Tuesday, July 13, 2010

Markets and Transportation

"Let us first turn to other sectors of the economy to which the "straight" market criteria do not apply without very considerable modification. Transportation is a case in point. Thus most of the world recognizes that urban transit benefits those who do not use it (e.g. by reducing congestion and increasing property values), and that it should be provided by a public authority, with a sizable subsidy to cover inevitable losses. Even in Reagan's United States, docks, airports, and rapid-transit systems remained publicly owned. Involved here are external economies (time-saving, convenience) and diseconomies (congestion, pollution) and also elements of system, of network, which render the conventional neoclassical marginal-cost and marginal-profitability analysis both misleading and irrelevant, and the public-service aspect of high importance. Of course, in making decisions one should always compare costs and results, but one can do so only in the context of network, on the one hand, and the purpose of the activity on the other." - Alec Nove, "Central Planning in Capitalism and Socialism"
This last sentence is crucial. This is the antidote for those who confusedly lament the "inefficiencies" of public institutions like urban transportation and extol the alleged virtues of profit-driven markets. First of all, marginal-cost/marginal-profitability analysis is basically useless here and distorts matters considerably. Secondly, asking that public transit be run "like a business" evinces a deep misunderstanding of the function of public transportation.

This is the crux of the issue. To demand that public transit networks "turn a profit" is to misunderstand what a public transit system is.

What, then, is the function of urban public transit? Quite obviously, it is to most effectively facilitate movement of everyone, on a city-wide systemic basis, in a way that is sustainable, comprehensive, egalitarian, efficient, organized, and user-friendly in the broadest sense. It is decidedly not to exploit certain needs that are profitable while ignoring those that aren't, which is precisely what for-profit transportation does. For example: if you're a capitalist, why invest in means of transportation for, say, poor pensioners who are not a good source of profits? Why not just ignore them completely and focus on markets where there is "effective demand" and the potential for hefty returns? This is, incidentally, what happens with health insurance when it is fully commodified: the poor and sick are left by the wayside whereas private insurers "cherry pick" the wealthy and healthy patients that will better aid the company in maximizing profits.

Now, obviously, rejecting neoclassical marginal analysis here doesn't mean that there isn't some cost/benefit analysis to be undertaken at the system-level by a public transit authority regarding how to allocate funds, service, etc. But this analysis will not look much like the rent-seeking behavior of capitalist investors, first and foremost because the relevant benefit here is not "profit" for the transportation authority, but the extent to which the public transit network fulfills its function well. We need to know what the relevant good is that we're trying to maximize before we can begin an analysis of what an optimal public transit system would consist in. Assuming the metric of cash returns on a balance sheet in the ways that capitalist firms do here is to completely miss the issue at hand (yet, this is precisely what neoclassical economic theory does: it elevates the tendentious, narrow logic of the capitalist firm to a universal and quasi-natural status).

A good transportation system is not one that runs a surplus every year. A good transportation system is one that fulfills its function well. Making efficient use of resources is of course of value, but of purely instrumental value. Contrary to the dogmas of deficit-hawks and those who fetishize balanced budgets, a "cheap" but anemic transit system is not a good one.

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