The best way to fix Australia’s road and rail might be out of left-field.

Australia has a problem with Infrastructure. We keep building the wrong things.

We spend a huge amount of time developing proposals that have benefit cost ratios less than one. Then, for want of alternative proposals, we turn those proposals into reality.

There are many reasons for this – politicians serving certain electorates, powerful lobby groups, bias to action, and inability to fix infrastructure through pricing .

But part of the problem is a lack of options. We build the East-West tunnel in Melbourne because it is the only idea that’s been properly developed and discussed. We put Sydney’s new airport at Badgery’s Creek because it’s the one location that has been kicked around for years. We plan a light rail line up the middle of Canberra, because that concept has been publicly flogged since Burley Griffin.

To find one great infrastructure plan, you need to discard 99 good infrastructure plans. But Australia doesn’t have 99 to throw away.

There’s a lot of talk about developing a “pipeline” of infrastructure ideas. But politicians are very risk averse, and big infrastructure companies don’t want to waste money on business plans. So our pipeline is the diameter of a carpet python, with a couple of big lumps where it has been fed an approved mega-project.

Computers could do this part.

Infrastructure Australia was set up by the Rudd government to try to help develop a pipeline of ideas, and independently test them. But it only has a few staff, and its leader was recently fired by the Abbott Government. Just as that was happening, he took a stand, publicly saying ”Entrenched truculent bureaucracies have impeded progress… It has been heard that some good ideas cannot go ahead because they would set ‘precedents’. Among other things, this implies knowledge of, but unwillingness to address, widespread deficiencies. Such wilful attitudes test the patience of our elected masters, industry, and the public.”

Even with this courageous bureaucrat in charge, the old Infrastructure Australia was unable to renew the infrastructure planning system. With his blood all over the carpet, the new Infrastructure Australia is cowed.

Even if it makes our political leaders uncomfortable, Australia desperately needs a truly independent infrastructure development and analysis capacity. But how?

I think the answer is not a bureaucracy. I think the answer is by using technology. The same technology that has helped humanity create the biggest encyclopaedia in history and a hugely detailed map of the entire world.

A Wiki.

Imagine a website where you can start a page for any infrastructure project you might dream of.

  • You want to extend a train line by a few kilometres? Start a page with a description and a map.
  • You want a helicopter pad installed at the local sports ground? Start a page with a project description and a map.
  • You want to build a very fast train between Melbourne and Brisbane? Start a page with a project description and a map.

Each page would be able to be edited by absolutely anybody. There would be a section for environmental impacts, a section for cost estimates, a section for estimating time for planning and building, a section for land-use changes and implications, a section for creating a cost-benefit analysis.

flinders st w bikeMost pages would be the hare-brained schemes of the lone wolves of suburbia. The pages would be underdone and silly. But by asking the community to rate each page, the better ideas would attract contributions from a range of talented people and rise out of the muck.

This could bring unforeseen solutions out of obscurity.

For example, when I was writing about the ridiculousness of the state government’s plan to put a new railway station in South Melbourne, right on top of an existing tram stop and miles from the new development it ostensibly serves, I found in the depths of the internet forums the suggestion that the problem could be solved better with a train line that runs from north-east to south-west.

Fisherman’s Bend should be on a new line from Merri (Northcote) to Newport (Wydham Vale – Mernda line).”

This idea may have a cost-benefit analysis ten times better than all the existing plans. But how would we know? There is a choke-point for shining light on new ideas, and its name is the Department of Transport. Risk-averse and slow-moving, DoT can only be expected to properly consider a few ideas that it thinks the government is interested in.

Choosing between a big group of well-developed projects that each have a range of intriguing benefits and positive cost-benefit analyses is going to be difficult, politically. But it’s a better problem than the one we have now, which is a small group of infrastructure plans that mainly look like wastes of money. (I refer here to Melbourne’s East-West tunnel and airport rail, but an honourable mention should go to the plan for a very fast train up the east coast)

If you want to find one project with a cost benefit analysis good enough to build, you need to look at 100 or 1000 projects across the country. The current pipeline is starved of proposals, so it is no wonder the infrastructure policy space is so sickly and anaemic.

train pic b and w

PROBLEMS:

1. The majority of analyses on the wiki would be defective. But the community should privilege the ideas that have the most potential and these should attract rational people to contribute. I expect projects will be submitted with wild underestimates of their cost, and there will be a push by more rational people to actually use cost estimates that reflect realistic Australian pricing. On the ‘discussion’ pages  I imagine there would be fierce argument about why it is we can’t have projects delivered at the prices that apply in China, America, etc. Projects with decent estimated benefits should be most willing to use realistic pricing.

2. Monorails and personal rapid transit. It’s going to be hard to keep really wild ideas out of there, but perhaps that’s the point.

3. Splintering into too many pieces. Every little change in a proposed plan (should this freeway have an exit here or here?) would potentially lead to a new page being created, with a new set of costs, environmental impacts, etc, etc. Conventions and rules may need to be developed to guide when a change is big enough to warrant a whole new entry. But wikis are good at developing cultures and rules that make them effective.

4. The whole thing would be at risk of being ignored if there was no suggestion governments would at least look at it. The project would be a really great thing to seed with some official resources, for example, freely available mapping software for wiki users to use, some models for doing traffic and demand forecasting, recommended ranges for cost per kilometre of roads, bike lanes, tram lines etc. I’d like to see it hosted at infra.wiki.gov.au to give it a sense of official imprimatur and encourage involvement. Perhaps the government could loose a few bureaucrats or pay a few infrastructure experts to play with the wiki to get it started, anonymously having them make edits and bring in a bit of rigour.

So, is this a good idea or a mad one? Is there some aspect of wikis I have overlooked or some problem I’ve not foreseen? Leave a comment below or hit me up on Twitter!

 

Myki is set to be replaced. Already.

EDIT: Additional details have been drawn to my attention and it seems the proposal is to add the paypass system to the existing Myki system, rather than wholly replace it. That, to me, seems to add even more complexity and cost and the arguments below still stand.

I feel like we’ve just got the hang of Myki.

The smartcard system that came in in 2010, finally replacing the extremely functional metcard system in 2012, had a few bad years. But now I see people touching on and off more or less correctly. There’s a lot less waving of cards near the readers and a lot less theatrical sighing.

myki shot

Nevertheless the coalition government is suggesting they will turf the system if they win power again. Transport Minister Terry Mulder has said that the government will look into using the Visa Paywave / Mastercard Paypass system at the barriers instead.

I quite like the sound of that. But I’ve learned to be wary of things I like the sound of.

Myki was supposed to be the smartcard to end all smartcards. The reason the government spent nearly $1 billion developing it was that it was supposed to be adaptive. The technology was meant to grow with the city, and give us the option to change our ticket system without changing our smartcard system.

Even the savvy were fooled. Here’s PT guru Daniel Bowen being quoted in 2006:

“It will be a vast improvement over the current system. However, some passengers may find having to scan on and off an inconvenience.”

If only the biggest issue was touching on and off!

The reality has been that the Myki system cannot even do what the previous system could do. It can’t manage short-term tickets, it fails often and it struggles terribly on trams, meaning the mantra “remember to touch on, and touch off” became untrue for (most) tram users.

Listen up, Melbourne

But the big lesson is not that Myki is bad. It’s that replacing Myki is going to be expensive. More expensive than people imagine. And the solution will almost certainly deliver less functionality than you hope. This is the lesson of big projects. They run over-budget and deliver under scope.

I’m no great fan of Myki. But let’s not repeat our mistakes by turfing Myki out before we’ve wrung the last drop of value out of it. Let’s not repeat our mistakes by assuming the new ticket system will be both easy to use and flexible. And let’s definitely not repeat our mistakes by replacing it with an elaborate bespoke system.

The temptation for a minister will be to cave to special interests, so “Simply Using Paywave” turns into a giant cluster-cuss of exemptions and special rules in special places, requiring a lot of bespoke software that fails a lot.

PT1

Lastly, let us always remember where our ticket fees go.

A ticket system is very expensive to operate. A big chunk of the cost of every ticket goes to paying for the tickets, the ticket machines, the software, the inspectors, the public servants that administer the ticket system, the inspector system and the fines – not to mention paying for the judges that hear the complaints in court. Only a fraction of your fare goes to actually making the vehicles run on time. There would be plenty of efficiencies from making public transport free, instead of using tickets.

The Sydney Harbour Bridge was a bad mistake.

There are lessons in Australia’s history we can learn from. One of them is the screw-up that is Sydney.

sydney

Sydney was well-placed to become the London of Australia. A prime location, settled first, the early seat of power. It had it all. But while London remains by far the wealthiest and biggest city in the UK, Sydney is on-track to be overtaken by Melbourne in population.

Source:
Source: SMH

If Melbourne overtakes Sydney, it won’t be the first time. Sydney had a 40-year headstart and yet lost its lead in the 19th century. At that stage the reason was the Gold Rush. Sydney got its lead back when a financial crisis hit in the 1890s.

Sources: various, but consider this a rough approximation.
Sources: various, but consider this a rough approximation.

If Sydney is overtaken by Melbourne in population, you can’t blame the Sydney-siders. They work hard, but they’re behind the eight-ball. The problem is the harbour.

If you think of it as public space, it’s lovely to look at and nice to use. But if you think of it as distance, is it smart to put so much of it right in the middle of your city? Do you really want so much distance between inner-city suburbs? Wouldn’t it be better to have a network of streets?

I contend that the harbour creates a massive problem in the middle of Sydney. The CBD is unable to connect properly into adjacent suburbs because they are a ferry-ride away.

That explains articles like this: “Why is Sydney’s CBD growing slower than Melbourne’s?”

There is plenty of evidence to suggest that connectivity is absolutely crucial to how cities work. It is no coincidence that the areas best connected to lots of other productive areas are also the most productive and expensive real estate.

Source Grattan INstitute
Source: Grattan Institute

Sydney has more than one major business cluster. The city competes with North Sydney and Parramatta.

But I’d argue that’s a sign of weakness, not of strength. Of course every city has suburban centres, but powerhouses like New York and London aren’t confused about where might be the centre of power, or the best spot to locate a business. Sydney’s situation whispers: this city is too big to really be one functional city. But globally-speaking, Sydney is not even that big, population wise.

So, the harbour in the middle could be part of the problem. But the harbour became the centre of Sydney only when a bridge was built that made the north shore more accessible. You can see the population develop in this video and the north only really takes off after 1932, when the final rivet was painted.

The smart move would have been to densely fill in the area to the south, intensively, before building to the north.

We’ve all played computer games where you have to build certain things in a certain order. If you build too many of the wrong thing too early, you get out of whack, run out of gold and you can’t beat the game. I’d argue that’s what Sydney did.

The Bridge was built using  £6.25 million of public money. That represented about 2 per cent of NSW’s GDP at the time. For comparison, 2 per cent of GDP now would be about $10 billion. (sources: 1, 2)

Despite using tolls to pay it off, the debt lingered until 1988.

The opportunity cost? Not just the proper development of contiguous land areas, but also what that money might have bought if spent differently. When the rest of the world was building world class public transport systems, Sydney let theirs go.

There is a common trope that argues the Sydney Harbour Bridge would not have passed any sort of cost-benefit analysis. This is generally used as part of an argument against cost-benefit analysis, with the assumption being that the Sydney Harbour Bridge is good. Of course it has a lot of value now, in tourism terms. But in 1932, when it opened, tourism was a rather minor part of the economy. (It’s worth noting that the Bridge was built against the advice of the government’s infrastructure adviser, which recommended a cheaper tunnel.)

If Sydney didn’t build the bridge, the city might have simply left the harbour as a boundary on the north. Of course some people would have chosen to live there still, but probably fewer. There’s plenty of space to the south that could have become very desirable had the economic centre of the city not been shifted north by the “coat-hanger”.

sydney map

But building the bridge was not the end of Sydney’s attempts to link north and south. With booming northern suburbs and an incipient northern CBD, it threw good money after bad with years of very expensive ferries and then the construction of a tunnel opened in 1992. The Bridge may soon need to be replaced, due to rust.

But forget the money. I’m arguing that the bridge moved the harbour from the north to the middle of Sydney, and that hurt.

This whole argument rests on the idea – coming back into fashion – that infrastructure is “city-shaping.”  That means you oughtn’t merely provide for existing demand, you should understand what you provide will shape future demand.

Bodies of water are city-shaping. They are often part of cities because of the history of water transport, but now hurt urban connectivity. For example, Oakland remains the very poor cousin of San Francisco.

Even rivers seem to have an impact.

London has lots of bridges but the wealth and the productivity is overwhelmingly on one side of the Thames. It required Manhattan house prices to reach many millions before Brooklyn got any buzz, and Shanghai only developed the far side of the Huangpu in the last 20 years.

By this logic, curvy rivers would be especially bad because they divide the city more. In that respect, Tokyo is better off than Brisbane, because the Sumida River flies like an arrow compared to the meandering Brisbane River. (There is evidence that a single bridge built in Brisbane recently has had a big influence on where people live.)

I’d be very interested to see a meta-analysis of whether, in the last 50 years, the value of having a river has turned from positive to negative in terms of a city’s economic growth. The impediments a big river would create to city connectivity are likely to be significant, especially where bridges are in short supply.

All this is very interesting, but we can’t go back and unbuild the Sydney Harbour Bridge. So what’s the point?

The point is we can learn a valuable lesson. Don’t spend valuable taxpayer resources providing infrastructure that will “shape” your city in the wrong way.

Infrastructure is extremely durable. Every mis-spent dollar will spend centuries choking your city. If it accidentally facilitates growth in hard-to-access places, or encourages inefficient kinds of transport use, infrastructure spending can be the enemy of a good city.

Listen up, Melbourne
Listen up, Melbourne.

 

“Tearing up the contracts” for the road tunnel means there is an actual difference between the political parties. Wow!

The state opposition here in Victoria has just announced it will cancel the contracts for an $8 billion tunnel if it wins the election in November. (While it’s true there’s often a big traffic jam on the road in question, the tunnel fails both cost-benefit analysis and any assessment of what sort of infrastructure the city will need in the future).

THE POLITICS

Deciding to cancel the contract is a bold call, and I suspect, the result of intensive polling. Of course, the government saw this coming, and has a strong line of attack running, calling opposition leader Daniel Andrews an economic “vandal.”

In pledging to cancel the contract, Andrews leaves open the question of what he might do instead, and he doesn’t seem to have much of an answer.

Of course Labor doesn’t want to make new giant policy pledges, before the election. The end of the road project would mean, however, that some money becomes free.

 

Labor still has as part of its election platform the construction of a major rail tunnel – “Melbourne Metro”. Both parties are pretending these two mega-projects are not alternatives, with the coalition government pretending to progress the rail project alongside its favourite road. But realistically, the expense and trouble means the projects are an either/or. Cancelling the road contract is an essential input to building the rail project, it’s just that Labor can’t really admit it.

Assuming the “vandal, Naysayer” tags don’t stick, and the lack of a clearly defined alternative doesn’t hurt Andrews much, I think this is smart politics. Voters like a clear choice and the sniff of real leadership.

The seats that would benefit from the tunnel are mainly Liberal strongholds, and I think if Labor focuses on talking about health and education for the rest of the campaign (and especially if Tony Abbott pops his head up) Labor will win the election.

THE ECONOMICS

Promising to tear up the contracts, before they’ve been signed, is a big risk on the part of Labor. I can imagine Lend Lease and the infrastructure minister sitting in a room right now, amending the cancellation provisions. $100 million? Why not $500 million? Protecting the project and/or hamstringing Labor could both be achieved in the stroke of a pen.

We rely on their good citizenship not to do so. A flimsy protection indeed.

Of course there should be some cancellation provision. A lot of money has already been spent on this project. But from an economy-wide perspective those are sunk costs and we ought to ignore them.

The companies that are selected to build the tunnels will seek sympathy. They will talk a lot about all the investments they have made – hiring people, doing mapping, buying diggers, etc. But we should not listen too closely:

  1. Until just this week there were two bidders in the running for the project. Each of them faced a chance of missing out even if the project went ahead.
  2. The prospect of the project being cancelled was obvious. I bet they haven’t actually made a dedicated unilateral investment in this project for months. Anything they have bought will probably be able to be sold or moved to other projects.
  3. Generous contract cancellation provisions arguably makes this money for jam. When you start building a project, there’s risk of making a loss. When it gets cancelled before you begin, any compensation is pure profit.

The real impact of this cancellation will be felt in future projects. Political parties will have similar incentives to infrastructure companies. Both have incentives to prevent the opposition cancelling the contracts.

If Lend Lease offers Labor a contract for the rail tunnel that includes a slightly lower total cost but enormous contract cancellation provisions, Labor will leap at the chance to protect their project from the whims of future administrations.

There’s game theory at work, and this might be the last chance we have to cost-effectively vote out a project of this kind.

Are on-the-spot fines a good idea for public transport?

The government is proposing to bring in lower, on-the-spot fines for public transport ticket infringements, worth $75. Online, people are questioning exactly why the government can arrange mobile payment for fines on trams, but not for tickets.

I want to ignore that for the moment, and ask whether this regime is really smarter.

The fundamental economics of fare evasion fines is simple. There are two factors. A probability of getting caught, and a size of punishment.

If the product of the two is less than the cost of the ticket, you can’t expect people to buy tickets.

For example: the fine is $20 and the inspector is on 10% of trams and trains, you are better off paying $2 on every tenth tram ride than $3.58 for a ticket.

Do you increase the chance of getting caught or the fine?

Ticket inspectors are expensive. They are humans with sick kids and compo claims and they demand superannuation etc, etc. You don’t want to pay too many so the simple model is to make the fine very high.

Your chance of getting caught may be 5 per cent, but because the fine is $220, you are better off buying a ticket. That keeps costs down and encourages compliance.

Fines deterrent effect

The table covers chances of getting caught between 1% and 33%, and fines from $5 to $235. The red areas are combinations of fines and chances of detection at which it doesn’t make sense to pay $3.58 for a 2-hour zone 1 full-fare ticket.

My concern is that if they are reducing fines from $220 to $75, it means they should be planning to have four times as many inspections to get the same deterrent effect. That means four times as many authorised officers on the public payroll. And I hate those guys.

myki shot

But maybe, something different is going on. Could there be a behavioural economics aspect to this?

Humans exhibit present bias [discussed here].

“A leading example of a behavioral bias that impedes market efficiency is present bias, or the tendency of individuals to place much less weight on the future relative to the present than would be predicted by standard models of time discounting. Present bias can lead individuals to make decisions today that reduce future welfare in ways that individuals will later regret (Strotz 1955, Laibson 1997). Analogous to an externality, the situation in which an individual’s decision in the moment creates negative future consequences is sometimes referred to as an internality. Present bias is posited as an explanation for behaviors ranging from a failure to save to smoking.” 

Could it be that a percentage of fare evasion is committed by actual Melburnians who don’t care about the fine because it’s coming in the mail, sometime in the future?

Certainly a share of fare evasion is committed by people who don’t care about the fine because they’ll be back in Gotenburg/Seoul/Lyon by then!

If you bring forward the fine to RIGHT NOW, you might be able to reduce the present bias that says fare evasion is okay.

But costs are not the only relevant aspect. Could on-the-spot fines also manage the human tendency to imagine future effort is easy? “I’ll fight that fine in the court!” I told myself when i was last fined, about a decade ago.

In the end I did not fight it. I just paid it. The writing of the ticket and all the associated palaver in the current system allows one to imagine that the fine is avoidable, somehow. An immediate fine would avoid that. 

For the behavioural effect of on-the-spot fines to work best, Cash would be optimal, but the authorised officers will accept only eftpos.

Of course the minute you allow ticket inspectors to accept cash for fines, there will be some that stop issuing receipts and their reputation will become even worse.

Tell me what you think about on-the-spot fines? Will they work? Would you fare evade more under this regime? Is this all just about saving administrative work in the back end of the Department of Justice? I’m keen to see your views in the comment field below!

How much should we spend to get cycling up to 5 per cent of trips?

Melbourne’s weather is poor. It rains often. The city is huge – 100 km from edge to edge – and vast swathes of it are covered in the kind of densely packed contour lines that make cyclists legs tremble.

In winter, Melbourne’s cycling community shrinks by over a third.

Image

On days like today I suspect the number of cyclists is far smaller.

Image

In short, Melbourne will never be the sort of city where 50 per cent of trips are possible by bike. Cycling (and walking) will never ever do the “heavy lifting” in our transport mix. That role will always be split between public transport and private motorised transport.

At the moment, the mode share split between these three is:

Image
Source: 2011 census

And the trends are these:

Cycling is growing fast, more than doubling in eight years.:

Image
Source: VicRoads

Public transport growth has been its highest in sixty years, with train travel accounting for most of the increase:

Image
Source: PTV

And vehicle kilometres have surged on freeways, while not increasing on arterial roads.

Image
Source: VicRoads

Expenditure on specific infrastructure looks like this:

Nationwide, spending on cycling is $112.8 million. Spending on roads is over 100 times more, at $18 billion.

Image
Source: BITRE

The data is tough to aggregate, but one estimate is that roads get four times the investment of public transport.

All the modes are growing. How do we decide what the data means? And why not let the market decide what modes live or die?

The answer to the second question is that transport is going to be a centrally planned space until we can charge users per kilometre.

Public roads built to accommodate cars push the whole investment process into the world of “second-best.” If subsidising roads is a given, subsidising public transport can be efficient. Subsidising public transport makes policy makers wonder if there are other, cheaper ways to move people around, like bikes.

So if we’re going to be centrally planning our transport mix, we must ask: do we like the current 78/17/5 mix?

I’d argue we should not. I’d argue we should be aiming to grow the share of modes that have fewer negative externalities and greater returns to scale.

I’d hazard a guess that for Melbourne, 10 per cent share evenly split between walking and bike, 30 per cent for public transport, and 60 per cent for cars would be optimal.

Does that mean we should start spending 10 per cent of infrastructure funding on active modes, 30 per cent on public transport and 60 per cent on cars?

Only if we want to move very very slowly.

Image

Infrastructure lasts a long time. That means the stock of existing infrastructure is the single biggest determinant of infrastructure in five years time. Marginal changes in expenditure rates affect outcomes only very gently. If we want to effect change, we need to tip the scales massively in favour of the modes we want to grow, in the short term.

That means that announcements like $650,000 for changes to a cycling bridge in Melbourne’s west should not be cause for widespread congratulation.

In the short term, we could probably usefully spend 60 per cent of the transport infrastructure budget on public transport and 15 per cent on active modes. If we did that for a few years, we would move swiftly towards the outcomes we want, before returning to a “maintenance” split, where expenditure is based on usage.

Spending even $500 million a year on bicycle infrastructure might seem like a lot when the recent budget has been around $30 million. But when you look at what passes for “bicycle infrastructure” and imagine replacing it with global quality bicycle infrastructure, it would be a drop in the ocean.

Image
“Bike boxes” were the sine qua non of Melbourne bicycle infrastructure innovation just a few years ago.

I don’t imagine gold-plated bicycle infrastructure should go everywhere. Far from it. Cycling infrastructure should be optimised in the areas where cycling can thrive, likely to be areas that already see some bicycle traffic. Fixing missing links, creating Copenhagen lanes on major on-road routes, plus widening and lighting off-street bicycle paths would be the top three priorities.

If we want to increase the share of some modes, we need to be bold about throwing money at them, and not be afraid to acknowledge that such a move comes at the expense of other modes.

Market Forces: Should a taxi ride cost even more?

In the rain on Wednesday night, I got a cab home from the city – a $15 fare. Near my house the driver had to turn from a busy road into a side street, across oncoming traffic.

As the windscreen wipers flicked back and forth, the oncoming headlights of a bus distorted into a kaleidoscope of colour in the raindrops. At that exact moment, the driver took his foot off the brake and began to make his turn.

Every muscle in my body tensed and I opened my mouth to shout something, but then he stopped again. The bus had to swerve past the yellow bonnet of the car. Once it was gone the driver proceeded.

And I’d rate this guy as one of the better drivers I’ve had in recent times. At least he didn’t drive on the footpath.

So when the state government announces it is raising the fares on taxis, what do I think? I say thank god. Let’s make driving a taxi rewarding enough that people with a will to live and proper skills want to do it.

The government is proposing to raise flagfall from $3.20 to $5.20 after 5pm and to $6.20 on Friday and Saturday nights.

Image
A sheltered industry

The market for taxis has long been a mess. A big part of the problem is the lack of actual market forces. The industry has long been regulated to within an inch of its life. The biggest single rule has been a cap on the number of taxis in Melbourne, that drives up the value of a cab.

The licenses (aka plates, aka medallions) that permit you to have a taxi in Melbourne are worth hundreds of thousands of dollars. The owner gets half the money you pay. The value of the medallion exists only because the number of taxis is regulated.

As the medallion owner reaps return on the investment, the cab driver gets screwed. An Age journalist recently trained and worked as a cab driver and made $8 an hour for his troubles.

One of the reforms proposed by the Victorian government’s taxi review was for the split of revenue to change from 50:50 to 55:45. A ten percent increase for the driver is hardly earth-shattering, but it has been opposed by the Victorian Taxi Association. That is the peak body for the industry. Unsurprisingly, it doesn’t effectively represent the users of taxis or the casual drivers. It is backed by the money.

It also opposed the big reform proposed by the taxi industry review, increasing the number of cabs in Melbourne. Despite its arduous work in representing the interests of the medallion holders, that reform has driven down the price of a taxi license. (In 2012, licenses were changing hands for as much as $500,000.)

Image

The government has agreed to a clever approach – leasing 12 month taxi licenses at $22,000 a year. This price is indexed at below the rate of inflation. The eventual effect is that the price of a taxi license approaches zero, and the market is no longer held hostage by the medallion holders.

The other big change that is being stealthily introduced is deregulation of fares. Part of the problem is that a taxi is just a taxi. There’s no easy way to get a good one. No way to offer a better service and charge a higher price.

Quality lottery
Another yellow ball bouncing round the barrel of the quality lottery

But in country areas, the government is introducing a rule that allows taxis to set their own fares. I see a link with today’s announcement. Might higher fares in the city build a consensus that really, deregulated fares are the desirable outcome?

Hopefully by that point, the taxi industry as we know it will cease to exist anyway. The hire car and limousine market has also been given freer rein under these reforms. Hire cars differ from taxis because they cannot pick up fares on the street –  they have to be booked. Pre-smartphone, this was an impediment. Now booking your ride is only an app away.

The biggest player in this space is Uber.  It started as a a way for towncar and limo drivers in the US to make money in their downtime, and is now available worldwide. The little car-hailing company that could is now worth an estimated $3.5 billion. According to their website, riding from my house to the city could cost as little as $10 and you might end up riding in a Prius or a Mercedes.

If they put our yellow cabs out of business, I won’t shed a tear.