We should do more to privatize bus systems

by on August 25, 2017 at 9:32 am in Economics, Law, Travel | Permalink

Local governments spend roughly $1.6 trillion per year to provide a variety of public services ranging from police and fire protection to public schools and public transit. However, we know little about public sector’s productivity in delivering key services. Public bus service represents a standardized output for benchmarking the cost of local government service provision. Among the top twenty largest cities, there exists significant dispersion in the operating cost per bus mile with the highest being more than three times as high as the lowest. Using a regression discontinuity design, we estimate the cost savings from privatization and explore the political economy of why privatization rates are lower in high cost unionized areas. Our analysis suggests that fully privatizing all bus transit would generate cost savings of approximately $5.7 billion, or 30% of total U.S. bus transit operating expenses. The corresponding increased use of public transit from this cost reduction would lead to a gain in social welfare of $524 million, at minimum, and at least 26,000 additional transit jobs.

That is from Rhiannon Jerch, Matthew E. Kahn, and Shanjun Li, forthcoming in the Journal of Public Economics.

1 Floccina August 25, 2017 at 9:44 am

I loved the private buses in Tegucigalpa Honduras when I lived there. Much better (and more amusing) than any public system that I have experienced.

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2 Dots August 25, 2017 at 1:11 pm

Swish

Also higher tech: window placards indicating several major destinations \ intersections rather than elaborate LED displays showing endpoint and a number meaningless to non-initiates

Coasean jungle right-of-way favors the colectivo hulks more than US rules do, too

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3 Dots August 25, 2017 at 1:24 pm

And they’ll stop almost anywhere!

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4 Dave D'Rave August 25, 2017 at 5:34 pm

Bogota has an excellent “bus” system, with a mix of large buses, mini-vans, and cars which follow the bus route.
Very efficient, very convenient, reasonably priced.

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5 Ray Lopez August 25, 2017 at 9:13 pm

Trouble with South American and Latin American private taxis is that sometimes they murder their passengers. I was told to avoid the “Green” taxis in Ciudad de México when I last visited over ten years ago. In Bolivia it’s a red flag to have a taxi driver and a ‘friend’ in the front seat (they will work in concert to rob you). Things may have changed since then.

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6 Anonymous August 25, 2017 at 9:53 am

As I understand it, busses are there today for positive externalities, social benefits. If you reduce them to “routes that pay” you reduce employment opportunity, increase welfare burden. (Among the most vulnerable carless truly poor.)

So what is “fully privatizing all bus transit?”

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7 JWatts August 25, 2017 at 10:08 am

Empty or mostly empty buses generate a lot of pollution per passenger mile. This is an obvious negative externality.

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8 Anonymous August 25, 2017 at 10:15 am

Natural gas out here, but sure, put it in the calculation.

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9 TMC August 25, 2017 at 10:11 am

You can mandate that they serve all routes in order to get the right to operate. I have no access to the paper, but I am assuming the city grants the bus company a charter to run.

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10 Anonymous August 25, 2017 at 10:16 am

I thought that might be it, but probably neither you nor I would call that “fully” private.

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11 dan1111 August 25, 2017 at 11:24 am

“Government pays a private company to operate a public service” is the standard definition of privatized in this context. Their hypothetical is “fully” privatized in the sense that this privatization model is used everywhere, not in the sense that there is no government involvement.

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12 Bauer August 25, 2017 at 12:01 pm

… rule of thumb for past century is that government-provded services cost twice the price of what the private sector (market) could provide them for. Semi-privatized government services average about 25% cheaper.

Bottom line: if you want things (anything) done economically at efficient costs — keep the government out of it.

Coercive government interventions cost much more for a given “service”.

There are only two ways to organize humans in society — by voluntary cooperation… or by coercion.
Government bus service is the coercive choice. Why is force required for local transportation?

13 Anonymous August 25, 2017 at 1:12 pm

Even if “government pays a private company to operate a public service” is the standard definition of privatized in this context, it leaves a lot of interesting questions hanging.

The natural gas buses appearing in many cities are good for our (rider and non-rider) health, but how do they shape “the highest being more than three times as [expensive] as the lowest?”

Maybe the lowest bought used diesel buses.

14 The Other Jim August 25, 2017 at 10:28 am

>busses are there today for….

… the purpose of providing union jobs in cities, and generating union dues that become forced contributions into the re-election campaign coffers of Democrats.

If anyone gets bus service out of the deal, that’s just gravy. But frankly, the more union drivers shuttling empty buses around, the better.

And Tyler wants to privatize this. My God, he’s adorable!

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15 AlanW August 25, 2017 at 11:26 am

If there happens to be a door in your ideological bubble, you should try visiting a bus stop in any major city at rush hour and report back on all the empty buses you find.

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16 MOFO August 25, 2017 at 2:03 pm

And since rush hour is the only time buses operate, you have fully and completely proved OJ wrong.

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17 Dave C Johnson August 25, 2017 at 11:36 am

In other words, privatization means working people (unionized drivers) receiving good pay and benefits are replaced by poverty wages with no benefits, the community has to provide services to both the replaced drivers and the poverty-wage drivers, transportation is then run for the profit of a few (who dodge taxes) with no concern for the public’s needs, buses are poorly maintained to increase profits, etc.

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18 MOFO August 25, 2017 at 2:02 pm

Mulp, is that you? You seem to have changed your name.

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19 Anonymous August 25, 2017 at 3:15 pm

I love your argument in favor of government-run grocery stores

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20 Bill August 25, 2017 at 10:34 am

Anonymous,

Good point. People often forget about externalities when they simply use the supply demand profit maximizing equation.

You need to included externalities; if you don’t, you are in for a surprise later, and will have to probably subsidize the private bus company, just as communities subsidize an airline to come to their airport.

Only, the price may be higher when they realize this.

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21 adam August 25, 2017 at 2:35 pm

What’s the externality of running a bus route? It obviously benefits the people who use it, but that’s not an externality.

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22 Bill August 25, 2017 at 3:40 pm

Adam, Here’s some reading for you on the externalities of public transportation systems: https://en.wikipedia.org/wiki/Transport_economics Congestion, pollution, road space rationing and costs, and effects on poverty.

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23 ChrisA August 26, 2017 at 3:33 am

Posting my favourite graph again;
https://en.wikipedia.org/wiki/Privatisation_of_British_Rail#/media/File:GBR_rail_passengers_by_year_1830-2015.png
After the UK privatised railways, the number of journey rapidly increased, whereas under state ownership they were declining in number of decades. If you want a good mass transit service that wants to serve passengers as opposed to the workers running the system, privatise it.

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24 Bill August 26, 2017 at 9:41 am

Chris,

The briitish rail system consisted of freight and passenger services, both of which were previously owned. The trackage system was privately owned, and almost went bankrupt and now exists with a government guarantee. Passenger services are subsidized. https://en.wikipedia.org/wiki/Rail_subsidies

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25 Bill August 26, 2017 at 12:03 pm

Previously publicly owned

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26 Bill August 26, 2017 at 12:09 pm

Chris,

You can see the amount of public subsidy for the private rail system here: http://orr.gov.uk/__data/assets/pdf_file/0020/24149/uk-rail-industry-financial-information-2015-16.pdf

If you didn’t know of the subsidy, then you are excused. But, if you knew of the subsidy and didn’t disclose it you were willing to mislead others.

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27 john August 25, 2017 at 9:56 am

With uber why hasn’t that largely happened already? Seems like it would be really simple to have a set of drivers who all like stayig in the same general area so willing to drive a fixed route with defined (perhaps very loosely as somewhere on the line) where the ride hailer will meet the driver. Match that with the ride share idea and a vehicle that can carry 12 to 20 people (optinal size? it would be figured out) — thinking something along the lines of one of the hotel-airport shuttles or even the jeepnenies one finds in the Philippines. The latter would allow quicker stops I think.

Moreover, why focus on buses per se. The focus should be on (mostly I suspect) urban/suburbah transportation — so mulitple solutions seem better as the nature of the demand is not that homogeneous. Busses are mostly a one-size fits all approach as currently implemened. Casting the discussion in the frame of buses will help perpetuate that type of thinking. It’s about transportation service rather than a particular form of transportation service.

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28 Floccina August 25, 2017 at 1:08 pm

It looks to me the driver is a little over 50% of the cost of operation a bus including capital depreciation. From here:https://www.thoughtco.com/bus-cost-to-purchase-and-operate-2798845

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29 Rich Berger August 25, 2017 at 1:10 pm
30 Borjigid August 25, 2017 at 1:24 pm

Uber is also not profitable right now- each ride is subsidized by VC money. One way or another that subsidy is going away in a few years. It would be foolish to rip up your current transportation system and replace it with Uber, when their business model is going to change dramatically, and probably not in their customer’s favor.

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31 Aretino August 25, 2017 at 10:05 am

The best bus system in the world, that of Curitiba, Brasil, is completely private, and composed of many bus companies. The government however has a role in creating many bus only streets, in allocating routes, and in building the special bus depots they have there that enable buses to be loaded as fast as subways.

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32 Dots August 25, 2017 at 1:18 pm

I wish I had visited Curitiba. Elsewhere in Brazil there were 2 operators per bus, money man and driver, when I visited

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33 JWatts August 25, 2017 at 10:11 am

As an aside, the rapid deployment of autonomous vehicles would allow an expanded bus fleet (the driver is a significant portion of the cost) and allow the use of smaller more economical and environmental vehicles.

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34 philip crawford August 25, 2017 at 10:20 am

It seems that autonomous “micro buses” will likely be private. I suspect that as they become more like multi-person private cabs, they’ll reduce both single occupancy commuting as well as standard fixed route bus ridership. Public bus funding will become even more of an issue in the near future. imo.

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35 Art Deco August 25, 2017 at 10:43 am

Mass transit is a social service to a particular sort of client. In very few loci would mass transit systems be sustainable on fare income. Mass transit systems do not belong in the private sector.

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36 dan1111 August 25, 2017 at 11:25 am

This is a debate about who operates the service, not about who funds it.

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37 Viking August 25, 2017 at 1:12 pm

Perhaps a private sector mass transit will have a lesser equilibrium capacity, somewhat higher equilibrium price, no honor system for payment, and less chance of getting harassed on the bus or train, as freeloaders are excluded?

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38 Viking August 25, 2017 at 1:20 pm

@Art Deco
You might not realize this, but (1) there are cases where productive members of society might prefer bus as a transportation mode (I often don’t mind spending 10-20 minutes to save $10-20), and (2) there are plenty of profitable private buses and vans, you can see them in action many places, but perhaps not in rural or suburban or urban USA, where the only profitable bus seems to be Bolt and some other chinatown to chinatown opoerators, which is not a local transportation system.
https://www.boltbus.com/

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39 adam August 25, 2017 at 3:36 pm

Private intracity buses that pick up passengers from the curb or at busstops are illegal in many US cities (or effectively illegal because of an impossible regulatory thicket).

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40 Viking August 25, 2017 at 4:33 pm

And in my city of Portland, Oregon, the addition of bike lanes has made the regular vehicle lanes so narrow that large vehicles like buses will regularly violate the next lane. The city operated bus company will get a pass, but probably not a private competitor.

41 adam August 25, 2017 at 3:30 pm

You’re going to need to provide some data to support that claim. They certainly can’t survive on fare income under their current cost structures and fare amounts, but it’s probable that a private company could create a better cost structure and/or raise fares.

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42 John Mansfield August 25, 2017 at 10:44 am

The variety of transit services and conditions in the “top twenty cities” would likely produce a wide spread in costs per mile before getting to questions of management efficiency. And how does a spread in efficiency make the case for private transit? Aren’t all local bus services in the U.S. public now, including the more efficient ones?

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43 Benny Lava August 25, 2017 at 10:51 am

Newsflash: big city unions are expensive! Crushing the pensioners would save a lot of money! What an insight, where’s my tenure?

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44 Harun August 25, 2017 at 11:00 am

Progressives, here’s you chance to grab those savings and give the to the poor. Let’s see you put your money where you mouth is.

Is a large state sector more important to you, or helping those in need?

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45 prior_test3 August 25, 2017 at 11:06 am

‘at least 26,000 additional transit jobs’

Assuming they all they earn under $15, right?

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46 Enquiring Mind August 25, 2017 at 11:20 am

When I hear the phrase Privatize bus services, I reach for my gun-shaped bus pass.

Tyler, I do not believe that a privatized system in the USA is going to accomplish what you think it will. Expect crapification of service, rent extraction to pay short term benefits, then eventual bankruptcy and a returned burden on the public through bailouts and higher taxes. Next you will pimp for privatized toll roads again, in spite of evidence to the contrary about the disastrous experiences around the world. Will you push Blackwaterish firms to suck out what little economic vitality remains prior to abandoning projects?

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47 dan1111 August 25, 2017 at 11:27 am

It’s as if you don’t realize that privatized bus services already exist and operate successfully in the U.S. and elsewhere.

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48 John Mansfield August 25, 2017 at 1:39 pm

Where in the U.S. are the successful commercial local bus services?

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49 Viking August 25, 2017 at 1:23 pm

With “Blackwaterish”, did you mean mercenary or bankster?

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50 Anonymous August 25, 2017 at 3:20 pm

Privatized toll roads have been working great in the U.S., especially VA, TX

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51 Bill August 25, 2017 at 6:27 pm

That is cruel. Confront them with the facts.

“Nevertheless, when two private firms, Cintra and Zachry Corp., decided to take the project on in 2008, the state of Texas and federal officials were happy to help. Cintra and Zachry put together a deal to build the $1.35 billion freeway. They lined up $430 million in federally-backed TIFIA loans, and promised to share toll revenues with the state of Texas and pay $25 million upfront.

Today, four years after the road opened, it is bankrupt.”

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52 poorlando August 25, 2017 at 9:30 pm

“Expect crapification of service, rent extraction to pay short term benefits, then eventual bankruptcy and a returned burden on the public through bailouts and higher taxes.”

This sounds like public transportation as it exists right now in the United States, except that it’s always been a burden on the public, so there is nothing to “return[]”.

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53 AnthonyB August 26, 2017 at 10:43 pm

When the Chicago city government sells a public service, it tends to receive a pittance. So they shouldn’t be selling them!

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54 dearieme August 25, 2017 at 11:35 am

I’ve not been on a bus for quite a while. Do they still employ resentful drivers who hope to drive jerkily enough to have some passengers fall to the floor? Do they still employ drivers who will seize any chance to refrain from stopping at a populated bus stop?

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55 Dave C Johnson August 25, 2017 at 11:36 am

In other words, privatization means working people (unionized drivers) receiving good pay and benefits are replaced by poverty wages with no benefits, the community has to provide services to both the replaced drivers and the poverty-wage drivers, transportation is then run for the profit of a few (who dodge taxes) with no concern for the public’s needs, buses are poorly maintained to increase profits, etc.

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56 Harun August 25, 2017 at 11:41 am

So, you believe state-run airlines are better than private airlines?

How about state-run restaurants?

What other areas of the economy would be so much better under state control?

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57 Dave C Johnson August 25, 2017 at 11:55 am

Let’s look at the current airline situation. Run entirely for private profit, with no consideration of the public good. Entire regions are left unserved. Low-paid employees are treated like crap. They cause intentional physical pain to customers to force them to buy higher-priced tickets. This list just goes on and on, doesn’t it? Obviously deregulation was a failure as far as the public is concerned. But the public is not part of the equation, is it?

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58 dan1111 August 25, 2017 at 12:16 pm

Today’s airlines fly people to far more places at far lower cost than they did before de-regulation. This is a massive win for consumers.

People love to complain about airline service, though, having flown dozens of times, I think this is greatly exaggerated. “intentional physical pain”? Good grief. In any case, most of these complainers show what they really value by repeatedly buying their tickets based solely on cost.

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59 Dave C Johnson August 25, 2017 at 12:45 pm

“Consumers” but not “citizens.”

60 TMC August 25, 2017 at 1:25 pm

“Consumers” but not “citizens.” Not sure what distinction you’re trying to make.

I fly about 80 segments a year. It’s always OK, not great, but OK. Much better than a bus or light rail trip.

61 Anonymous August 25, 2017 at 3:21 pm

Worst possible example. Deregulation cut costs to consumers by 90%! If you want the pre-deregulation experience, pay for first class! But guess what, no one wants to.

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62 Bob from Ohio August 25, 2017 at 4:14 pm

“Entire regions are left unserved. ”

What US region lacks air service?

As of 2015 the only sate that lacked any commercial air service was Delaware. Not sure if that has changed.

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63 prior_test3 August 25, 2017 at 12:11 pm

‘you believe state-run airlines are better than private airlines’

Several state owned Gulf State airlines look pretty good in comparison to United or American.

Singapore Air is not bad either, though one can certainly quibble about how state owned they are.

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64 dan1111 August 25, 2017 at 12:17 pm

A lot of the flag carriers are pretty good, but they have to compete with everybody else in a free market.

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65 Cooper August 25, 2017 at 2:11 pm

http://www.huffingtonpost.com/entry/qatar-airways-fairy-tale-profit_us_5952a266e4b0f078efd9855b

Of course the Gulf State national airlines are lovely. They have received tens of billions dollars in direct handouts from their governments.

American Airlines would be pretty swanky too if we threw taxpayer subsidies at them.

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66 Harun August 25, 2017 at 11:43 am

BTW, I own shares in STB, Student Transportation Inc. They run school buses and shuttle buses.

OMG!

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67 Butler T. Reynolds August 25, 2017 at 11:51 am

The empty or near empty heavily subsidized government bus system in my county will be even more empty once automated buses arrive.

Whenever I would see these mostly empty large buses moving about town, I always wondered why there weren’t smaller buses in the fleet. I figured that it was because 1) It is more efficient to have the same size buses in the fleet for interchangeability or 2) It’s taxpayer funded, so who cares?

I can’t find it again, but something tells me that I read somewhere that the federal subsidies for transit are such that they only apply toward large buses. Is that true? If I remember correctly, it was an unintended consequence, but it resulted in a lot of large empty buses going about in cities all over the US.

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68 rayward August 25, 2017 at 11:57 am

Cowen is one smart economist. The problem with transit in America is that there are way too many people who can afford not to rely on transit. Fortunately, we seem to have figured out how to solve that problem. Soon enough, that will present another problem, namely public choice. Public choice informs us that when there’s enough people who cannot afford not to rely on transit, the greedy masses will vote for increases in taxes on the people who can still afford not to rely on transit in order to fund transit. Ah, but Cowen is way ahead. Privatize transit today, so when the inevitable day comes when the masses must rely on transit, those who won’t (rely on transit) will own it and can collect the revenues from those who must rely on transit to offset the higher taxes imposed on those who won’t (rely on transit). It’s a win win: the increasing masses of people who can no longer afford not to rely on transit will get their transit, and those who won’t (rely on transit) can avoid paying the cost.

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69 Axa August 25, 2017 at 12:07 pm

That’s what people like to think: everyone can drive.

Youngs under 16-18 can’t drive. Elders can’t drive safely anymore, 75 or 80 years old? Later, I’ll go for a few beers and I’ll use transit to get home in spite of being a healthy adult with good eyes. People gets sick and tired for working all night, etc.

It would be really interesting to know what is the real fraction of the population that is effectively able to drive at a certain time. Owning a car and having a driver’s license is NOT equal to being able to drive safely.

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70 Dave C Johnson August 25, 2017 at 12:40 pm

“the greedy masses”

I see that your beef is not only with the public receiving the benefits of government, it is with democracy in general!

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71 Viking August 25, 2017 at 1:28 pm

@Dave C Johnson
If you actually parse what Rayward is writing, he is outlining a conspiracy against the masses, where the greedy middle upper class and above are wrestling the power away from the deserving needy people.

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72 Careless August 25, 2017 at 2:03 pm
73 ClayB August 25, 2017 at 11:58 am

I’m not completely opposed to this, but the metric needs to be more than just “lowest cost”. If a city provides $2 bus rides at a loss, at least (more) people are getting something useful out of it. If it gets privatized and the price increases to $5, the ridership drops to half, and it makes a small profit. That’s a better bottom line in dollars but the other costs (increased congestion/pollution, loss of options for people who have a car but choose to ride the bus at times) may be worse.

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74 Axa August 25, 2017 at 12:00 pm

“operating cost per bus mile”, this is an important metric but not the most important one which is “served population”.

Imagine a water facility only served the 80% of population in higher density areas. That would be great business but it leaves 20% of people with clean water. Public transit is the same, it should be aimed at serving most of people, then look at other metrics.

Also, there’s a weird thing going on the US: public transit competes with school buses.

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75 Ricardo August 25, 2017 at 12:12 pm

Surprised no one has mentioned — for good or ill — DC’s Circulator buses, which are run by RATP and were deliberately developed to be separate from WMATA’s MetroBus system…

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76 Captain not so obvious August 26, 2017 at 4:06 pm

But RATP (Paris ?) is state owned ?

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77 Lanigram August 25, 2017 at 3:14 pm

Uber fills that niche, but on demand without stinky, intoxicated, or schizophrenic passengers nodding on your shoulder.

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78 Bob from Ohio August 25, 2017 at 4:16 pm

Government is very good at cutting checks and pretty good at killing people.

Buses do not fit either category so have no reason to be government run.

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79 Bill August 25, 2017 at 4:58 pm

Bob,

Do you ever take any trips from a government financed or subsidized airport?

Do you ever drive a car on a street or highway?

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80 Art Deco August 26, 2017 at 9:39 am

Inter-city bus service should be commercial, with subsidies distributed via bidding for certain remote areas like Indian reservations and Eastern Oregon. Metropolitan bus and tram service is not commercially viable most places. You supply it as an amenity or it is not supplied.

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81 RZ0 August 25, 2017 at 7:39 pm

Funny funny funny all the way around.

Meanwhile I live in New Jersey and my town has a private bus service. It’s one of the few private bus services available anymore. A couple of decades ago there were lots of private bus services. They all went out of business. When they go broke, NJ Transit takes them over.

I actually drive a couple of miles to take the NJ Transit bus.

It is cheaper, by about $1,000 a year.

It is more frequent. At rush hour, buses come by every three minutes on NJT and every 20 minutes on the private service.

It is friendlier. Riders on NJT who know the private bus line know it’s reputation for surliness – “Oh, DeCamp – they are the worst.”

I’m rarely a standee on NJT; I was frequently one on DeCamp.

And before you go on about state subsidies, know this – DeCamp receives a state subsidy.

The thing to always remember about private mass transit in this country – we used to have it. The train lines were private, and so were the bus lines. They all went broke and the state stepped in. Nothing has changed that will reverse that trend.

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82 ChrisA August 26, 2017 at 3:30 am

Maybe the reason the private services went broke is that they had to compete with the state owned services?

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83 jorod August 27, 2017 at 10:11 pm

Or the automobile.

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84 Steve Bowbrick August 26, 2017 at 6:48 am

This argument is fascinating but doesn’t seem to match reality. The actual experience of privatised bus service in the UK – almost all are now privately run – is of continuous degradation of service, loss of service to rural areas, reduced services at night (leaving teenagers and shift workers stranded), increasingly isolated communities (and especially vulnerable groups like the old). The private companies still soak up local authority and govt. subsidies, of course, but direct the money to shareholders instead of to service improvements and many towns and cities are turning to running (or jointly running) their own services again in an effort to redress the loss of service to fringe areas, poor communities etc. Privatisation of buses in Britain has been a thirty-year shambles.

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85 Ben August 26, 2017 at 5:12 pm

Whereas their service seems to simply be excessive within cities.

I live in Newcastle and our inner city roads are just clogged with polluting buses often going to the same place – but ran by different companies.

When you actually get on one (which I try to avoid as much as possible) you can see the only reason most of them survive is pensioners (who of course get it free) when everyone else takes the cheaper and far better subway system.

It’s a total joke. The government should end free bus passes and nationalise bus services.

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86 jorod August 27, 2017 at 10:09 pm

But much less patronage jobs and cronyism.

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