A Strike, While the Iron is Hot, Pt. 2

Why our business model for the jeepney sector needs an overhaul.

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Last post, I discussed the reasons for wanting to modernize the physical machinery of jeepneys – the vehicles themselves. In this post we will talk about the thornier half of the modernization – the proposed move to a new economic and industrial model.

The reason I began with the reasons for technological modernization is because the issues are often conflated with the motivations for industrial reform. Take Rappler’s article, whose subtitle reported that drivers were on strike to “protest plans to phase out old PUVs”. The Star’s piece led by describing the strike as being “against proposals to phase out aging jeepneys.”

I shared those pieces not to lambast the media, but to illustrate the confusion that usually surrounds the modernization debate. Observers excited by the prospect of technical modernization may see the protesters as superstitious and protectionist. However, like the Luddites two hundred years ago, raging against the machines is only the visible half of the protest. The strikers believe they are on the frontlines against a policy that will leave hundreds of thousands of Filipinos jobless. That the term “Luddite” has come to be used as a pejorative for backwardness discounts the real desperation felt by the strikers, and shows the tendency of labor to be considered expendable in reform.

In spite of the seriousness of the matters involving economic reform, there is little dissection of the policy issues in the aforementioned pieces, beyond the PISTON representative Mr. George San Mateo arguing against the proposed capitalization requirement. There is no mention of the DOTr’s opinion of the need or rationale for economic and industrial reform. My aim in this post is to lay out what that aspect of the modernization means for the jeepney industry, and what matters will have to be resolved one way or another in the final form of the PUJ modernization. While for the most part I refer to PUJ or jeepney modernization, much of this discussion also applies to the bus industry.

The PUJ Business Model

The following diagram is from Silcock (1981), but is still illustrative of the typical economic relationship between passenger, driver, and operator.

puj-business-model

Note that the government still regulates fares, but drivers collect them. The boundary fee is unregulated and ranges from P600-900 per day, and fares per passenger are regulated by LTFRB, usually around P7.50-P8.50 per ride. (historical tables for Metro Manila are at fare_rates_MM).

Revenue for drivers is subject to a lot of uncertainty. For instance, take the price of fuel. The LTFRB occassionally raises or lowers fares in response to changes in fuel prices, however the boundary fee – the source of jeepney owner/operator revenue, does not change in reaction to fuel prices.

In order to make enough money to pay for boundary and other operating costs such as fuel, many drivers drive for more than sixteen hours a day. Each jeepney is driven by two, sometimes three drivers taking turns in these long, grueling shifts. By the end of the shift drivers are fatigued and more prone to unsafe driving in a vehicle whose mechanical controls may not be all there.

Many jeepney drivers choose to drive from early in the morning to catch the profitable morning peak, but also to maintain a semblance of a normal day-night cycle in the absence of a government guarantee on service levels. In the evening, fewer jeepneys are on the road because drivers who made their money in the morning have gone home. This scarcity is why jeepneys in the evening peak tend to be more fully loaded.

Transport Economic Outcomes of the PUJ Business Model

The PUJ business model motivates drivers to do everything within their control to maximize profit. This leads to the following behaviors:

  • Unscheduled stops to take on more riders
  • Reducing scheduled maintenance
  • Cessation of service when marginal revenue is lower than marginal cost

As long as drivers bear the risk of ridership or patronage, getting the most people on a jeep will take the highest priority over safely driving or maintaining the vehicles. The effects of this incentive are easily observed: drivers stopping unpredictably –  even in illegal locations – to take passengers, drivers blocking each other to ensure passengers get on their own jeeps, and drivers speeding on streets where it is unsafe to drive at high speeds.

One interesting quality of public transport is that there are intrinsic barriers to competition. Most passengers waiting on the curb cannot look at a jeep and easily distinguish between one that is well- or poorly-maintained. Riders can’t tell prior to boarding if the driver is someone who has been driving for three hours or thirteen. This is a market failure that the government can remedy through regulation, but to date the LTFRB’s regulatory tool has been prescribing penalties and fines for violators. This imposes an enforcement burden on the government and leads to incidents of bribing enforcers to avoid fines.

On the cost side, notice that the owner bears costs associated with making sure the vehicle can run at all.  The owner has little involvement beyond that. The driver bears costs associated with making the vehicle run regularly. If the vehicle has to be taken in to the shop for repairs, the owner loses revenue because the vehicle is out of service, but so does the driver. Therefore, the drivers have an incentive to perform as few repairs as possible while driving the vehicles for as long as possible. This is why many jeepneys drive at night even when the headlights don’t turn on. Such a state of disrepair would be unacceptable in many other places, or for private vehicles in the Philippines, but is commonplace for jeepneys.

More than cost risk, drivers also directly bear risk from fares. Drivers pay out their costs from the farebox, which means that things that affect ridership or fare levels directly impact their wages. If the government creates another public transport service that competes with the jeepney service and reduces congestion on the vehicles, the public wins, but drivers lose. If the government reduces fares, the public wins, but the drivers lose.

Even if the government keeps fares low, low fares do not necessarily mean a service that costs less. In the current system, commuters bear costs of unsafe and unreliable service. Drivers bear the cost of grueling working conditions that take a toll on their health. Whenever there is a fare rollback, drivers have less to feed their families with. The non-riding public bears the cost of pollution and noise, not to mention danger, from poorly-maintained vehicles passing through their neighborhood. Passengers may not be paying much in cash, but there are many other costs imposed on the public that are direct consequences of the way the system is set up.

The big takeaway from this discussion is: in the current system, operator incentives are in conflict with the public interest, which leads to poor service being a natural outcome and operators stifling attempts to improve the system. This isn’t the fault of the drivers, they’re just operating rationally in a system that isn’t designed very well. A better way to organize the economic arrangements would align government and operator goals instead of place them in conflict with each other.

Government Solutions: The Modernization Package

The government’s first move towards modernization appears to be a 2013 order calling for strict application of the 15-year age-limit on “public utility minibuses.” There also appears to be an upcoming requirement for jeepney operators to have a minimum fleet of ten vehicles plus a capitalization requirement of P7 million. The executive branch has proposed using government funds to assist with the funding and financing of the fleet modernization, but the details of the package have not been finalized.

Beyond these scattered pronouncements, there are not many official announcements laying out what the actual policy package is. DOTr’s facebook page has some images uploaded that seem to point to aims of the PUV modernization program. Let’s focus on the ones that point to major operational shifts:

  1. Local public Transport Plans

17021479_848556118616859_5506420646075653223_n-1

Road-based public transport crops up at the moment where a private entity sees the opportunity to make money. Network maps are not based in practice on sort of development or land use forecasts, and the concept of a timetable is foreign to the PUV sector. Local Public Transport Plans should allow the government to define the geographic scope of public transport systems, as well as define service levels that correspond to the profile of travel demand throughout the day.

In creating Local Public Transport Plans, authorities will have to consider whether they want to provide public transport service that is not necessarily financially profitable, such as to deprived areas where passengers may not be able to pay very much for public transport, let alone any other kind of transport. In the current system, these places are underserved by public transport, compounding other forms of poverty that residents may be experiencing. Thinking about how to provide these services is an important part of a successful modernization policy.

2. An end to the boundary system?

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Putting drivers on fixed salaries, with employment benefits, in better labor conditions will be a big step towards making the public transport system more humane. The question, of course, is what this means for the labor market, particularly drivers on routes designated for upgrading to higher-capacity vehicles. It’s not clear at this point if the government will guarantee employment for current workers in the new system, but there are plenty of ways to mitigate job loss by retraining for other useful tasks within the industry. Shorter shifts for drivers will mean a higher driver requirement. Beyond that, drivers can be retrained as mechanics, vehicle safety officers, and station managers/patrollers. Current industry workers don’t have to take a loss here if the DOTr does this right.

One important promise made here is that drivers will no longer bear ridership risk. We’ll have to see if this becomes actual DOTr policy (and whether this risk will be held by operators or the government), but this reform will solve many of the current system’s problems, especially around safety and reliability.

3. Requirement of fleet management

16998868_848572955281842_1068951860737076665_n-1

Fleet management is a familiar term to people who work in logistics, trucking, or any company big enough to worry about managing a large stock of vehicles. This infographic seems to call for putting the component systems of fleet management in place, such as:

  • Organized repair, refueling, cleaning and maintenance
  • Vehicle tracking and management (through GPS)
  • Driver tracking and organized shift scheduling

Fleet management in the PUJ sector is not a new concept. Groups such as 1-TEAM (formed by the 1-UTAK party list), Comet, and Filinvest all are in some form of fleet management business. The major shift implied by the infographic is that having a fleet management system (or contracting with a fleet management provider) will be an operator requirement.

The cost of organizing functions which operators already (at least nominally) perform might be more than zero, but there are scale effects in providing these services to transport operators, so the cost can be spread across the industry. This setup also makes operators directly accountable for maintenance, shifting maintenance risk to them instead of having it held by drivers. Consolidating fleet management will make it easier for the government to ensure service, safety, and quality standards in the transport system.

Sum Up – A Satisfying(?) (Non-)Conclusion

There are many reasons to favor a shift to a different economic model for public transport provision. However, the devil, as they say, resides in the details, and absent a clear, comprehensive proposal from the government, policy discussions remain speculative and academic. In order to clear the air and move forward with the transition to a better system for all stakeholders, the government should release an official policy document on the modernization program as soon as possible, clearly outlining its appreciation of the need for reform, the end goal of the reform, and the policy components that will get us there.

Another important consideration is how much the government is willing to pay out of the public’s pocket to subsidize the modernization and/or the operations of a modernized system. Part of the policy statement that will have to be made is whether the non-riding public should pay in part to develop a quality public transport system.  Public transport that operates at high quality typically requires subsidies, but these subsidies are justified by the direct and indirect benefits that quality public transport provides to the communities they operate in. There is also an equity consideration as mentioned by PISTON, given that jeepney drivers and operators may have limited financial ability to fund the purchase of new vehicles. Regardless of what the government decides, it is good for it to be as transparent about its policy direction as early as possible.

Besides commuter outcomes, modernization should also consider effects on labor in the current industry. The current system is hardly the best of all worlds for drivers, who had to fight for rights to be recognized as employees in their relationship with the vehicle owners who collect their boundary fees. Economists such as David Autor have shown that labor market shocks can have “scarring” long-term effects that affect secondary development indicators, especially the family circumstances of displaced workers. To be really progressive, the government should consider the modernization an opportunity to reform an industrial system that some have described as exploitative.

Modernizing a flawed public transport system is a daunting task, but a clear conversation is important to make sure welfare is maximized and no stakeholders are left behind. Rather than accept win-lose narratives, the public would be better served by a plan that aligns service incentives and allocates risks to parties can best mitigate or absorb them. The light may be at the end of the tunnel, but we’ll still need a useful public transport service to get everyone there.

Credits and Unlinked References:

Rowhe Rodriguez for banner image. instagram: @thepixillated

Silcock, D. 1981 Urban paratransit in the developing world, Transport Reviews, 1:2, 151-168

DOTr Philippines for images: “Goals of PUV Modernization”

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