to help them directly, as in direct cash payments to them instead of through indirect subsides that helps the rich too.

Ashanthi said...

Oh my God - Sittingnut - please forgive me - but it's Dexter - it's "when I was with Belinda" Dexter - dear oh dear oh dear...."I used to cook Sri Lankna" ...

Geez.... sorry - I finally read his Smolgg

There's that old saying - get a new haircut & get a new life....

Ashanthi said...

Errr- sorry - when i get my Blog sorted - can we please discuss

INDO ARYAN??? As opposed to VINDA LOO :-)

Such a profound definition of a race .. Oh my I'm so impressed...

sittingnut said...

ashanthi:
what exactly is the problem you have in setting up a blog?

anyway in the mean time please feel free to discuss any thing you want(btw what is VINDA LOO!?) here.

as for dextr there he is. loser!

ashanthi said...

Hello again Sittingnut!

Vindaloo - is a very, very famous Indian dish.

As for Dexter's loser status - yeah - I reckon, you're right :-)

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