Mises Wire

Privatize the New York City Subway System

A recent surge in breakdowns, delays and overcrowding at New York’s subway system — in conjunction with a steady stream of rate hikes — has left many New Yorkers fuming and seeking answers.

By citing proximate causes like record-high ridership, the New York Times attempted to provide those answers in last month’s column (Why is Subway Service in New York Getting Worse? May 27, 2017).

But these problems have been plaguing the systems for decades — indicating that their continuance stems from the system’s underlying, structural flaws, not a one-time spike in ridership.

For public transit systems like New York’s Metropolitan Transportation Authority (MTA), those flaws manifest as a “recurrent theme of mispricing, misallocated funds, suboptimal service and investment and inflated production costs,” according to the Brookings Institution’s Clifford Winston.

The most glaring example of misallocated funds at the MTA is their outdated signal system — which directs subway cars and governs how many can safely be in use at the same.

Despite having spent more than $100 billion since the early 1980s on infrastructure upgrades, the MTA’s signal system still uses technology from the 1930s!

Obviously such antiquated infrastructure is going to malfunction, but that’s merely a symptom of a much larger and more fundamental problem: That there is no incentive for the MTA to get better.

Need more proof? How about the fact that MTA officials don’t expect to modernize their signal system for another 50 years!

Does anyone really believe that a Google or Microsoft would ever allow their transit systems to reach such a state or act so sluggishly in making critical upgrades? (Yes, both companies operate their own small-scale transit systems for employees.)

Such chronic neglect of critical infrastructure is a feature of government control, not a bug — a finding echoed in a recent study which found that infrastructure spending at the MTA was roughly 90 percent below the level of its private peers.

This is because of perverse political incentives that encourage spending on projects that produce short-term results over less glamorous, long-term alternatives like infrastructure repair.

Take MTA’s plan to purchase 10 percent larger subway cars, for example. Expediting the adoption of a modern signaling system would seem to be a much better use of those funds, but that is unlikely to generate the hullabaloo and political grandstanding that comes with the unveiling of a new fleet of (slightly larger) subway cars.

Likewise, “because any future cost savings will only decrease the subsidies they receive,” Winston argues that transit systems like the MTA have failed to “explore operating innovations that could improve its service and financial performance.”

While private transit systems have owners who directly profit from such innovations, no such incentive exists in the public realm. So while there has been widespread adoption of technological innovations in transit systems overseas — the vast majority of which are privatized or deregulated — the MTA, and most US public transit systems, remain mired in stagnation.

But public transit doesn’t just underspend on key areas like infrastructure and technology, it also wildly overspends on production costs, which Winston blames on “ballooning bureaucracies and strong labor protections.”

At the MTA, these inflated production costs take the form of enormously generous pension and health benefits and a federal mandate that displaced workers be paid up to six years’ worth of salary and benefits upon termination.

A common argument against privatization — that typically occurs outside of academia — claims that allowing a private firm to operate a transit system would lead to monopolistic abuses.

But this view overlooks the much broader nature of transportation. The New York subway system must compete against automobiles, buses, trains, ridesharing services and even simply walking or bicycling. Thus, while a private firm would be the only subway in town, they would still have to compete in order to win customers’ patronage. 

After reminding us that all of American transportation was originally provided, operated and maintained by the private sector, Winston argues that the “overwhelming evidence of government failure” calls for a return to privatization, which would likely “reduce costs, improve service quality and accelerate technological change.”

And as privatization has become “almost the norm across the world” that is precisely what has happened — according to an Organisation for Economic Cooperation and Development (OECD) analysis, which reported that the “majority of empirical studies” found privatization reduced costs while increasing efficiency.

A few weeks ago, the Times reported that the MTA was struggling to balance the demands of increased ridership alongside the daily upkeep of exhaust fans — seemingly to support the argument encapsulated by the sub-heading: “When $100 billion isn’t enough.”

But where some see a sympathetic tale of woe that justifies more subsidies, others see a total and complete failure of a government agency to perform its most basic tasks at every turn. After all, aren’t these precisely the things a subway system is supposed to do in exchange for the hundreds of billions of dollars in subsidies and fares they receive?

At what point do we accept the plain truth staring us in the face?

“Increases in transit subsidies encourage inefficiencies to flourish and productivity to decline,” Winston wrote in summation of the vast academic literature on the subject.

Robert Fellner is the director of transparency research at the Nevada Policy Research Institute.

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