Ian Folkhard wrote recently with this question:
Is there a website that objectively lays out the effects of privatization on formerly publicly controlled operations?
It would be very interesting to see if any of the savings and efficiencies that the supporters of privatization claim will result have actually been passed back to any group of taxpayers. Something that referred to the British experience with public transit and the railways would be really interesting reading.
I hunted around on the net and, alas, there are lots of papers written extolling the virtues of individual projects, but very little by way of an objective overview. One paper was written for the OECD as a 30-year retrospective in January 2007. The information in it is reasonably current, although the recent meltdown in London is not included.
[Note that this is a long paper with 35 pages of text, 14 pages of citations and 72 footnotes. Be sure to read the footnotes as many of them contain important additional information.]
The author proceeds from the premise that some degree of private operation of public transit is becoming the norm rather than the exception, and that privatization is an attempt by the transit industry to become more competitive with the rising use of the automobile. I don’t agree with that premise for reasons that will become obvious, but the presentation covers the subject and is not unduly doctrinaire about the wonders of free enterprise.
I am going to talk about the conclusions in a Toronto context. Many of these issues have appeared in other threads here, but it is interesting to put this in a global context.
- The single most important observation, despite all of the attempts to justify the benefits of private-sector involvement is that increased “productivity” stems overwhelmingly from lower wages, benefits and changes to work practices.
- Fares tend to increase substantially following privatization. This could be caused by several factors including the withdrawal or reduction of government subsidy, or an attempt to raise fares to a higher level while not destroying the attractiveness, such as it might be, of the service.
- Ridership effects vary considerably and depend a lot on the way that the newly privatized service is operated.
Although some issues are discussed in the body of the paper, they don’t appear in the conclusions:
- “Efficiency” and “Productivity” are elastic terms that must co-exist with “Effectiveness”. If one measures a system on the basis that it carries the most riders for the least cost, this ignores the question of whether, by chosing not to carry the higher-cost riders, the system has lost its purpose of providing transit for all. “Effectiveness” ties a transit system to its goals as an urban development tool and enabler of transportation by a wide range of riders. It also includes shared savings to the public and individual purses alike of cost avoidance for road expansion, commuting time, parking and operation of multiple vehicles per household. This omission is a significant shortcoming in the analysis.
- Much of the analysis by many authors concentrates on systems that are much smaller than Toronto’s. Indeed, one author found that there is a diseconomy of scale as systems grow although it is unclear whether this is an organizational effect or a complexity due to a larger service territory and a demand for better service in a large urban area.
- The situation for capital intensive systems (LRT, subway) is very different because of the high buy-in cost for any operator, the question of asset renewal, and the issue of residual value at the end of a contract or franchise.
- The economic theory (and political jargon) behind privatization is that competition will breed the most “productive”, lowest-cost service. However, the author notes that this only works provided that there is actually competition among several potential service providers. Experience in the U.K. has shown that after the initial flurry of interest, the “private sector” consolidates. An oligopoly, if not a monopoly, may result and the hoped-for competition may disappear. Indeed, once true competition vanishes, it is unclear that the private model will protect the public interest against unreasonable fare hikes or demands for additional subsidy. This issue is mentioned in passing, but the author does not pursue it further.
In the Toronto context, we must ask a basic question. Do we want to achieve a reduction in transit costs by cutting wages and raising fares? Do we feel that operators and maintenance workers make too much? Do we feel that riders pay too little? Those who hold these positions openly are at least honest enough to say so.
The OECD paper talks about various ways in which labour can be used more effectively including:
- reduction of inefficient crew scheduling
- high overtime pay
- excessive use of spare staff to cover for absences
- elimination of pay for reporting and travel time
- elimination of pay for work breaks
- reduction of the peak-to-base ratio
This is a point where a bias is, unfortunately, quite evident. It is possible that the author is looking at U.K. experiences where excessively generous work rules may have applied in the past, but such statements cannot be made against the entire transit industry.
Inefficient crew scheduling is a matter of local practice and what, exactly, this means will depend on who is talking and which city you are in. This is related to the “peak to base ratio issue” that is advanced as being an evil of public ownership.
It appears that public systems actually believe that more service should be provided in the peak period, an inherently inefficient arrangement. In Toronto, this ratio is in fact much lower than in most cities because we have very strong off-peak ridership. Variations among routes even out over the entire system. Some routes have a 5:1 ratio while others are well under 2:1. On the TTC bus system, the ratio of AM peak to midday service is 1.6:1. On the streetcar system, it is 1.3:1.
Another advantage of good off-peak service is that the time taken to run a bus or streetcar out of service for the midday period is eliminated for many vehicles and operators. They provide productive service when they would otherwise be dead-heading.
High overtime pay can arise from a number of factors. In some cases, as I have discussed elsewhere, it is actually cheaper to pay someone at overtime rates than to carry the burden of extra staff. The cost of such extra staff varies between jurisdictions depending on the legally mandated overhead costs (vacations, pensions, etc) for each employee regardless of the benefits package. High overtime can also arise from a shortage of staff, a condition familiar to the TTC.
The OECD author notes that the point at which overtime rates kick in varies from system to system, and that for private operators the threshold tends to be much higher. The examples given are just under the 8-hour mark (a public system) and the 12-hour mark (a private system). In fact, it is illegal in Ontario for someone to work that many hours, and in any event this is a pay cut, no matter how you slice it. If the real desire is to move to a 60-hour workweek, then say so.
Excessive use of spare staff is cited in relation to cities where union rules require keeping a large “spare board” of staff who often do little work. That is certainly not the case in Toronto. Some spare staff will always be needed. Unlike an office where the work one employee normally does can be left for a day or two or reassigned, if a driver is missing, that bus does not go out. The issue is to manage absences, not to eliminate the necessary spare staff who cover for them.
Elimination of pay for reporting and travel time: In Toronto (and many other cities), a driver is paid some amount of time for the act of showing up for work. This may seem ridiculous, but it has two purposes. First, the driver needs to report before the beginning of the shift so that an alternate can be found in case of a no-show. Second, if the driver takes a vehicle out of the garage or carhouse, the driver must check the vehicle before it enters service. Why don’t the maintenance folks do this? They do, but the driver is responsible for the bus when it is in service.
In the case of a driver taking over a vehicle that is already in service, they have to get from the division office to the pickup point. For example, on the Queen line, crew changes happen right outside of Russell and Roncesvalles Divisions, and there is no travel time; on Dundas, the relief points are not at the Divisions, and operators must travel to them. In the suburbs, this travel can be substantial and it is part of the operator’s work day.
Elimination of pay for work breaks: Under Ontario law, paid work breaks are provided to everyone, unionized or not. On TTC routes, these are scheduled at locations near coffee shops or other locations where operators can actually take a break, out of the weather, while awaiting their next vehicle.
At the end of the discussion, all of this amounts to asking operators to take a pay cut, one way or another. They would be “at work” in one sense or another at least as long as they are today, and they would be paid less for it.
That’s not efficiency or productivity, and no amount of private-sector cant will eliminate the basic fact that the real goal of privatization is union-busting, pay cuts, service cuts and fare hikes. What politicians are afraid to do themselves gets offloaded to the private sector who hope to make a bundle before the peasants show up at head office with axes and pitchforks.
In all of this I am not saying that the private sector can’t run a bus company and do it well. What I am saying is that when we talk about privatization, we need to recognize that good quality service everywhere cannot be provided profitably given the way that the GTA has developed. If we are serious about making transit the better way, we must be prepared to pay for it. Asking TTC employees to take a pay cut buys, at best, temporary relief from the larger financial and planning issues and risks destruction of our transit system.
Postscript: In writing this, I know I am inviting an onslaught of pro and anti labour comments. I will not print comments that attack TTC staff or the public sector in general.
In the interest of full disclosure, I too am a public servant although with no professional connection to the transit industry. We are not all a bunch of shiftless, lazy, overpaid bums, and I for one am tired of hearing us portrayed that way.