Private money for public goods

Almost every day for several years I would drag myself off a train at one of Sydney’s biggest train stations on the way to work.

If you’ve travelled, what’s striking about Australian train stations is how empty and tacked-on they feel. Apart from the odd shop and vending machine they are quite austere, functional and removed from the rest of life.

You don’t really get the supermarkets, vast food courts or even accomodation that are often found in Asia or Europe. Public transport hubs are places to pass through, not go to.

Australians are poorer for it.

After reading this paper about Tokyo railways I can’t help but think this is partly because Australian transport is mostly a government activity.

As government entities they are constrained in what they can do (lest they raise the ire of private competitors). This not only reduces their possible services and the resulting community and consumer surplus, it leaves them open to cuts and “efficiency dividends”.

The Tokyo railways on the other hand:

…remarkably for the twenty-first century, the private railways in Tokyo Metropolis operate at a profit…

…Government regulation of fares coupled with limited subsidies for railway operations pushed the private railways to innovate and diversify into a wide variety of related businesses, most notably real estate. Due to their long-term interest in the communities they built along their rail lines, the private railways provide valuable social benefits through public transportation while still pursuing profits.

Unlike Australian railways, the Tokyo railways are private and profit seeking. Coupled with heavy fare regulation, we have the happy accident of their expanding into other services and amenities as a way to maximise profit.

It is arguably one of the reasons for the building density around the railway lines in Tokyo. This increases walkability and helps integrate transport networks, making it far easier to get around without a car.

You now have a virtuous cycle even as the rest of us scramble to get people out of cars.

…private railways were able to survive and thrive by branching out into businesses closely connected with the railway industry, while private operators in Europe and North America slowly began to fail due to increased competition from the automobile…. On the Toyoko line, for example, Tokyu built high rise commercial centers at Shibuya station in Tokyo at one end and Sakuragicho station in Yokohama at the other, and opened its first department store near Shibuya in 1934. The corporation offered land at low rates to universities and schools in order for them to build campuses at intermediate stations along the way.

Tokyu is one of the most profitable railway operators in the country, with net profits of ¥58.72 billion (US$587 million, €441 million) on operating revenues of ¥263.7 billion (US$2.63 billion, €1.98 billion) in 2006 (Tokyu Corporation 2007). Real estate and transportation each bring in an equal share (33.5%) of net profit, with the rest coming from retail (20.2%) and other sources.

Of course, this could easily be an argument for complete government control. But I can’t imagine a purely government entity having the political might to get something like this done. Not without a whole lot else changing in society.

And anyway, without the ability to grow around the railway as Tokyo has done, you’re unlikely to replicate the effect. This isn’t a plan for established cities.

I guess this is more a call to be mindful of the extraordinary consumer benefit that can accrue if entrepreneurs are given the incentive to do so.

As always my emphasis.