Sunday, July 27, 2008

mass transit in chile: public failure

Podcasts are fairly new to me and currently there are only two that I've found worth tracking -- TedTalks and Econtalk. Russ Roberts, host of Econtalk, recently spoke with Duke U's Michael Munger on public transportation in a particularly interesting podcast on...

"Munger's recent trip to Chile and the changes Chile has made to Santiago's bus system. What was once a private decentralized system with differing levels of quality and price has been transformed into a system of uniform quality designed from the top down. How has the new system fared? Not particularly well according to Munger. Commuting times are up and the President of Chile has apologized to the Chilean people for the failures of the new system. Munger talks about why such changes take place and why they persist even when they seem inferior to the original system that was replaced."

The reforms weren't hijacked by special interests; they had the best intentions. Like most failed public programs, there was a worthy aim. The private system had imperfections; the buses were heavy polluters, people with more money were able to get better service, etc.

Before the reforms, public transportation mainly consisted of independent, private buses of all shapes, sizes, and comfort. To the reformers, it was chaos. To Jane Jacobs and Friedrich Hayek, the spontaneous order would be less disconcerting, and more inspiring. There were no public subsidies, and public transportation was profitable -- the industry brought in more than $60 million a year.

The reformers didn't like the inequity or the pollution, however, and decided to remove public transportation from the private market. The reformers saw the future in the metro. The dirty, greedy buses ran all over the city, making the reformers' prized metro system irrelevant. The locals prefered the buses -- they were flexible, cheap, and went to all sorts of destinations. So the reformers made it illegal to own a private bus company, and then deliberately set the bus routes so that locals wouldn't be able to choose buses over the metro; bus routes were offered that complimented the metro, but not replaced it -- increasing travel time, public annoyance, and decreasing profits and ridership.

Commute times that were 30 minutes in the private system turned in to 1-2 hour trips that demanded switching buses/metros multiple times, to the point that people had to quit their jobs. The President herself has said,"We owe the people of Santiago an apology, particularly the poor people."

Munger notes that the only success of the reforms was reducing inequality -- everyone now rides (or doesn't ride) the same terrible public transportation.

The situation has gotten so bad that public transportation is now costing the citizens of Santiago $100 per person for the privilege of public transport that they are actually using less than before the reforms. To add some greater color to the financial change, the reformers took a system that brought in $60 million in profit and created a public system that operates at a $600 million loss.

(Makes me think about Medicare)

Again, I would recommend listening to the podcast yourself -- the devil is in the details. If you don't, however, I think its worth looking at a case study in "public-ization." Now that we've seen the light with Fung Wah, Lucky Star, Megabus, etc., perhaps Americans will be more open to private mass transit. More generally, the podcast spend a lot of time addressing why Chile has yet to revert to the previous system, when everyone -- including the President -- deems it a destructive failure. This is crucially important, and while I can't provide a catchy one-liner to explain the phenomena, I will say that one of the fatal flaws of government programs is that they are almost impossible to kill.

The answer is never, 'We screwed up, let's put it back the way it was, and let someone else try.' The answer is always, 'We are on the right path, we just need to plan a little better; there's nothing wrong with our management, just some of the decisions that were made, but we'll do better this time.'

Meanwhile, schools keep failing. Health care grows increasingly expensive, leading to benefit reductions. Social security grows insolvent. And yes, our public transportation system is a mess. Like Chile, the planners like the idea of the rail-transit services that offer inflexible routes at equitable prices.

So what happens? People drive their own cars. Instead of having a private market with more buses and such, we have one or two local bus services and millions of private automobiles. In the end, we are left with a worse mass transit system and LESS equitable transit in general.

"Mistake that the government of Chile made was they thought the problem is: in a market people are greedy, so let's take them out of the market." You can't simply conflate the market and greed. People are greedy, in the market or out. The trick is aligning the incentives with the public interest. You do that through smart market design, not through allowing the rule-making body (the government) to have a monopoly on the game it sets the rules for. Regulations have a place, but the emphasis should be on shaping the private market, not giving a monopoly to central planners.

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