Freeman

ARTICLE

Transit's Transition from Socialism

Property Rights Would Give Life to Transit Entrepreneurship

OCTOBER 01, 1997 by DANIEL KLEIN, ADRIAN MOORE, BUNYAM REJA

Daniel Klein, Adrian Moore, and Binyam Reja are the authors of Curb Rights: A Foundation for Free Enterprise in Urban Transit, recently published by the Brookings Institution.

In the United States, transit services have long been in decline. Despite federal, state, and local subsidies to municipally owned bus services, ridership has been dwindling and productivity has declined. The traditional approaches to running transit systems—government planning or operation of bus and rail, government subsidization of private operations, and heavy regulation of all transit modes—have failed, and there is little hope of their coming right.

Street-based transit in the United States today is predominantly bus service, but at other times and places streets have also been serviced by smaller vehicles that follow a route but not a schedule—called jitneys. Jitneys have numerous advantages over buses. They are smaller and speedier, stopping less often and negotiating traffic more adeptly. They are highly flexible in their entry and exit from the market, and can respond immediately to market conditions. A jitney may be nothing other than an ordinary sedan driven by a commuter on his or her way to work, stopping to pick up paying passengers. American transit policy has forsaken jitneys.

International events of the past ten years have been an object lesson in the limitations of government enterprise. The whole world moves toward the market economy. Yet in urban transit in the United States, we still have heavy government intervention and, if you will, socialism. How do we make a “transition” to a market economy in urban transit?

Establishing Private Property Rights

A functioning market depends on private property rights. A fundamental resource of the transit sector, a resource too long ignored by transportation scholars, are the curb areas, bus stops, and sidewalk areas where passengers congregate and vehicles stop. Scholars have taken for granted the government ownership and management of these resources. But why not let these resources be governed by market forces operating within the rule of law? The way to give a sound foundation to a bona fide market in urban transit is to establish privately held rights in curb zones and bus stops.

Local officials must not only encourage private management of these resources, but also give legal definition to the resources and enforce rights held therein. Local policymakers need to discover a legal framework within which a system of free enterprise will function. Even the free-market theoretician Friedrich Hayek sees an important role for legal constructivism on the part of government: “The functioning of a competition . . . depends, above all, on the existence of an appropriate legal system, a legal system designed both to preserve competition and to make it operate as beneficially as possible.”

An important feature of transit service is generating passenger congregations, that is, sufficient riders at scheduled stops to form a kind of critical mass of ridership. But to succeed, a service provider’s investment in cultivating passenger congregations through dependable service, advertising, and so forth, must be recoverable. It must be protected from interloping by jitneys. This protection depends on the nature of curb rights. Variations in curb rights explain a wide diversity of transit experiences.

Many studies of transit markets show that transit services are gored by one of the two horns of a dilemma. Some markets enable scheduled operators to appropriate the value of passenger congregations, but this is achieved by granting them exclusive rights, not only to waiting passengers at specified curb zones, but to the entire route. This is the predominant arrangement in the United States today. Thus the first horn of the dilemma is transit monopoly.

Other transit markets avoid all regulation and have a sort of lawless competition. This occurs in some less developed countries and in illegal jitney markets in New York. Lawless competition precludes monopoly and indeed gives rise to freewheeling services like jitneys. Yet it impales transit service on the other horn of the dilemma. Scheduled service does not cultivate passenger congregations because constant interloping will expropriate the investment. In densely populated markets, transit services are somewhat chaotic and unpredictable. In sparse markets, the interloping totally destroys the market, like a parasite consuming its host; unless there are subsidies to bus service, the result is no service at all.

The horns of dilemma can be avoided, however, by a locally planned system of property rights. American cities can have the best of both kinds of markets—scheduled bus service, and unscheduled but faster and more flexible jitneys. The solution is based on a new idea: create exclusive and transferable curb rights (to bus stops and other pickup points) leased by auction. This way scheduled service would have exclusive protection where its passengers congregate, and jitneys would be able to pick up passengers elsewhere along the route, at curb zones designated as commons. Curb rights holders would be free to contract with bus companies and other service providers. They would do so as they see fit. Once a sound foundation of property rights is established, central planning becomes unnecessary.

The proposed system would give life to transit entrepreneurship. Within the property rights framework based on curb rights, entrepreneurs would be free, able, and driven to introduce ever-better service, revise schedules and route structures, establish connections among transit providers, facilitate passenger interchange, and use new pricing strategies. Alongside scheduled bus service, jitneys would respond flexibly to weather, time of day, special events, and other changing conditions. They would offer service on a short-term basis, fill market niches, provide courtesy door-to-door service, or simply pick up customers on the way to work—whatever the market would bear. Yet the plan would avoid the problems associated with lawless competition, like interloping, chaos, conflict, and lack of trust. Within a suitable framework of property rights the invisible hand will be able to do in transit what it does so well in other parts of the economy.

ASSOCIATED ISSUE

October 1997

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