Thursday, July 21, 2011

The Great Transport Debate to Nowhere

There’s something interesting happening in the state of Singapore. Two months after the General Election and a month before an expected Presidential Election, Singapore is having something called a “Debate.” The public transport companies have made the announcement that they’re planning to up their prices and the newly emboldened Worker’s Party, which has become Singapore’s main opposition party is crying foul. The Workers Party then went onto suggest that the problem with Singapore’s transport system is that it is run by two listed companies that are driven by the “profit” motive raI’her than the desire to serve the public. The Workers Party then proposed “Nationalising” the system - placing it under a “non-profit” organisation that would have the interest of the public at heart.

The government then had a field day by pointing out that “Nationalised” utilities had failed everywhere else and stopped short of accusing the Workers Party of being a group of dreamy socialist.

It’s good to see a debate. It was even better to see the Straits Times, long lampooned for being a government mouth piece, publishing a piece by Mr Gerald Giam, a prominent member of the opposition. This is something that has not been done in the living memory of the senior journalist that I know.

While I welcome the debate on public transport, I think both sides have missed some of the most crucial points. The noise of political rhetoric has drowned out some common sense.

Let’s start with the Worker’s Party. They are right to scream foul at the proposed increase in public transport. While public transport in Singapore is generally good, especially when compared to elsewhere – service standards haven’t exactly been improving and we, the lay people are feeling the pinch. A decade ago when I first moved back to Singapore, a $10 top-up could last me a week. These days, I use that within 24-hours. I also find that bus waiting times have become ridiculous – I’ve been expected to wait 48 minutes for a bus while seeing several buses of the same number arrive at the same time. I don’t call this good service and reading about another price increase doesn’t exactly make me happy. All credit to the Worker’s Party for doing what an opposition should do – question and cry foul whenever it thinks the government is overriding its authority. .

However, I believe the proposed solution has a major flaw. It works on the assumption that “non-profit” means altruistic and it relies on the idea that government is a solution. “Nationalising” has become a dirty word around the world for a good reason. While Singapore can boast of some pretty efficient state-run institutions, the general trend shows that once private sector dynamism is injected – things get a lot better.

Placing the system under government control will require lots of money. Both transport companies are listed and taking them off the market will require the buying out of shareholders. Then you need to put in a layer of bureaucratic administration to run the system. If you talk about building the administration of the existing companies, you’d be living in a fantasy world. You can expect the existing staffs that were hired under private sector conditions to insist on being hired under civil service conditions. This can only make the cost go up. In an age of global dynamism and movement, the last thing Singapore needs is more civil servants.

Which leads to the next point – when have civil servants been known for being sensitive to the needs of the consumer? While politicians may have to face the voters every five years – civil servants do not.

Furthermore, the term “non-profit” is something of a misnomer. We assume that “non-profit” organisations are altruistic because they don’t distribute profits to shareholders. However, that does not mean they don’t make money. As the NKF incident in 2005 showed – non-profit organisations merely distribute the money differently – it comes out in the shape of salaries, benefits and other goodies. Richard Branson tried to do this when Britain started a “National Lottery.” Mr Branson made a huge song and dance about how he wasn’t going to make any money from running the lottery – it would all be for charity. Thankfully British regulators were on this occasion smart enough to notice that Mr Branson was charging vastly higher administration fees that the next “profit-driven” bid. Let’s get it straight – “non-profit” does not mean altruistic and “profit” does not mean evil.

Then let’s face the fact that state-run transport systems work best in the nations of Northern Europe where people are taxed highly and the people understand that they’re paying for the system – they’re doing through their taxes rather than directly through the organisation. Singaporeans don’t have that mentality yet. Our mentality when it comes to state subsidies lies closer with our former colonial masters who see government gifts as being “free.”

If the Worker’s Party is guilty of being na├»ve and using faulty assumptions – the government is guilty of something that could be worse – humbug. Thanks to the use of the word “Nationalising” the government is positioning itself as a champion of the free market enterprise that supposedly made Singapore what it is today. Nothing could be further from the truth.

Let’s look at the word “nationalising.” To use this word is to imply that you are brining something under government control. The term does not apply to Singapore. Let’s face it; both the SMRT and Comfort Delgro are only private companies on the surface.

Yes, both have listings on the stock market and are governed by stock exchange rules. However, let’s look who the majority shareholder of these companies is? Yes, Temasek Holdings, a private sector company that is merely owned by the Ministry of Finance, even if they officially two different entities. You cannot make the government own and control what already owns and controls.

The government has long maintained that it leaves the private sector alone. Unlike governments elsewhere, our government is supposed to the business people get on with it. Many foreigners who have set up shop in Singapore might be inclined to agree. I remember an Indian national telling me, “If you don’t think much of your EDB (Economic Development Board) – wait till you meet their Indian counterparts.”
This may be true on the surface. However, the business people in Singapore, particularly those running big organisations that run a section of the economy like transport - are more often than not the same people who run the government. Just look at how many former military chiefs have been on the board and management comities of both SMRT and Comfort Delgro. I remember SMRT having one Admiral and one General as CEO. Even Singapore International Airlines (SIA) the darling of Singapore industry is filling up its management comity with former Air Force Chiefs.

SIA gets away with it because protection by the Singapore Government is useless to its core business – which is international travel. Things are different for SMRT and ComfortDelgro. They have a monopoly on their business and you cannot call their business model free-enterprise filled with competition. As Mr Giam rightly pointed out, we the consumers don’t exactly have a choice

You can, if you dig deep enough into our transport system companies find all the arguments that the government is making against the Worker’s Party’s plans to “Nationalise” the system. Land transport is not run by private sector companies but profit making departments of the government.

What can be done be done about this? Well, let’s start with the realisation that governments are good at doing certain things and businesses are good others. These two don’t exactly compliment each other and the skill sets required to be good at the government things are not the same skills that are needed to be good at the business things.

Then let’s look into the fact that the private sector usually trumps the government sector in certain things because the private sector has this thing
called “Competition.” Governments throughout the world have found that competition is the best way of getting things like innovation and productivity doing up. Let’s look at the UK, which was the first country in Western Europe to privatise state utilities. Electricity, gas, water, Telco’s and the airline became dramatically better after privatisation. The failure was British rail. Why did everything else succeed under privatisation but fail when it came to transport. The answer was simple – everything else saw competition enter the market. In the case of privatising British Rail, the government merely broke up a nation wide monopoly and created millions of small local monopolies which had bugger all interest in improving life for the consumer.

Singapore is unique in many ways and can’t copy the British example wholesale. However, where the comparison between Britain and Singapore is similar is in transport. Instead of having many regional monopolies, we have two – which is about right considering we are many times smaller than the UK. Furthermore both companies have even more extensive monopolies than the ones in the UK. As well as owning the subway system, both companies own the bus and taxi service.

As with the UK, the key lies in creating real competition in the transport sector and separating the government and the business. Governments need to understand that their key role is to see that the infrastructure both physical and legal is workable. Governments also have to enforce the rules. As such, the less contact governments have the business people, the more likely they are to be able to provide fair enforcements. The business people need to focus on providing a service to their consumers while finding a way to turn a profit and keep the wheels of commerce going.
What can be done?

Well, let’s start with understanding that the basic infrastructure should belong to the government. Roads and rail tracks will owned by the government which will then lease them out to the providers who will be responsible for the upkeep.

Then we should take a leaf from the aviation industry. Property such as interchanges and rail stations should be privatised. Let’s property developers find ways to creating transport hubs into thriving commercial districts.

Then the city should be divided into routes the same way the global aviation industry is divided up. Routes should be then auctioned off to the highest bidder who will then be able to provide a bus or train service for a limited number of years. Certain routes will be more popular than others which means that those holding them will want to ensure that the service remains decent enough for them to keep their routes. Less profitable routes can be hived off to smaller providers in the same way that budget airlines have been taking and making a profit out of the routes that traditional airlines have found unprofitable. This would create entrepreneurship in the transport sector.

Then there’s an issue of taxis. A few days ago, Conrad Raj, one of the main old timers in the media industry proposed letting cab drivers own their own cabs. This is a brilliant idea. This will create greater incentives for taxi drivers to work harder and to look after their cabs. Why shouldn’t a taxi driver be an entrepreneur? The government could make good money from creating more competition between incentivised entrepreneurs.

Competition has been proven to be a good thing and the last thing we need in Singapore is more government. Let’s work towards separating government and business and create a better Singapore.