Freeman

ARTICLE

Government Is Strangling Transit

JULY 01, 1991 by JOHN SEMMENS

Mr. Semmens is an economist for the Laissez Faire Institute in Tempe, Arizona.

Publicly owned and operated transit has been a colossal failure. Billions of taxpayer dollars have been frittered away with little or nothing to show for it.

In 1964, the year the Urban Mass Transportation Administration was created by Congress, eight billion trips were taken on urban transit carriers. Twenty-seven years later, public transit rider-ship is still eight billion trips. This total lack of progress hasn’t been without cost. Since 1964 the federal government has squandered over $35 billion on public transit. State and local governments have tossed in another $30 billion.

Despite this sorry record, many urban politicians are eager to build new rail systems, which will typically cost more than $50 million per mile to construct. The outlays will likely have even less impact on urban mobility than what already has been spent over the last two-and-a-half decades.

Transit policy has failed to adjust to changing urban needs. Most forms of transportation originated over 50 years ago. Fixed-route bus and train transit flourished from the 1920s through the 1940s, but have been in decline ever since. Total ridership and market share peaked in 1945 at 23 billion passengers and 32 percent of urban trips. The current eight billion annual trips amounts to a market share of only 2 percent.

A major factor in the decline of public transit has been the nation’s growing prosperity. Rising personal income changes people’s living habits. They move away from the high-density neighborhoods served by traditional transit. They buy cars.

They acquire a taste for convenience. Walking to a bus stop, waiting in a train station, fighting crowds for a seat, and worrying about missing the last departure are all inconveniences that modern urban travelers prefer to avoid.

Yet these inconveniences are the trademark of public transit. Instead of developing ways to reduce such inconveniences, transit policy has entrenched them through regulatory barriers and below-cost subsidized pricing.

Most urban areas prohibit unauthorized transit operations. Certificates of public convenience and necessity are required before a new transit service can be offered. Typically, the would-be provider of new services must prove they are needed and that they cannot be furnished by existing operators. The low-load factors, excess capacity, and deficits exhibited by existing operators usually are enough to secure regulatory rejection of any newly proposed service.

A semi-fixed route, jitney-type service might be able to offer passengers reduced walking and waiting while providing shorter transit times. Unfortunately, this type of service has been suppressed by regulatory policy. A rationale of “preserving the distinctions” among modes of travel relegates the options to cheap-but-slow buses and trains versus fast-but-expensive taxis.

Preserving such distinctions is clearly out of step with the times. For example, with convenience at a premium, “one-stop” shopping centers have proliferated. Merchants seek to provide better service by shedding some distinctions. Many food stores now sell drugs, while many drugstores sell food. The fading distinction between these stores is a rational response to changing consumer needs. There is no reason why transportation should be exempt from this phenomenon.

Private autos now account for nearly 95 percent of urban trips, while public transit provides only 2 percent, in protecting this 2 percent from new competition, regulatory policy prevents public transit from competing effectively with the automobile.

Transit alternatives and innovations not killed by regulatory means are likely to be undermined by subsidized competition. Government funding permits below-cost, predatory pricing of publicly operated transit. To be price competitive, private sector competitors would have to operate at one-third the cost of public-sector transit.

Rather than continue to waste large sums in an effort to perpetuate inconvenient and unpopular forms of public transit, we should be moving toward a market system of transportation. Instead of jealously guarding the edifice of publicly owned transit, we should be deregulating and privatizing transportation.

Deregulation will open the way for new competitors. Intermediate forms of transportation such as jitneys or shared-ride taxis could offer a more convenient option for many travelers. The legalization of for-profit car pooling could enormously expand the capacity and flexibility of urban transit. With more carriers available, more people might be willing to leave their cars at home. Locating and structuring transit stops to accommodate buses, jitneys, taxis, and car pools could help revitalize the system. In this respect, transit operators can learn from shopping malls, which provide common locations for competing businesses. The availability of many stores attracts more customers than if each merchant tried to go it alone.

The elimination of government subsidies would promote greater efficiency and encourage more entrepreneurs to enter the field. For example, rather than losing a billion dollars a year, the New York City subway system could be turned into a profitable business. A study performed for the Metropolitan Transit Authority a few years ago revealed that the subways could show a profit if fares were doubled. How much more could be accomplished if the excessive wage rates prevailing in public transit were trimmed to reflect market conditions?

The few examples of privately run subscription buses in urban regions indicate that commuter service can be provided at up to 50 percent less than the cost of publicly owned transit. This implies that privatization of municipal bus systems would yield more cost-effective results.

The argument that government ownership is needed because of market failure is nonsense. The market has been suppressed by government regulation and subsidies.

Government doesn’t have to own and operate transit in order to promote urban mobility. In fact, the evidence indicates that government ownership retards such mobility.

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July 1991

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