Singapore’s Transport Market Distortions

28Jul06

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 was first posted on the Capitalist Infidel’s Blog

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