Saturday, March 16, 2013

Singapore's public transportation system is broken

Singapore's transportation system is broken - here's how to fix it

Moving around one’s city is not something that is optional.  Everybody has to be able to get to work, school, shopping, medical care, and recreation facilities.  When everybody needs a service, it is a public good, and a natural utility.  That means that government has a role to play, either as the service provider, or as a regulator of the monopoly.

What’s wrong with the current setup?

In short, the erroneous application of open market principles to transportation. 

The MRT subway system has been fragmented between different operators.  But the fact is, holes in the ground do not compete.  If I live in proximity to a subway line, the fact that another subway line exists is irrelevant – I only use the one that is applicable to me.  

 This may seem obvious, but somehow the government has persuaded itself that there is benefit from forcing subway lines to compete.  The same thing applies to buses.  Unless both operators are sending buses down the same routes, there is no competition, just duplication.   

This needs to stop now, and the natural economies of scale offered by a growing rail and bus network need to be captured for the benefit of its riders. 

Although the idea of privatization and commercial operation is attractive at first sight, the realities are different.  

 A profit making enterprise does not have service provision as its first motivation, it has profit.  Public transport systems require massive upfront capital costs (digging tunnels, buying trains, buses, cars) which have to be funded in the commercial debt market.  That costs money that would otherwise have gone into providing the transport service.  

 Each individual operator has the overheads of a commercial firm – management, financial accounting, debt, premises, and shareholder dividends.  All of those costs are duplicative and could be eliminated with the creation of a single public operator. 

Coordination of modes of transport

A successful transportation system for a city state requires inter-modal networks.  It is unlikely that your journey can be completed on only one form of transport.  Rail provides efficient transport for longer distances, and buses, trams, and light-rail serve the feeder network that allows people to get very close to their final destination.  Taxis serve point to point journeys that are not served well by public transport, and cater to special needs such as travelling with luggage and those who are handicapped.

Today we have no coordination between the private operators of the rail system, the private operators of the bus services, and the providers of taxi services.  By treating all  as part of one transportation system, a highly effective transport grid can be created.

A little more about taxis

Today in Singapore we have no firms actually providing taxi service.  Instead we have eight rental car companies who provide vehicles to independent contractors, most of whom provide a taxi service.  This is all done on a "best efforts" basis, with the regulator applying some standards for service, which make no sense since the standards are applied to the car rental companies instead of the service providers who happen to be individuals renting cars. 

Some would argue that taxis are not part of the public transportation system, but considering that they provide over 650,000 trips per year, it is hard to accept that view.   

A better solution is to recognize the benefit of a public transport tier that allows for effective use of vehicles and roads and which provides a premium service allowing point to point and hard to reach destinations.  Since this is a premium service, private operators are fine, but they should be licensed and regulated as taxi service providers, not allowed to operate as car rental companies.


The usual objection to having government provide services is that it is effectively a subsidy that will drain the Treasury.   

As I showed at the beginning of this article, the proper role of government is to provide services to the people it serves and who pay taxes to fund the services.  In Singapore, we have a number of sources for government revenue, so the question becomes one of sufficiency.  Does the transport system pay its own way?

Direct fees – the first source of income is the revenue collected from ticket sales.  One could make the argument that this is the best source of funding, since the people using the system should pay for it.   

That sounds plausible until you also consider the cost avoidance implied by a well-functioning public transport system.  Every resident who uses public transport instead of driving a car is reducing the need for roads and parking.  On that basis, there is no need to attempt to cover the full costs of the public transport system directly from its users.  There is a societal benefit that applies to all residents, and this should be shared.

COE and vehicle taxes – The government currently raises S$4.6 Billion from vehicle-related taxes (I can’t make out if this includes ERP and COE – the document refers to Motor Vehicle taxes and Vehicle Quota premiums)   

Suffice to say that the revenue from taxing cars should not go into the general Treasury, but should be directly applied to public transport.  This would provide a more palatable justification for high COE premiums, as the monies collected would be used to invest in a first class public transport system.  Why have the hassle and cost of car ownership if you have an acceptable alternative? 

General taxes – if the direct fees and vehicle taxes are not sufficient to fund the transport system, then use general tax revenues.  Again, public transport is a public good that should be funded by the people for the people.

Singapore is the ideal size and density for a world-class public transportation system that serves its residents well.  That outcome has not been accomplished due to misguided application of open market principles to a natural utility/monopoly.  It is time the Singapore government stepped up to its responsibilities and delivered on the vision.


1 comment:

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