There is much historical precedent, as I have shown in this series, for private transport provision, and reason to believe it would still exist had the government not gotten involved. So, is government even needed for this industry, for example via public transit?
Maybe. Just as public schools are necessary to serve people who can’t afford private schools, public transit is necessary to serve those who can’t afford private transport services, or their own car. Along with better mobility, public transit serves other goals such as lower congestion, greenhouse gases and traffic deaths.
One relevant question is what kind of transit governments should provide. That varies by city.
In the book Human Transit, consultant Jarrett Walker uses the “ridership vs coverage” polarity to unpack what transit systems are designed for. If an agency’s goal is profitably moving as many people as possible, it will prioritize the best routes—“ridership”. If the goal is improving equity and access, the agency will forego profit and run routes in under-served areas—“coverage”. The agency’s commitment to this ridership-coverage tradeoff will determine its mode choices, infrastructure, and larger strategy. Most agencies pursue a combination.
But I am more interested in how they approach either goal. Even if the goal is not profit, there is still a right way to provide services, rooted in private sector best practices. Below are 4 examples:
This is a financing measure where governments capture value from their investments. Perhaps the best-known example is Hong Kong’s MTR: the rail corporation buys parcels around stations and develops them densely, leveraging the value created by the rail. This development generates profits and customer traffic that are thrown back into improving the system. Many U.S. transit agencies own land near stations and could do this, working to get lots rezoned and sell them to the highest-bidding developer.
In 21st-century America, the private labor market is generally fluid—workers are non-unionized, paid what the market bears, and often hired as contractors, not employees. This has led to cost-efficiency and labor productivity, which at the national level has more than doubled since 1980.
Transit agencies have not followed the trend. They often sign union labor deals that increase pay scales and limit outside hiring. Technology would also increase productivity (for example by using driverless trains), but unions oppose that too.
If transit agencies adopt market-based labor policies rather than appeasing these interest groups, they will provide better-quality service with the same budget.
This is one step to labor productivity: if transit agencies don’t do particular functions well (often due to their labor practices), then outsource those functions to private companies.
This is not the same as full privatization; it’s a P3 model where agencies determine prices and services, but hire outside companies for the work (or fire companies if they don’t work well).
One example is how cities contract with rideshare firms like Via to provide bus service. Outsourcing leverages the comparative advantage that the private sector has over the public sector; but doesn’t mean transit agencies totally lose control.
Above all, transit agencies should embrace competition. Often they do the opposite, discouraging startup transport companies in an apparent effort to protect agency interests. SFMTA, for example, has caps on the number of shared bikes and scooters allowed in San Francisco. NYCDOT outlaws jitney services. The examples go on and on.
This protectionism likely works against agencies’ long-term interests. After all, the more these private services scale, the more people who will ditch car ownership and use alternative transport. Those people will likely include public transit among their options, even if only from time-to-time.
Transit agencies should encourage these startups, then, if not because they will bolster the agencies’ ridership, then because they improve wider public mobility. That is the main goal anyway, right?
These are recommendations that transit agencies, no matter their ridership or coverage goals, “should” do. Does that mean they will? No, and the reason is that they don’t have the incentive to do so.
Classical liberal economists developed public choice theory in the mid-20th century to unpack causes for government failure. “Market failure” had become a common term, describing how human traits like greed and self-interest can lead to inequities, externalities, and shortages. Public choice economists attached these same human traits to government employees, rebutting the notion of the selfless public servant.
Public choice economists challenged the wisdom of democracy: politicians can’t always be relied on to pass broadly beneficial policies, because that’s not where their self-interests lie. To stay elected, they need to satisfy certain interest groups, even at the expense of the whole.
Nor did public choice economists believe government bureaucracy provides good services. Agencies are staffed with competing actors who pursue their own interests rather than larger societal goals. This leads to outcomes that are generally worse than the private sector, because unlike companies, public agencies don’t even have a unifying aim, such as profit or customer satisfaction, nor an incentive to pursue it. Instead they have clashing interests that lead to corruption, patronage and inertia.
A concrete example is New York MTA. It functions as somewhat of an “anti-MTR”—while Hong Kong has a shareholder-owned system that is expected to profit, and thus runs frequent, high-quality service, MTA is a public-owned corporation that doesn’t profit and isn’t expected to. It has 51% farebox recovery and receives $8 billion in annual subsidies.
More crucially, NYMTA is not answerable to those whom it serves. Rather than controlled locally, it is a state-run corporation, with the chairman, CEO, and several board members appointed by the governor. So, while New Yorkers can grumble about MTA’s service, there is little they can do about it beyond voting for governor every 4 years.
This top-down administrative model is meant to avoid the flaws of direct democratic and municipal control. But it hasn’t avoided the flaws that public choice theorists would predict, no matter what governing structure exists.
The MTA has long resisted technological improvements that would cut staff and streamline operations, with infamous stories of salary inflation. That is because New York governors, namely Andrew Cuomo, won’t confront MTA union allies. Project construction costs are higher than in peer cities because of similar union abuse and poor oversight of private contractors. MTA generally under-utilizes its real estate assets because no motive exists to maximize them. There is rampant misallocation, such as spending 10% of the budget on the low-ridership Long Island Rail Road.
These flaws make the rail service—which has a monopoly in a dense, wealthy city, and should be profitable like the systems in Hong Kong and Tokyo—lose money and provide poor service. NYMTA has low on-time ratings, long headways, and aging infrastructure. The story is similar for Philadelphia’s SEPTA or D.C.’s WMATA, because the public choice problems are the same: no internal mechanism encourages good performance.
This does not mean that public transit shouldn’t exist. But advocates should better understand the flaws of its incentive structure. In the best cases, agencies tolerate far more waste than a for-profit company would. In the worst cases, agencies block private competition to prop up their own model. This means they might worsen mobility in their cities—in which case, they should be dissolved.
Scott Beyer is the owner of Market Urbanism Report, a media company that advances free-market urban policy reform. He also writes columns for Catalyst, Governing Magazine, and HousingOnline.com. Follow him on twitter: @sbcrosscountry