The decision by the National Transport Authority (NTA) to franchise out 10 percent of Dublin Bus and Bus Eireann routes for private tendering, which could cause industrial disruption, signals the start of the race-to-the-bottom in the public transport sector.
One of the more interesting aspects is that the NTA did not model their proposals, did not produce a business impact-assessment, did not undertake a cost-benefit analysis to justify the need for, or benefits from for franchising. Now just think on that for a moment. If a private sector company decided it was going to franchise or outsource 10 percent of its business, there would be cost-benefit analyses and business –impact assessments all over the place – upsides, downsides, alternatives. Any senior management attempting to railroad such a franchise initiative through without such analyses would be clearing out their desks by noon.
What the NTA did do was commission Ernst & Young (E&Y) to provide an analysis. And in keeping with that time-honoured tradition of providing the conclusion that the commissioning agency desires, E&Y did not disappoint (just as they didn’t disappoint Anglo-Irish Bank). So what was E&Y’s main argument? That franchising delivers efficiencies and cost reductions. What did they base this on? One academic study.
The OECD’s Privatisation and Regulation of Urban Transit Systems which E&Y relied on is certainly a comprehensive study, gathering evidence from a range of countries that purport to show the efficiency of privatisation of public transport systems. The problem with this approach is that you can find academic studies producing a number of conflicting and contradictory conclusions over the same proposition.
For instance, the OECD study claimed that in Sweden between 1987 and 1993, following privatisation, total bus transport costs fell by 13 percent. However, a more recent study found there is no evidence that the Swedish model of competitive tendering has reduced costs. Rather, the cost per passenger trip increased well above the rate of inflation while efficiency levels fell by over 30 percent. This study was available to E&Y; they decided not to present this information.
Or how about this: a wide ranging international study of bus services covered 73 cities with different types of bus operators in Europe, North America, Latin America Asia and the Middle East. It found no significant difference in efficiency between public or private operators:
‘Statistical tests do not show any significance as regards relationship between efficiency and the type of operator….The efficient cities … are spread over different continents and public administration styles – Anglo-Saxon, Nordic and bureaucratic – and they are not concentrated in any specific type of operator.’
I could go on an on – but you get the point. Pull out an academic study that supports your preconceived position, claim this is what the ‘experts’ find, and ignore all other studies and experts who show something different – that approach hardly instils confidence.
Actually, E&Y gave the game away in a wonderful paragraph:
‘The key advantages associated with a move . . . to competitive tendering stem from elementary economic theory in relation to the effects of competitive pressures and market discipline. In essence, by putting the contract out to tender, market forces are brought to bear to reveal the most economically efficient provider, thereby leading to lower costs and – all things equal – a reduced requirement for subvention.’
There are two things here: first, is ‘elementary economic theory’. There you have it – ‘my ancient neo-classical economics professor said competition is best, so let’s privatise public transport – and ,hey, why not primary education . . . ‘ Never mind that this elementary economic theory is highly disputed – especially in public services; if you repeat it enough times you don’t have to bother with evidence or facts.
No wonder E&Y didn’t include the new wave sweeping through Europe – re-municipalisation of transport systems and public services in general. Local /regional governments – Germany, France, UK to name some – that had previously privatised their public transport are taking them into public control because of poor service and high fares. These places tried elementary economic theory – it didn’t work out.
But it’s the ‘reduce subvention’ argument that is the stunner.
‘A comparative analysis of subvention levels across Europe indicated that levels of public transport subvention vary between 35 and 60 percent of revenue. When all State interventions are taken into account, the level of subvention to Dublin Bus is at the upper end of the range.’
This is an outrageous assertion. The fact is that Dublin has a rock-bottom level of public subsidy.