The Route that Leads to Tokyo - The Library of Economics and Liberty

14 February 2019 - Extensive government involvement in public transit is one of most enduring facts of life in most cities and countries the world over. However, public expenditure constraint and the leapfrogging of technology over long-term public planning may change the game.

Garreth Bloor
During a luncheon with Toronto Mayoral candidate John Tory (since re-elected) a few months ago, the case of Tokyo’s successful public transit was held up as a standard of success. With the Japanese Consul General in attendance at lunch, it was evidently a chance to extend a polite compliment too. If Japan’s private sector was in the room, it would have been apt to commend them too – most of Japan’s world class rail and public transit system privately owned.

Extensive government involvement in public transit is one of most enduring facts of life in most cities and countries the world over. However, public expenditure constraint and the leapfrogging of technology over long-term public planning may change the game.

Friedrich Hayek, the Nobel Prize winning economist, said planning is a task that should involve all members of society, not just the government. Why should mobility be any different?

Hayek quipped that while government may build roads, it does so without telling us which road to take. To that could be added, ‘or which car to buy when taking it’. Private cars use public roads, but in the case of public transport policy, we have the equivalent of the public road and public sector transit production. (In the case of government provided cars in the Soviet Union, the failure was dismal).

Private, competing modes of mass transit should at a minimum be able to access infrastructure and thus compete; ensuring a distinction between the infrastructure grid (existing rail networks and transit hubs) and those plugging into it (competing private sector service providers). Development economist Jodi Allemeier predicts some cities will shift from providing infrastructure and services, to creating the standards for inter-operable microgrids and private services.

Allemeier points out telecommunications is a service that teaches us a new model — that of setting standards and allowing licensed operators to provide access directly, as cited in a recent report. This avoids unfair subsidies favouring one mode of transit over another when that mode is prioritised by public expenditure. Telecoms are arguably the only service to keep up with rapid urbanization, thriving in under-resourced, developing countries having leapfrogged ahead. Today mobile phone access is almost universal, with devices serving an increasing number of functions.

Going one step further, private construction of the infrastructure and the transit type using it should be strongly considered through regulatory reform. It is the route that leads to Tokyo. The private sector discovers new ways of generating revenue when owning, for example, the real estate on which transit is constructed. They often leverage that real estate for retail and development with ongoing annuities. These combine to explain why public transit is private – and profitable! Narrow transit planning by the state often does not take into account other demands in the market, beyond the transit mandate.

As argued before, freedom to choose one form of transport over another is limited when decision-making on mass transit is confined exclusively to public sector processes – incorporating only the ballot box and the finite resources of governments.

Japan shows a wholly different set up is possible, with the creation of entirely new markets in transit. Serving 35 million people in Tokyo and millions more in other cities like Narita and Osaka, Japanese rail is perhaps the world’s most efficient.

Urban economist and historian Stephen Smith says, “[a]s in the West, railroading started out very laissez-faire in the 19th century, but came under state control in the beginning of the 20th. But after World War II, while nearly all railways and intracity buses in Europe and North America were nationalized, Japan stayed its pre-war course, with the railway industry retaining its sizable minority of private firms.” Writing at CityLab.com, a publication of Atlantic Monthly Group (responsible for the monthly The Atlantic), the ideas are among the most free market proposed in urban and transit planning – driven by a millennial generation keen to see greater consumer choice.

An NBER working paper compared the efficiency of local governments by looking at the costs of providing public bus transit, cited by Adam Millsap of the Charles Hilton Jr Center for the Study of Economic Prosperity and Individual Opportunity at Florida State University. He points out “the NBER authors calculate that fully privatized bus transit would have resulted in cost savings of approximately $5.7 billion in 2011, which was 30% of total U.S. bus transit operating expenses that year.” Concurrently, the “increased use of bus transit that would occur due to lower prices would generate a welfare gain of $524 million.”

Germain Belzile at the Montreal Economic Institute concludes from a summation of global studies that privatizing, delegating, and creating partnerships, are the future of local transit”.

“They lead to increases in the quality and the quantity of services to users, a quicker adaptation to changes, and better alternatives for people who wish to reduce car use.”

While politically it appears easier to subsidize in response to calls for transit improvement, a growing coalition of innovative thinkers – evidently bipartisan already – would do well to raise their voices. Approaching the matter with the passion to which successful think tanks have tackled and succeeded at federal efforts to have dynamic innovation and competition realized through effective privatization.

Garreth Bloor is a vice president of the IRR, the oldest classical liberal think tank in South Africa. He served as a former executive politician in the country and is the founder of a venture capital firm. Bloor currently resides in Toronto.

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