Wednesday, August 09, 2006

Us vs. TheBus

Stuart K. Hayashi

This is a revised version of an op-ed I wrote that originally appeared in Hawaii Reporter on September 17, 2003.

Back in September 2003, Honolulu's residents were quite upset when the city's bus drivers went on strike.

Why was that such a big deal? Because Honolulu only has one bus company, the city government-owned Oahu Transit Services, Inc. (OTS), and, consequently, only one brand of city bus services, known simply as "TheBus" (a company doesn't need a fancy brand name for its service when it's the only game in town).

The strike would have been easier for people to cope with had the city had a competing bus service, say, "Better Bus," that tried to win the business of Honolulu's resdients by charging them for tickets than OTS does.

But it would be illegal for anyone to start a firm like "Better Bus" in Honolulu. One cannot start a private bus company to compete against the government's "TheBus," and, even if one could, TheBus's subsidies from the government would give it an unfair advantage.

This problem began in the 1940s. Back then, Honolulu had two major bus companies, with competition from transportation services using smaller vehicles called "jitney buses." Then the head of one of those major bus corporations, the late Harry Weinberg, convinced Hawaii's Public Utility Commission (PUC) that this cutthroat, dog-eat-dog competition was madness.

Invoking "the public good," Weinberg persuaded the PUC to grant his own organization, Hawaii Rapid Transit, Ltd. (HRT), a regulated monopoly through prohibiting any company from directly competing against it.

The PUC, which actually had the authority to make laws because the Legislature gave it that power, agreed. It forced jitneys off the street. (Tour bus companies like Robert's Hawaii never provided direct competition to TheBus; they only go to tourist destinations.)

Since HRT had no true competition, its service was terrible, and it treated its drivers shoddily (they had no competing bus service to defect to), causing strikes like the one we have now.

In 1971, Honolulu's then-Mayor Frank Fasi purchased HRT from Weinberg and converted it into today's government-owned corporation: OTS. The laws against competition remained.

Many people believed TheBus's tickets were cheaper than HRT's because the TheBus's were cheaper "up front" (i.e., "at the door"). They failed to notice that what really paid for TheBus's operations came out of their skyrocketing taxes. When factoring taxes into the price, TheBus's services were actually more expensive.

If TheBus were privatized and competition re-legalized, prospects would improve. Strikes would be less frequent because, if drivers were dissatisfied with pay at one company like TheBus, our hypothetical "Better Bus" could lure away TheBus's best drivers by offering superior compensation. And if drivers for one company did go on strike, at least you could catch a ride on the competitor's vehicles.

Plus, only people who actually ride buses would have to pay for their services, which is fairer than taxing non-riders (if poorer people cannot afford tickets, then private charity can help).

But what if competing bus firms made arrangements with one another to charge the same high price for tickets?

After all, many leftists often snidely remind us that even Adam Smith wrote in Book I, Chapter 10, Paragraph 82 of The Wealth of Nations,

People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.

Leftists' recitations of that Smith quotation are ridiculous on multiple levels. First, there is no reason why anyone -- free-market advocate or not -- should accept an assertion as truth just because Smith said.

Secondly, those who cite that Smith quotation take it out of context when they use it to imply that Smith advocated the existence of antitrust law. Such was the case when, following his quotation of Smith, the late journalist Robert M. Rees said that free-market proponents "must be thankful for the antitrust and other legislation that keeps laissez-faire capitalism under control."

Actually, in the sentence following the aforementioned quotation (still Bk. I, Ch. 10, Para. 82), Smith says that it would be immoral for the government to pass any laws forbidding businesses from colluding on prices.

Then, in subsequent sentences, Smith attributes the existence of monopolies and cartels primarily to government regulations forbidding competition -- not unlike the PUC regulations forbidding competition against OTS's TheBus in Honolulu.

Finally, contrary to political cliches like Mr. Rees's, collusion has been historically unprofitable in the long term insofar as capitalism has remain unrestrained. John D. Rockefeller, Sr.'s Standard Oil proves it.

Myth: "Unencumbered markets gave Rockefeller an exploitative monopoly until regulators stopped him."

Reality: In the years before Standard's government-imposed breakup in 1911, it already competed against eight gigantic oil-refining corporations and a total of 147 refining firms. Its 90 percent market share from 1880 dropped to 64 percent by 1907.

Standard actually drove prices down. When Standard incorporated in 1870, kerosene cost consumers 30 cents/gallon; it cost 6 cents/gallon by 1897. In 2005 A.D. dollars, that's a price reduction from $4.61/gallon in 1870 to $1.41/gallon in 1897.

Why do I mention Standard Oil? Because Rockefeller occasionally tried to fix prices with competing oil refiners, but, every time that happened, greed tempted some "co-conspiring" firm to "cheat" and undersell the "price-fixers," restarting competitive pricing. The same happened when the U.S. steel industry tried collusion in 1907.

And, if free-market competition were restored for Honolulu's bus industry and its members then attempted collusion, the same would likely occur.

Thus, it would be optimal to privatize TheBus and re-legalize direct competition -- with no government subsidies allowed.

That wouldn't strongly threaten jobs either; a private bus company could save money by hiring experienced bus drivers instead of paying for the training of new ones, so a private company would likely rehire the government bus drivers now on strike.

In the end, privatization would allow all of us -- bus drivers and passengers alike -- to triumphantly ride off into the sunset.

Related articles by Stuart K. Hayashi:

"Privatized Systems, Public Benefits"

"'Natural Monopoly,' or Your Economics Teacher Doesn't Know What He's Talking About"

Recommended links:

"It's Time to Rethink TheBus" by Cliff Slater, Reason Foundation representative

"Bring Back Bus Competition" by Cliff Slater

"Monopoly" by Dominick T. Armentano,Ph.D.

"The Ghost of John D. Rockefeller" by Thomas J. DiLorenzo, Ph.D.

"Antitrust's Greatest Hits" by David B. Kopel, Esq., and Joseph L. Bast

"Abolish Antitrust!" by Edwin A. Locke, Ph.D.

This essay is Copyright (C) 2003, 2006 Stuart K. Hayashi, and may not be reproduced in any form without his expressed written consent.