Urban transportation systems x Government regulation

Economics Economics Questions
1

Hi Austrian folks,

As I work downtonwn Rio de Janeiro, which is particularly critical with respect to traffic jams and high parking costs, during weekdays I regularly use the so-called “public” transportation means such as bus, subway and, occasionally, taxi.

Our subway network is ridiculously small when compared with the potential number of users and the city area: we have only 1 main line connecting the higher-class areas (near the sea) with a middle-class suburb located approx. 20 km away, + 1 line linking to some distant suburb areas. It has been recently privatized (i.e., sold at ridiculous price to a company privileged by government influence), however the traffic is saturated, the service is still poor and the number of trains is insufficient by large at peak hours.

Our bus system is fully controlled by licensing schemes with the municipal government in agreement with very few privileged companies, and the prices are 100% under control. Buses are almost always crowded, the fleet is aging, and only part of the buses have air conditioning or any comfort at all. Bus tickets are “free” for public-school students, disabled and senior citizens, i.e., “normal” users subsidize them by means of higher prices.

Taxis are oligopolized by city licensing to a “happy few” who have acquired at high cost the operating licenses, which are traded at values compared with the price of a brand new middle-class sedan. No new licenses have been issued during the last decade or so, thus there is a considerable black market for them. Taxi fares are also 100% regulated.

Quite recently, an alternative solution began to emerge - the so-called “pirate” vans, usually 10- to 15-seat Bestas, Mitsubishis or similar vehicles which provide a reasonable service, at prices round 1.5 to 2 x the modal bus ticket. As you may imagine, the municipal government cracked down on them, creating every possible obstacle, until a few years ago some provisional licenses were issued but then the process was stalled, thus keeping the “pirates” operating at their own risk, being frequently stopped by the police and fined for the irregular situation.

All in all, a chaotic frame…

Therefore, I’d like to propose the following questions:

  1. How would the free-market solution for urban transportation look like?

  2. Would everyone be allowed to operate a taxi, cab, van or whatever vehicle, with fares at each one’s discretion?

  3. What would happen to the current owners/ operators of “official” taxi licences? Would competition drive them out of the market or would they prefer to adjust and live with lower margins?

  4. Would deregulation bring additional chaos to city traffic or somehow help minimize the current situation in large cities?

  5. Most important of all: do you know about any place on Earth where urban transportation is deregulated and, if positive, does it work better than the guv’mint regulated system?

Thanks in advance for any clarification on this issue.

Best regards from Rio,

R. Halevy

2

You should not ask for urban transport to be deregulated. Regulation is the responsibility of the property owner to preserve his property. An unregulated property goes to ruin. And so any city has to regulate transportation on its streets. The only question is what kind of regulation is good?

The problems you are citing are derived from the fact that the city is not applying rational economic calculation to its decisions, most likely because of its institutional nature. (I don’t know how Brazilian cities are administered.) It’s certainly not in any city’s interest to place quotas on available cabs, but it may be profitable to place a regulation that says that all taxis need to be painted bright orange with black polka dots (so people would easily know what is or isn’t a taxi). It is also likely that transportation companies would cooperate and form cartels that would standardize prices and quality and share routes so that you could travel through multiple transportation companies by paying only one fare.

Giving free transportation to students and the elderly is obviously silly, but it’s possible that it is cheaper to move them than officer workers, as they are likely to travel at non-peak hours thus making the marginal cost of supplying their service much lower.

As to who would build subways, it should be the people who will profit from it. Better transportation access increases the rents the city collects, so the city has as much as interest to build subways as it does building roads. It could then rent out the subways to another operator, much like people are expected to drive their own cars on city streets.

And obviously traffic jams would disappear, as tolls would increase with the higher demand for city streets. The system they have in place in London, for example, means you have to pay a toll (called a “congestion charge”) to enter the central city. This has made bus service in Central London more efficient and in higher demand, of all things.

3

Stranger,

Thanks for sharing some views on the subject, but I would kindly request you to be more specific, for instance, who would own the streets downtown? Which groups should regulate transportation?

Also I would disagree on the tolls issue as you mentioned in London – the referred toll is currently collected by the city government, therefore it’s not a price mechanism to provide market feedback but just one more coercitive instrument to restrict personal freedom while channeling still more money to the State (grrrrr!!).

I would appreciate some more detailed insights on this.

Thanks and regards,

R. Halevy.

P/S: I forgot to mention that Brazilian cities are 99% administered by *&%$&**!! amateur leftist demagogues who have no competence nor interest in solving any problem but just filling their pockets with dirty money extorted from the middle-class through taxes.

4

Whoever wants to risk the most to own the city would own it, much like it works for any other property.

The owners should, obviously.

Buying fares for train rides is not a coercitive instrument to restrict personal freedom, so why should this be?

5

Stranger,

In a hypothetic privately owned downtown zone, tolls would indeed be a market instrument, however I was referring to the current situation in London, where all citizens pay their taxes to help maintain the streets – including downtown – and, at the same time, they are not free to drive through specific areas unless they pay still more. This sounds to me like an arbitrary use of State power. On the contrary, if I want to go by train I voluntarily buy a ticket for a reasonable price.

I’d still be eager to know about any real example of a city with a free-market transportation system (or at least one with minimum guv’mint intervention) - if such wonder does exist.

6

I would say that streets, historically and currently, have been built by the government because there has been no good way to charge for their use. Eventually we’ll have some kind of chip or something that can be scanned from meters away while driving and bill you at checkpoints, but if you had to have toll booths everywhere it would screw traffic. Although currently, if London can charge to enter, and they can just charge anyone who lives inside (because they wouldn’t ever pass the checkpoints) through a parking pass/registration fee you could actually charge those who use the road, and not society as a whole. Back to the point though, a subway system has none of those problems. It’s quite easy to only charge those who use it. Therefore the city could just auction the rights to build a subway, assuming whoever is ready to pay the most has the most to gain financially from it, and have a completely private subway. If a subway wasn’t built it means that traffic on the surface isn’t bad enough/the subway would take more resources to build and run than it could ever be worth.

7

People pay taxes to subsidize trains as well, that doesn’t make them entitled to free train rides.

Streets have been built by governments because governments monopolized all the land. That wasn’t the case during the 18th century and beforehand for most of the European world, where streets were built by landowners in exchange for land rents.