Consumer ignored in protectionist transport Bill

 

OPINION:We have to open up the bus market as we did in aviation – for the sake of passengers and of the taxpayer, writes SEÁN BARRETT

READERS ARE asked to imagine legislation to control the widgets industry. The Minister for Widgets introduces a Bill to ban 78 per cent of widget manufacturers from competing. The state widget subsidy for five years, worth an estimated €1 billion, is allocated without a tendering process to the state widget company. Surely public opinion, the exploited purchasers of widgets in this rigged market, the excluded new entrants from the widget industry and the competition authorities would combine against such legislation? Surely the courts would throw out such biased and anti-competitive legislation?

We have precisely this kind of legislation now before the Seanad, namely the Public Transport Regulation Bill, 2009. The Bill protects the CIÉ network and guarantees its subsidies through a “direct award contract” awarded “without a competitive tendering procedure”. Launched as “a completely new consumer-centred regime for bus operators”, the Bill is nothing of the sort. It is a highly protectionist measure.

In this case the Department of Transport operates as a downtown office of CIÉ. Twenty-five years ago it was the downtown office of the old Aer Lingus. Cross-party Dáil opposition stopped its legislation to imprison, fine heavily and withdraw the travel agent’s licence from those selling airline tickets too cheaply. The Aer Lingus then being defended by the department had a little over two million passengers. This year four Irish airlines in the deregulated market will carry almost 80 million passengers.

The current Bill moves against those who sell bus tickets too cheaply and do so without the massive subsidies which the Government pays CIÉ. The department has known since the 1970s that the independent bus companies charge lower fares. It knows that when competition is introduced on routes such as Dublin to Galway, Waterford, Belfast and Cork that fares fall and frequency increases. It knows these operators are not in the market for State subsidies. When the Dublin-Galway route was a CIÉ monopoly there was one bus a day in each direction. It went via Mullingar, not the direct route. Today there are three competing operators between Dublin and Galway operating 45 buses a day in each direction on a 24-hour timetable.

The department also knows the Dublin Bus fleet is 1,200 vehicles and that of Bus Éireann 700, and the total national fleet 8,500. That leaves 6,600 large public service vehicles owned by independent operators, ie 78 per cent of the national fleet. It must be a record for a government to bring in legislating discriminating against 78 per cent of any population. Ever since 1985 the Department of Transport has spewed out prejudice against independent bus companies such as that their buses are inferior and accident-prone, they fragment the system, their operations are unsustainable, they obstruct economic and social progress, their services are “patchy”, they charge higher fares, their competition leads to monopoly, they withdraw capacity at peak times, they crowd on to busy routes and increase the need for subsidies.

Much of this nonsense is repeated in the so-called “Screening Regulatory Impact Analysis” that accompanies the 2009 Bill. On the contrary, the evidence is that the new operators reduce fares, increase frequencies, improve services, operate higher standards of vehicles, add capacity, seek new routes, compete rather than collude and do not receive State subsidies.

Under existing legislation the very occasional minister for transport who is not a prisoner of that most economically backward of departments has discretion to issue licences. The late Séamus Brennan was a rare example of this independence of mind and freedom from regulatory capture.

Ten years ago this month the Aircoach service revolutionised bus services at Dublin airport. Hundreds of bus services now operate to and from the airport around the clock, to many destinations and without subsidies or investment grants. Can the authors of the department’s analysis have the good grace to admit that the Dublin airport service now is far superior to when it was a monopoly?

Ministerial discretion in the Bill transfers to the National Transport Authority (NTA), itself based on the Dublin Transport Authority. The latter body has no track record and its redesignation from a non-functioning body in the Dublin area to a national body is astonishing. The 2008 legislation establishing the Dublin Transport Authority most unwisely gave Dublin Bus and Bus Éireann exclusive network rights. When it becomes the NTA this mistake will be extended nationwide.

The OECD warned last year that Ireland already had over 600 quangos with much fragmentation. This quango has no track record and resembles its fellow quango of the class of 2009, namely Nama, now opposed by 50 economists including Nobel laureate Joe Stiglitz. The NTA is a Nama for CIÉ and no substitute for the independent discretion of any future Séamus Brennans.

Incumbents in any sector dislike new entrants. It is important that government departments such as the Department of Transport ignore such pressures. Giving in to regulatory capture by incumbents, as traditional at the Department of Transport, leads to a worse service for the public, higher prices, and ever-increasing demands for more subsidies and more protectionism.

The analysis accompanying the new transport Bill states that it has widespread support. “All government departments were consulted and had either no view or broadly welcomed the Bill.” The Competition Authority welcomed the Bill subject to “a number of minor amendments” in relation to the treatment of existing licences.

If the Competition Authority has approved a “direct award contract” of €1 billion over five years without competitive tendering that decision should be published. If the authority is concerned about the impacts on existing licences rather than on new market entrants this is also a serious matter. Prima facie, the authority has let down the consumer by being listed as a cheerleader for this Bill.

The Department of Finance is also a cheerleader. Why does the Department of Finance, as the guardian of the public purse, favour the massive subsidising of one bus company over all others? The Department of Finance, as custodian of the public purse, has failed to exercise due diligence in this matter.

The Department of Employment, Trade and Enterprise is also a supporter. This department’s quangos saturate the airwaves with pronouncements about the need for innovation, entrepreneurship, and competitiveness. The Bill is designed to kill all three of these in inland passenger transport.

We have to open up the bus market with competition both for the passngers’ fares and the taxpayers’ euro as we did in aviation. That Irish aviation model was emulated not just throughout the EU but worldwide.

If we want “a modern bus service that places consumer needs at its core” as the Minister admirably stated at the launch on September 8th, then he must park this Bill. After all, the department told the late Jim Mitchell exactly the same story about aviation in 1984 and he very wisely dropped that Bill.


Dr Seán Barrett is a senior lecturer in Trinity College Dublin

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