In its coverage last week of the debate in Parliament on the appalling disruptions on the Mass Rapid Transit (MRT) lines in mid-December, the Straits Times made the perspicacious observation [1] about the contradictory nature of public transport operators: the subway lines are run by privatised operators motivated by profit but which effectively have captive markets.Interestingly, this hints at the unease creeping into the establishment with the government’s dearly-held perspective about the unmitigated virtues of the main two operators SMRT and SBS Transit being privatised entities. The government has long defended its view that since the marketplace governs these privatised entities they must necessarily be providing the best service at the market price. This is the sort of reasoning which has undergirded the seemingly relentless rise in public transport fares over the last few years, which have been put down to market forces but has nevertheless provoked resentment.
The case against such a perspective has been growing stronger in tandem. Opposition parties and commuters have pointed out the obvious flaws with the current public transport model: stagnant service standards and rising prices arising from a lack of real competition. The supposed contest between SBS and SMRT has always been one managed closely by the government rather than a genuine fight: SBS Transit is the dominant bus operator, but moved into subways in 2003 after it was awarded the license for the northeast line by the government; as compensation, SMRT was persuaded to absorb SBS’ former main competitor in bus services in 2004.
This failed to result in any real competition on the subways, since SMRT and SBS were operating lines that complemented rather than competed. Instead, both firms pruned bus services to protect profits on their subway operations, resulting in a decline in bus services. Furthermore, both companies are largely owned by Temasek Holdings, the Government’s main holding company, which may discourage any real attempt at competing with each other.
The result is that SMRT and SBS have carved out exclusive spheres of influence in the public transport markets in subways and buses that resemble a comfortable duopoly. Worse, there may even be an issue of regulatory capture, as the authorities seem to be more focused on managing the contest and maximising profits than on fostering genuine competition.
Lastly, the operators have not been helped by a government that appears to have inadequately planned for the rapid rise in population in the last few years. The chairman of the Government Parliamentary Committee for Transport, ruling party MP Cedric Foo, suggested in 2007 that the government should invest "more aggressively" in land transport infrastructure. Mr Foo expressed disappointment with the speed at which MRT lines were being built and suggested that infrastructure should lead rather than lag demand. Similarly, a former civil servant in the Finance Ministry indicated that the ministry had routinely turned down requests from the transport authorities to finance new rail lines in the early 2000s, only to find themselves caught out in 2006 when the economy and population spurted .
In the wake of fallout from the MRT line disruption, which has stoked serious questions about the competence of SMRT as well as the role its regulators have played in the debacle, the time is nigh for a proper debate on how best to manage the public transport system. The government has so far stuck to its current model, with the terms of reference for the various inquiries into the disruption limited to only examining the events of December 2011. It does not seem keen to address broader issues such as its own role in the operators’ failings and whether there are systemic flaws in the current public transport model.
On the other hand, opposition parties such as the main Workers’ Party advocate that the operators should be nationalised and run on a non-profit basis under an authority that is able to oversee a holistic integration of services. This may be unduly hasty: the problem is not serious enough to warrant a nationalisation that might undermine Singapore’s reputation for free markets and could deter investors from putting capital into government-linked companies. Furthermore, this would remove any possible benefits that may come from developing a proper competitive framework, such as efficiency gains or prices that are responsive to demand conditions. It also has to be remembered that SBS and SMRT, abetted by their regulators, had similarly cut bus services in the name of “holistic integration’.
A judicious middle needs to be struck between the government’s hands-off method and the opposition’s advocacy of nationalisation. What is necessary is tighter and more impartial regulation of the operators: regulators should tighten up the standards for measuring the performance of operators in both safety and service aspects and should be empowered to levy heavy fines on mistakes. The opposition should be given a seat on the Government Parliamentary Committee that oversees the Ministry of Transport to improve accountability and broaden the diversity of views.
In reality, it would be difficult to promote competition on subway lines, as these involve tremendous sunk costs and fixed infrastructure, so this area has to be managed through better regulation. But it is a different story in the bus market. It may be time to consider spinning off the bus operations of SMRT and SBS as independent and separate entities (and forbidding subway and bus firms to own shares in each other to prevent any conflicts of interest), which might kick-start competition in this sector.
Despite the government’s and the opposition’s emphasis on holistic integration overseen by a centralised planner, who is to say that allowing competition will not result in a vibrant bus market that is more responsive to commuters’ needs? Other places such as Hong Kong have seen competition thrive with multiple companies of different sizes being accommodated. Hence, the bus market can be liberalised to allow new entrants, as Singapore stands to benefit from more long-distance bus operators. That would really help to shake up the public transport sector.
[1] “Confusion over the hybrid creature called the MRT”, The Straits Times, 10th January 2012.
