Feb 19, 2010
IN THE late 1990s, local banks consolidated and a dominant three emerged. The rationale then - to remain competitive both locally and abroad - was compelling, even when POSB merged with DBS.
In similar vein, our transport system pivots on a couple of major operators.
Singaporeans were reminded recently that most adverse developments in the past decade could not have been foreseen. So it stands to reason that our regulatory authorities may not be able to guarantee in future that mainstays of our economy are not buffeted by global downturns to the point of distress or even bankruptcy.
The Economic Strategies Committee suggested even more consolidation. However, given the vagaries of the global economy, is it wise to develop corporate behemoths that may eventually become too big to fail locally and require national resources to be rescued?
Errol Goodenough
[Thoughtful letter, but inadvertantly presumptuous. "Too big to fail" was applied to mega-MNCs, corporations with international reach, and some national corporations (Freddie Mac) that would have had a domino effect in bringing down other institutions. If our transport operators fail, some other operator will buy over the business for a dollar, along with the infrastructure and assets (rolling stock), and continue from there. We're not going to be stranded at the bus stop or train station. And the govt is not going to rescue them. In fact, one wonders about the need for 2 transit operators. For a compact city state like Singapore, one is enough. Good enough, even.]
7 comments:
With just one operator, you have a monopoly. Then, there is no competition, no incentive to be efficient. Your understanding of basic economic principles is woeful.
So how do our transport operators compete?
How does the north-south line run by one operator compete with the NEL run by another operator?
Can you say, oh the NS line is always so crowded. I'm going to take the NEL instead. But you live in Yishun and work in Orchard Rd.
The only possible competition is if you live and work in Outram & Dhoby Ghaut. Only then do you have a choice of NSL or NEL.
So ya. you know basic economics. only basic.
They compete on shareholder value.
And instead of NS vs NEL lines, they can be taking buses instead of trains if the buses are more efficient than the trains.
If you look back at the time when many national government-run monopolies/enterprises were being privatized, e.g. Singtel, SBS, PUB (which became Singapore Power), they did that to turn the companies into shareholder-run companies. With shareholder-run companies, you have to watch your bottomline, the stock-market and your share price disciplines you and forces you to be cost effective in order to maximize shareholder value.
So is competition for the consumers or for the shareholders?
If bottomline is to maximise shareholder values, then why are you arguing against monopoly?
Monopoly is best for shareholders. The consumers have no choice but your product or service. That's why businesses dream of being market leaders and eventually, monopolies.
Do you even know what you are arguing for or do you even know the advantages of competition vs monopoly?
As for the bus alternatives. When NEL started operations, SBS diverted a whole slew of bus services serving the NE corridor. Service 111 use to ply the upper serangoon corridor. Now it terminates in town.
In time, with more train lines, buses will feed the lines and it would not be feasaible or even possible for buses to be alternatives to trains.
Ok that's a good distinction--so there's really two issues here, privatisation (non-government operated, can be one company, as long as its private) vs market competition (competition for consumers).
So the first, privatisation, already gets rid of the bloat and inefficiency associated with government-run businesses. But it is still not fair to consumers because if you are the monopoly, you can charge as much as you want and people have no choice.
In the second, if you have enough competitors, they have to cut prices to get consumers.
What you argued for in your blog post was that we should have only one operator. So if we have the government run that, it will be inefficient because there is no shareholder discipline. So let's say you are arguing for a single private operator, then in that case, that operator can raise prices, or cut unprofitable routes, and nobody can do anything about it, because they have nobody who will step in to fill the gap. So that's one bad thing.
But even with two operators, SBS and SMRT now, you are saying that there are "local" monopolies, e.g. if SBS runs both NEL, and all the main buses out of the Punggol/Hougang/Serangoon area, that is also true.
But what I'm saying is that cutting it down to one operator won't solve the problem, precisely because of what I said above.
Actually, I've given this public transport thing some thought before, and my preferred approach is for the PTC to do route planning, and to cut the routes up into packages, where some are profitable, and some are not, and to force the private operators to bid for route packages (and of course the operators must be forced to operate each route with some frequency/capacity so they can't cheat). That way, even the less profitable routes can be cross-subsidized by the profitable routes, and people will get buses no matter what.
And that said, I don't think the too-big-to-fail argument applies to public transport operation? Finance is different because if the financial sector fails, then all the businesses cannot function (since all businesses operate on credit to some degree, e.g. to hedge prices of raw materials etc). It is way more fragile than public transport.
Summary of Comments/Commenter.
This commenter is obviously attracted by economics and economics issue.
However, he doesn't even keep concepts clear in his own head.
In this series of comments, he is enamored with privatisation and confuses it with competition.
He rambles on about "bloat" and how privatisation can solve that problem (who mentioned that as a problem?)
The he rambles on about solving other problems already solved by the current transport setup (PTC and route planning & packaging) as if he thought of it himself!
However, in the end, he agrees that the "too big to fail" argument applies only to some cases, and transport is not one. Which was my point in the first place.
And my throwaway comment about a single operator is precisely because there is a PTC specifying performance standards, and current "competition" is an eyewash no one believes. The only competition is SMRT offering free shuttle buses to Chinatown from Dhoby Ghaut to divert passengers from the NEL.
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