Mass transit monopolies
In a comment on my post about the NYC transit strike, Angelica of the Battlepanda blog asked about monopoly problems as a response to my pointing out that the massive disruption of urban life accompanying the strike was due to the MTA being a government monopoly.
The first and foremost argument against any sort of government monopoly, and in this case mass transit, is the moral one. I’d like to quote Rad Geek on that:
“It’s wrong to have people shot for helping folks get to work. Even if they don’t have a permission slip.”
You don’t get much pithier than that. Although the above might initially seem like a melodramatic way to put it, the honest truth is that all government fiat is backed up by force (i.e. people in blue clothing with shiny badges and guns who will try to kidnap you, and hurt you or kill you if you resist).
I realize that Angelica probably intended to discuss the matter on a strictly utilitarian basis. My view is that morality always trumps utility, but I’ve noticed that when an immoral option at first appears to be the more practical option, one is probably overlooking something. Let’s tackle Angelica’s concerns…
“…aren’t there inherent monopoly problems in most [mass transit] systems?”
I basically take that to be an assertion that there’s often only sufficient market demand in a given area to support one route bus company (we’ll get to rail further down).
We’ll never know if that’s true or not, as long as the prospective additional competitors suffer under any one of the following:
- Being forcibly prohibited from competing by government fiat.
- Being directly hamstrung by being forced to help subsidize the official government enterprise or a government favored enterprise they want to compete with.
- Being indirectly suppressed by government induced market distortions that favor established business interests generally (over startups).
As long as any of those are in place, the assertion that some industry is a “natural monopoly” can not be verified. Also, note carefully that the common thread running through all of those is “government”.
Let’s suppose Angelica is right, though. Let’s suppose that factors such as a relatively steady but limited market demand for route bus service and the geographical peculiarities in City X mean that only one route bus company at a time is going to be financially in the black in City X. That, however, doesn’t mean it will always be the same bus company.
Without government backed unfair privilege, any other company would be able to enter the City X mass transit market if the current dominant service provider becomes exhorbitantly priced or abusive. It wouldn’t just be startups, either. A charter bus company or a taxi company already operating in City X, for instance, could expand into a new but related line of transportation services if the dominant route bus company was foolish enough to give people reason to switch. Entrepreneurs call that a profit opportunity.
“For such services to be useful, you will need a powerful interconnected network that works together rather than compete with each other.”
It’s a common misconception that markets only produce competition. There are also powerful incentives to cooperate when customer expectations are at stake — and in a free market, customer expectations would always be at stake. Wholesalers cooperate with retailers constantly, because to them that’s just customer service. Even direct competitors cooperate, though, when it genuinely makes sense to and no government backed market distortions discourage it. Although I despise Microsoft, a handy example that’s relatively current is the recently announced decision that new versions of Internet Explorer will standardize on the same feed icon that Firefox uses. The freer the market, the more you’ll see of that.
As a matter of fact, there wouldn’t even be an Internet as we know it today if telecom providers didn’t have the natural incentives they do to cooperate. Their systems have to connect to and talk to each other. Where that cooperation is endangered, it is always the result of government intervention in the market. That intervention may not always be immediately obvious in all cases, but with careful examination it can be found.
More specific to transportation — private automobiles in one sense compete with buses, being another option people can choose. You seldom see a major bus station that doesn’t have a parking lot, though.
“They broke up the rail system in England, which transformed the system from one big gov monopoly to lots of itty bitty private monopolies resulting in some lines being even worse run than others.”
But are those “private monopolies” really private if they are the unfair beneficiaries of government favoritism? England is by no means a “free market”.
Another point to consider is this. During the period that the English rail system was officially a government monopoly, what basis was used to make decisions about how much capacity to build — market demand or political demand? State enterprises have no realistic way to make sensible calculations about whether or not it’s “worth it” in purely economic terms to do something. In all likelihood, excess capacity was built. Even if the lines were and still are literally busy as heck, it would still be excess capacity if the market demand for the service didn’t offset the capital that would have to be invested. In all likelihood, the “private monopolies” you spoke of were poorly managed precisely because they got a large capital investment (in the form of the rail lines) handed to them at a price lower than what would have been required to build it. It’s not like it was their money or anything like that.
In fact, or at least in my own opinion, chances are the rail system in England is simply always going to suck to one degree or another because — dollar for dollar, or pound for pound in this case — rail isn’t going to be as profitable as buses for short to medium haul passenger service, especially when you compare how capital intensive rail is in comparison to buses. The really sucky but inobvious result of that, if I’m right, would be that even the bus service in such a milieu is not going to be as good as it could be either, because there’s so much misallocated capital stuck in the rail system, producing accompanying price distortions in the overall mass transit market.
Market forces didn’t do that. Government did.
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Interesting that you concentrate mostly on busses — true, with the smallest startup costs and the most flexibility, it is the public transportation that is the most amenable to privatization. Indeed, long haul busses in this country are in private hands and rightly so. But notice how monopolized it is — the kind of competitive synergy between different companies coming together to provide the best service to the consumer simply does not happen. Any upstart company seeking to provide better service and lower prices than greyhound would be crushed like an egg through any possible means, fair or foul. And notice how nobody is agitating for a piece of the inner city bus action — privatized without public subsidy, there would be no profit there schlepping people from one poor neighborhood to another for the few measly dollars they’re willing to pay.
But hey, I’ll meet you halfway on busses. Just because it hasn’t been done yet doesn’t mean it can’t be done. Where I really disagree with you is on trains. You say that they are intrinsically less profitable than busses. But one of the big reasons why busses are more profitable is the fact that they run on an existing infrastructure. Built by (drumroll please) the government. This means that there already exists a big subsidy by the government for all form of automobile travel, meaning that the less polluting, less sprawl inducing train travel is unfairly disadvantaged if government support is withdrawn.
Are you for the complete withdrawal of state support on road building? Knowing you, you probably are. But you must at least agree with me in that road building is just about the least politically assailable services provided by the government. What I am saying is if the government is going to subsidize transportation, it might as well do it in an across the board fashion — not just for automobiles through road building, but also through trains, trams, and other possible types of people movers.
Interesting that you concentrate mostly on busses — true, with the smallest startup costs and the most flexibility, it is the public transportation that is the most amenable to privatization.
Well, I wasn’t thinking in terms of piecemeal (and typically corrupt) government privatization schemes. Rather, I was taking my best guess about what the free market solution would have been if we hadn’t had government in the first place.
Indeed, long haul busses in this country are in private hands and rightly so. But notice how monopolized it is — the kind of competitive synergy between different companies coming together to provide the best service to the consumer simply does not happen.
One theme you’ll notice from me consistently is that where any industry is cartelized, sclerotic or in any way uncompetitive (and thus not responsive to customer needs), it can almost always ultimately be traced back to market distortions created by government, rather than some inate and intangible drawback of providing goods or services for a fee.
Kevin Carson would likely say that you’re accepting the flawed background logic that “vulgar libertarians” use — equating today’s society and economy with a free market, when in reality it is not at all.
And notice how nobody is agitating for a piece of the inner city bus action — privatized without public subsidy, there would be no profit there schlepping people from one poor neighborhood to another for the few measly dollars they’re willing to pay.
So you’re saying the major players in an industry would often ignore a small market that they are to big to bother with serving properly? You’re right, and you’re also overlooking all of the business opportunities that would create for some of the people that live in those neighborhoods. Start off driving a beat up old taxi. Then a van. Then a second van, and so on and so on…
Where I really disagree with you is on trains. You say that they are intrinsically less profitable than busses.
Just to clarify, that’s merely my own personal suspicion/guesswork — a matter entirely seperate from ideology and political economy. I think I’d have to shoot myself if you came to the conclusion that libertarians are “anti-train”.
But one of the big reasons why busses are more profitable is the fact that they run on an existing infrastructure. Built by (drumroll please) the government. This means that there already exists a big subsidy by the government for all form of automobile travel, meaning that the less polluting, less sprawl inducing train travel is unfairly disadvantaged if government support is withdrawn.
That’s an excellent point and one I hope you yourself will refer back to every time I mention how piecemeal government privatization schemes inevitably favor some business interests over others and are thus rife with opportunities for corruption (and, ultimately, looting of the public).
Which brings us to…
Are you for the complete withdrawal of state support on road building?
Abolition of the state presupposes that.
But you must at least agree with me in that road building is just about the least politically assailable services provided by the government.
Only because lack of a widespread debate over public vs. private road ownership has not brought sufficient attention to the respective drawbacks and merits of each.
Related reading:
Abolishing Government Improves the Roads by Brad Edmonds
The Public Sector, II: Streets and Roads, from For a New Liberty by Murray Rothbard
Note that where those authors mention “companies”, it’s just shorthand for any form of voluntary association that could conceivably be involved in the provision of this service — so that also includes cooperatives, private clubs, homeowners associations, the local Elks Lodge, church groups or whatever. It’s not for me to lay out a blueprint for how people should self-organize. They’ll figure out what works best for them once they’re free.
Note also that my vision of who the rightful owners would become after abolition of the state differs slightly from that of Edmonds, but that’s just a tangential matter, so I won’t detail it unless asked.
What I am saying is if the government is going to subsidize transportation, it might as well do it in an across the board fashion — not just for automobiles through road building, but also through trains, trams, and other possible types of people movers.
At this point, we’re comparing apples and oranges. You ask how, in what particular manner, the state should go about ruling. I deny the legitimacy of its rule on moral grounds and when not speaking strictly in those terms I’m often working on dispeling the notion that a moral solution would be unworkable.
Somehow, all our conversations ends up comparing the statist apples and the stateless oranges :-)
Battlepanda’s point about public roads is an important one. Taxpayers subsidize the transport costs of large firms like Wal-Mart (and a zillion others). If road users were charged more in accordance with use and impact on the roads (tolls, extra fees for heavy vehicles, etc., move in this direction) then users would a have a stronger incentive to economize on these costs. Other things being equal, transport subsidies promote inefficient travel (which also has negative environmental impacts). This is another instance of a key libertarian point: one of the most fundamental functions of the state is cost externalization, whether of its own activities or those of non-governmental individuals and groups.
Oh, yeah, I forgot to mention that if some good or service really is a natural monopoly (and Brad’s point about the difficulty of knowing for sure under state capitalism is well taken) there are still more libertarian options. One would be a form of syndicalism, that is, worker’s control. Another would be to run it as a community co-op. Or perhaps a stakeholder model of organization. Monopolies have inherent problems and dangers, but smaller scale and stakeholder participation might mitigate them to some degree.
MDM: You have the makings of a great post (or three) in those two comments.
Battlepanda: What I am saying is if the government is going to subsidize transportation, it might as well do it in an across the board fashion — not just for automobiles through road building, but also through trains, trams, and other possible types of people movers.
Let’s distinguish two separate questions with regard to government getting involved in transit.
1. The subsidy question: should governments subsidize (or directly provide) infrastructure or services for transit? If so, which should it subsidize, to what degree, and in what proportions?
2. The regulation question: should governments pass laws or regulations that effectively ban other people from offering transit services or building infrastructure? If so, which sorts should it ban, by whom, and with what sorts of enforcement?
Let’s set aside the subsidy question for a moment; I’m interested in your take on the regulation question. (This isn’t idle speculation; most municipalities with substantial subsidized or government-owned mass transit, New York City especially, also have very restrictive laws or regulations that ban outright, or sharply limit, competing taxi, bus, etc. services.)
Suppose my city, state, and federal government are taking tax money and pouring it into transit services, road-building, etc., to whatever degree and in whatever proportions you think best; and suppose that I decide, nevertheless, to start a competing taxi service. Or bus service. Or start laying rails for a private train. Do you think that the city, state, or federal government should force me to stop it? Or would that be overreaching on their part?
If people want to give providing a better service at lower costs a shot, it is out of order for the state to stop them unless (a) There is an issue with allocating public resources (e.g. putting train tracks or bus stops on public property where they might inconvenience non-customers) or (b) They are endangering the public through unsafe practices.
Of course, the problem is, both (a) and (b) can be used as the thin veil over actions that are meant to discourage competition primarily. Notice how it’s not even a gov vs. private interest issue anymore — Federal officials are shutting down discount (no just cheaper but also non-smelly more comfortable faster with better movies) chinatown to chinatown busses on ’safety’ grounds even though they don’t really compete with any gov. provided transport (just Greyhound and Peter Pan).
Radgeek said:
Or start laying rails for a private train.
Um. For train tracks of any significant length, you are going to come up against reluctant home-owners who refuse to part with their property. The state takes care of this through eminent domaine, but in a libertarian society, there would be nothing the track builders can do except continuing to bid up the price. Thus I find it hard to believe that a viable train network can be built in a true libertarian world without coercion.
MDM said:
one of the most fundamental functions of the state is cost externalization,
Not that I don’t agree with the point that the state often causes cost externalization when it shouldn’t, but I think one of the most legitimate raison d’etre for the state is to correct the cost externalization that is inherent in an untrammeled market. For instance, a factory owner might produce smog that affects many people unassociated with his factory. Those people would have zero recourse in a libertarian society unless they just so happen also to be the sole customer base of the factory owner.
Of course, the preceeding is no defense of this particular state we live under, since the Bushies are all about letting people pollute as much as they want.
To be blunt, whether it might be best of all to demolish government subsidy for transportation entirely is a “how many angels on a head of the pin” problem because (blame it on shortsightedness if you want) I don’t see it happening.
(off topic, but perhaps relevant: I am diametrically opposite to Brad in terms of how I think change should be effected. Brad favors revolution. I think society can only ever move one step at a time. People will not take one step towards the promised land unless that one step also serves their immediate self-interest.)
Battlepanda:
Not that I don’t agree with the point that the state often causes cost externalization when it shouldn’t, but I think one of the most legitimate raison d’etre for the state is to correct the cost externalization that is inherent in an untrammeled market.
Well, if you want to get inside my head then just remember that when someone points to cases of cost externalization supposedly caused by an untrammeled market, I instead start looking for what state actions may have caused it. As a thoroughly untrammeled market would be a mature anarchist society with a polycentric system of law (no state monopoly on courts), and as we don’t have that yet, blaming the market is like blaming the tooth fairy in my eyes.
For instance, a factory owner might produce smog that affects many people unassociated with his factory.
This only becomes a viable strategy for the oppressor class once they have a state system of monopoly courts. If clear harm is being done, one can always sue for damages — and the only way to systematically skew a court system against the ordinary person is by making courts a monopoly, maintained by coercion (a government).
I am diametrically opposite to Brad in terms of how I think change should be effected. Brad favors revolution. I think society can only ever move one step at a time. People will not take one step towards the promised land unless that one step also serves their immediate self-interest.
Hehehe. Oddly enough, my specific vision of “revolution” is mostly non-violent and serves peoples immediate self-interest in the rawest form imaginable — the profit motive. Click here for more info.
OK, brad, I’ll bite. How do you have courts not backed by government power? Competing bands of vigilantes? Unbacked by any threat of violence? Who will respect the courts’ findings?
As for killing the state through encouraging black market activities, that just seems naive to me. Black marketeer has been with us since the beginning of the state. People did not need counter-economics to teach to make a buck or two. Last I checked, the state ain’t dead yet.
I feel another long post coming on… :)