Toronto's main business lobby, the Board of Trade, recently called for the outsourcing of public transit services to private companies, part of their free advice to the next mayor on reducing the city's deficit.
On one level, it's an unremarkable proposal: just the latest in a chorus of business demands that governments fix their deficits by selling, contracting out or eliminating public services. But it caught my eye because I am residing temporarily in Auckland, New Zealand's biggest city, where the transit system is the most fragmented, expensive and maddening I've ever used. And it's 100-per-cent private. The gory details provide a caution for those who believe the private market always does things better.
In the 1980s and 1990s, New Zealand municipalities were forced by conservative national governments to sell off many public assets, including transit. They assumed free-market forces would cut costs and improve productivity. The reality has been the opposite. Indeed, since the 1980s, productivity has fallen far behind other OECD countries, yet costs and taxes remain relatively high. The government even had to buy back some of the privatized companies that failed entirely, such as Kiwi Rail and Air New Zealand.
Today, Auckland's regional government contracts a dozen different private firms to supply bus, rail and ferry services. A complex network of interlocking ownership links many of these suppliers. So much for "competition." The biggest, Infratil, is a $2-billion giant with a broad portfolio of privatized assets, including transit, electricity and airports. (That'll surely catch the Board of Trade's attention!)
This hodge-podge is all the worse because each company accepts only its own tickets, and not those offered by competitors. Since inter-company transfers are impossible, bus routes can be insanely circuitous. My daughter's bus trip to school takes three long detours through different neighbourhoods, doubling what should be a five-kilometre route.
Tickets are expensive. Passengers pay according to how far they travel (and then pay again if they need a transfer). Trips of just a few stops cost as little as $1.70 - but another $1.70 is added each time the bus passes through another invisible "stage." Travelling 40 kilometres from the city's north to south costs $12.70 to $16.50 (depending which company is used) and takes two hours. A passenger travelling the same distance in Toronto (say, from Scarborough to Etobicoke) would pay $3 once, and require less than half the time.
City planners impose various pseudo-quantitative performance indicators on the contractors, such as sophisticated GPS systems to monitor on-time performance. But even this minimal nod to public accountability produces unintended consequences. Bus companies fear being fined for missing schedule targets, but are driven by the profit motive to ruthlessly minimize outlays on equipment and staff. The resulting pressure is intense on drivers (some of whom don't even get paid overtime) to meet unrealistic timetables - a media exposé last year showed this often requires breaking the speed limit. Several times, we've watched an awaited bus race by without stopping, the driver shrugging helplessly and pointing at his watch.
That anecdote sums up perfectly the system's irrationality. The top priority becomes ensuring that a private company reaches profit targets, not picking up people who need a ride.
Yet Aucklanders still pay for transit - three times over. Once through taxes - subsidies to private transit consume half of all property taxes collected by the regional government. Then again at the fare box. And finally a third time through inconvenience. No wonder Aucklanders take transit one-quarter as often as Torontonians.
So before you get carried away with enthusiasm for the inherent efficiency of the private sector, visit Auckland. It's beautiful. But you'll need to rent a car.