Private or Public?

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.

17 thoughts on “Private or Public?

  1. Have not read it all but I had a laugh in regards to “Franchising” I can see it now– reading the business section and see an ad trying to relay to someone how a subway franchise is their ticket to financial freedom.

    “Would you like Fries with that?”

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  2. Hi Steve:-

    One of my friends who had a brother in the public moving industry in Britain (Suburban commuter in Glasgow) and who visited him frequently, both felt that privitisation of the transit systems which had taken place there had had some horrendous drawbacks. They both cited examples of formerly provided bus services on secondary routes that were either abandoned outright or relegated to peak period operation only. Some, to continue providing service, had to revert to public operation of these orphan lines or just ignore that they ever existed, not an ideal situation. Even profitable trunk routes were closed down at the weeer hours when ridership fell. Shades of GO Transit bus lines having to take over Gray Coach’s secondary routes Greyhound refused to run. Who can blame the private operator for not wanting to provide service on money pit routes.

    And (I know one should not start a sentence with ‘and’, but…) shades of history maybe repeating itself. The privately owned Toronto Railway Company, willing to provide service in the built up areas of the Queen City, but loathe to go to newly annexed fields for the sake of urban developement is our own local example of a private operator looking at the bottom line. Thus the creation of the City owned Toronto Civic Railways. The TR Co was constantly critcized, both municipally and journalistically, for not providing enough cars for the peak (rush hour) period. Another example of the private sector looking to maximize the fleet by putting as few extra cars on the track as they can possibly get away with, thus having an eye on that ratio of peak to base service requirements you were quoting in the body of your thread. We’ve all probably chuckled at the vision of the Tokyo Subway with the white gloved ‘attendants’ pushing and shoving reluctant riders onto already packed trains. Well the TR Co did it here too folks. No wonder the TTC got the public support it did prior to its inaugaral service in 1921, for they promised more cars and no more ‘Gentlemen’ to assist one to board!

    Yes I know that the Toronto Railway had had two devastating car barn fires destroying many cars and the TR kept relating to these losses as arguments about why the level of service was what it was. This was true to a point, but one of the fires destroyed outmoded antique cars that were not likely to re-enter service again anyhow. But the kicker in it all was that the critics were voicing the same opinions even before the fires.

    We should trust that our publicly owned, operated and overseen transit system is as open to the public’s checks and balances as possible. I can’t see this being true in a closed door private executive meeting looking to improve their shareholders stake. “The public be damned”.

    Dennis

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  3. Maybe if a surface route like Queen was privatized, it would actually be run better? Even if it didn’t save any money, at least the new operating body might actually try to improve things … new ideas, etc.

    Think about that before you dismiss the idea.

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  4. There are no savings from privatisation. How do I know this – because I believe. I do have intuition and anecdotal evidence to support my belief – but no compelling A vs. B study that is on a scope comparable with the TTC. However, those who post a bunch of “irate” comments about public sector arrangements also do not have any real evidence. Their belief and emotional tendencies are the opposite of mine. However, there are many people now engaged in the public sector. It is not logical to disrupt their lives based on an unproven “emotional” model. Until we have real evidence that privatisation of public jobs creates not just savings, but a better society, we should hold off on changes.

    The latter comment is very important. The stability of our society is predicated on a secure and vibrant middle class. We tamper with that at our peril. Even if some savings could be modelled (not proved) in a transit sytem, the resulting effects on our society have to be further modelled and we have to understand the moral and societal impacts of a disappearing or diminished middle class. Intuitively, it is difficult for me to see where there could ever be ultimately a “better society”. (By the way those “overpaid” TTC employees spend their money at “your” establishment. Even the right wing Henry Ford understood that concept.)

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  5. The TTC is having a hard enough time recruiting skilled workers, such as operators and maintenance workers, at its current salaries. I don’t think that reducing pay would make this any easier even under a “public-private partnership”.

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  6. This all depends on where you live, and the infrastructure provided.

    Consider Hong Kong. There are many private bus companies that run over there, not to mention two tramway systems, two mass transit systems (one which owns one of the tramways) and several bus and minibus companies. That your source is using London as a basis does not surprise me either.

    The biggest difference is that both London and Hong Kong have large amounts of established ridership meaning that such a market exists and that high-density development creates such a market. This cannot be said of Toronto’s TTC where the ridership is spread out over a wide area.

    It should also be pointed out that the Mass Transit Railway, the system that carries the highest ridership in Hong Kong also invested its money on high-rise developments near to where its stations are located (20 large apartment buildings next to one station). Contrast this with Toronto in which fully-detached housing is in demand. As well, having the TTC own property for the use of renting out housing could very possibly be illegal under Canadian Law.

    It’s not hard to see how bad it would be if the TTC were to be privatized. Unlike Hong Kong or London, Toronto’s system is not self-sufficient, and due to its demographics will likely never be. All of Hong Kong’s systems do not rely on any sort of subsidy from the government. And its minibus system is very dangerous (some people call these suicide buses). This is because of their reckless disregard for operation of a vehicle for the sake of profit. In other words, not only would Toronto’s fare likely rise, but would make the TTC quite dangerous as well, with tight running times forcing drivers to throw caution in the wind.

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  7. Most transit and railways in Japan are privately operated. Capital subsidies are only provided for the construction of subways as this is beyond the means of private companies.

    In Tokyo JR (successor to the former Japanese National Railway), numerous private railways and Tokyo Metro and Toei subway lines provide commuter service. Some private railway commuter trains operate in the subways. JR commuter lines run as often as 2-3 minutes and JR high speed Shinkansen trains run as often as every 20 minutes. Overcrowding approaches 200% of capacity on many commuter lines. Evening service is often more frequent than service between rush hours.

    Rail accounts for 68% of Tokyo commuter traffic. Automobile commute trips are in the single digits.

    Source: http://www.jrtr.net/jrtr30/pdf/s42_aok.pdf Page 44

    Many aspects of Japanese life are substantially different from our norms, not just transportation. Many streets are not named. Blocks are numbered by district and address numbers go around blocks. Streetcars are restricted to 40 km/ per hour by Tramway Law, so that rapid urban railway commuter lines operated by private railways tend to be upgraded versions of what we once knew as interurbans rather than light rail. Streetcars mostly found in mid-sized cities now, tend to plod along in the middle of streets while traffic whizzes by on either side.

    Compared to North America, transportation is expensive in Japan. There are tolls on roads. Fares on buses and trains are based on distance and a separate fare is required on each company. Transfers are not common and flash passes are not offered. There are commuters’ pass and students’ passes, sold for one, three or six months, but these are based on travel between two points. If you go over the section shown on the pass, the regular fare for the extra section—not the fare shown on the pass applies.

    Fares in Tokyo start at 130 yen for JR lines, 160 yen for Tokyo Metro and 190 yen for TOEI lines. Rechargeable fare cards are common in Japan and sold the way phone cards are sold here. PASSNET (prepaid cards of 1000, 3000 or 5000 yen) can be used on the Tokyo Metro, Toei and almost all private railways, although JR does not accept PASSNET. JR has its own rechargeable fare card system called SULKA. Sulka does not need to be passed through ticket gates like other fare mediums but only held in the proximity of fare gates.

    Basic tickets get you on the local train. To ride a specific train or coach may require a surcharge ticket. There are fees for travel on express train (which may be called Express, Section Semi-Express, Semi Express, Rapid, Section Rapid, or Limited Express) or for a reserved seat. But there may not be a surcharge for an Ordinary Express! While there are surcharges for riding these trains, they frequently are sleek rail vehicles quite unlike anything seen in North America.

    At one time fare increases were vigorously opposed by passengers of both private railways and JR. Gradually in the 1980s the public was educated to the need for a financially healthy transportation network. A strict cost review is required before fares can be raised. In Japan, 68% of all rail passengers travel on commuter or student passes which account for just 28% of ticket sales. The remaining 72% of passenger revenue comes from 40% of the passengers.

    Source: http://www.jrtr.net/jrtr27/pdf/s48_ter.pdf Page 51

    Subsidies are rare except in rural communities. In 1995 subsidies to smaller private railways in Japan totaled 3.017 million Yen or 1.6% of total revenue of smaller private railways. By comparison subsidies for British Columbia’s transit system in 1994 have been cited as 27.6 billion Yen ($230 million US).

    Source: http://www.its.usyd.edu.au/conferences/thredbo/thredbo7/shoji_killeen.pdf
    Page 4-5.

    Fares alone have not sustained Japan’s private railways. After Japan National Railways (JNR) was established in 1906 new private railways were permitted only to be engaged in local transport and without interfering with JNR lines. But this restricted the private railways to areas with relatively limited populations. As early as 1905 the Hanshin Railway developed residential areas along its lines to increase population near its lines. Rail Accounting Regulations require strict separation of railway business and non-rail business operations.

    Private railways have developed communities with affordable housing lots and high quality houses as lines pushed further out from Osaka and Tokyo. Rail lines are fed by networks of bus lines operated by the railway. Department stores owned by the private railways are a common feature of city terminals. Many suburban stations have supermarkets operated by the railway close by. Business lines can generally be divided into rail division, transport division (taxi, local bus, inter-city express and tour bus operations), real estate division with commercial and residential properties and other business division operating retail ventures, restaurants, amusement parks, sports teams and museums.

    Of the 15 major private railways 11 of 15 generate 50% or more of their revenues from railway operations and 6 of 15 generate 50% or more of their profits from rail operations (with two other private railways at 49% of profits from railway operations). All 15 railways were profitable. By comparison their bus subsidiaries rarely made money.

    Source: http://www.jrtr.net/jrtr10/pdf/f02_sai.pdf

    Article: http://www.calrailnews.com/crn/0802/0802_45.pdf

    Trains in Japan are clean and punctual. Stations are clean and well maintained. Quality transportation does not come cheap.

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  8. Privatization can have very odd side-effects. Take for example this story from the Croyden Tramlink in England – When the private operating body was formed they were given performance guidelines. If routes didn’t achieve a specific minimum on-time percentage the private company would be fined as often as this occurred. Sounds like a great idea, right? Well, not quite. As the system expanded and local development followed, the numerical terms of the performance guidelines were not altered. The result was that the private operator refused to add a new stop at the major shopping mall in central Croyden (the hub of all their routes) because the increase in running time to service that stop would screw up their adherence to the performance guidelines!

    Privatization seems to actually INCREASE the number people paid to oversee the operation if government still has to have an overseeing body to keep an eye on things. This is especially true if a single transit authority is broken down into multiple private companies responsible for operations, maintenance, and other elements. Each sub-company requires a certain amount of duplicate staff overhead to function and also to communicate with the other companies as needed. Communication suffers because it has to play ‘broken telephone’ through more people, and each company is trying to serve their own interests. How basic maintenance can possibly be operated as a business while effectively and cost-effectively serving the public better is beyond me.

    A number of recent incidents on the London Underground including a severe derailment on the Central Line have been caused by sloppy safety procedures by the private company responsible solely for system upkeep. The same goes for the national rail network, although that was largely due to dramatic under-investment in maintenance by government prior to privatization. Why then syphon-off precious public dollars to private profit? No company will ever take over ‘public’ transit with an honest interest in serving the public. There’s no profit in that. But there is profit in making it worse. And you know full well if things got really bad that government would take back control with only a slap on the wrist to the private companies. I simply refuse to sink my hard-earned public tax dollars into such a losing proposition. Greedy business folks should stick to ventures that consumers can CHOOSE not to be involved with rather than tampering with ‘essential’ public services. Highway 407 anyone? It could have and still may happen to public transit!

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  9. Kristian – public ownership is no guarantee of safety as the TTC knows. I am sure you wouldn’t like advocates of privatisation to use the 1995 disaster as fodder for advocacy. Only leadership making safety a priority combined with government oversight with teeth is sufficient – and sadly Transport Canada’s safety oversight is being gutted by successive Tory and Liberal governments.

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  10. The privatization of Highway 407 is a disaster for everyone across the political spectrum. It was a woefully thought out plan which was also woefully executed. To be blunt, for a fire sale price, the government basically gave up complete control of a valuable asset and now no longer has a say in its future development. Adding insult to injury is the fact that the government is now a patsy for the private consortium to obtain late fees by denying plate renewals for the affected motorist. If the private company sought complete control of this public asset, the recovery of late fees should be their problem, not the matter of the MTO. Governments should never play proxy to the whims of the private enterprise.

    Steve: The 407 sale is an example of what happens when ideology takes precedence over good business sense. The Harrisites wanted to (a) unload an asset, (b) generate some badly needed cash for a tax rebate and (c) ensure that the asset could never be “re-nationalized”. In the process, they gave away the store. Great businessmen, those Tories!

    That being said, it does not mean that Private-Public-Partnerships are bad in general (if the 407 “handover” can be classified as such). You may not know it, but the operation of York Region Transit is completely private, their employees are not paid directly by York Region or any of its member cities, but through the private operators licensed by York. Besides VIVA, there are 3 other licensed operators for YRT, one for Aurora and Newmarket, one for Vaughan, and the other for Richmond Hill and Markham. Fares are similar if not cheaper than the TTC (especially its monthly passes), and although the service is not quite up to par (hey it IS York Region), it does meet the current needs of its residents. It should be noted that its ridership is indeed growing since the transit systems were reunited under one emblem.

    Steve: It is impossible to link fare levels on any system with the governance model without also taking into account the subsidy regime (YRT recovers far less of its total operating cost than the TTC does). Certainly, if you pay your staff less, the cost of your service goes down, but as YRT grows, you can be sure that the growing workforce will be wooed by and eventually become part of the unionized transit workforce.

    The point is that privatization is a possibility in Toronto’s transit system although it may not be the solution. Consider how London privatizes its services. All transit systems in London are regulated under one government entity which monitors ridership along its various routes. These routes are then farmed out to the various operators who sign a contract to run these routes, among the terms of the contract is clauses in which the transit operators would pay their employees. This way, no operator will pay more for an employee than another for driving a bus in London.

    This is actually an issue for the GTTA as there will inevitably be pressure to unify the wage rates, working conditions, etc, across the region. If the public sector is specifying the wages that the private operators will pay, we’re only a short step away from the employees contracting directly with the public agency.

    As for London, the buses may run, but the tube is in a mess as you can read in that lefty rag, the Economist. Among the interesting notes in that article is the level of public guarantee that was demanded to protect the private partners from financial risk. The situation is also a clear case of the “oligopoly” problem I mentioned in my original post.

    There are many efficiencies that are obtained through this arrangement and that the salary expectations of their employees are the same across the board. I won’t say that this is something that the TTC must consider but it is an option that should be explored. If only Miller had the guts to do this.

    On privatization or Private-Public-Partnerships as a whole, there are many services that do not need to be run solely by city services in order to be effective. Consider the Town of Markham: maintenance of its parks are contracted out to private operators, its garbage is picked up by a private entity, and its municipal buildings are also cleaned by a private company. And I don’t hear anything about Markham having a budget crisis. The whole point is that privatization, when properly effected, can allow a municipal entity to save millions of taxpayer dollars.

    One final note: given what I had said about privatization in this post, I will agree with Eric’s post that the TTC may not be in any shape to undergo an overhaul that would allow private operators to step in. The unions have too much control over the system and the management of the TTC is in terrible shape. But the whole point is that there are savings to be made in contracting out certain services (garbage, park maintenance, municipal cleaning staff) and these savings can be substantial, if the Millerites take the time to look into it.

    Steve: This debate really needs to stop whacking “the Millerites” as if somehow the sun would come out, all our problems would vanish, and there would be a chicken in every pot if only the Mayor and his cronies would do “the right thing”. Life is not quite that simple. I have absolutely no faith in the private sector to take on operations as large as the TTC or any other major city function without a lot of built-in protection against financial loss. Nobody ever actually loses money because the public sector takes the risk. If we are going to take the risk, then we should own and operate it. Period.

    The problem with a PPP is that the private partner knows we would never let the operation stop running because people depend on the service. Improvements are impossible once the terms of the operating contract are set. Just imagine if we tried to implement the Ridership Growth Strategy, a major change in the way we deliver service, through an existing PPP. Every contractor on the planet knows that the real profit lies in the changes to the base contract, and we would likely never get political agreement to improve anything. A recipe for stagnation.

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  11. Hi Steve

    Thanks for taking the time to research my question.

    It seems clear that privatization was sold to the public on the basis of blind ideology rather than a basis of fact.

    Privatization falls down on the because of the multiple reasons that cities want good public transit. Transit is used to spur development, provide mobility, keep a clean environment, attract people to cities, and reduce the need to build and maintain roads.

    A city would probably end up losing money on the costs of running the system but actually gain tax revenues (and save expenditures) through the benefits that good transit provides. Not only can this not be factored into the profit motive of a private operator but it goes against Neo-Conservative ideology because it proves that tax dollars can actually be invested to provide a return to the taxpayer.

    Privatization is always sold as a way to get fresh money into the system without having to burden the taxpayer. But, regardless of what is said, services still have to be paid for. So now, to use the service I am paying fees instead of paying through my taxes. Please tell me what the difference is, I am still paying for something regardless of who gets the money.

    It will be interesting to see what London will have to pay to fix the maintenance meltdown that you have referred to.

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  12. The concept of privatisation goes against the whole principle of “Public Transit”.

    If you think that the proposed cuts to service (one subway line and twentyone surface routes) were drastic – just wait and see what privatisation would bring. The TTC would be reduced to a skeleton of the most heavily used routes only. Service frequency would be cut back to ensure that only “crush-loaded” vehicles would be running (the more fares per vehicle – the more profit to be made). Free transfers would surely be eliminated. Safety would certainly be in question as maintenance is done only if it doesn’t put a drain on profits. Vehicles would be dirty – why pay for cleaners?

    The TTC came about because the private operators of the time were not running the system in the public interest. Now we propose to go full circle and hand the TTC over to private (for profit) operators? I just shake my head at such short-sightedness. Take a look at the historical reasons for having “Public Transit”.

    If we start down this path, what is to stop us from further privatizations: the Police Service, the Fire Service? Why not privatise ALL government? This would surely reduce our tax burden.

    Let’s get real here: we have two senior levels of government sitting on huge surpluses (no doubt to be used to attempt to buy our votes in the next election). Local government across Canada is always struggling to make ends meet. There is only ONE taxpayer supporting three levels of government – the senior levels should share the wealth of their surpluses.

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  13. Privatization can have a role in certain situations. For example, there are certain transit services that are necessary, but require a certain amount of work to be full time. For example, suppose you need one bus scheduler for every one hundred buses (the ratio at LA Metro, probably higher than other systems). If your system has fewer than one hundred buses, you won’t have enough work to have a full time scheduler; however, if a contractor operated two different small systems with a total fleet size of one hundred, they could have a full time scheduler. Probably the same thing applies to marketing, planning, and heavy maintenance.

    Obviously the TTC has such a huge fleet that they can easily have all sorts of specialized transit professionals that wouldn’t have enough work in smaller systems. I think the pay issue is how privatization saves money. But lower pay inevitably means lower morale and higher turnover. The ten privately contracted Metro lines in LA generate more complaints than all of the other lines COMBINED. It’s unbelievable.

    What privatization could do for the TTC is perhaps cut through this management malaise which suggests that everything has to stay the same because it’s always been that way. This bureaucratic logjam probably frustrates management and employees alike.

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  14. Gord paints a pretty doom and gloom picture of privatization:

    “Service frequency would be cut back to ensure that only ‘crush-loaded’ vehicles would be running (the more fares per vehicle – the more profit to be made). Free transfers would surely be eliminated. Safety would certainly be in question as maintenance is done only if it doesn’t put a drain on profits. Vehicles would be dirty – why pay for cleaners?”

    Calling this argument ‘extreme’ would be kind, for it assumes that every fare paying passenger is forced to use the system. Free enterprise is a two-way street and profit can only be made when there are customers, so businesses know damn well that costs must be realized in order to attract and keep customers. They would have a vested interest in making sure that the system is safe, efficient, and clean.

    That said, there are not a whole lot of shining examples of privatization of government-run services, with the exception of waste management for some reason.

    There may be some places where privatization can be to an advantage to the public at large. I have been told by some who are closer to the process, but more often, it is the opening up of the competition of privatization that can bring to light the efficiencies that can be implemented to make not going with privitization more economical and beneficial — a sort of shaking out the complacency, so to speak.

    Steve: The essential question about privatization is the concept of “service”. If it’s purely a for-profit motive, a private operator will chose not to bother serving the high-cost trips, or will charge more for them to cover costs. This tends to cut away at the margins. Public services exist to serve everyone. Yes, some trips cost more to serve, but we built the city the way we did, and serving those trips is part of the cost of that city.

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  15. Steve,

    There is a tendancy to think that private = cheap and public = expensive. This is a flawed attempt to apply a truth about certain types of markets to all circumstances whether the market mechanism applies or not. While the market mechanism does push prices down in many cases, it would not do so in a transit setting.

    First, not all markets operate the same way. The competetive market of the Adam Smith ideal requires many sellers and many buyers to create efficiencies through competetion. Where there are not many sellers there will be “above economic” profits. This is simply because, according to the classical model, sellers will charge whatever they can get away with. It is only when a competitor undercuts their selling price that they strive for efficiencies. Without competition there is nothing inheritantly efficient about private ownership

    Which leads to the second point. Transit is a “natural monopoly”. The same is true of the electricity grid (the wires), water and sewer systems, and most large networks of infrastructure. Building many different subway lines that compete by price for riders is plain silly. How many subway stations can we fit at bloor and yonge? One. Given that transit is only valuable as a network of routes (imagine if you had to change to different brands of automobile in different parts of the City) there will naturally only be one transit system.

    Becuase there cannot be competition of networks against one another, transit privatization has been structured to have different firms bid to run all or part of the system. This competition by tendering has failed to create market driven efficiencies. If the TTC was put up to tender a number of firms would bid. Because there would be start-up costs (hiring and training staff etc.) the bidders would want the term of the bid to be lengthy (say five years) in order to defray those costs. After five years the bid would be open again. However, at that time only the seccessful bidder in the first round is in the transit business locally with a trained workforce. That firm will be able to pad their bid (no startup costs) and still be low bidder. Eventually, even quickly there will only be one firm in the business. Who will hang around an indusrty where they have no clients?

    Transit scholar John Pucher has studied American private systems and found that the number of bidders declines (often to one) after the initial contract phase. Unfortunately, I can’t put my hands on his work right now, but I remember he was at Rutgers when he wrote on this a decade ago.

    Thus our choices are private monopoly and public monopoly. In a monopoly situation the question becomes: without the discipline of competition how do you prevent shoddy management, gouging etc.. The only mechanisms are the board of the private corporation or elected officials. The private owners have no reason to prevent gouging and such as long as profit flows, elected officials do have to get re-elected.

    To make a long story short, in a natural monoploy situation the best strategy to contain costs and get a high quality product is through public oversight. The more direct the oversight the better. Thus public ownership. The Canada Corporations Act does not provide for public oversight to anything like the degree implied in the Canada Elections Act.

    Gord

    ps

    I do think there are other reasons to support public ownership and a unionized workforce, but it’s vital to remember that one can disprove the “benefits” of private ownership of some services just by rigourously applying pro-market reasoning.

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  16. “If the public sector is specifying the wages that the private operators will pay, we’re only a short step away from the employees contracting directly with the public agency.”

    You’re missing one point: aside from the wage clauses in the contract, the private operator is responsible for the management of these employees. London has no jurisdiction over them. Sure, the employees can contract directly with the public agency, but that means the city will have to pick up the costs of such management.

    In an earlier post, Eric pointed out that there is a market of ridership in London, a comment I agree with. This means that the private operators can actually make revenues from running these services. Whether or not they also receive a subsidy from London’s municipal government is up in the air. But it also shows how London’s high density neighbourhoods allow for privatization to actually flourish in this city as well as other cities like it. Transit Operators in Hong Kong actually have to PAY the government a fee to run transit operations there.

    “Just imagine if we tried to implement the Ridership Growth Strategy, a major change in the way we deliver service, through an existing PPP. Every contractor on the planet knows that the real profit lies in the changes to the base contract, and we would likely never get political agreement to improve anything. A recipe for stagnation.”

    Since its inception, the YRT has undergone a major expansion of its service in light of increasing ridership. Perhaps you can identify where “stagnation” exists in that system.

    Chris, I agree with your last comment. While the TTC may not be privatized, a study into this can identify efficiencies in the TTC operations in order to cut costs. Also, it can identify where privatization would actually work on the TTC. While the jobs of TTC Operators, maintenance people, and fare collectors may not be affected; cleaning staff, caretakers, and garbage collectors could be contracted out. That’s an idea for the TTC to consider, if the union wasn’t always in the way.

    A final aside: my attitude of disdain for the “Millerites” stems from their own refusal to find efficiencies within their midst and insist on a payout. While I agree that the city itself is financially strained by the former Harris Tories, the point is that City Council refuse to look at their own areas of waste (i.e. the recent wage hike, council expenses and the like) and choose to cut areas which serve the public (i.e. community centres, libraries, and the TTC). This is sending a bad signal to provincial politicians as if they are trying to hold the city hostage. Sure, cutting their own wages and expenses may not save much but it can prove beyond a reasonable doubt that the city itself IS financially strained. Cutting services while approving (I think it was) a 9% wage hike really sends the wrong message to provincial and federal governments when you’re asking for a bailout.

    Steve: YRT is a privately operated system that is heavily subsidized by the public sector. I am talking about a situation where the system is truly privatized and the operator is running as little service as they can get away with.

    The 9% council wage increase was after a long freeze, and Toronto Councillors still make considerably less than their cousins in the 905. The office renovations, which have been cancelled, are a one-time cost/saving and do not make a lasting contribution to the deficit. Between them they are very small change. Symbolic yes. Meaningful no.

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  17. I understand your viewpoint about this, but even if YRT is subsidized by the York Region council, this makes it a PPP, not entirely a private enterprise. While Hong Kong’s transportation infrastructure is truly private, I’m pretty sure London is also a PPP. The intent of YRT is to follow the model of London, and so far it appears to be doing a good job of it.

    And while Hong Kong’s system is truly private, the reason why it works is the massive densities that exist in the area the size of the GTA. I will agree, a fully private system will not work in Toronto. But a PPP (which is what I was speaking about) may be feasible in Toronto, if City Hall can be goaded into looking into this.

    Yes the 9% wage hike was after a long freeze but you’re missing a big point: perception. What the public will see and only see is services being cut while council salaries are being raised. Had they CUT 9% from their wages this would have been a potent weapon against the provincial and federal counterparts that, hey, Toronto really IS in dire straits, even with these cuts and all.

    After all, conservatives of all stripes are waiting for Toronto Council to make the “correct” cuts.

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