Thursday, March 08, 2012

Lui Tuck Yew and the Private Sector Delusion (and why you need to buy more personal accident insurance, now!)

Even after experiencing the worst public transport disruption in Singapore's history, minister for transport Mr Lui Tuck Yew is adamant that the government's public transport model is sound and that train and bus operations should stay in the hands of the private sector. The retired rear admiral yesterday reiterated the age-old PAP dogma that the profit incentive delivers the best outcomes for the public.
Public transport should stay a private matter: Tuck Yew

Business Times, March 8, 2012. By JOYCE HOOI

(SINGAPORE) Transport Minister Lui Tuck Yew yesterday defended the country's model of privately run public transport operators in Parliament. 'Our current model leaves the operations of trains and buses to commercial entities as we believe the long term public interest is best served this way.

'The profit incentive drives the operators towards higher efficiency and productivity, which keeps costs as low as possible . . . Otherwise, if the system is inefficiently run, the public will ultimately pay for the higher operating costs, either through higher fares, or greater government subsidies.'
Instead of launching into an abstract ideological rant about the pros and cons of private sector involvement in public transport, let me just recount the Singaporean experience with the PAP's so-called world-class transport framework.

- Declining service standards. Okay... do I really need to elaborate on this one? Crowded trains, crowded buses, train faults, train delays, train breakdowns, bus accidents, bus drivers not knowing bus routes, passengers being stuck for 2 hours in a bus. Does Lui Tuck Yew seriously think this is 'efficiency and productivity'? Go figure.

- Continuous fare inflation. Has anybody noticed, that for the last few years, that public transport fares are one of the most consistently inflated items in Singapore? Without fail, everytime the fare review comes around, the PTOs are always lobbying for an increase in public transport fares. Here's the deal - exposing the private operators to transport fare revenue upside gives them a perverse incentive to continuously lobby for fare hikes, at the expense of the rest of the public.

- Underinvestment and maintenance failures. The official reports from the inquiries of the train disruptions are not yet released. But irrespective of what the reports say, i think we all know clearly that SMRT has been skimping on track maintenance expenditure. The breakdown would not have occurred if SMRT was clearly on the ball with track maintenance - contrary to Mr Lui's delusion, putting maintenance responsibility into the hands of the private operators gives them a perverse incentive to skimp on maintenance expenditure, which results in service disruptions and failures ... again at the expense of the rest of the public.

- Massive subsidies for public transport operators. Hahaha. Lui Tuck Yew says that if public transport is nationalised we will have to spend more on transport subsidies. So what on earth is the new $1.1 billion bus fund? Isn't that one BIG FAT SUBSIDY?

Here's the problem with Lui's private sector theory. Yes, the profit incentive CAN potentially motivate operators to greater productivity and efficiency, but the PAP's IMPLEMENTATION of this theory is pretty screwed up. As I've mentioned before in a previous post, transport fare determination and infrastructure maintenance cannot be delegated into the hands of the private operators. The government must take over this job!

Transport fares are a political matter that should be decided by the government in consultation with the public. There are too many economic and political considerations that go into the setting of fares, for it to be led by the desires of a tiny group of profit-driven corporate executives, who ultimately have only one desire: for fares to go up.

On the other hand, skimping on infrastructure maintenance is completely unacceptable and results in disastrous consequences years after the underexpenditure occurs. This is a matter that cannot be delegated to the private sector because corporate executives are driven by short-term profit incentives whereas decisions on infrastructure expenditure have long-term impacts. The desire of executives to meet short term profit targets comes at the expense of long term infrastructure sustainability and causes massive externalities when the system fails.

Unfortunately for us all, the PAP govt years ago signed the concession agreements with the transport operators that effectively granted them monopolies in their respective train and bus routes for decades, without the threat of competition. To renege on those agreements would mean that the government would face massive legal action for violation of contract. Even if the government believes that public transport should be nationalised, it is going to face major legal problems in doing so, and the contracts effectively lock the government into the existing framework with little room to maneouvre should they decide change is in order.

Mark my words. We are going to see more transport cock-ups in the future because PAP executives like Mr Lui are dogmatically stuck in defending the current system rather than taking a hard critical look at its flaws and taking serious steps for reform. Lui Tuck Yew's adamant refusal to consider a serious review and restructuring of our public transport framework will ensure that the structural inadequacies will continue to persist for years to come.

My personal recommendation for anybody who takes public transport on a regular basis (especially MRT trains) is to buy more personal accident (PA) insurance because the chance of a serious accident occurring on the MRT system increases by the day. Sooner or later the shit is going to hit the fan and my only hope is that you are not one of those unfortunate enough to be caught in it. If you have proper PA insurance at least if something happens to you and you are killed or permanently disabled in a train accident at least you have a proper cash payout to deal with the disability or your loved ones have some money to cope with your death.

I just bought some PA insurance yesterday and now having written this article, i think i didn't buy enough. Time to give my insurance advisor a call again.

(Disclaimer: I am not an insurance executive and I have no vested interest in selling insurance to anybody.)


Amused said...

The Swiss has a world class transportation system. The trains/buses are roomy, well maintained and punctual. If Singapore truly aspires to attain the Swiss standard, it must be willing to spend the money to invest in public transportation. All this privatization dogma has delivered is a third world transportation system - crowded buses, broken trains, and irregular/infrequent schedules.

Can you imagine the US doing away with the FAA? To ensure a safe sky, you cannot allow the operators to decide on an “optimal/efficient” maintenance schedule. The Singapore government has essentially abdicated its responsibility in ensuring basic safety and maintenance standards. This is completely unacceptable.

The cost of a sub-par public transportation is a drag on productivity and ultimately the GDP. It is penny wise and pound foolish to skim on basic utilities and services to “save” money. Unfortunately, the government got itself into this bad situation and may find it difficult to dig itself out of the hole. The $1.1B subsidy is only the first installment. In the end, you will realize that the much talked about savings has never materialized. A few capitalists will have made a few quick bucks and the commuters will have suffered as a result of flawed privatization.

structured settlement cash said...

For a government to subsidise public transport is, in principle, no different to subsidising hospitals, or funding public or private schools. Like health care or education, transport is a 'public good': meaning that if it is rationed purely by price so that only rich people can make full use of it, we are worse off as a society. Medicare is no less successful because it is financed from the public purse; likewise, renowned public transport systems such as those of Zurich or Paris are no less successful because they receive public subsidies.