on privatization scares

A new television commercial in Toronto calls on voters to “vote for candidates who will keep the [Toronto Transit Commission] public.” 

If I were one of the experts quoted I’d be a little insulted by it, though we understand that this is the nature of TV commercials.

There are many different ways to involve private enterprise in funding providing transit services, and these are so different that vague talk of “privatization” simply doesn’t illuminate what’s going on.

At one extreme, you can privatise operations, planning, fleet, public information, branding, and almost everything else.  In this model, prominent in Britain (but not London) and in British-influenced countries like Australia and New Zealand, government merely subsidises services that wouldn’t make a profit, but doesn’t try to control the overall planning of the network.  This approach sometimes “works,” in a political sense, in areas where you have low expectations for transit overall, such as rural areas.  It’s been very problematic in urban areas because it deprives government of the control that its subsidies should be buying.  It also makes it impossible to plan rational networks that would meet the shared goal of a city and its people, and that would use limited street space efficiently.  Sydney, Brisbane, and Auckland all went far down this path and are trying, at various speeds, to pull back from it and re-assert government control over most aspects of planning and marketing.

At the other extreme, you can privatise operations only.  This is the model used in a number of lean North American operators such as Southern California’s Foothill Transit.  In Australia, only Perth takes this approach, but it’s very successful there.  A public agency answerable to voters keeps full control of planning and owns the fleet and facilities.  Private operating companies are hired only to provide operations and maintenance, under contracts to the agency that are periodically re-opened to competitive procurement.  This is a targeted kind of privatisation aimed at the functions that are the biggest budget-killers for all-public agencies: labor costs, labor relations, and liability related to operations and maintenance.   You can make a good case that the private sector is in a better position to handle all of these than government agencies are, and while I won’t argue the whole case here, many agencies — especially newer agencies that don’t have legacy labor commitments — are finding this a very good model.  In Australia, Perth works this way and other cities are moving this direction.

You can find examples anywhere on the spectrum between these extremes.  Finally, briefly, there’s a whole third kind of privatisation that’s about the development of major infrastructure, typically called a public-private partnership.  This seems to be what Yonah Freemark is referring to in the ad’s scare-quote about Vancouver.  While the PPP that built the recent Canada Line has been deservedly controversial, Vancouver’s operations aren’t privatized at all; they’re run mostly by subsidiary companies owned by the transit agency, Translink, and that agency is very much in control of presenting a single unified system to the public.

35 Responses to on privatization scares

  1. Wad September 21, 2010 at 12:06 am #

    Foothill Transit would be more of the first extreme, like the one seen in the UK, than just privately operated service.
    Foothill is a “vapor” transit agency, which needs hundreds of workers to carry out daily functions but has zero employees.
    It’s still a public agency, controlled by a consortium of member cities, and loses at least 80% on every ride like every other transit agency. So private isn’t profitable.
    Foothill also has an approach in which its administration is contracted to one firm, and each of its two bus yards are contracted out to different firms.
    The goal was to prevent unionization.
    The management of the system works well. Having rival contractors operate different aspects of the system has shown tangible benefits to users. Foothill was able to add midday and weekend service that would have been cost-prohibitive under the RTD labor structure. The buses are also very clean and well-maintained.
    The union-avoidance strategy in the end failed. Foothill contractors have been notoriously poor wage-payers. Bus driving was treated as no different than a minimum wage job.
    Turnover rates reflected that. The trouble is that what experience a driver got at Foothill, he or she would take it to Metro or dozens of other muni agencies and get multiples more in pay and benefits. Also, the low pay meant that if a worker couldn’t do better than the minimum wage, they’d go for the comparatively easier service jobs instead.
    In the end, it proved enough that both Foothill yards were eventually organized. The Pomona yard (operated by First Transit) unionized with the Teamsters in the 1990s; the Arcadia yard (operated by MV) unionized with the ATU in the mid-2000s.

  2. Corey Burger September 21, 2010 at 1:24 am #

    The Translink/Coast Mountain Bus Company split was clearly an attempt to end run around the anti-contracting out provisions inherited from the BC Transit days, but that effort failed after the 2001 strike. I suspect another effort at contracting out will happen again at some point, likely with the same result: a long strike that ultimately does nothing. I can easily see the same thing happening in Toronto if a “Mayor” Ford ever tries it.

  3. Jarrett September 21, 2010 at 1:41 am #

    @Wad. No, Foothill is nothing like the British privatization model, because it’s managed by a board of elected officials, and is very clearly doing the work of government. Yes, Foothill also relies on contractors for its other staff, but be assured, this is nothing like the confusion we deal with in the British-inspired world.
    While I am not surprised that Foothill’s labor was eventually organised, I expect they are still showing good outcomes in terms of cost- effectiveness, but I’ll form an updated view when I visit there in early November.

  4. Justin Bernard September 21, 2010 at 5:34 am #

    Is there where privatization of a large network has improved transit service for the riders?

  5. Tom West September 21, 2010 at 6:26 am #

    In London, the buses are all run by private companies under contract from the local government. (York Region, Ontario, Canada does the same). However, the customer just sees one unified system.

  6. David Arthur September 21, 2010 at 7:46 am #

    The London-style system is also common in Scandinavia. On the whole it seems to work, although occasionally there will be one contractor whose services seem inferior. It doesn’t have any impact on service planning or ticketing, which are centralised for each area and often coordinated with neighbouring counties.

  7. David Oleesky September 21, 2010 at 8:07 am #

    For users, one of the main problems of the competitive [privatised] model for public transport (as in the English provinces, Wales and Scotland) is the lack of interchangeability of return or multi-ride tickets between different operators, even when the services are subsidised by local government. This now even applies to multi-ride tickets on the last bus route run jointly by 2 local government owned bus companies in the UK (route 30 between Newport and Cardiff in South Wales)! The operators of subsidised evening and Sunday services are often different from those running the same route commercially during Monday to Saturday daytimes, so a return ticket bought in the daytime can’t be used on most routes to make the return journey in the evening. These restrictions discourage public transport use in many areas.

  8. Zoltán September 21, 2010 at 8:29 am #

    I noticed that the strange little transit agency operation around Columbia, MD, in the Maryland suburbs of DC and Baltimore, the driver wore a uniform with a first bus logo; a contractor providing transport services in quite a lot of places in Europe and North America (who I myself work for now and again in England). They seem to as such fit the model of “newer agencies that don’t have legacy labor commitments”.
    This generally seems to be the case around the Maryland and Virginia suburbs of DC, while in the middle there’s the municipal WMATA who have ridiculous labour costs, partly to pay for a load of retired bus drivers.
    I never know how to feel about this, as transit employees are less treated well, and more treated exactly how all workers really ought to be treated, where others are treated poorly. Unfortunately, the effect of it can be transit that is too expensive and not extensive enough for the low-waged workers that transit often serves.

  9. Erwin Desoto September 21, 2010 at 8:44 am #

    Veolia has been hard at work trying to convince transit agency boards to completely privatize transit operations. Veolia’s subsidiary Connex, BTW, was behind the Metrolink crash that killed 25 people. In the case of transit, where it largely serves the most vulnerable and mobility challenged sector of the population (seniors, disabled, youth, those who cannot afford cars), reducing government oversight is simply misguided. Everyone in transit knows how to reduce cost, simply offer less service especially to low productivity lines, and even greater revenue per passenger can be attained by simply avoiding areas with high senior, disabled, and youth ridership. Privatization makes sense when it does not directly impact the most vulnerable in society. Trusting this job to profit-mongers is simple cruelty.

  10. Zoltán September 21, 2010 at 8:52 am #

    @Erwin Desoto
    These are exactly the evils of the “allocative efficiency” so loved by deregulation proponents. However, the sort of private operation organisations like Veolia provide is being paid to operate a network planned by the state, in which case in theory it is simply a matter of providing cheaper operations.

  11. mezzanine September 21, 2010 at 9:12 am #

    WRT connex and the metrolink crash, was privitaization a key problem with the accident though?
    The investigation attributed the crash to the train running a red light due to the operator texting. operator cell phone use is not unique to private or public operations. A driver in BC was recently caught on youtube…

  12. Danny September 21, 2010 at 9:18 am #

    Yeah, I’m sure it was the evil profit-seeking Veolia that was text messaging the train engineer, telling him to not pay attention to train signals cause they aren’t very important and mistakes usually save the company lots of money.
    How idiotic.
    Here’s a few tips from a profit loving businessman:
    1) Reducing costs doesn’t mean a thing
    if it reduces your revenues by just as much or more. Reducing service levels isn’t a given for privatized transportation. The New York City Subway, which was the biggest increase in transit “service levels” in the city’s history, was a result of profit seeking…not cost reductions.
    2) Revenue per passenger is not the only metric that privatized operators would seek to increase. In many cases, it is the worst kind to worry about increasing. The strength of transit is not its ability to generate profit-per-passenger…they can leave that to taxis. The strength of transit is its ability to carry A LOT of passengers. In other words, total revenues matters so much more than revenues per passenger.
    3) When you trust essential services to people who aren’t worried about costs, you get a lot of dead weight that doesn’t contribute to transit service. High wages do not increase transit service. Bad procurement practices that increase the costs of infrastructure do not increase transit service. Poor planning does not increase transit service.
    When it comes to deciding whether to privatize essential services, the decision should be based on whether profits outweigh the inefficiencies of non-profit operation or not. The idea that essential services should not be entrusted to profit seekers is an ideological one, and not based on reality.
    Of course if you could actually get privatized levels of efficiency in a non-profit agency, that would be the best of both worlds. And in a few cases we have seen just that. But the reason why privatization is on the table for discussion is because many public agencies either do not want to make those changes, or they politically can’t make those changes.

  13. Zoltán September 21, 2010 at 9:47 am #

    “Of course if you could actually get privatized levels of efficiency in a non-profit agency, that would be the best of both worlds”
    I’d love to hear some examples of that, are there any you have in mind? It may calm my present despair at DC’s inefficient public operation.

  14. Danny September 21, 2010 at 10:09 am #

    Tokyo, Paris, Calgary, Copenhagen, Madrid. While none are perfectly efficient (just like how private businesses are never perfectly efficient), they all have a really good idea of which kinds of costs contribute to transit service, and which kinds of costs don’t. And they actively seek to reduce the bad costs, which preserves resources for the good costs.

  15. Pete (UK) September 21, 2010 at 10:56 am #

    Justin asks “Is there where privatization of a large network has improved transit service for the riders?”. In the UK there are several examples of this. The one I will give is Brighton. At bus deregulation in the Thatcher era the bus operator serving Brighton was Southdown (an operating subsidiary of the state owned National Bus Company). In preparation for privatisation, the services centred on the conurbation of Brighton & Hove were split off to form the Brighton & Hove Bus Company in 1986, which was subsequently sold to it’s management. In 1993 the company was purchased by the Go-Ahead Group, one of the UK’s big bus groups. In 1997 Go Ahead purchased municipal owned Brighton Corporation Transport and merged it with it’s Brighton & Hove company. The new company was a pioneer in route branding it’s frequent network in the 1990s, and also made the brave decision (for the UK) to adopt a flat fare system in 2001.
    Working in partnership with the city council the company has increased local bus travel year on year by an average of 5% since 1993. The council has provided extensive bus priority measures, and real-time information displays at bus stops.
    The company has invested in a modern fleet of vehicles, and accepts no external advertisements on them, it uses the space for prominent route branding and pro-bus messages such as the innovative ‘I’m on the bus’ campaign.
    The company has a frequent network map:
    Here is a link to a typical timetable, is this comparable in frequency and hours of operation to a US city transit route? Most of these journeys will be funded entirely from the farebox, the council may support some evening and Sunday journeys.
    The full website can be viewed at:
    Here is a short video clip taken in central Brighton in 2009 showing the route branding and often humorous pro-bus messages:
    Another urban bus success story is Nottingham City Transport. Although municipally owned it legally has to trade as an arms length company (the council has no say over day to day operations), and competes against privately owned Trent Barton buses on some corridors.
    NCT carried 51.12 million passengers in 2008/9.
    It has a frequent network, branded ‘Go2‘, has a flat fare (no change) system, has a modern fleet, and is integrated with the Nottingham Express Transit tram.

  16. Danny September 21, 2010 at 12:21 pm #

    I had a suspicion that this commercial had something to do with the transit union. Anti-privatization movements always do. Of course they like to brand themselves as grassroots movements, just like the TEA party, but there is always a strong force leading the pack.
    Looks like I was right:
    “The $500,000 cost of the campaign’s advertising budget is being borne by Amalgamated Transit Union Local 113, a member of the Public Transit Coalition. ATU 113 represents about 10,000 Maintenance and Transportation employees of the TTC.”
    There is a term in the economic discipline for this: Rent-seeking. Transit unions have no interest in the public good. Their existence owes entirely to the self-interest of the workers whose jobs would be in danger under any sort of privatization. As usual with transit unions, transit riders are the pawns in their game.

  17. Stephen September 21, 2010 at 1:52 pm #

    We touched on this at our meet-and-greet in San Francisco. Glad to see the conversation has made it to the blog.
    Sounds like you will be in the LA area in Nov. Any chance of a stop in SF while you are at it?

  18. anonymouse September 21, 2010 at 2:18 pm #

    Actually Connex did have quite a bit to do with the Metrolink crash. This was not the first time the engineer was texting, and I think he may not have been the only one doing this. Catching these sort of things and taking the appropriate action is the responsibility of the management, which in this case was most definitely Connex and their poor safety culture. But that’s not really a private vs. public issue: WMATA is a public agency and also has a really poor safety culture in various ways.

  19. bzcat September 21, 2010 at 2:45 pm #

    Taipei is the only major metropolitan city that I know of where real the entire bus system is private various companies compete with each other to provide real public transit services under their own name/brand; and not as a contracted service provider for a city/public agency. There are about a dozen private bus companies in Taipei (all with their own yards and colorful bus livery) that offer scheduled bus services throughout the city and surrounding regions. However, they are regulated by the Taipei City DOT which sets fare structure, provides payment medium (YoYo Card), and coordinates route structure (essentially, like how the US airline industry used to be before de-regulation).
    The regulated aspect of the bus system allows seamless and transparent service and transfers to Taipei MRT (which is publicly owned and operated). The bus routes are awarded on a bid process by Taipei DOT to the private bus companies and are subject to periodic service reviews and re-bid. This fosters competition between the various bus companies to improve safety and service quality as those are factors in determining the preferential bidding order for next round of route authority review. Taipei City DOT used to also run its own bus service (to compete with the private companies on certain routes) but that entire operation was spin off into its own as a private company a few years ago and renamed Taipei Metropolitan Bus Line. So the bus service in Taipei is now completely in private hands.

  20. Zoltán September 21, 2010 at 5:01 pm #

    “WMATA is a public agency and also has a really poor safety culture in various ways.”
    It does, does it?

  21. Steve Lax September 21, 2010 at 6:06 pm #

    NJ Transit contracts out the operation of some of its bus services. (Bus schedules and fares are determined by NJ TRANSIT and the buses are painted in NJ TRANSIT colors. Revenue is retained by NJ TRANSIT.)
    Some contractors operate good service and some contractors operate “less good” service. These contracts are competitvely bid. I believe that one reason service is sometimes “less good” is that a contractor will sometimes bid too low a cost to provide the service. Once they win the bid and determine they are losing money, they start cutting corners and service quality is impacted.

  22. anonymouse September 21, 2010 at 6:55 pm #

    Zoltan: I’m not sure what you’re attempting to say there, but yes, it does. There have been a lot of accidents of the sort that just shouldn’t happen: that wrong-side track circuit failure that cause a major crash and other earlier problems with train control. And the trains kill trackworkers with alarming regularity. There’s plenty of examples of dodgy safety practices from both the public and private worlds.

  23. Alon Levy September 21, 2010 at 7:22 pm #

    @Danny: Calgary Transit, RATP, and SNCF are all public. Neither Calgary nor Paris is like Tokyo.

  24. Danny September 21, 2010 at 7:56 pm #

    Tokyo metro is a “private company” owned by the Japanese Government and the Tokyo metro government. If that isn’t a public company, then I guess I don’t really know how to distinguish the difference.

  25. Wad September 21, 2010 at 8:43 pm #

    Jarrett, I’m not familiar to the degree of autonomy UK operators have. The private operators can run the systems as they see fit, but do they have to win a franchise from the city, or is it unlimited entry for a competitor to set up shop?
    Foothill is a publicly governed agency, with board members drawn from the cities of the San Gabriel Valley. In California, these boards are called joint-powers agencies.

  26. Jarrett at HumanTransit.org September 21, 2010 at 9:06 pm #

    Wad.  In the UK outside London the goal is "unlimited entry."  Government can subsidize unproductive services but has no control over the productive ones, which are run for-profit like any other business. 

  27. Bampa Owl September 22, 2010 at 1:42 am #

    One of the problems now in UK-outside-London is that a small number of large groups now dominate the bus market, and competition is limited – there’s a Competition Commission investigation in progress.
    Also worth noting – 50% of bus industry revenue in Scotland now comes from public sources (much of it to support free rides for seniors) – I suspect England is at the same level, but I can’t find up-to-date figures. But as you say, Jarrett, the control and planning that should go with that funding is lacking.

  28. Alon Levy September 22, 2010 at 1:48 am #

    @Danny: first, about three quarters of Tokyo-area rail ridership is not on the subway, but on investor-owned railroads.
    Second, Tokyo Metro is run as a private company; it may be government-owned, but it’s not government-run. It’s not like Toei, which is a government department, or the various Western transit operators, which may be nominally independent but are in practice government-run.

  29. Peter Parker September 22, 2010 at 4:29 am #

    @ Pete while I know nothing of Brighton, the map of their frequent service network seems to indicate a radial network where everyone goes to the city centre.
    Some routes end at universities and supermarkets, but others appear to have no attractions near their ends, possibly making patronage flows unidirectional.
    There appears to be only limited provision for circumfrencial travel; Westdean to the universites appears to require a diversion via the city rather than a direct service.
    Although railway stations are closely spaced (indicating a possible use for local travel, though this depends on the train’s frequency), bus routes tend to parallel railway lines rather than feed them.
    Hence although a successful network, I can’t help thinking if the network would look quite different if there was a transit authority planning both train and bus services.
    In particular would there be (i) a smaller number of more frequent routes, (ii) one or two frequent orbital routes (eg Falmer/universities to Portslade via Hollingbury and Hangleton), (iii) buses feeding trains at suburban stations, and (iv) several outer-suburban interchanges (especially along the orbital route).
    The existence of a ring-road seems to indicate a demand for orbital travel, so I can’t help thinking whether a more decentralised network, although somewhat of a risk for a commercially-oriented operator (which might prefer tried-and-tested city centre routes), might not generate even higher patronage.
    Somewhere like Christchurch NZ has this sort of decentralised hub-like network (thanks to their orbital route which is unusual in an Australian/NZ city of that size) and this might be an interesting comparison.

  30. Pete (UK) September 22, 2010 at 10:11 am #

    @ Peter Parker, you are quite right in spotting the radial nature of the Brighton & Hove bus network. All UK urban bus networks are predominantly radial in nature, to/from the city/town centre. The fact that services have to be profitable means resources are concentrated on routes with the maximum demand. This was also the case pre-deregulation though, so it is either a British mind-set to structure networks this way, or to do with historical urban planning trends. This means that recent out-of-town retail, leisure, and business parks are generally not so well served by buses; they certainly don’t follow Jarrett’s ‘Be on the Way’ principles! Where there are orbital routes they tend to require local authority support.
    Here’s another map for Swindon in Wiltshire, again as you can see it is totally radial, focussing on Fleming Way in the town centre:
    I accept that the result of bus deregulation in the UK has been variable, I don’t believe that a public sector alternative would have done any better, given the quality of most local councils and the Department for Transport. In fact this view is also supported by the TAS Partnership, a UK public Transport consultancy who state on their blog entry ‘Ten points we need to understand about the bus industry’ in response to the current Competition Commission enquiry into the industry:
    ‘Given their influence over the key matters of product design (journey time) reliability (through traffic control) and point of sale (bus stations, stops and shelters) local authorities are part of the problem, not part of the solution – and need regulating in the interests of the passenger as much, if not more than, the bus companies.

  31. Pete (UK) September 22, 2010 at 11:00 am #

    @ David Oleesky – David you are right about lack of ticket interchangability. Prior to deregulation it was common for bus companies (public and privately owned) to co-operate in this way. After deregulation this activity is frowned upon by the Office of Fair Trading, as it views such arrangements as cartels and limiting choice for the passenger. Companies attempting joint ticketing do so with the risk of being investigated and possibly fined. This is clearly ridiculous, and the previous Labour administration legislated to allow co-operation between bus companies providing the arrangement is brokered by a sponsoring local authority.
    The first significant scheme goes live next month is in Oxford:
    Regarding your point about Newport and Cardiff. I think this is a temporary glitch due to Cardiff Bus being unable to accept Newport Transport’s new smartcards.
    In my home county of Wiltshire it has always been the case that return tickets issued by the commercial daytime operator must be accepted on council supported evening journeys on the route if these are run by another company – the common sense approach.

  32. Ben Smith September 23, 2010 at 2:23 pm #

    @ Danny, you summed it up right there with how the TTC union treats its riders. Over the past 8 years we’ve had a mayor who would bend over backwards for them, yet they still went on strike twice – both with less than an hour’s warning before walking off the job!
    I’m not anti-union, but if the union leaders want people to support their position, maybe they shouldn’t treat their customers like crap!

  33. Peter Parker September 24, 2010 at 5:16 am #

    In relation to the Melbourne example, industrial relations is often cited as the reason for Melbourne franchising its rail – ie when a strike threatened access to the Grand Prix.
    Private train operation has not necessarily been cheaper nor more punctual than government running. However industrial relations has been franchising’s biggest success stories.
    Industrial disputation has fallen greatly since the 1980s/early 1990s, and disruptions are now due to other causes. IR is one area where our system outperforms Perth’s (which is currently experiencing mass cancellations due to driver militancy over a pay claim).
    To be fair though our transport unions accepted franchising (which has twice been reconfirmed by Labor governments) in return for preservation of their government employment conditions, which although not stingy, don’t seem to be the gold-plated lurks their counterparts in some systems overseas seem to enjoy.

  34. Free Transit September 27, 2010 at 4:41 pm #

    Why the scare. Simple. The free transit idea is catching on. The oil companies don’t want it fare-free transit. If private, of course it cannot be fare-free.

  35. Pete (UK) September 28, 2010 at 2:08 pm #

    An example of uk competition for those unfamiliar with it:
    Bus services in the georgian city of Bath are dominated by First Group. http://en.wikipedia.org/wiki/Bath,_Somerset
    This week a new operator has arrived to provide competition on a couple of routes. Wessex Connect was already running the Bath Circular route 20 under contract to the council, plus a commercially run route to the university for some time. It has now expanded and rebranded itself ‘Royal Bath’ http://www.royal-bath.co.uk/
    To set up a bus service here, all you need to do is meet some regulations concerning propriety, safety, and fiancial standing, then register your service with the regional Traffic Commissioner giving 56 days notice of start date:
    This applies regardless of whether the service is to be commercially run, or a council supported service.