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'Unfare' hike

Published:Sunday | August 25, 2013 | 12:00 AM
JUTC Managing Director Colin Campbell lends an ear to J.R. Group Managing Director René Wellington as they sit in one of the articulated buses that have been procured by the JUTC to increase its fleet this year.-JIS

Short-sighted politics dooms transport system to inefficiency

Martin Henry

Starting today, users of public transport will pay 25 per cent more for a ride. Some of them, at any rate, since the fare for children under 12, for students in uniform, the disabled and the elderly using the Government-owned part of the system remains at the same concessionary rate of $20. The last fare increase was in 2010.

Not too many prices have moved since 2010. Those who own their own rides, as much as the operators of public transport do, have helplessly watched the price of gas and insurance and parts and the Government's own road licence fee relentlessly rise over the last three years.

Wages have not done very well by way of increases over the same period. And since it is mostly the poor who use public transport, and since Government loves the poor and also sets the fare for public transport, the fare has been held down.

Government also sets the price for water provided by the National Water Commission, and for the same sort of reasons has chosen to hold down the rate, with the same sort of consequences. The minimum wage, which the Government also sets, is now under review for its periodic increase determined in mystery by magic, like the bus fare increase.

Thankfully, our Government is no longer interested in wholesale price controls. Beyond bus fare, water and the minimum price of labour, it is hard to think of other controlled prices. You may have noticed how cell-phone call costs dropped sharply with judicious regulatory intervention by Government, which steadfastly resisted setting rates and allowing competition to work.

The absence of more extensive price controls now is a long way different from the 1970s and from what prevails now in the friendly Bolivarian Republic of Venezuela, continuing on the pathway of Chavismo socialism despite the demise of the leader.

Thanks to Delano Franklyn, we now have access in print (the escalating cost of books, notwithstanding) to Michael Manley's Budget speeches. In his famous 'We are not ashamed' 1978 contribution to the Budget Debate as prime minister, Michael Manley spent some quality time on "price controls".

He said, "I wish to point out that attempts at control of prices, which is so critical at this time, more critical than ever before, take a number of forms. He discussed three the Government was using: direct subsidies, provision of goods through the State Trading Corporation, and "those things the people themselves can do to help keep the system honest and operating as intended".

Lashing his antagonists, Mr Manley went on: "I read something the other day which seems to indicate that the authors were not quite clear what country they were in, in which there was speculation as to whether the price-control mechanism had been abandoned.

"The fact of the matter is that there is an enormous range of items which are under price control, of which the most immediate are the 42 items that are on the so-called 'A' list, where the prices are not allowed to be moved at all unless the Prices Commission has investigated all the factors and where, thereafter, the Government acts upon the recommendations of the Prices Commission. So that the direct controls are there."

Then there were the 'B' and 'C' lists "which take in an enormous range of other goods ... ".

"The Government," the prime minister declared then, "has mechanisms in place that try to ensure that the price is kept as low as is consistent with the economic activity continuing."

Heroic Intentions

Despite heroic intentions and efforts, the system simply refused to operate as intended - that is, with prices, in the face of scarcity, keeping low by government diktat. Three very important economic activities which continued and thrived were hoarding, the black market, and marrying goods.

Fast-forward to 2013 and over to the Bolivarian Chavismo Republic of Venezuela. There is a shortage of everything, including toilet paper and communion wine in the oil-rich republic.

One news story (filed by The Associated Press operating out of the wicked capitalist United States), 'Now Venezuela running out of toilet paper', started, "First milk, butter, coffee and cornmeal ran short. Now Venezuela is running out of the most basic of necessities - toilet paper. Blaming political opponents for the shortfall, as it does for other shortages, the embattled socialist government says it will import 50 million rolls to boost supplies."

But economists like Johns Hopkins' Steve Hanke are saying the chronic and spreading shortages in Venezuela are a consequence of price controls kind-heartedly intended to make basic goods available to the poor at 'affordable' prices, plus the control of foreign exchange by the government. "State-controlled prices - prices that are set below market-clearing price - always result in shortages. The shortage problem [in Venezuela] will only get worse, as it did over the years in the Soviet Union," Hanke says.

Two economists - Robert Schuettinger and Eamonn Butler - some years ago produced a delightful book, Forty Centuries of Price Controls, comprehensively documenting across civilisations the failures of price control usually crafted by governments to help the people but ending up shafting the people. This column will want to take a closer look at this book, in due course.

Opening the Sectoral Debate in May, Transport Minister Dr Omar Davies warned that the public transportation sector was on the brink of collapse and desperately needed a fare increase to prevent its demise. Hundreds of JUTC buses, some 50 per cent of fleet, are laid up and cannot be rehabilitated and returned to service because the company cannot afford it.

The route-taxi system, with thousands of units picking up the slack, is masking the serious economic fact of 'shortage' in their ranks. The units cannot be properly maintained by owners and the numbers are kept up because new players

with a few dollars in hand enter the market, replacing bankrupt operators who have moved on.

And, despite SSP Radcliffe Lewis and the Transport Authority, a black market of 'robots' vigorously operates, offering better service at higher fares than that set by the State and willingly paid by commuters who want simply to get about their business.

"The administration," the transport minister said, "recognises that given when the last fare increase took place [2010], the sector is bordering on collapse. The changes in price, the exchange rate and the price of fuel - it is impossible for the fares of three years ago to make sense."

The Opposition and its G2K youth affiliate are plainly disingenuous

and playing pure politics in opposing the increase to the JUTC.

Whatever might be the management and efficiency problems of the state-owned bus company, its fundamental problem is being underfinanced. The Government is forcing the JUTC to carry 55 per cent of its passenger load at the 'concessionary' fare of J$20 (one-fifth of a US cent!) without providing the compensatory subsidy necessary to keep the company viable. How much the old fare of J$80 [four-fifths of one US cent] or even the new J$100 [one US cent] fare reflects the real cost of delivering the service with all the efficiency in the world is another matter.

Speaking through the other side of his mouth, the political side, the PhD economist minister said the 25 per cent increase would be "significant" for commuters but it reflected "sensitivity to the lowest-income persons" and was a "least-pain" decision by Cabinet. But the pain has simply been shifted from paying the fare to enduring a low-quality service and shifted from the commuter's pocket to the bus company's pocketbook.

The private operators' side of public transport has been granted the same 25 per cent increase by Cabinet political fiat, reflecting nothing in economic reality. Even if a joke is taken seriously and it is assumed that the 2010 fare increase was fair and adequate, which other price has moved by only 25 per cent in the last three years?

Business operators are being forced by price control to subsidise public transport to satisfy the political objectives of Government. It is not only bad economics, but it is wrong and unethical. But there is a great deal of public support for this 'hol'dung and tek wey' robbery because 'tings hard an' nuh money nah run'. There is little understanding of, or sympathy for, the fact that a system that cannot sustain itself from its revenue stream must deteriorate and deliver poor service to its poor users.

Unlike some other 'utilities', public transport can easily accommodate orderly competition with proper regulation. And Government has the advantage of being able to lower fares while properly subsidising its bus service and forcing private competition to hold down fares. Public transport is widely subsidised around the world. But nowhere has it been able to successfully run on air.

But even when fixed fares have to be set, the head of the Route Taxi Association, Sophia Campbell, has a solid point about how it could better be done: let the Office of Utilities Regulation (OUR) do it. "The OUR would have looked at the economy [i.e., economics], instead of the politics," she very sensibly said.

What would be needed is a thorough assessment of a basket of critical inputs to benchmark real operational costs against which an 'acceptable' base fare could be set. Annual adjustments of the price of public transport would then have to be considered against the general movement of prices in the competitive market as well as any depreciation of the dollar and inflation - regulation without arbitrary political price fixing.

Martin Henry is a communication specialist. Email feedback to columns@gleanerjm.com.