If you care about promoting public transport, you need to understand the key choices about organising and regulating it. These choices shape the industry and they really matter.
This is NOT just about privatisation versus government operation. It is more interesting than that.
This edition of Reinventing Transport shares the key alternatives and gives a sense of what's at stake. The focus is buses but most of the ideas also apply more widely.
Click here to learn how to subscribe to the podcast.
You can either read the article below or listen to the podcast episode (use a podcast app or the player at the beginning of this article or click HERE).
This is just the basics, not a deep dive. If you want more gory details, then follow the links right at the end of the article.
It makes a huge difference for things you care about - things like coordination, service levels, how the goals are set, what goals are decided upon and how ambitious the bus system is going to be about serving excellent public transport in your city.
It is an amazing fact about bus systems that so many different industry structure/regulatory options are possible, ranging from public monopoly to complete deregulation and everything in between.
This is common in the United States, in India, China and various other countries. It used to be more common in Western Europe and Australia than it is now.
In fact, there are many ways to organise a bus system that involve private sector operators. We will see four below.
So you need to ask which one they are proposing. It really matters. They're very different.
In simple terms, the idea here is open entry in the urban bus services industry. There is competition on the road. This is competition "in the market" not "for the market".
But there are variations. Some kinds of deregulation result in an extremely fragmented bus industry while others lead to less fragmentation.
Less fragmented versions are found in the UK outside London, New Zealand until a few years ago and some cities in Japan. In these cases, only established corporate bus operators entered the market in practice as a result of certain rules, such as a requirement to publish a timetable and how the licensing works.
The more fragmented versions of deregulation, seen in many other parts of the world (and in the western world in the past) are closer to complete open entry. The licencing regime is on a vehicle-by-vehicle basis rather than for companies. Even a one-vehicle business can join the industry. In many cases, the bus/minibus system has never been heavily regulated, so 'deregulation' is not quite the right word.
Metro Manila has thousands of tiny businesses, each running one or several 'jeepneys', with extremely light regulation. Several central Asian countries also have this kind of bus or minibus service as do many cities across Africa and parts of Latin America and Southeast Asia. There are different names all over the world. In Kenya, they're known as Matatus. In South Africa, they're known as Minibus Taxis.
In the early 20th century, unregulated minibuses were also common in countries that are now rich. Singapore's 'mosquito buses' were an example that operated between about 1910 and 1935. 'Jitneys' (unregulated minibus operations) were found in the same era in San Francisco, Los Angeles, Melbourne and many other western world cities. Dollar vans in the New York area are a modern example in a high-income context.
An unregulated public transport system is certainly better than nothing but there are also well-known drawbacks. Service tends to crowd into the most lucrative most high-demand areas and the high-demand times and tends to neglect other times. There's often bad behaviour like racing.
Evaluations of the UK's bus deregulation tend to show lower costs per kilometre (compared with the previous public monopoly operations) but a deterioration of coordination and of total ridership.
A government gives a private company a contract to run bus services. The operators are typically allowed to take some initiative. In other words, they can make changes to the lines, although usually after some permission-seeking process. The contracted operators usually have exclusive rights. But their fares are therefore regulated. Typically, the operators are taking the business risk - the revenue risk. They collect and keep the fares but if things go badly they lose money. This is called a net cost contract. Finally, there are usually service obligations. The government will say to the operators, okay, you must run a certain amount of service. That's the deal.
They can provide decent but not ambitious public transport. Operators that are taking the revenue risk are usually risk averse.
Franchises can work well and be a fairly stable option OR they can go badly wrong!
They can be quite a good option so long as the government pays some attention and takes those service obligations seriously, and puts the contract up for tender every now and then, or at least has the threat of that if the operation is going badly.
Singapore between 1935 and 1974 is an example. It had corridor-by-corridor bus franchises but didn't monitor the service obligations seriously. But by the 1960s, as fares fell behind costs, and as competition from cars and motorcycles increased, there was a downward spiral. Yet the government was reluctant to agree to fare increases. How could they when service was becoming horrible?
There are many similar stories. A famous Harvard Kennedy School of Government case study tells the Sri Lanka version. Kenneth Gwilliam also wrote about the Jamaica case.
So if you're going to have a regulated monopoly bus system, the government needs to pay attention and have serious service obligations that are monitored.
Franchises worked well in Singapore from about 1974 until recently (although Singapore never used the term, 'franchise').
If I understand correctly, they also work well in many medium sized and small cities in the Netherlands and in France.
Hong Kong is a good example of well-regulated bus franchises. There are several companies that operate buses, and they have 10 year contracts. So there's competitive tendering at the end of those contracts. And each company serves a set of routes, but they have some autonomy to modify them. They have to submit a five year forward planning programme each year with proposals for service improvements and/or rationalisation and there's some negotiation with with government on those changes. The government strictly enforces service obligations to make sure the operators provide decent service. But the companies are taking the revenue risk. The money stays with the companies and they are the ones taking the business risk.
I call this arrangement 'proactive planning with service contracts'. There's a Public Transport Authority that plans all the services - sometimes even the schedules. Doing so requires some institutional capacity, of course. The services are procured from the private sector (usually through competitive tenders). The public sector authority now takes most of the revenue risk. They are gross cost contracts (or variations on them) in which bus operators are paid (mainly) for bus kilometres not passengers.
In places like Scandinavia, in London, in Australia, this situation has usually been reached via 'privatisation' of formerly state-run systems. It was the addition of contracting out (usually with competitive tendering) on a publicly-planned system.
Other cases have reached this point from the opposite direction. It was in increase in government responsibility for the outcomes. That was true for Singapore. Also for Bogota and several other Colombian cities that have been shifting to this kind of arrangement. The bus system in Moscow, Russia, is another example.
Seoul's famous 2004 semi-public bus reforms were also along these lines. Before that, Seoul had a passive franchise system. There were many bus operators and the government wasn't particularly paying attention to their level of service and to their quality. The bus operators was spiralling downwards as their cost structures were deteriorating - the familiar story I mentioned before. In 2004, the Seoul government took charge. It set up a transport authority to plan and manage the buses and the private-sector bus companies operated the services on a gross cost contract basis. The plan was to have competitive tendering but that hasn't happened yet.
One of the claimed benefits of this particular alternative is that you can get the best of both worlds, with government doing planning and coordination (a strength of government, at least in theory) and also competition, although it's competition for the market (or at least the threat of it). It is very much not competition in the market like we had with deregulation.
Auckland in New Zealand is an example of a western-world city that jumped from a deregulated bus system (akin to the UK arrangement outside of London) to this kind of proactive planning by a government authority with competitive tendering with service contracts.
With deregulated bus systems, the government takes little or no responsibility for the outcomes. Then with passive franchises the government took a little more responsibility, but not enough to make sure that things went well. In well-regulated franchises, government was taking even more responsibility by keeping an eye on things but the private sector operators were the ones to take the initiative on changes. In proactive planning with service contracts, government takes responsibility for the planning of the system and the scheduling of the system but private sector operates the actual services. And finally, in a public monopoly arrangement, the government is presumably taking all of the responsibility for the system.
Compatibility of these arrangements with strong coordination (or integration) varies in a similar way. Deregulation and the passive franchises are not really compatible with strong coordination. In well regulated franchises, coordination can be better. But if you really want really ambitious coordination of your public transport system, government probably has to take even more responsibility.
The potential for competition varies in both degree and in kind. Deregulation has competition in the market, which creates some problems in many ways. Public monopoly has little or no scope for competition. The options in between have the potential for competition for the market.
Deregulation they call 'open entry market'. The franchise options they call 'authorization regimes', What I call proactive planning with service contracts they call 'delegated management'. And public monopoly they call 'direct management'.
Even with public-sector public transport operators, we often see uncoordinated fragmented sets of operators across a region. The San Francisco Bay region is an example.
So an important trend, that started in Germany and has spread throughout Europe, is for the creation of transit authorities or public transport authorities (in Germany they are called Verkehrsverbund or 'Transport Association') that coordinate at a regional scale.
Hamburg was a pioneer in this and Zurich is a famous case of a regional Verkehrsverbund. In the Zurich case it coordinates many public sector operators and treats them more or less as contracted out private sector operators would be treated in other contexts. Other Public Transport Authorities coordinate private operators and some coordinate a mix of public and private operators.
Many of the best public transport systems in the world have public transport authorities doing the planning and delegating operations through contracts. The operators can be public-sector or private-sector operators, some of which may be private sector operators.
The trend towards establishing Public Transport Authorities seems to go hand-in-hand with the trend towards the 'proactive planning with service contracts' approach to public transport regulation.
Both trends allow public transport planning to be ambitious, strategic and highly coordinated.
This is NOT just about privatisation versus government operation. It is more interesting than that.
This edition of Reinventing Transport shares the key alternatives and gives a sense of what's at stake. The focus is buses but most of the ideas also apply more widely.
Click here to learn how to subscribe to the podcast.
You can either read the article below or listen to the podcast episode (use a podcast app or the player at the beginning of this article or click HERE).
This is just the basics, not a deep dive. If you want more gory details, then follow the links right at the end of the article.
It may seem dull but bus regulation is important! [1:29]
The regulatory framework sets how decisions get made and who makes those choices.It makes a huge difference for things you care about - things like coordination, service levels, how the goals are set, what goals are decided upon and how ambitious the bus system is going to be about serving excellent public transport in your city.
It is an amazing fact about bus systems that so many different industry structure/regulatory options are possible, ranging from public monopoly to complete deregulation and everything in between.
Public monopolies [2:08]
Let's start with an easy one: bus service run by some kind of state-owned entity, such as a state-owned enterprise or municipal bus operator.This is common in the United States, in India, China and various other countries. It used to be more common in Western Europe and Australia than it is now.
"Privatisation" is so vague it is meaningless [2:52]
When people are proposing an alternative to public monopoly, they'll often talk in terms of privatisation. But you need to ask, what do they mean by that?In fact, there are many ways to organise a bus system that involve private sector operators. We will see four below.
So you need to ask which one they are proposing. It really matters. They're very different.
Deregulation [3:23]
Now let's look at the opposite extreme from public monopoly: deregulation.In simple terms, the idea here is open entry in the urban bus services industry. There is competition on the road. This is competition "in the market" not "for the market".
But there are variations. Some kinds of deregulation result in an extremely fragmented bus industry while others lead to less fragmentation.
Less fragmented versions are found in the UK outside London, New Zealand until a few years ago and some cities in Japan. In these cases, only established corporate bus operators entered the market in practice as a result of certain rules, such as a requirement to publish a timetable and how the licensing works.
The more fragmented versions of deregulation, seen in many other parts of the world (and in the western world in the past) are closer to complete open entry. The licencing regime is on a vehicle-by-vehicle basis rather than for companies. Even a one-vehicle business can join the industry. In many cases, the bus/minibus system has never been heavily regulated, so 'deregulation' is not quite the right word.
Metro Manila has thousands of tiny businesses, each running one or several 'jeepneys', with extremely light regulation. Several central Asian countries also have this kind of bus or minibus service as do many cities across Africa and parts of Latin America and Southeast Asia. There are different names all over the world. In Kenya, they're known as Matatus. In South Africa, they're known as Minibus Taxis.
An unregulated public transport system is certainly better than nothing but there are also well-known drawbacks. Service tends to crowd into the most lucrative most high-demand areas and the high-demand times and tends to neglect other times. There's often bad behaviour like racing.
Evaluations of the UK's bus deregulation tend to show lower costs per kilometre (compared with the previous public monopoly operations) but a deterioration of coordination and of total ridership.
Franchises [6:38]
The idea of franchises is to have a regulated monopoly in which the operator has some autonomy on planning the service. This can be on a route-by-route basis but is more commonly on a corridor-by-corridor basis or for whole areas or even whole cities (usually small cities in large countries).A government gives a private company a contract to run bus services. The operators are typically allowed to take some initiative. In other words, they can make changes to the lines, although usually after some permission-seeking process. The contracted operators usually have exclusive rights. But their fares are therefore regulated. Typically, the operators are taking the business risk - the revenue risk. They collect and keep the fares but if things go badly they lose money. This is called a net cost contract. Finally, there are usually service obligations. The government will say to the operators, okay, you must run a certain amount of service. That's the deal.
They can provide decent but not ambitious public transport. Operators that are taking the revenue risk are usually risk averse.
They can be quite a good option so long as the government pays some attention and takes those service obligations seriously, and puts the contract up for tender every now and then, or at least has the threat of that if the operation is going badly.
'Passive' franchises tend to deteriorate [8:51]
Franchises go wrong when governments don't pay much attention and don't take the service obligations very seriously. I call this the "passive franchise" situation.Singapore between 1935 and 1974 is an example. It had corridor-by-corridor bus franchises but didn't monitor the service obligations seriously. But by the 1960s, as fares fell behind costs, and as competition from cars and motorcycles increased, there was a downward spiral. Yet the government was reluctant to agree to fare increases. How could they when service was becoming horrible?
There are many similar stories. A famous Harvard Kennedy School of Government case study tells the Sri Lanka version. Kenneth Gwilliam also wrote about the Jamaica case.
Extremely 'passive' franchises resemble deregulation! [11:08]
In extreme cases, a neglected passive franchise situation can morph into deregulation (or near enough). Bogota, before some recent reforms, had private sector buses that were under franchises - on paper. But in reality, the companies with route licences didn't actually own or run any buses. They just subcontracted to individual bus crews for a fee. The resulting service was almost the same as what you would expect with deregulation. Similar things have happened in various Latin American cities, such as in Santiago de Chile in the 1970s.
Well-regulated franchises can work well for decades [12:23]
Most descriptions of bus regulatory options lump franchises together in one category (also called 'authorisation regimes'). But I think it is important to distinguish between 'well-regulated franchises' and 'passive franchises' above. We have seen that passive franchises tend to deteriorate. But well-regulated franchises can work well for many decades.Franchises worked well in Singapore from about 1974 until recently (although Singapore never used the term, 'franchise').
Hong Kong is a good example of well-regulated bus franchises. There are several companies that operate buses, and they have 10 year contracts. So there's competitive tendering at the end of those contracts. And each company serves a set of routes, but they have some autonomy to modify them. They have to submit a five year forward planning programme each year with proposals for service improvements and/or rationalisation and there's some negotiation with with government on those changes. The government strictly enforces service obligations to make sure the operators provide decent service. But the companies are taking the revenue risk. The money stays with the companies and they are the ones taking the business risk.
Many cities converged on the "proactive planning with service contracts" option [13:17]
In recent years, Singapore has followed an international trend by shifting to an option in which a transport authority does detail bus planning but with the actual running of services done by private operators under contracts.I call this arrangement 'proactive planning with service contracts'. There's a Public Transport Authority that plans all the services - sometimes even the schedules. Doing so requires some institutional capacity, of course. The services are procured from the private sector (usually through competitive tenders). The public sector authority now takes most of the revenue risk. They are gross cost contracts (or variations on them) in which bus operators are paid (mainly) for bus kilometres not passengers.
In places like Scandinavia, in London, in Australia, this situation has usually been reached via 'privatisation' of formerly state-run systems. It was the addition of contracting out (usually with competitive tendering) on a publicly-planned system.
Other cases have reached this point from the opposite direction. It was in increase in government responsibility for the outcomes. That was true for Singapore. Also for Bogota and several other Colombian cities that have been shifting to this kind of arrangement. The bus system in Moscow, Russia, is another example.
Auckland in New Zealand is an example of a western-world city that jumped from a deregulated bus system (akin to the UK arrangement outside of London) to this kind of proactive planning by a government authority with competitive tendering with service contracts.
Contrasting levels of government responsibility and varying implications for competition and for coordination [17:44]
The options in this framework are arranged according to how much responsibility the relevant government takes for the bus system outcomes.With deregulated bus systems, the government takes little or no responsibility for the outcomes. Then with passive franchises the government took a little more responsibility, but not enough to make sure that things went well. In well-regulated franchises, government was taking even more responsibility by keeping an eye on things but the private sector operators were the ones to take the initiative on changes. In proactive planning with service contracts, government takes responsibility for the planning of the system and the scheduling of the system but private sector operates the actual services. And finally, in a public monopoly arrangement, the government is presumably taking all of the responsibility for the system.
Compatibility of these arrangements with strong coordination (or integration) varies in a similar way. Deregulation and the passive franchises are not really compatible with strong coordination. In well regulated franchises, coordination can be better. But if you really want really ambitious coordination of your public transport system, government probably has to take even more responsibility.
The potential for competition varies in both degree and in kind. Deregulation has competition in the market, which creates some problems in many ways. Public monopoly has little or no scope for competition. The options in between have the potential for competition for the market.
Terminology [19:43]
I've been using some names for these options that are not universal and UITP, the International Union of Public Transport, has different names for the same things.Deregulation they call 'open entry market'. The franchise options they call 'authorization regimes', What I call proactive planning with service contracts they call 'delegated management'. And public monopoly they call 'direct management'.
Regional integration and Public Transport Authorities [20:19]
This is a slightly different but closely related issue.Even with public-sector public transport operators, we often see uncoordinated fragmented sets of operators across a region. The San Francisco Bay region is an example.
So an important trend, that started in Germany and has spread throughout Europe, is for the creation of transit authorities or public transport authorities (in Germany they are called Verkehrsverbund or 'Transport Association') that coordinate at a regional scale.
Hamburg was a pioneer in this and Zurich is a famous case of a regional Verkehrsverbund. In the Zurich case it coordinates many public sector operators and treats them more or less as contracted out private sector operators would be treated in other contexts. Other Public Transport Authorities coordinate private operators and some coordinate a mix of public and private operators.
The trend towards establishing Public Transport Authorities seems to go hand-in-hand with the trend towards the 'proactive planning with service contracts' approach to public transport regulation.
Both trends allow public transport planning to be ambitious, strategic and highly coordinated.
Will these be lasting and successful trends? Time will tell.
How can they improve reliability, comprehensiveness and coordination without undermining the existing strengths of those systems and without harming the people involved? The bus crews are often in precarious socio-economic situations and are vulnerable to having their businesses disrupted.
I am keen to learn more about the options available.
This article was prepared with the help of a transcription by https://otter.ai
My (slightly out-of-date now) paper reviewing these trends: "Public planning with business delivery of excellent urban public transport" (pdf)
GIZ's iNUA Implementation Guide on Transit Alliances (pdf)
"Driving change: reforming urban bus services" (pdf) by EBRD in partnership with UITP and GIZ.
"The Thredbo story: A journey of competition and ownership in land passenger transport" by Yale Wong and David Hensher.
Where next for cities with unregulated/deregulated public transport? [24:11]
Another big question: what next for cities with unregulated bus or minibus systems like Manila's or those in African cities?How can they improve reliability, comprehensiveness and coordination without undermining the existing strengths of those systems and without harming the people involved? The bus crews are often in precarious socio-economic situations and are vulnerable to having their businesses disrupted.
I am keen to learn more about the options available.
This article was prepared with the help of a transcription by https://otter.ai
Extra Reading
As I said at the beginning, this was not a very deep dive. So, if you want a deeper understanding you will need to read more. Here are some pointers:My (slightly out-of-date now) paper reviewing these trends: "Public planning with business delivery of excellent urban public transport" (pdf)
GIZ's iNUA Implementation Guide on Transit Alliances (pdf)
"Driving change: reforming urban bus services" (pdf) by EBRD in partnership with UITP and GIZ.
"The Thredbo story: A journey of competition and ownership in land passenger transport" by Yale Wong and David Hensher.
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Thank you for creating this informational blog. It has included the growth of public transport amazingly. As a bus transport provider in Singapore, we enjoyed this blog.
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