Larry Solomon
The National Post
February 6, 1999

Following global trend to privatization could produce big dividends

Here’s the deal. In exchange for some Toronto Transit Commission assets, Mayor Mel Lastman and Toronto’s 56 councillors receive a lump-sum payment of $500-million to spend buying snow-clearing equipment, housing the homeless, promoting the arts, or any way they say.

Plus, Toronto taxpayers save the $150 million now required annually to subsidize public transit – enough to let Mr. Lastman honour his election pledge and freeze property taxes for the 44% of Toronto homeowners who otherwise face increases averaging $700 over the next five years under the city’s new current value assessment.

And, public transit users – whose fares soared 80% amid service cuts over the last decade – get guaranteed fare freezes, guaranteed increases in frequency and kilometres logged, and a guarantee of no further loss of routes over the next decade.

These godsends could come courtesy of London, England-based GB Railroads, a firm started by two Canadians, which now owns railways serving commuters in London and several Australian cities. “We’d love to be the winning bidder in a TTC privatization,” says former Torontonian Michael Schabas, a founder and director, who has been bidding to operate commuter railways, subways and streetcar systems in several countries. Or the godsends could come from dozens of other transportation companies, including airline tycoon Richard Branson’s Virgin Rail group and the U.K. transit powerhouse Stagecoach, two big players in the emerging world-wide trend toward transit privatization.

The renaissance in public transit, which began in the U.K. in the 1980s, was entirely unintended. U.K. Prime Minister Margaret Thatcher, determined that nothing obstruct the advance of “the great car economy,” set about destroying public ownership of U.K. transit systems by squeezing their subsidies and promoting their privatization. Today, the privatization is largely complete, and 85% of public transit routes operate without subsidy.

But instead of helping the automobile, removing public transit subsidies reversed the fortunes of transit, which had been losing customers for decades in the U.K. as in North America.

Transit’s U-turn is a traffic stopper: In the two decades prior to Ms. Thatcher’s rise to power, passenger rides in London plummeted by over one-third. In the two decades since, they’ve soared by more than one-third. Ms. Thatcher’s desires notwithstanding, it is the advance of the car economy that has stalled. In the 1990’s, the almost unimaginable occurred – growth in the U.K.’s car use sputtered and, in mid-1998, came to a full stop.

To get people out of their cars and into public transit vehicles, transit companies are going that extra mile. They’re running more buses more often – 10 years after deregulation, London buses logged 30% more kilometres at 41% lower cost – making public transit reliable and convenient. On busy rush-hour routes, the average wait has become 1.5 minutes; elsewhere, the wait averages 6.6 minutes. Buses have become smart looking, bus drivers have become courteous, bus routes now venture into once-neglected areas, bus fares have dropped relative to inflation and bus passengers have given transit a second look. To capture the growing market of elderly and disabled passengers, 90% of new buses sport senior-friendly features. The car is in no danger of disappearing from city streets, but the more unbridled competition sets the rules of the road – and London still has a long way to go – the less the automobile will rule.

Once the U.K. results sunk in, cities around the world took action. Stockholm, which cut subsidies and turned to competition in 1993, saw costs drop 20% and service increase 13%. Helsinki’s operating costs dropped 33% while ridership rose. Rio de Janeiro’s subway and commuter rail systems – on the verge of collapse before privatization in 1993 – have more than doubled their ridership while losing most (and in the case of one company, all) of their subsidies. Melbourne – after deregulating its bus system – is now selling its subway, streetcars and commuter rail.

In most privatizations, city-wide transit monopolies are broken up into separate businesses that have an incentive both to compete for passengers and to cooperate in making transit their preferred choice. In Melbourne, streetcar lines, though divided into two separate networks, will sometimes share tracks. And although Melbourne’s subways, commuter rail and streetcars are being sold to different buyers, passengers will seamlessly move from one to the other via common tickets, free transfers and a city-wide transit pass.

While transit systems around the world are modernizing, invigorated by the challenge of serving ever-growing numbers of passengers, the TTC is bracing itself for another exodus. Its workers, who have shown no reluctance to strike in the past, are bitter about their average remuneration of $29 per hour, up one-third from $21 a decade earlier. Fare increases to pay for wage hikes will lead many riders to desert the system, while a major strike – leading commuters to permanently change their travel patterns – could be fatal.

The $500 million the TTC could fetch is modest: It assumes privatizing only part of the system. A full privatization of the TTC system, including not just its vehicles but also its stations and the right-of-ways it uses, would fetch several billion dollars.

Cash aside, privatization would bring back the 60 million passenger trips per year lost over the past decade, entice people out of their private automobiles, relieve congestion, reduce pollution and let Toronto function efficiently.

“The TTC is one of the world’s premier transit assets. It should be winning more passengers every year through improved service and affordable fares,” concludes Mr. Schabas, who returns to Toronto regularly since moving to London in 1989. “Privatization would bring the investment and management freedom the TTC needs to grow.”

Competition improves safety

Before the London Underground faced competition, it pooh-poohed the public’s concerns about safety, citing statistics showing the public’s fears to be exaggerated. Under threat of privatization, it changed its ways. As explained by a chastened London Underground in its official handbook:

“By the 1990s much of the Underground’s culture had stagnated for many decades. For example, the conditions of service governing most front-line staff had been unchanged since 1922. In response London Underground evolved its Company Plan, launched in November, 1991, to improve safety, quality and efficiency … The whole thrust of the changes was to focus all staff on meeting customer needs.”

The Underground stopped citing favourable statistics, admitted that crime had been steadily increasing, reaching a peak in 1987, and set to work. It hired security staff and made its existing staff more visible. To ease fear of crime for those travelling alone, refurbished train cars allow passengers to see into the next carriage. The Underground has also linked up with a mini-cab company willing to take passengers home from the subway line for a flat fee of £2.50 — 50 pence less than the normal charge for entering a cab.

As a result of the Underground’s new attitude, crime on the Underground has dropped by over 40%, contributing to its ability to reach an all-time peak in ridership.