By Yap Shiwen
Despite generous capital grants, derived from public funds, provided for public transport companies in order to improve their infrastructure, serial service failures make this difficult to justify. The recent decision by the Public Transport Council to approve fare increases for MRT and bus services, in light of continued service failures, is then questionable and places their credibility at risk. Are these decisions able to abide by commercial logic?
Singapore’s Public Transport Market Structure
Singapore’s public transport sector is divided into sectional monopolies dominated by SMRT and SBS Transit, as well as Comfort Delgro, through a controlling share of SBS Transit. Comfort Delgro’s largest shareholder happens to be the Singapore Labour Foundation. The majority shareholder of SMRT is Temasek Holdings. Alongside GIC, they serve as sovereign wealth funds and investment holding companies for the Singapore Government.
Nadia Hushke, a consultant working for Droege Capital & Advisory in Singapore, conducted concise and insightful research tracking the evolution of market structures in the European Union to the current state of oligopoly found in economies there. This research offers insights insights into Singapore’s current market structures in the telecommunications and public transport sectors, which are dominated by GLCs or have GLCs as major shareholders.
The Singapore public transport sector has few sellers (transport operators), a high barrier to enter, relatively low efficiency, high interdependence amongst the various agents in terms of competition and the ability to generate and maintain abnormal profit margins. The involvement of various government agencies, such as Temasek Holdings, GIC and the Singapore Labour Foundation only serves to heighten the complexity, due to conflict-of-interest scenarios caused by government ownership of private corporations.
Given indices comparable to some developed European countries, particularly GDP per capita, state intervention in these economic sectors via Government-Linked Corporations makes the Singapore Government both a regulator and oligopolist concurrently. And given Singapore’s limited market size, high fixed costs and natural monopoly environment with regards to public transport, any private corporate entity involved in the public transport market, unless regulated strongly, tends towards monopolistic or cartel behaviour due to minimal competition and the ability to generate abnormal profits.
Regulator & Price Maker
The Singapore Government is in the position of being both price-maker and regulator across a large range of sectors. And particularly so with public transport. Privatisation certainly has benefits, in terms of increasing service efficiency and being fiscally sustainable, given experiences in countries such as the USA, where government ownership resulted in transit industry inefficiencies, accompanied by deterioration in both transport infrastructure and assets.
Cases of successful public transport operators are exemplified by the Taipei Metro, the Tokyo Metro, the London Underground and New York City Subway. An apparent successful case of private operators managing public transport efficiently is MTR Corporation in Hong Kong, which runs the Hong Kong MTR Metro System. However, even in Hong Kong’s case the government maintains control through it’s share of 77%. It is indirectly subsidised by the Hong Kong government through the land granted for it’s use by the government – an indirect subsidy that applies to SMRT in Singapore.
Singapore’s current oligopoly encourages cartel behaviour amongst the public transport operators, due to their market power and desire to maintain high profit margins, often to the detriment of their workers. Such conditions resulted in the SMRT bus strike, due a wage dispute between bus drivers and SMRT management. In this instance, the use of foreign drivers from Malaysia and China over Singaporeans is due to both the strength of the Singapore Dollar relative to these currencies, and reduced manpower cost on the part of the business.
Despite efforts of the LTA to enhance competition, such as shortening license duration for rail lines or the potential tendering of bus routes to generate competition, private oligopolies in Singapore abuse their market power. The PTC seems ineffective or even unwilling to take substantive action as a regulator as well.
Given that SBS and SMRT started as statutory boards, and the nature of Singapore’s natural monopoly, it would serve the public interest to either roll back the degree of privatisation that has occurred to public transport operators, by getting GLCs to buy back a larger share of these companies. Or they can be restored as statutory boards under the LTA.
The centrality and criticality of public transport to the public interest requires that they be socially responsible and aware of their responsibility to the state and the public. Milton Friedman, who received a Nobel Prize for Economics, commented:
“There is one and only one social responsibility of business – to use it resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud”
The public transport operators and their management, while being mindful of their responsibility to the shareholders, had best be mindful of their greater responsibility to the public. A public whose funds they have been granted to enhance their services despite being private firms, on land granted to them by the government in public trust.
Resources & Further Reading
Allsop, R. (2007). Victoria’s Public Transport: Assessing the results of privatisation. IPA Backgrounder, Vol 19(1). (source)
Carli, C. (2011). Public Values in a “privatized” Public Transport System. (source)
Mees, P., Moriarty, P., Stone, J. & Buxton, M.(2006). Putting the Public Interest Back Into Public Transport: A Report to the Victorian Community. Swinburne Institute for Social Research Report. (source)
Litman, T. (2013). Contrasting Visions of Urban Transport: Critique of “Fixing Transit: The Case For Privatization” . Victoria Transport Policy Institute Report. (source)
Hensher, D.A. & Wong, G. (2011). Different Approaches to Public Transport Provision. Journeys (November), pp. 31-41. (source)
Ng, J. (2013). Hong Kong’s Subway System Wants to Run the World. The Wall Street Journal Asian Business News. (source)