The announcement some weeks ago by the Brumby government that the Hong Kong-based company MTR would take over the running of Melbourne's train network from Connex in December sent shivers down my spine. Not because Connex have done a stellar job running the network (far from it) but because after years of of overseeing a deteriorating public transport system, the Government still hasn't grasped one incontrovertible fact: in Melbourne, private sector involvement in public transport doesn't work.
As anyone who tried in vain to get home from Oaks Day last year will testify, the latest experiment in private operation via Connex has been an unmitigated disaster. While it might seem premature to say this, I can confidently predict that MTR's time in charge will yield a similar result. Some within the government may realise this, however in the mad rush to save money by privatising all essential services, it is clear that the Government has no political will to do what is patently the right thing and take back control of the system themselves. Which, for commuters, means several more years of misery and for Lynne Kosky the Transport Minister, means a level of job security roughly equal to that of a Richmond Football Club coach.
The reasons why the privatisation of the network has not worked are many and varied. However the root cause is common to most other failed privatisations both locally and internationally - money. Simply put, Melbourne's public transport network has never been profitable and barring an astronomical and politically-impossible increase in fares, it never will be. And that's a brutal fact that MTR are about to find out and more than likely, react badly to.
It is a truism of the capitalist system that capital is, in the end, very efficient and ultimately flows to where it can generate the best returns. The global financial crisis and its aftermath have been a classic example of this. When stock markets around the world started turning turtle, investors fled their share investments in droves and adopted a "safety first" approach to their money by investing in cash or government bonds. Now, however, the global economy is stabilising and cash-based investments are offering a less than stellar 2-3% return on cash products, investors are now re-entering a stock market which is rebounding strongly off its lows.
Investment in assets like power utilities or transport networks is no different. Any company which comes in and buys a used public transport system from the Government is doing so in order to make a reasonable profit having regard to the nature of the business they are engaging in. If in time they don't make that profit, then watch out if you are a customer of that company. Things that cost money like maintenance get severely cut, service standards plummet but at the same time things that are seen to protect or grow revenue proliferate. Putting hordes of neanderthal ticket inspectors at Flinders Street and embarking on cheesy, annoying marketing campaigns are just two examples. Of course, running things like this is unsustainable in the long term and has doubtless contributed to the Government's decision to give Connex the boot. The issue now is, will life under MTR be any different? Unless MTR want to behave like a charity or have thought of some magic money-making formula that lots of other clever people have failed to come up with, then the only logical answer is "no". As MTR is about to find out, Melbourne is a very different city to Hong Kong.
The problem that transport operators face with Melbourne that they don't have to deal with in cities like Hong Kong or London is that it has a relatively low population spread out over a very large area. Running a large network with fewer commuters per square kilometre of the area covered represents a much harder revenue proposition than a network like London's Underground. Furthermore, relative to the cost of catching public transport, driving a car and parking in the City is not too expensive. A CBD carspace can cost as little as $200 per month as opposed to a monthly train pass of $110. There have been train trips I have endured when, wedged in the middle of a cluster of people who clearly don't see the value of deoderant, I have given serious consideration to kissing Connex goodbye, paying the extra $90 per month and driving into town. In this context, the option of putting up fares to make running the network profitable is not an option for the operator based on market forces, even if the Government were to allow it politically.
Another big problem for an operator is that the network requires high levels of maintenance and capital investment. Each train undertakes a huge workload each day carrying hordes of passengers around, and it's unsurprising that trains break down frequently and require regular replacement. Throw in a few mindless acts of vandalism and stupidity from their more brain-dead customers and you can see what a financial drain just keeping the network going can be.
Finally, any essential services such as gas, water and transport which are privatised tend to be heavily regulated by governments, the reasons for which are readily understandable. Left to their own devices, private operators would service only the profitable inner-city routes and leave the uneconomic outer suburban suburbs without trains, trams and buses. It is therefore up to the government to ensure that the needs of all commuters are met as far as possible by imposing certain service obligations upon the operator. Unfortunately in Melbourne's case this has historically presented an insurmountable obstacle to an operator turning a profit and has resulted in the Government having to repeatedly throw more taxpayer money at the network so that basic service standards can be maintained.
The relative merits of essential services being publicly or privately owned can be argued until the cows come home, and there is no answer which neatly fits all circumstances. Each potential privatisation needs to be considered on its own merits and must balance the needs of both the operator and user of the particular service. There are numerous examples of privatisations around the world where the parties have got the balance between service standards and profit right and the privatisation has been an unqualified success. However, here the answer is equally clear. Melbourne's public transport system as a whole is chronically incapable of generating any profit, so why continue to stand by and watch the system get repeatedly run down by a succession of operators who can't get it to work? No one wins, from the government to the operator to the long-suffering commuters.
If the Government were to take back the network, it would probably need to raise state taxes in order to do so, something that is apostasy in this era of low-taxing, small governments. However, the alternative of not stepping is far worse for its constituents in the long run and so the Government should for once show some gumption and leadership and just do the right thing. Who knows? Actually investing some money is something tangible instead of paying it away to spin doctors and consultants might be a vote winner for the Government. As a long-suffering Frankston line passenger, I would certainly be impressed and my nostrils would be more than grateful.
In the meantime, MTR, I wish you good luck on your latest loss-making venture. God knows you are going to need it.
