Tuesday, July 12, 2011

The flipside of privatisation....

Two pieces of news appeared recently:

1. Transport Operators seek fare increase [Link].
2. Govt finding ways to integrate private and public healthcare[Link]

In the past 2 decades, many govts including the PAP believed that privatisation of govt services will bring about greater efficiency in the provision of these services. While it is true for the initial years after privatisation, the efficiency gains quickly tampers off while the profit motive of these privatised enterprises stick around forever.

About a decade ago, the PAP govt had this idea to turn Singapore into a medical hub for the rich in the region. More private hospitals were build. Resources shifted from public hospitals to the private sector to treat foreign patients and the rich. If you go to a public hospital to visit someone today, you will find that the hospitals almost every single hospital bed is filled. If you visit a private hospital, very often you find that most of the beds are empty.There are private hospitals today allow rich patients to purchase private suites that are used only for themselves and their family members. The best specialists and surgeons move to the private sector because they get paid more for seeing fewer patients  - one of them, a Dr. Susan Lim, billed her patient $20M for dedicating the entire resource of her practice to a single patient. Cost of medical care spirals up and begin to ampllify the effects of the widening income inequality in our society. In our eagerness to become a medical hub, we have made the some of the same mistakes as the Americans in believing that privatisation will lead to good results - we are seeing cost spirals and inefficient use of resources unter the present system. Minister Tharman now wants to fix it by tapping resources lost to private hospitals.

Here's a picture of Minister Liu Tuck Yew taking the MRT. I'm always happy to see minister try out first hand the system under their purview. Suppose one day you contract a bad case of food poisoning and have to be hospitalised at a govt hospital - you are treated like evey other Singaporeans that goes t. You wake the next morning to find the health minister, Mr Gan,  in the same ward treated by the same doctors - now that would really change your view of the PAP leadership wouldn't it? Ordinary citizens appreciate the idea of having leaders who put themselves in the shoes of the people. That was what Minister Liu did for a few days - experience something that ordinary Singaporeans have to cope with every single day.

I'm not impressed by the transport operators request to raise the fares again. Why? I took a bus today and it was so packed, I stood on the steps at the entrance of the bus. The people behind me couldn't get on/ When the SBS was privatised, it was hoped that privatisation would bring about greater efficiency in its operations. All the gains in efficiency probably occurred its first few years as a private company. As a listed company, they need to answer to shareholders and the profit motive would dominate how it operates. Running a bus service that is frequent enough for passenger to be seated comfortably through the ride is not a profitable thing to do. Packing every bus to the limit is a lot better for the bottomline. Keeping to the minimum standards of quality of service laid out by the transport authority would be most optimal for profits - there is no motivation to do any more than that. Passengers have other no choice - our cars are the most expensive in the world and controled by a strict quota. Taking taxis during peak hours can be 10 times more expensive so there is no real competition for our public transport operators for force them to improve the quality of service further.

Suppose profits is not important and the comfort of bus passengers is the most important goal.
The following figures are extracted from SBS Transit's latest quarterly financial report:

Figures in '000 S$.
Staff costs - 72,044

Repairs and maintenance - 20,140
Fuel and electricity costs- 29,743) 25.3
Premises costs - 7,787
Depreciation expense - 11,261
Other operating expenses - 14,641

Total operating expenses ; 155,616
 
It costs a total of S$155M to run the public bus system. Roughly $620M per year. The profit is about 10% of the cost. 
 
Suppose we want to improve the live of the millions of Singaporeans who take the bus everyday. Lets say the govt spends, say, another $300M. Maybe to provide an overlay network of buses to complement the current bus system and improve service during peak hours. To improve the bus service tremendously we are talking about an additional spending roughly several hundred million dollars, say, $300M. This amount can transform the lives of millions of Singaporeans because they would be able to get to work in much greater comfort everyday. To put things in perspective $300M is less than 3% of our annual defense budget which has grown to $12.08B much of which is spent on systems that will likely turn obsolete without seeing any real action in war given the current geopolitical climate.
Instead of a transport service provider that tries to maximise its profit by pushing down service quality to as low as possible, we can elevate the quality of life of millions of Singaporeans by putting in place a transport system that puts the comfort and convenience of commuters at the top of its priorites. This is money that has a direct impact on the lives of Singaporeans and we can do it not by spending more in our annual budget but reallocating a small portion of it for this purpose. The Worker's Party suggests re-nationalising the public transport system and then combining the SMRT & SBS Transit to get cost savings. Whatever it is something has to be done to our public transport system because it greatly affects our quality of life. A "for-profit" transport system that is a monopoly will always limit the quality of service and the question is whether we should be doing something more instead of tweaking this system so that just continue to meet basic standards.

41 comments:

Anonymous said...

While there is no denying that there will be a flip side of privatisation, what is most important is that it does not come with too much political costs.

The results of the recent GE shows that the political costs is still very much within control and safe limits.

And not just from privatisation but many other issues as well.

Hence if I were the PAP govt, I will not be too worried. In fact I will want to go further, like allowing fares to rise some more, take more foreigners, build smaller, more expensive but better quality HDB flats etc, etc.

And the political costs will still be within safe limits.

Because I know Singaporeans well.

Anonymous said...

http://news.xin.msn.com/en/singapore/article_control.aspx?cp-documentid=4844986

I don't support the call for increased fares.
Particularly when we know that the overall ridership across all segments of transportation has gone up due to the increased 2m foreigners on this island.

It must translate to more profits to them already.
Not to mention at the expense of the commuters' experience. For every minute that we lost waiting for the next bus/trains is time lost on productivity.
Why then do they have every reasons/justification when they can't even enhance our world class journey experience..Mdm Saw the $1.6m CEO should take heed from Lim Swee Say about giving customers the "gaga experience" before having the audacity to ask more from us.

Anonymous said...

The new minister is Gan KY, not Tharman. Tharman is Finance cum Manpower Minister. Anyway, whoever the ministers are, we are screwed just the same.

Anonymous said...

Too bad, the $300M already used up for kiddy games.

Actually all the govt needs to do is to use the annual NDP budget of $15M-$20M to implement incremental improvements in public transport. I rather have 10 years with no NDP and instead having a much better public transport system at the end of 10 years.

hayek said...

Hi lucky, issues and the damages done to society upon privatization is already quite well known nowadays.

A private company'aim to maximize profit more often than not, does not goes hand in hand in providing a decent public service.

The best way for SMRT to maximize profit is of course to raise fare and to make fewer trips. (and of course to hire as few as possible and to depress salary of workers )

PAP especially Lee Hsien Loong has done so much damage to our social fabric that it would take decades to heal.

Anonymous said...

I see businesses like NTUC and Sheng Siong get bigger and bigger. Economies of scale these days doesn't lead to lower prices anymore.

Prices still go up, prices at bigger shops cost more than smaller shops despite so-called economies of scale.

Don't see why privatisation will also lead to lower costs. Since when nowadays? Even flats built by private developers are marked up compared to HDF flats, and HDB flats are already marked up.

panamera said...

Unbelieveable! the kind of views exhibited in this blog. if people like lucky run the country, we will all go bankrupt. the sing dollar will be history! inflation will spiral out of control. the sheer trivialisation of 300 freaking million dolalrs just so you and the rest of the unable-to-afford-car donkeys can get a seat! so now i know what these people plan to spend our GDP and reserves on. what a joke!

All these people should be glad their bus ever arrive at all! whats next, another 3 billion to make fixed shell business class seat for the elderly? how about caviar and san pellegrino for you donkeys!

Sgcynic said...

Indeed I would rather spend $300 million to cushion 5 million people's backside than to spend freaking $50 million a year providing cushy jobs for 10-20 shoo-ins and donkeys doing "quiet work". "Raiding the reserves" improving people's lives is better than squandering over a hundred freaking million dollars in failed "long term investments". "No regrets"!

Anonymous said...

Look at the mobile TVs that are now mostly dead & silent. Now what kind of investment is that. Yes, there are words for this in economics. Privatising profit & socialising cost.

Anonymous said...

"""panamera said...13/7/11 01:06
Unbelieveable! the kind of views exhibited in this blog. if people like lucky run the country, we will all go bankrupt. the sing dollar will be history! inflation will spiral out of control.""""

Don't you think the price of properties, be it private or public housing, inflates more than anything else and gets filtered down more than anything else in a land scare country in which people need it for basic shelter and work.

For your info, this blog is often visited by people who are in the business of economics and finance.

Anonymous said...

Couldn't help but be reminded of this line from Oliver Twist

"Please sir, may i have more porridge?"

panamera (13/7/11 01:06) gave a perfectly well-educated (abeit heartless) response to that.

So long as there are well-educated people who worship at the altar of pragmatism, these problems will never go away. A disciple of pragmatism is devoid of compassion, with an inability to strike a balance between what needs to be done and what should be done.

"Qu'ils mangent de la brioche" Queen Marie Antoinette.
"Let them eat cake"

Anonymous said...

There were already 2 train disruptions on the NS line this week, those taking train to town from Bishan station can confirm. All I want to say to SMRT and ass**les concerned with running of transport, F U C K you. Don't even dream of raising fare, raise yr service standard first.

so1trg said...

To add to the further lament, I have encountered numerous breakdowns and delays in the Bukit Panjang LRT serviced who the "oh-so-noble" profit maximizing SMRT.

Exactly the same thots on shelve your price increase and get your basic service right. Isnt that what a good private corporation should do? Unfortunately, our transport operators are like our democracy; quasi private corporations.

What can we do as citizens to reverse this issue?

Alan Wong said...

On the sideline, our increasing defence budget doesn't seems to make sense. In the absence of war, it is not as if we need to upgrade our military equipment every year.

It just makes one suspect that Singapore may be paying millions if not billions to maintain the presence of the US Military around here, war or no war. There is also no reason for US to protect us if there are no tangible benefits.

Are we also being treated as suckers by the US ?

Anonymous said...

You and I do not matter.

Its all about networking, scratching
each other backs:

A) Defence budget is huge because we buy lots of stuff from war mongers:
US as a form of " I buy these, you buy my products, allow SQ to fly in "
We also buy systems from UK,SWeden for our scholars to do reverse engineering and the same " I buy, you buy.

B) Privatisation of previously public held entities are for the purpose of allowing scholars from SAF an avenue to practice business concepts, otherwise no right minded MNC will allow newbies to take the helm

Even now, when people are no longer in Government, they get support from the Gov such as press secretaries, and access to data that people like you and me will never see. It is not a matter of who pays for these services, its privileged information.

Would your previous employer allow you to book air tickets using their HR dept? or lend you resources?? I am not so sure, unless its a family business.....

Angry Birds golden eggs said...

too bad!
I see businesses like Sheng Siong get bigger !

Anonymous said...

@so1trg
"Unfortunately, our transport operators are like our democracy; quasi private corporations."

Do you mean - "Unfortunately, our transport operators are like our government;quasi private corporations that aim to make the most from its citizens while providing the barest minimum it can get by"?

Anonymous said...

Seems the PAP gov't needs to live off from the people of singapore more than ever...

How odd...

Isn't the people of singapore "feeding" them...and this is the best we can "find"...

The cost benefits vis-a-vis working proven policies has shown other-wise.

Paper intelligent all right...wise these PAP policy makers are not.

: (

DanielXX said...

SBS is ok already loh. Compared with SMRT, there're already quite good available seating and it's reasonably comfortable. I can't say the same for MRT. It's a terrible standing-only ride most of the time unless you're starting from Joo Koon or Pasir Ris etc. I suggest they should grant the next MRT line to SBS to provide SMRT some real competition. The Northeast line run by SBS is quite ok, so it's time we promote a little real competition.

so1trg said...

Anyone wondered how does SBS Transit and SMRT decide how to split the revenue collection?

ie. I can enter NEL fare gate at Punggol (SBS Transit), travel thru the North East Line (SBS Transit), Transfer to the East-West line (SMRT) and then take the LRT at Bukit Panjang (SMRT) and exit at Bukit Panjang (SMRT).

Revenue collection like this will be totally fudged!
Pardon by ignorance but i really don't see how the 2 PTOs can decide how much of the fare goes to X and how much goes to Y.

DanielXX said...

what is so difficult? You enter at SMRT control gate, you swipe the card. You exit at SBS control gate, you swipe the card. Both journeys are captured.

Anonymous said...

Panamera, you're right. It's parasites like you will go bankrupt and not common folks.

Anonymous said...

Wow Mr Lucky

So u think Lui is doing a great job cos he has been caught taking public transport a couple of times?!!!

Then u are going to love the new plan by the ah neh FT to "reward" commuters to take transport only during off-peak hours!

With jobs going to FTs, us locals can look forward to cheaper public transport soon!

Lye Khuen Way said...

I say nationalize all these so-called Public Transport entities.

Same with the SingPost/ Singtel / PSA and what remains of PUB-Sing Power. Yes, de-corporatize them.
Forget about making "share-holders" happy.

Why the need to earn profit to keep the promise of Dividends ?
Then ask for Increase in fares /tarrif, to pay Dividends and pay all the CEOs/CFOs big pay checks.....

Anonymous said...

Not too long ago, Straits Times even "praise" the SMRT CEO for having a huge jumped of her annual salary by 100%. Gosh! no wonder SMRT cost is so high and now the clueless passengers have to make to suffer the CEO huge perks.

Anonymous said...

"Why the need to earn profit to keep the promise of Dividends ?
Then ask for Increase in fares /tarrif, to pay Dividends and pay all the CEOs/CFOs big pay checks....."
Lye Khuen Way said...13/7/11 22:19

Why not? Can the consumers/commuters do anything?

Anonymous said...

https://www.facebook.com/notes/lui-tuck-yew/public-transport-fare-increase/229972407033212

Tuck Yew! is defending to his death.

What he forgets is that these so called commercial enterprises are "profit" driven, and they are monopoly!!!! WTF is he talking about fare savings passed to commuters then! Just look at our taxi operators..even the expats have to say phew, unless those who are willing to keep paying..

Anonymous said...

Do you still see the pattern? Like any GEs before, before GE2011 lots of goodies and rosy pictures were announced with high GDP growth. Just after GE2011, all the bad stuffs are now coming out and GDP growth has suddenly dropped. If this is coincidence, it may one time or some time. Can it be all the time? Daft Singaporeans are really stupid to believe what they have seen and told. All the BS, right. They should wake up now and fight for change in GE2016.

Anonymous said...

Privatisation will lead to more competition and lower prices. However we do not have real competion in our transportation system. Do you see SBS and SMRT bus services overlapping each other? Government controls COE forcing us to take public transport.

Thats the reason why fares are increaing and quality of service is dropping.

I propose
1. Scrap COE such that government will be forced to improve public transport otherwise there will be jams everywhere

2. More companies to setup public transport services to compete with existing companies

Anonymous said...

To Anonymous 12/7/11 23:36,

You mentioned
"Why then do they have every reasons/justification when they can't even enhance our world class journey experience..Mdm Saw the $1.6m CEO"

By the way, you should address
Mdm Saw as Ms Saw because she is not not married; she is single.
Go to correct your posting.

Anonymous said...

Privatisation will only lead to efficiency gains if there is competition. In the case of SG public transport, there is no competition - its a duopoly of SMRT and SBS. Therefore the benefits of privatisation is not there. Mr Lui is not making sense. Why would nationalisation of public transport be a waste of taxpayer's money? The nationalised tranports company will strive to breakeven instead of making obscene profits. This means fares can be reduced. Other taxpayers who don't take public transport need not subsidise the company as the company's aim is to breakeven and not lose money. It is a win-win for everyone.

Anonymous said...

"Privatisation will only lead to efficiency gains if there is competition. In the case of SG public transport, there is no competition - its a duopoly of SMRT and SBS. Therefore the benefits of privatisation is not there. Mr Lui is not making sense."
Anon 14/7/11 13:54

Of course it does not make sense to you because you are not in Mr Lui's position!

Have you heard the saying:

"One man's meat is another man's poison."

Anonymous said...

To paraphrase vivian balakrishnan:

How much profits for the transporter operators is enough?? $30m or $300m or$3bn???

Anonymous said...

Fuck you 60% who voted for the incubents. Explain how GDP could drop to 1% by end of this quarter when prior to the elections, it was 14%? Who is tweaking the figures before the elections?

Fucking daft Singaporeans. Their eyes are blind. Now the hearts are blind too.

Anonymous said...

A monopoly which claims free market priviledges.

Anonymous said...

It is not the ultimate shareholders that cause the problem - it is about running the network efficiently. When we have a single 'national" gris, then it does not make sense to pay the CEO "market rates" as there are no comparables.

We should recognize the fact that all man have fear and greed genes and we need a dynamic stick and carrot approach - enough carrots to give a 'reasonable" standard of living and stop the CEO and management team from getting too greedy - a stick to ensure accountability.

The best is what the government is currently doing - rotate the core of capable managers between admin service and operational entity and for the CEO to be accountable to an independent board that has a share of the profit or a 12K yearly stipend which ever is greater. Board should be less than 9 members with at least 60% independents directors.

Doing the "best practices" of free market using crazy HR studies to support crazy salaries is hubris. We are unique - a small country with command economics and free market sensitivities - we need to evolve our own local model.

The great economic powers of America,Europe and Japan do not have the answers and we are certainly educated enough to develop our own.

High pay does not guarantee anything except a fat monkey that consumes all the peanuts and demands more.

Too big to fail??

Anonymous said...

"Fuck you 60% who voted for the incubents. Explain how GDP could drop to 1% by end of this quarter when prior to the elections, it was 14%? Who is tweaking the figures before the elections?". Unquote.

Exactly!
BUT,
maybe, some cabinet members maybe able to explain.

Anonymous said...

now i know why 60% always love to vote blindly "time after time" despite seeing "true color" after every GE, cos they love Cyndi Lauper's song so much!!!

DanielXX said...

as an aside, you have any views on the below? do u think loan shark borrowers should be arrested for giving false address info? it is one of the more intriguing news I've read recently, and I can't actually decide if they're justified or not.

SINGAPORE: Police arrested two men who are alleged to have provided false contact information to obtain loans from loan sharks.

The suspects, aged 36 and 59, were caught separately on July 14.

Police said the two cases were reported in June and July.

The suspects are believed to be debtors who obtained loans from loan sharks by using their previous residential addresses.

This caused the new residents to face the brunt of the loan shark harassment which were supposedly directed at them.

The suspects are also being investigated for failing to report the change in their residential addresses under the National Registration Act.

The offence carries a maximum fine of S$5,000 and a jail term of up to five years.

Anonymous said...

panamera's response is the epitome of an efficient answer -- but not an effective one. it's the same problem that plagues many decision-makers in singapore.

if the re-nationalisation of the transport entities is too much, what about gov't subsidies instead?

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