Transport Minister Lui Tuck Yew recently defended the privatisation of public transport companies, arguing that the profit incentive leads to greater efficiency and higher service standards
By R Ganesh
Contributor
The recent high-profile exchange between Non-Constituency MP Gerald Giam and Transport Minister Lui Tuck Yew on the topic of a nationalised public transport corporation brought to light the issue of how privatisation ensures greater efficiency through the profit incentive. Mr Lui argued that if public transport were to be nationalised, there would be no incentive to keep costs down, which would ultimately result in higher fares being charged to commuters. In addition, he also argued that nationalisation could lead to a decline in service standards.
Mr Lui is absolutely right about how privatisation encourages efficiency. Because all private companies naturally try to maximise their profits, they tend to keep costs low so as to be able to keep prices low, while also pursuing innovation that results in a better customer experience. With more satisfied customers, the company stands to make more money.
However, he conveniently omitted to mention that all of the aforementioned benefits of privatisation can only be reaped where there is competition. Companies seek to lower costs and improve customer satisfaction because they are continually looking to outdo their competitors and increase their market share. Where there is no real competition, companies have no need to drive down their costs and no need to improve their service standards – because customers have no other option. This is why countries such as the United States have strict anti-monopoly laws in place.
The current situation with regards to public transport – as well as certain other industries in Singapore – brings us the worst of both worlds. It combines the downsides of nationalisation (inefficiency, no incentive to improve service, no incentive to lower costs) with the downsides of privatisation (profiteering, attempting to reduce consumer surplus, focus on bottom line above all else).
The government often refers to companies like SMRT, SingTel and Singapore Press Holdings as belonging to the “private sector” just because they are either partly owned by private shareholders (through public listings) or because they are run like private companies – or a combination of both. However, with their respective business environments so insulated from competition, there is absolutely no incentive to raise service standards. Meanwhile, these companies are given free reign to fleece consumers and make hundreds of millions of dollars with ease. Seriously, any fresh graduate from any one of our local universities could run SMRT and show a profit at the end of each financial year.
The latest fiasco involving SMRT and SBS Transit is not an anomaly. Customers of SingTel’s Mio TV service were left fuming at having to pay over the odds to watch the World Cup in 2010, with yet another price hike soon to take place ahead of the new Barclays Premier League season. Meanwhile, the rest of Mio TV’s offerings are weak, at best, and almost everyone knows how poor their customer service standards are.
Since we are living in an era of “epochal change” and no longer have any sacred cows, it is high time we started to take a serious look at the GLC monopolies in a number of industries, including public transport, telecommunications, cable television and mass media. Given the poor levels of service that these companies have been providing, the prices that they are charging certainly do not represent value for money. It is time that competition was introduced in all of the above industries if we are going to live up to our name as one of the freest market economies in the world. Monopolies, at the end of the day, are no good for anyone at all.
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The author is a part-time business lecturer at a private educational institution. He holds a Bachelor’s Degree in Economics from the University of Melbourne.
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The paid up capital of SMRT is $164 millions
Over the year,it made money,the reserve plus the accumulated profit is now $278 million after deducting the yearly dividends to its shareholders
In financial year ending 31 March 2011,it made profit after tax of $161 millions
The passengers of SMRT who are mostly citizens of Singapore can decide what type of return on capital they can give to SMRT for its risk free operation as PTC has the power to guarantee that it stays profitable,SMRT is a public service operator which operates on a rail network paid for by tax money of mostly Singapore citizens.
GOV sold 3 power stations to foreign companies is to increase competition and get better rates for consumers but do you know that the three power plants each is unable to provide power for all of Singapore, just enough to cover their own regions. So what makes them willing to compete and fulfill what the GOV envisioned? It is all but a fallacy that the sale is just to provide more bullets of Temasek HLD to invest recklessly. Where are the competition for cheaper power tariffs? Singaporeans are truly dumb.
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use http://turbohide.com/ to surf Temasek Review
SingTel is not a monopoly. There is aggressive competition in the telecoms and cable TV industry. In fact, the competition was precisely why we had to pay to watch the World Cup. Because SingTel and StarHub tried to outbid each other, therefore driving the price up. That is the problem with too aggressive competition. I am not saying that a full monopoly is good, but we need to find a balance. I think that the current structure of balanced competition benefits all parties. There is no need to make it any more competitive, or we might lose out.
Singtel and Starhub were competing on who has the bigger spending power — to BUY something. This is distinctly different from aggressive competition to SELL their services at competitive rate, and that’s what true market competition is meant to bring out. Instead, what we end up having (with our unique kind of “competition”) is operators with big fat pockets who aggressively bid against each other in the purchasing front, knowing pretty much they could recover the costs from the consumer because, quit simply, they just can — and that, is not real competition.
Btw, one notable — and clearly — monopolistic market we have is our postal service sector, which by the way is already liberalized.
Whats the point ?
Shake Left. shake Right.
its still the same tree.
Its still the same pocket.
With the Govt depending on Temasek for 20% of it’s revenue,
GLC is but a cash cow.
Thus the conflict between public service & goods & Govt Revenues.
SMRT is but 54% owned by Temasek.
It’s not about shaking.
It’s about if you are in the loop.
Clearly Mr Lui the Transport minister is not in the Loop.
Very good article boss!
I have started to boycott singtel and star hub.
Now ntuc is next on my list.
How true…the monopoly starts with the dominance ( and attempts to perpetuate it )
of the political space….
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The transport minister was very sure when he said that “if public transport were to be nationalised, there would be no incentive to keep costs down…”
I think PAP knew that the ‘costs’ of not running a nationalised public transport well is something that PAP dares not face & try to avoid at all costs.
The (dis)incentive of failing to provide a satisfactory public transport : voted out of office.
This is the reality that PAP would never want to put themselves into. That’s why PAP will never agree to nationalised this essential. Ditto for the other national essentials. That’s why everything was farmed out to the private sector.
A hands off strategy & a burden-free government. So this will leave them more times to device more schemes to ‘make for monies for singapore corporation which the PAP runs.
The GLC monopolies syndrome is everywhere in Singapore, extending to all aspects of Singaporean’s daily life, from transport, communication, healthcare, food and even kindergarten. In names, some of the industries have ‘competition’, but look behind who owns them. A few selected BIG Capitalist groups hold the interest in these industries and with market manipulation, they controlled the supply and demand mechanism to maximize their profits and pay millions to their key Managers. A good example is NTUC Fairprice. It is no longer managed like in the early years when Devan Nair was its President for the objective of helping to curb inflation and helping the lower income group. It has joined the rank of Supermarket giants to maximize huge profits at the expense of poor consumers.
They should seriously allow another newspaper company or two.
Fully private owned, not the wayang fake competition between SPH and MediaCorp.
It’s not true that GLC monopolies are “not good for anyone at all”. They are good for the PAP and their cronies. How much are the CEOs of SingTel, Capitaland, NOL, JTC, SPH, DBS, SIA, SP Services, SMRT, SBS, Mapletree, etc paid every year? How many of them are ex-civil servants, ministers or retired generals?