Public Transport – Does Nationalisation Solve our Problem?
Singapore public transport companies have again submitted a request to hike fare to the Public Transport Council (PTC). That, of course, drew a storm of protests amongst the already price-sensitive residents of Singapore who had been hit hard by the ever rising consumer price index. There had been calls for nationalisation of public transport while PAP had been stanch in defending the privatisation strategy and policy. Does nationalisation really solve our problem? If it doesn’t, what else can we do?
Unfortunately, after examining the merits of privatisation and nationalisation, the merits of privatisation prevail. Nationalisation is actually a populist policy that does not solve the crux of the problem. Nationalised entities normally would have higher cost structure due to the lack of need to innovate and compete. Though the cost of national transport could go down, the market is not working at maximum efficiency and there is lesser excess wealth generated by the entire economy due to high operating cost. Hence, the PAP is right with their privatisation policy.
However, in order for the invisible hand of the market to work efficiency (to avoid market failure), our Government must start to introduce competitors into the market. We should not allow companies to have monopoly power in this industry or the drive to innovate to provide additional utility or to reduce cost would be subdued. Allowing fair competitions would mean that all infrastructure build by the Government would be accessible to other transport operators as well.
The process of introducing competitions would take a long time and could not be done overnight. What the Government can do is to introduce fair competition policies to prevent the existing state-linked companies from drowning the new entrants. Before the market is operating efficiently, there is a need to regulate the industry even more tightly so that the existing transport companies do not abuse their monopoly power.
The profitability of privatised company would be scrutinised closely by investors. However, regulations are required to be in place to check on these companies. We cannot benchmark other privatised companies currently to do asset valuation. As other private companies have serious competitions and other risks involved, we must give a significant discount on the returns of the money in the future to factor that risk. Yet, public transport is a basic utility and without serious challengers to the monopoly, the risk is minimal and the returns are considered ‘safe’. Investors should know that buying the stocks of our public transport companies are likened to buying ‘Government bonds’ and hence there is no real need for matching or even exceeding payouts of other companies in general. Armed with this argument, PTC would be able to push back on demands to hike fare when the companies are making decent profit margins.
Secondly, as the companies enjoy monopoly power, the consumers are left without a viable option for low-cost transport. It is hence very important to ensure that the companies provide these utility exceptionally well. We have heard complains of atrocious services such as long waiting time, dangerous driving or overcrowding. These complaints are never taken seriously by the operators as they know deep down that the consumers would have no choice but to put up with them. It is therefore essential that these are set as KPIs and with penalty for non-compliance.
Thirdly, the Government must regulate the companies to provide services to all parts of the island. Excuses such as certain stations are not profitable should not be used as arguments to keep the said stations closed. In a competitive environments, companies would never had used those arguments simply because competitors would venture in at operating cost to earn goodwill of the customers and that goodwill could translate into profits for other routes. Lack of competitions means that this has to be regulated to ensure that no one is left behind (literally).
In conclusion, I challenge the Government to open up the market. Privatisation does not mean creating a monopoly whose sole purpose is to make supernormal profits. In order to reap the benefits of privatisation, we not only have to do it, but more importantly, do it right.