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Economic Theory & Allocation of Scarce Resources:

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This essay is a revised, edited and up-dated version of the Paper on the economics of urban transport, with public policy proposal submitted in 1982 & 1984 and re-submitted to the Cabinet Committee on Economic Recovery in 1986. No action has been taken. However, the Proposal is as relevant, timely and demands attention today as it was in 1982, 1984 and 1986.

Economic Theory, Public Policy & Allocation of Scarce Resources: The Case for the Monrovia Transit Corporation (MTC)

Foreword, November 20, 2013

Apparently, the post-conflict, appointed Mayors, like some pre-conflict, elected Mayors of our Capital City of Monrovia pay no attention to city government – wards, city council, elections, etc. – and, particularly, functions concerned with the ever-present problems of Urban Transit.

Now, the recent, reasonable and timely ban, placed on the popular but dangerous “pehns-pehns” from plying major roads/streets in metropolitan Monrovia, creates an alarming, transport nightmare for the patrons of this mode of transport service. On Broad/Randall, Broad/Johnson in central Monrovia; along UN Drive in Vai Town; Somalia Drive on the Island; Tubman Boulevard in Sinkor, one finds thousands of these patrons for timely, safe, efficient, affordable, but unavailable transport, especially, during morning/evening, rush-hours.

In addition to the increased and rapidly-increasing population of the city, this problem is exacerbated by the absence of paved/unpaved, but safe, adequate roads in suburban communities; while the available, old roads/streets built, paved/unpaved, some 40-50 years ago, now dilapidated with potholes, cannot facilitate, smoothly and safely, the increased volume of vehicles as well as pedestrian traffic.

In the light of the ban, which triggered the ever-present problem and as a suggested reminder, I submit hereunder, a reprint of Economic Analysis submitted to the Cabinet Committee on Economic Recovery in 1982, 1984, 1986 and reprinted in 2012.

Parenthetically, I noted upon arrival, that the letters “MTC” (for Monrovia Transit Corporation) an operating arm of the Monrovia Transit Authority (MTA, a Board of Directors), which is reasonably applicable only to the city of Monrovia, had been changed to “NTA” (for National Transport or Transit Authority) written on all buses operating and performing urban transport (or transit) service only in the city of Monrovia.

Not only that this name change is inapplicable because the urban, transport (or transit) service for any city is not an authority, but also, because the Liberian nation does not have a National, Urban Transport (or transit) Authority with operations nationally. An urban transit service is performed by an operating company under the direction of an Urban Transit Authority of a given city; in this case, the Monrovia Transit Authority, as we shall see later.

Introduction

The Monrovia Transit Authority (MTA), parent organization (Board of Directors) and the Monrovia Transit Corporation (MTC), the operating arm of the MTA, were organized and established in the 1970s to provide affordable, safe, efficiently-managed and effective urban transport service. For, “mass people movement” of people in the growing, sprawling, commercial/industrial, urban setting such as the city of metropolitan Monrovia, is a critical requirement for the social and economic development of any, such city. But the “mass movement” of the citizens of Monrovia leaves very much to be desired. Teachers, students, blue- and white-collar workers, market men and women, housewives, domestics, etc. are seen at major, extremely-crowded transfer points in the city, rain or shine, waiting for convenient, safe, reliable, efficient and relatively inexpensive transport to get to and from school, place of employment, shopping, recreation, etc., but non-existent.

Where some form of commercial, public transport exists, it is not convenient nor affordable, but inefficient, unsafe and relatively expensive. Basically however, patrons of urban or public transport system are the majority of the population least likely to afford privately-owned mode of transport, while private, business enterprises and public agencies in any growing, commercial/industrial center or city depend upon the patrons of public transport to produce, distribute and deliver needed goods and services to the consumers. Our question, then as now, is how do we organize and operate a transport service, utilizing limited resources at an optimum, while satisfying public demand in the least, possible cost? This question remains unanswered today in 2013, as it was in 1982, 1984 and 1986, or before, during and after our national tragedy of the civil war.

This brief analysis and proposal are my attempt at an answer to the question. The Proposal analyzes the relevant, economic principles of “free market”, public intervention and monopoly; identifies applicable, public policy and the allocation of resources; recommends the organization that is efficiently-managed; and the public policy likely to resolve the problem of urban, public transport.

Economic Theory and Social Goods

Economic Theory holds that “pure competition” in the marketplace comes closest to realizing the principle of “consumer sovereignty”, when producers of goods and services can NOT exercise economic power such as absolute control of prices, but only respond to the wishes of the consumer. It is in this “pure competition” model that firms are forced to produce at that maximum with the least, possible costs and greater economic efficiency. But seldom, if ever, in the real world economy, does one find economic conditions which correspond to those that exist under the principles of “pure competition”.  Let us look at some of the factors which limit the effective application of the “free market” system:

•  Cost conditions are not identical to all producers; consumers as well producers do not have full knowledge of alternatives available to them.

•  The “free market” system responds only to preferences expressed through money expenditures; it is not a proper instrument for allocation of resources to satisfy social wants or needs (publicly-owned, urban transport or utilities, etc.); public or social goods and services are vital in society, but they do not carry the same price tags as goods and services produced to satisfy individual wants or needs.

• The free market mechanism may not adequately measure both social costs and social revenues, although they must be taken into consideration if society is to reach an optimum in the allocation of resources.

• Research and experience show, conclusively, that forces inherent in the “free market” system often lead to breakdown in competition (price leadership, for example, replaces competition), particularly, with gains of modern technology which makes possible great economics of scale. Simply to promote and maintain “competition” in the market place, the cost advantage of large-scale production would be lost where there are two or more railroads between point A & B; two or more water/sewer firms in one and same city; two or more telephone or light/power service providers in the same city or region; and two or more urban transport firms in a metropolitan area. For, it would be inefficient allocation and use of limited resources to have a large number of firms, each producing a small output or providing a service at prohibitive costs.

Application of Public Policy

The foregoing, described deficiencies in the “free market” system provides the rational basis for the development and application of Public Policy – decisions made through the economic and political process in democratic, free-market societies – which, in particular and specific cases such as this, modifies the price and output pattern of the given, social goods and services that would, otherwise, result from the market mechanism unchecked. Where such a condition is permitted to obtain – the free market forces to remain un-restrained – the results will be the achievement of socially-undesirable goals.

Contrary to the conventions and economic reality, some of us, Liberians, believe that the “free enterprise system” is or should be without educated, public intervention or regulation. This is a fallacy. The late, notable thinker and Economic Theorist, Maynard Keynes’s economic analysis and theory (Keynesian) provides public intervention/regulation support. Moreover, in some developed countries, more so in the so-called Third World (developing) countries in which public, economic activities approach an estimated 60%, state intervention has been and is being made not only through direct intervention/regulation, but also through the restriction of the very principles of “free enterprise” (competition, etc.) in the effort to prevent social injustice and promote equity in the market place.

It is very important to note, at this point, that due to the required brevity of exposition, comprehensive treatment of Economic Theory on Pure Competition and Monopoly is beyond the scope of this limited proposal. Therefore, I confine analysis and conclusions to the relevant principles and public policy variables applicable to the issues raised.

Under the foregoing conditions as described, public policy restrains competition by giving one qualified and competent firm, usually a public agency, a franchise or license as “sole producer”. This approach is necessary because rational, public policy prescription would not and should not compel the maintenance of large number of small, inefficient producers, neither would public policy give monopolistic opportunities to a single, large firm which could restrict output or service, raise price and appropriate, as profits, the gains made available by large-scale production.

The resolution of this economic dilemma is made through the principle of “sole producer”. In the effort to restrain competition and, simultaneously, prevent an unchecked, monopolistic condition, state or municipal authorities give franchise or license to a single, qualified firm which, as sole producer, provides the socially-needed goods or services. In return, authorities reserve the right/authority to regulate the price (as opposed to price control) and quantity to achieve, both, the efficiencies of large-scale production, low price and high output that should and must accompany them. Historically, two major categories of industries have been subjected to regulation/control worldwide; they are public utilities and public (urban) transport, often described as “natural monopolies”, in economic terms.

The Case for Monrovia Transit Corporation (MTC)

In the developed countries, urban transport, publicly-owned or private, is given “sole producer” status so that there are or will be no other competing systems. The reasons, as noted, are simple and compelling: urban transport, basically, is a social service, not intended, solely, as a profit-maker; it facilitates urban, economic development by efficient, effective movement of workers and others – teachers, students, business men and women, housewives, etc. to and from their respective destinations, at relatively low cost, safe and convenient.

However, the Monrovia Transit Corporation (MTC), our urban transport system for the nation’s capital City, had been and is compelled/subjected to compete with private operators – the min-buses and others – whose costs and managements (for profit) are dissimilar to MTC. Now, let us look, again, at the prevailing, comparative, market conditions:

1.  MTC Level of Investment – Equipment & Operations

(a) Investment

MTC’s investment and cost curves are significantly higher and different than its competitors. These include an initial outlay of some US$6 million (much higher in today’s dollar value) for passenger buses, cars, spare parts, specialized tools, diagnostic equipment, office buildings, purchase of several acres of land for maintenance facilities and shops.

(b)  Operations

MTC maintains a formal, corporate organization and structure – a Board of Directors, professional management with relevantly trained operators (bus drivers), maintenance crew staffed with highly trained mechanics and specialized technicians. The firm operates (supposed) on a planned, urban transport, bus service, in terms of timing, bus spacing, bus stops, and routes covering residential, commercial/industrial areas of metropolitan Monrovia. All bus units are insured against third party liability.

2. Private Operators –Mini-buses & others

(a)  Private operators make no such investment nor face similar costs. Their observable assets are only the minibus equipment and others not so mini, with no funds available for working capital; they operate on a “hand-to-mouth” basis. There are no operational plans – bus routes, stops, time, area of coverage, etc. These are determined momentarily by the “route that pays”, routes with a significant number of passengers but not sufficient to cover trip cost, at a profit, are not served.

(b)  Bus operators (drivers) are not relevantly trained for urban transport service; most of the bus units operate with defective parts and equipment. They are not insured against third party liability, as required by law. Usually, the bus operators avoid rigid, police inspections and regulations.

General Policy Framework

There appears to be no set of urban transport policy or a defined and integrated agency to administer the necessary, legal requirements such as the following:

1. Fare rates, transit zones for buses, taxicabs, motorcycle taxis, limousines, car rental and others.

2. Socio-Legal requirements such as traffic safety, bus driver qualification, licensing, bus unit/equipment road worthiness and third party insurance coverage. Taxicabs overload with 5 or more passengers in the single, back seats, designed for a maximum of three persons.

3. City traffic management – regulation & control, off- and on-street parking and traffic control, street lights; street name identification, addresses and maintenance.

4. Apparently, there are several agencies of government exercising regulatory responsibility/authority not only over urban transport, but also national transportation. Some of these agencies are performing parallel or duplicating functions; others are not, in fact, relevant, in terms of organization and professional competence. This condition encourages and promotes public dishonesty (corruption).

Recommendations

A. The Monrovia Transit Corporation (MTC), an operating arm of the Monrovia Transit Authority (MTA, Board of Directors), should and must be granted “Sole Producer” status, with a franchise to operate solely on all described and designated, major, regulated transit routes in metropolitan Monrovia, as herein described.

B. The authority to plan, develop, formulate and promulgate policies designed to regulate the urban transport for the City of Monrovia shall be the responsibility of the Monrovia Transit Authority, a 3- to 5-person Board of Directors, chaired by the (elected) mayor of the City of Monrovia or an individual (Liberian) having the requisite qualifications with demonstrable dedication and honesty. The responsibilities of this body shall include, but not limited to the following:

1. Operator (bus driver) qualification, licensing, equipment safety, third party, insurance liability. Transit zones, bus routes, taxi cabs, motorcycle taxi, and other urban transport organizations.

C. The present, operating organization named the National Transport (or Transit) Authority (NTA) should be changed to Monrovia Transport (or Transit) Corporation (MTC) because the operating firm is not a national entity nor an authority, as the name (NTA) suggests, but a local, urban (Monrovia) transit corporation. Its functions shall remain intact, consistent with its articles of incorporation, and granted sole producer status as herein proposed.

Manufacturers and suppliers of buses, spare parts, tools and diagnostic equipment incidental to urban transport are willing – with the assurance, that upon adoption and application of an appropriate, rational, economic, urban transport policy along the lines as herein proposed – to provide the full range of equipment and specialized training, periodically, upon validated request. With this policy that guarantees a major, market share, the Monrovia urban transit system will generate more than sufficient revenue such that it can repay its capital debt and operate without public participation/support.

By Bai M. Gbala, Sr., Former Chairman, Board of Directors, Monrovia Transit Authority (MTA)

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