by D. L. Muni)) ,
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Reader in the Economies and Organization of Transport, Nuffield College, Oxford
THERE has been little public criticism of the 1930 Road Traffic Act and the rigid licensing system it created for passenger services. This is partly accidental, and partly due to the extraordinary way in which the Thesiger Committee argued its case in its report in 1953. It managed to combine the narrowest possible interpretation of its terms of reference, which precluded "proposals involving more than changes in the licensing system," with at the same time a general assumption throughout its arguments that the system is the best possible in the best of worlds.
This general mythology has become so accepted in the transport world that it is, perhaps, worth while asking some radical questions which might provoke a better justification of the system, if one can be found, than has been offered hitherto.
I am concerned here with the normal stage carriage services. In general terms, every service is licensed by the Traffic Commissioners, who fix fares and most other conditions of travel. The public has to accept a publicly created series of monopoly services, against which it can agitate and appeal in the Traffic Commissioners' courts. But it cannot exert normal commercial pressure on the companies, except by not travelling at all.
It is sometimes argued that passenger transport is so peculiar, and unlike other industries, that special treatment is necessary. In some respects this is true, but this requires careful analysis.
First let us compare passenger transport with retailing. In both cases, the service has to be provided first before the public can buy its products. The provider of the service has to set up his proposed layout of service before he can get the public to pay a single penny. He cannot, like some manufacturers, obtain orders before production starts, or sell on the basis of prototypes. Both the retail shopkeeper and the transport operator must provide the service beforehand. There is no difference here. I will come to the differences later.
The equivalent of the passenger licensing system in the field of shopkeeping would be public licensing of every cl 0 shop, competitors having to justify their presence in term of "need." Further, there would be public control o retail margins, so that no one could undercut his competito in the same business.
The proposal sounds monstrous. Why is it wrong ii one field and right in another similar one?
It is to be noted that collective resale price maintenance i.e., fixed retail margins, has been made illegal by ail Restrictive Trade Practices Act of 1956, and the Monopolie Court has ruled against many similar collective price-fixinj systems. There is, of course, a great difference between price-control system created by an industry (which may b. supposed to set its prices above those that are either neces sary on economic grounds, or desirable in terms of th4 public interest) and public price control such as
exercised by the Traffic Commissioners. But there an similarities, and some equivalent economic consequences If services are licensed and prices controlled, variou. undesirable consequences tend to follow: (a) The whole industry develops in a rigid form, whict encourages certain forms of very efficient operation, bu discourages new ideas arid.new forms of operation.
(b) A higher standard of service tends to be providec than the public may want. Thus resale price maintenanct discourages self-service shops and encourages shops tc offer free delivery services and credit facilities.
(c) Organizationally, the industry tends to develc/ monopolistically in the sense that large firms grow al the expense of small ones. This encourages the first twc tendencies. Large monopolistic firms of this kind arc very efficient in some directions, but lethargic in others They provide high standards of service, which may not be economically desirable. Further, they find themselve5 in a position of having to offer good conditions of service to their employees involving rigid patterns of work which make it difficult to serve the public adequately.
Cannot one see some of these factors at work in the bus field? Has not the licensing system tended to fix a certain pattern of bus services? Costs are cut to the bone. But is there enough experiment with new types of vehicle and new forms of operation? The rigid system of licensing makes it difficult to combine local freight and parcels services with local bus services, when this would be one obvious way of meeting the needs of small villages. The Jack Committee, which was not very critical of the licensing system, admitted that it "might sometimes be a deterrent " to have to appear at a public hearing.
The rigidity is defended on the grounds of a high standard of service. We can, indeed, be proud of having a standard of comfort and convenience in our buses probably achieved by no other country. But do we always want it? The villager threatened with the loss of his one public transport link with the outer world might well prefer a wooden bench in an uncomfortable station-wagon to the sight of a fine two-decker passing one or two miles away on a main road. Similarly, those who have to wait for 20 minutes for a bus to take them to work from the suburbs because of all the difficulties of city operation at the peak hour, might well prefer a standing-only bus which could be relied upon to be there on time.
Some of this is again tied up with the rigid conditions of work in the bus industry, which is indeed understandable in the case of workers whose pay has been kept down by the pressure of price control. But the ever-worsening problem of the peak requires some attempt to break through these rigidities. One way is to encourage parttime operation by small men to meet the needs of the journey-to-work. This does not happen enough with the present licensing system.
Furthermore, the remarkable achievement of keeping fares on bus services more or less stable between 1938 and 1950 may have been partly responsible for the problems since 1950. Cost increases forced fares up just when the flood of cars began to come on the market. Since 1954, bus fares have gone up faster than private motoring costs. By delaying the impact of the increases, price control may have made the position worse in the long run. In the 'forties people began to expect public transport to be absurdly cheap; they reacted later.
But public transport is different from other services in two respects:—
(1) The public requires a schedule of services. The pre-1930 conditions, which are often used to justify all the paraphernalia of the present system, did not provide for this. In the words of the Thesiger Committee. **licensing was by vehicles and not by services. If a vehicle was licensed to ply for hire in a particular area it was entitled to ply for hire, anywhere in that area without' restriction as to time, place, or fares." This was clearly intolerable, but it does not require our present system to avoid this sort of chaos. (2) The public also wants a schedule of fares which shall only be altered after some notice. It is nix 'clear that the notice need be very long.
These needs could be met by a simple system whereby licences were given on demand to anyone intending to run a service or set of services, and guaranteeing to continue them for some period, say six months. A schedule of fares would also have to be published and changes notified in advance. To ensure that services would be maintained for the given period, some form of financial guarantee would no doubt be required. I assume also that vehicles and drivers are properly licensed, so that conditions of safety are assured.
These proposals would eliminate the fly-by-night operator, the "pirate bus" that makes its appearance on a regular service route when it knows that there is a special match at the local football ground, and all the other sillinesses that occurred in the 'twenties. The question is whether anything more is required. Will not competition ensure that services which the public need are properly provided?
There are three arguments justifying further control, one bad, one good, and one disputable.
(1) The bad argument is that put forward by the Thesiger Committee that "The restriction of free competition brought about by the licensing system . . . by producing fuller loads, enabled increases in fares to be kept at a lower level than would otherwise have been necessary." This is an argument which might be used in the licensing of shops and in many other fields of commerce and industry. It implies that businessmen in the transport industry are peculiarly foolish in appraising prospects, and will try to set up business when the only result will be to raise costs and reduce the numbers travelling in each bus. Are transport operators so foolish?
(2) The good argument is that, in certain areas.
monopoly conditions might arise which would raise fares above what they would be today and under circumstances where no other entrant would appear. This is a good argument, but of very limited validit■. There is always today the competition from the flexible fares structure possible on the railways, and the more serious competition from the private car. To meet this difficulty the licensing authority might need a residual power to control fares, but one which would hardly need to be often exercised.
(3) The disputable argument is the one on which the whole licensing system hinges; that is to say, the possibility of cross-subsidization. I am not convinced that the system Of cross-subsidization is desirable, or in the interests of the travelling public, particularly when it requires a whole paraphernalia of restriction to enforce.
There is an argument for it, but it is very dubious. It is to be noted that public opinion is moving against it in many other fields.
But in any case the system has been struck a mortal blow by the Jack Committee's report. If rural services cannot be maintained by cross-subsidization, and require a special subsidy.,(which has the great merit of putting the cost firmly and openly before the public, who has to bear it), then subsidy will surely drive out cross-subsidization.
The industry, will be forced to look more closely at its costs, and at what is really " unremunerative." To call a service whose receipts are below average costs " unremunerative," as is the standard practice, is neither good economics nor good business. Many " unremunerative services in this sense will be commercially paying propositions; many " remunerative " services will. make commercial nonsense. When subsidization is introduced, the commercial criterion of the " unremunerative " will have to come in, and we will begin to see what element of real cross-sUbsidization. is involved in present practice.
In any case, the Jack Committee has implicitly under mined the Whole system of passenger licensing. We need to think again how much licensing is really necessary. Many of the arguments of the Thesiger and Jack Committees merely show that it does little harm. If it does little harm, by the same token it equally does little good.
What cannot be accepted as true to:day is the comment of the Thesiger Committee that "The remedy for the problems, of 1930 has proved to _be the basis for continued control of road passenger services and its principles are generally accepted a being no less valid in present con ditions than they were in 1930." The 1930s are .a Joni
way off. Even 1953 is some time ago. . .
The railways now have commercial freedom, the cal . . . .
menaces all forms of„public .transport, and the industr) faces new patterns of .travel -which tend to_ raise public transport costs and narrow • its .market within the framework of a generally expanding economy.. Is the presen1 rigid form. of -licensing really likely to help the industry tc meet the problems of the '60s? At the very least, the matter merits discussion.
This may be too. strong meat for many. Let me finally suggest a more simple reform which would not undermine the whole system but which seems badly needed.
Rigid fares, I have suggested, 'create problems which are not always immediately obvious. They have produced intolerable burdens on operators in the delay in fare charges in periods of rising costs. They. are on the way out on the railways. The whole transport world is more competitive.
Need the rigid control of fares remain as it is, even if licensing in general is not changed?
Operators,could have the right to put up fares in advance of approval when costs increase. But even this leaves the pattern pretty rigid. A system of maximum fares (like the present system for the railways, though even this is on the way out) with control of profits (as at present) could well achieve all that is needed.
More freedom for fares might mean less bickering with passengers' associations, and more real responsiveness to passengers' interests.
It might even improve services. If further, might we not go this far? we are. to go no