For the last few weeks, the D.C. metro system has been an even bigger mess than usual.
That’s saying a lot. A quick flashback to one of my blog posts in January will give you a snapshot of how ridiculous the whole situation has gotten:
A few months ago, Metro had us thinking it had completely lost its mind when it that a decrease in ridership would be punished by an increase in fares.
That’s right: the same people who thought carpeting was a good choice of flooring for public transit also thought that raising prices would raise revenue. Thank god this train of thought has derailed. Basic economics says that an increase in fares will lead to a further decrease in ridership, and the combination is unlikely to result in increased revenue for Metro.”]
In fact, Paul J. Wiedefeld, new general manager and CEO of Metro even said,
This is not the time to be asking the customers for increased fares or reduction in services.”]
That was in December, though. Apparently, the rules are different now that it’s June. And while Metro ultimately decided against raising fares, now throughout the rest of 2016 and the first three months of 2017, service will be reduced through March 19 of next year, according to the Washington Post.
How can Metro get away with this? Well, without competition, Metro can do whatever it wants. As a government-owned and government-run entity, Metro is not subject to the same incentives as other institutions.
When Lyft drops its prices, Uber drops its prices to compete, and the rider benefits. When Metro is down, Lyft and Uber can step in to offer discounts to riders, but Metro will not drop its prices in response, because to do so would mean weeks of bureaucratic haggling—and because Metro gets money regardless of ridership (44 percent of Metro’s daily operations is funded by state and local governments, aka taxpayer dollars).
A privately-owned, profit-motivated entity has a much tighter relationship with its prices. If Lyft prices are too high, ridership declines, and Lyft knows to lower its prices. If Metro prices are too high, ridership declines, but some tax revenue remains, and thus prices remain. Metro’s ability to know its market is clouded by the distorting incentives of government, and it is the commuter who loses.
Anti-market advocates will argue that a private company only cares about its revenue and will take advantage of consumers as much as possible in the name of its bottom line. But when a company cares about its revenue, it cares about making money, which means it must care about providing a service that makes customers happy. Private companies are obsessed with profit…which means they are obsessed with good service.
If Metro were privatized, I can guarantee you that its service would be better.
But privatization is not enough. Comcast is a private company, and its service is notoriously terrible. Why? Without competition, privatization seems meaningless. Comcast has a monopoly over certain geographic areas, so residents of a Comcast area have no choice other than Comcast.
Luckily, without government intervention, competition is a natural result of privatization. Even when a company like Metro or Comcast has the capital to succeed as a monopoly, incentives are such that, with privatization, companies will adopt the technology necessary to take a slice of that market share. We see this now with Google Fiber, a private company that is hailed as a hero whenever it comes to an area previously ruled by Comcast. And if Metro wasn’t being propped up by taxpayer dollars, you can bet that it would be taking competition like Uber and Lyft way more seriously by improving rather than discontinuing service.
Privatization is the first step to righting the perverse incentives to which Metro is subject. Then will come revenue, competition, and eventually, happy commuters.
Photo by SchuminWeb under CC BY-SA 3.0