Singapore’s Transport Market Distortions
The Capitalist Infidel has been watching as people around Singapore whine about transport price hikes again. This annual exercise has been carried out for years and nothing useful has come out of it. This is mainly because Singaporeans are barking up the wrong tree. The hikes come because the market is distorted, not because of the belligerence of the companies involved.
The Capitalist Infidel would like to remind the people of Singapore that private companies exist for the sake of making a profit. They have a duty to their shareholders to maximise profit. That means increasing prices and lowering costs. In free market, they should be allowed to set whatever prices they wish. The market then decides whether they are willing to pay for it or if they will look for substitutes. Therefore, what they are doing, as profit seeking companies is correct.
However, Singapore’s market for Transport has been warped by government demands for the purchase of a Certificate Of Entitlement(COE) for the ownership of private cars. Private cars are the only reasonable substitute available for the consumers. All other forms of motorised transportation, the only means of travelling to work by most commuters here are controlled by two companies, both of which serve different areas of Singapore.
The COE was first introduced to control the number of cars on the road to reduce congestion. But we now have electronic tolls in the form of Electronic Road Pricing (ERP). Therefore, we have a new tool to deal with congestion on the roads. With COE, whoever paid for it could drive as much as they wanted anywhere they wanted without incurring extra costs. With ERP, we can control the traffic by having people pay toll, so that they have incentives for using alternate roads and are in fact paying for any negative externalities they cost.
And of course if there was still congestion, prices could be raised or we could allow it to sort itself out. After all, there is only that much money people are willing to pay to sit in a traffic jam and people should be allowed to do so if they so choose. The unhindered buses on bus only lanes and trains in the Mass Rapid Tranist (MRT) system will only look more attractive to the people sitting in jams then.
The Capitalist Infidel supports the idea of public transportation because it reduces pollution and congestion but using COE not the way to go about it. COE does not discourage people from driving cars they already own. ERP does. And it is not the cars sitting in garages that cause problems, it is those on the road.
The Capitalist Infidel suggests that COE be scrapped and that the use of ERP be increased. This will let Singaporeans make better choices and no longer be price takers of public transport companies. It will allow Singaporeans a choice between having a car and paying to enter congested areas or taking public transport to avoid such charges and congestion.
Public Transport should still be subsidised, but in such a way that it helps them reduce costs and therefore prices so that they can attract customers. The way it should have been in the first place. Not what it is like now, when the prices of substitutes are increased which ends up in unfair prices from public transport companies, because they can.
This article is also posted on Honest Opinion
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Capitalist Infidel 
28 July, 2006 at 1:03 pm
A friend of mine pointed out, quite rightly, that when a state subsidises transport companies they must fulfill certain guidelines, those that include making sure prices stay low enough for people. Not just raking in as much money as they can. Subsidies given must be linked to certain performance goals. The Capitalist Infidel wishes he had pointed this out in his initial post. Thanks, Guang.
28 July, 2006 at 2:43 pm
Yes, a private company has every right to maximise their profit, but SMRT is also a monopoly. Should a monopoly be given free reign to adjust prices as they see fit or should they be strictly regulated like any other monopoly.
28 July, 2006 at 10:03 pm
You mean like microsoft? Clamping down on businesses is not a good idea. It creates perverse incentives and lowers efficiency, and everyone loses. Would you like SMRT to set up a dummy company with extra costs to break the monopoly and go around the new rules? That could happen if you want to punish monopolists.
Opening the market to compeition, like those from cheaper cars will force public transport companies to keep costs low to attract consumers. You get the same effect, but with the market to guide them.
If they are taking state money of course, we could start putting rules on them to force them to conform to our standards, and maybe have subsidies inveresly linked to profits. After all, if they are earning money they don’t need subsidies right?
29 July, 2006 at 3:08 am
Singapore’s transport system is as such that an increase in the number of cars will mean that the roads will become more clogged then they already are. Nevermind the fact that the ERP seems to have a lessened effect on unclogging jams. You’re going to need a serious overhaul for the entire traffic system, starting with the traffic lights before you can even consider letting more cars on the road.
It’s pretty much like a vice. Cab fares are rising, the MRT fares are rising, and I would suspect that bus fares are will mirror this rise as well. The most curious thing about the MRT is the fact that they’ve done away with the drivers on the NEL line, but they are still experiencing frequent (bi-monthly) breakdowns. Why is it that you no longer have to pay the wages of drivers, and yet people still have to pay more for breakdowns? I wonder how expensive the maintenance of the NEL line is to justify a more ‘efficient’ system.
29 July, 2006 at 9:19 am
Microsoft may be a monopoly, but its services is not exactly a necessity (depending on how you see it, but a computer with a microsoft os is not exactly part of our daily needs). Besides there are still alternatives like the Mac and Linux, niche they may be.
SMRT however is a monopoly that deals with an essential service. Its not like we have any viable alternative. Like it or not, you can take a bus, train or taxi, but it will still fall under the SMRT umbrella. What choice do we have? In a situation like this, then I would say the profit motive of the company should be balanced with the greater responsibility to provide an economical mode of transport for the general public. Afterall, where do we draw the line here with regards to profit motives. Going by pure profit motive alone, than there shouldn’t be anything to stop the SMRT from raising fares to 3,5, 10 times of what they are now.
29 July, 2006 at 7:12 pm
Chimp, the idea is that with tolls, areas of heavier traffic can be controlled. If the Central Business District can be controlled, the rest of Singapore can be as well. I do acknowledge your point that it would be nice to have fewer cars, but I think that should come from public transport being attractive rather than cars being made unattractive.
Marc, I’ve been thinking about what you said and I think that SMRT should be controlled but not just because they are a monopoly. It is because they are a monopoly due to high barriers of entry to their industry and these barriers were overcome for SMRT by the government when they built the system for them and because the monopoly created by the government, the government should rein them in.
This factor was not considered in the original post.
My initial post was based on the idea of introducing competition with the public transport service providers here. There is still something that controls prices of Public Transport here. Public Transport to Singaporeans is what oil is to the world. We need energy and the best way to get it is from oil, which is controlled by middle eastern countries. But why do they not blackmail us? Because running us to the ground would be killing the golden goose and that we will look for alternatives that we would not look for if oil was cheap.
Alternatives like hydrogen power or solar power that costs more to obtain that what oil does now. Just like cars are more expensive than public transport is. Of course, alternative forms of energy are not taxed like cars are in Singapore and so have a stronger hold on the prices of oil.
What I suggested was that public transport be allowed to compete with alternatives. The current taxes on cars do not only affect drivers, it affects prices of it’s alternatives, like public transport as well, which makes things worse.
30 July, 2006 at 8:23 pm
Perhaps it might not be such a bad idea to reintroduce the concept of shuttle buses again. To reduce operational costs, these could be non air-conditioned minibuses that plies only the high traffic routes from 8am to 8pm. We could even pattern it after the shuttle buses of Hong Kong, where the passengers could alight anywhere and anytime they want along certain routes. Just my 2 cents worth.
1 August, 2006 at 5:06 am
hmm. the reason why there r cars is because cars r useful, n they r necessary o facilitate the lives of people. in a sense, cars become a necessity in a modern environment. by instituting erp, access becomes restricted to the well-off. since commuting is a necessity for all economic strata of society, erp becomes akin to economic discrimination. of course this is just an over-sensitivity on my part. this argument works only if one considers the use of private cars to be a necessity, especially for work. even then, it might still be relevant if there r better n fairer ways to deal with congestion, like minimum passenger rules, or limited usage rules independent of pecuniary factors. however, there is still the problem of workability, n perhaps the erp is good in that area because it is efficient n enforceable, as shown. but, whatever.
1 August, 2006 at 5:17 am
oh yea forgot to add: one really wonders where the revenue from erp goes to. the money will be ill-gotten if it is spent on areas irrelevant of the issue it is addressing. coe too. it will simply be corruption if the money is used for the governments other agendas. it was noted before by francis seow that the government viewed the courts as a source of revenue. simply immoral. anyway revenue from erp n coe should be used in the department for a better transportation system. as far as ive heard, the government is not strapped for cash. they certainly dont need more revenue for the coffers. or for their glcs.