Do Not Reduce Transport Prices: Deregulate the market
Written on Friday, September 5th, 2008 at 7:58 am | by cocoyComing from a guy who rarely uses public transport— i have to ask the question: why can’t consumers enjoy reduced transportation prices?
The price of oil is close to US$100 per barrel (104 to 109). you can find the numbers over at bloomberg (15 minute delay per change). Next month could be an entirely different picture.
Yesterday was all about the President asking oil companies why they haven’t reduced prices. While this is a half-step to outright intervention that I believe this is wrong. It defeats the whole purpose of a free market and an oil deregulation law. Misplaced market intervention is just plain wrong.
Let the small players differentiate themselves from the big three. Why do we insist that all of ‘em have the same prices whether high or low? So lets all buy our oil from the lowest price. But that’s not always the way is it?
By the same argument, BMW who makes cars should be priced the same as a Kia. They both have different target markets. they have build quality differences. Why do we keep on interfering with how our oil players price their products?
A couple of days ago I was in Greenhills buying a Playstation 3 (which by the way is an awesome piece of engineering). One store priced at 17k, another at 19k. same product. same 40GB spec. One difference was that the 19k guy offered a product replacement within 3 months if the machine breaks. i took the 19k– i wanted the comfort zone. that was my deal breaker.
Another person would have chosen the lowest price, which would be his preference. Having learned from my buying experience the comfort zone of care is phenomenal.
My point being the nature of economics is that we buy products and services depending on how good the deal is to us. That’s free market. It is good when two parties agree to do business.
Now, here comes transportation. At the height of oil they demanded the right to raise prices. Prices went up and now transportation doesn’t want to reduce prices because their argument is that oil has not gone down substantially. Why can’t we deregulate our transport industry?
Why insist to be shackled by 19th century thought?
Why not let every jeep operator determine what their prices are? They have variable cost anyway. Some may be willing to charge lower because their expenses may be lower. Others may want to charge higher because they can afford softer seats or air conditioned jeeps. We may see better quality jeeps to cheap ones that are bang for the buck. And others seeing that the prices may not be worth his salt to pay, will just walk.
My point being— why not stop this farce called socialism and regulated markets and get it on with free markets. Market intervention of any kind is simply bad for everyone. Do not reduce prices— deregulate the market.
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Here in Singapore (a capitalist country), taxi fares are also regulated.
as is in most parts of the world, cvj.
but in the philippines’ case, i think letting free market run on transportation will FORCE jeeps to update. i think it’ll introduce innovation in transportation and spur real competition.
The FX Taxi phenomenon proves you right cocoy. The market has many potential levels and niches that cannot be discovered under regulation. Besides, jeepneys are not “mass transportation” even in the singaporean sense. I myself have wondered why EACH jeepney driver cannot set his own rates within some maximum say.
By deregulation, that includes the option of re-introducing tricycles in EDSA, right?
cvj,
i was only thinking about price deregulation in what all capillary transport service providers may charge. Not total traffic decontrol.
chuck, tricycles in edsa is a no-no. that is a matter of safety. what we’re talking about here is de regulation in the sense of prices— rates. each business still pays for a business license correct? but government doesn’t care what you charge for your goods/services. same should be said route franchises.
dean jorge, yep. exactly. FX Taxi is a good case in point.
BTW, motor cycles don’t belong on the express ways (except for big harleys and motoguzzis, hehe)
DJB, Cocoy, then that would be a ‘free market’ to cater only for some who can afford FX Taxis (i.e. the middle class types and above), and not the rest. There would still be a market distortion (in the name of safety).
So in this kind of free market set-up, does it make it ok for a taxi/FX driver to charge higher fares during rush hour or if it is raining and to otherwise refuse to carry a passenger who is going to an unprofitable destination?
sorry cvj,i haven’t really thought about it very much because 95% of my perambulations are done on two wheels and genuine people power.
cvj, the nature of economics is that it takes two to tango. it always has. if a taxi driver charges a higher rate during rush hour, a discerning commuter would choose two things— agree (even grudgingly) to pay or find someone else to give business to.
the poor jeepney, bus, fx etc. is always asked by his operator for his cut. At the start of the day, the driver is already working from a loss. Whether it is a thousand or whatever. what’s left goes to the poor driver. that’s the nature of their agreement.
it is akin to an operator leasing his vehicle to the driver.
letting individual jeeps or their organizations determine their own rate gives them the opportunity to compete and easily get that payment. As a passenger, wouldn’t you choose to ride in a clean and safe vehicle? Would you ride if the driver charges you WAY too much?
A driver is under no obligation to take anybody for a ride if it isn’t profitable for him. Why in heaven’s name would jolibee ask only for PHP50 for a burger that cost them PHP100 to make? the poor jeepney driver is also a hardworker, is he not? he has kids to put to school. Why can’t he ask for equal pay for equal work he’s to do?
It is the same when buying PCs. why can’t it be the same for transportation where our drivers are struggling?
As a consumer WE get to decide if what he’s selling is ok. If his price is right, you know? if not, we take our business elsewhere.
the logic behind deregulating this market is to give each driver equal pay for equal work he’s doing and freedom for consumers to decide which is the better deal. fair play is all i’m saying. Fair play is that BOTH parties come out of it all right.
Dean Jorge, indeed! indeed!
DJB, fair enough. I’d just like to point out that if we were to be consistent with safety regulations, what applies to tricycles should also apply to big harleys and motoguzzis. Or else, the distinction would be on the basis of elitism.
I think deregulation would actually lead to the phaseout of the jeepney in a fair, equitable and market driven way.
I assert that it is in fact regulation per se that keeps the stupid mode of moving around alive. Unregulated it would evolve into something else and we would be rid of the worst aspects of the thing without losing the service needed.
Jeepneys are supposed to be left over US Army jeeps from a war in the first half of the last century! which Sarao et al have cloned into a permanent tenure on earth, attaching Nissan and Toyota engines to a 1940s body design.
Regulation stifles innovation and forestalls evolution (including extinctionary forces). That’s the worst consequence of that bit of supposed altruism towards the Riding Public.
Cocoy (at 11:38 am), i do understand and appreciate the logic behind your proposition especially since Milton Friedman was my idol when i was a kid. I do ride FX where available and i pay the taxi driver independent of the meter rate when necessary. However, what i object to is restricting the application of the logic of the free market to upward (and middle-class friendly) innovations such as FX taxis (as opposed to jeepneys) to the exclusion of downward innovations such as tricycles. After all, the latter would unleash entrepreneurial activity (each tricycle owner is an entrepreneur) and would provide an entry level price point.
You have to be consistent in the sense that if you believe in the free market, then it should be made to work for all market segments. Now if you think otherwise and that some form of regulation is needed (e.g. for safety or efficiency), then you should also be open to the possibility that such a principle would apply across all market segments as well. In which case, the question would not be dogmatically framed as free market vs. regulation but would rather be a matter of trying to find an optimal mix of market mechanisms and regulation.
cvj, the same thing ought to apply to tricycle drivers, fx, bus, taxi etc. that’s the economic case.
Government shouldn’t dictate the price of any good or service. As for safety— that’s the only reason for a government. Ensure fair play. ensure public safety. ensure an even playing field. Intervene only in the most extreme and direst moment. And i agree with you to a degree— it is to find a “Balance of mechanisms”— everything kept to a minimum to maximize economic freedom. no to government’s economic controls.
To extend your market-oriented framework to its logical implications, since it costs the government money to build and maintain roads, such costs should be imputed in the price. To reflect the true costs of road usage, the peak time-volume of roadspace occupied per person should be reflected as toll usage charges. A person in a private SUV should be paying more than a person who rides a motorcycle. A double-decker bus should pay less tax per person since less road space is wasted. For example, here in Singapore, they have implemented an electronic tollway system (called ERP).
BTW, if you believe that government has a role in ensuring safety (as opposed to letting the market perform that role), then that would be a deviation from Milton Friedman’s dogma, which to me is a good start. (That’s a journey i started two decades ago.)
cvj. in my mind the cost has already been inputed. there is a thing in the Philippines called the road user’s tax. there is also a vehicle registration fee. also there are franchises given to each jeep, bus, taxi– i’m not sure for tricycles. there is already tax whenever you buy a vehicle. *those things* directly or indirectly have already paid for all those roads.
Well, Friedman’s dogma is monetarism. i share his view that in a free market, one should limit government’s role to attain political and social freedom. heheh.
We need more coolies. Environmentally friendly pa.
Cocoy, if you really believe in the free market, the costs have to be more directly associated than that. A car that most of the time remains parked in the garage should not be charged the same as a car that is used everyday to go to the office.
BTW, Monetarism as a concept has a specific meaning and it does not encompass Friedman’s larger ideology.
I also shared Friedman’s view about ‘Capitalism and Freedom’ twenty years ago.
I can only think of one thing that should be done with jeepneys, and that is to phase them out as quickly as possible. The free-for-all approach that we took to unleash them onto our streets is so Pinoy in the tradition of our pwede-na-yan mentality.
To deregulate them any further will make worse an already bad situation. Their willy-nilly operating model defies every effort to systematise public transport.
I don’t think public transport is meant to be a free enterprise operation in a modern society. It is a piece of infrastructure that should be a basic service of the state — more a utility than a competitive business and a part of the underlying structures that provides the grease for the free market that runs on top of it.
cvj it shouldn’t matter whether the car is parked most of the time or not. what you’re saying is that to use a road should be pay for use. the cost to charge per use would only create a whole level of bureaucracy. it would be grossly inefficient than charging a yearly basis via collecting on vehicle registration, for example. it would be inefficient for both car owner and government.
benign0, there is already an alterantive to the jeepney using Toyota’s Asian Utility Vehicle, the FX.
As i mentioned to my reply to cvj earlier, in any other place i would agree with you that it is a utility. but the way public transportation in the philippines is setup— it only creates a whole class of coolies.
there is injustice happening in the streets of the Philippines.
You see, the driver comes out of the deal as renting out the jeep, the bus, the taxi and the fx (and i think also the tricycle) from the owner/operator of the vehicle. The driver doesn’t earn anything if he can not pay his operator “rent”. He doesn’t get a salary. The way the industry is structured, there is a fixed payment. The payment is the same whether or not your vehicle is efficient. It already *is* a business— one that is highly regulated because the argument is, such regulation is “good” for the greater number of people.
my argument is that the present setup doesn’t help first, the consumer— because there is no choice whatsoever. a broken down jeep charges the same as a new one. a broken down bus charges the same as a new one. etc. second, the system. The consumer doesn’t enjoy the variability when prices of crude oil drop— they only suffer the indignity of paying more when oil goes up.
Second, the drivers are not paid a decent living wage. they don’t have a wage to speak off. Drivers are aggressive on the road, creating MORE chaos in the street. they are aggressive because they need to make their daily payment to their operator AND earn a living. There are no discounts, no differentiation between one jeep’s service over another. a broken down jeep charges the same as a new one.
Government has “outsourced” transportation to the private sector.
I would agree with you that the best and tried and tested way is for a state owned public transport system. in fact i’d wager that you can impose a business tax to make it free. in an ideal scenario it would be done in a per city basis.
in metro manila, ideally it could be controlled by the Metro Manila Development Authority but to do so in the current structure of Metro Manila would be near impossible.
I strongly believe that to deregulate the market, to take the giant leap would create better entrepreneurs of our drivers. It gives them human dignity by vying for a living wage. it gives them better opportunities to innovate and may even get other investors to look at this transportation sector as a viable business. deregulation also creates the opportunity for the consumer to choose and to enjoy different payment strategies.
Well, taxis charge double fare after 12 midnight in Singapore. I lived there for many years and in fact, am a PR myself.
Yeah, I agree that innovation could work and would probably be better if we allow private enterprise to control public transportation.
However, let me digress a little bit and say that the reason why there’s a clamor regulation of the oil industry is the charge that oil companies are abusing deregulation by overcharging us.
i submit that the mere fact that government and the public insist that oil companies change prices whenever it goes up or down is a sign of intervention, in spite of the law. i further submit that this is simply bad business for the smaller oil players. instead of having a differentiation of several pesos— you’ll only be different by several centavos, if at all.
if the big three charges too high— go buy somewhere else. no one is forcing anybody to just buy from petron, shell or caltex. let the market differentiate itself. more importantly let the smaller oil players find that niche. i further submit that if the small players give bad service— maybe the higher prices of the big three can be justifiable.
Patricio, right now, in spite of the law it really isn’t a deregulated market at all.
Why doesn’t it matter? Encouraging people to minimize use of their cars and take public transport (or at least car pool) would be beneficial to both traffic flow and the environment.
Not if you automate the system. In Singapore, they have set-up ‘gantries’ (electronic toll booths) which automatically deduct prepaid cards if a vehicle passes under it. They’re currently working on a system that works via GPS. Besides a ‘bureaucracy’ is not intrinsically evil. It’s a means by which people and processes are organized to perform a certain function. Even the private sector has bureaucracies.
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