Competition: The way forward

Originally appeared on The Morning

By Dhananath Fernando

The recent conversation on taxi services at the Bandaranaike International Airport brought back memories of one of the times I travelled overseas as a youth. The Colombo-Katunayake Highway construction was not yet completed and I had just finished university.

I did not have the means to hire a vehicle to travel from Moratuwa to Katunayake in order to catch a flight, nor did Sri Lanka have the infrastructure or many affordable choices for a poor boy like me to reach the airport quickly at a reasonable cost. There was no PickMe nor Uber, and neither did I have a smartphone.

I left home early with my borrowed luggage from a friend and came to the Moratuwa Railway Station. I took the train from there to Pettah. From Pettah, I took an air-conditioned bus, paying extra to keep my luggage in the front of the bus and took a tuk from the bus depot to the airport departure terminal. I think the time I took to travel from home to the airport was just about 30 minutes less than the travel time of my flight.

All that I went through was due to unaffordability as well as the unavailability of affordable choices to travel. If there had been proper modes of public transport available connecting trains and airports, the lives of people like me, who could not afford a taxi to the airport, could have been easier. In the context of the availability of choices, we have to evaluate whether to allow mobile app-based and registered taxi services at the airport.

It is obvious why registered taxi services at the airport charge a higher rate. Their reasons to charge a higher rate include the cost to operate at the airport by paying rent for their operating offices and keeping an adequate fleet of vehicles. Further, their cost also includes licence fees and bribes that they have to pay to obtain the licence to operate at the airport.

However, their business model has been challenged by a more technologically-advanced operation where customers can choose the type of vehicle they want and are given the ability to check the rate for the journey prior to booking the taxi. This offers many more options including safety measures, such as the ability to contact the driver after the ride in case something is left behind after long hours of travel time.

While the operation of registered taxi services is perfectly reasonable, preventing someone else with an alternative solution from entering the market will make the lives of people more difficult. In a competitive world, competition should be encouraged.

The solutions suggested by our policymakers are absurd. Certain policymakers have wished to prevent the operation of mobile app-based taxi services at the airport. Others have suggested that the airport registered taxis should also register with mobile app-based taxi services. While the second option is somewhat reasonable, a business model being rendered uncompetitive due to the development of technology is not a problem for policymakers in the first place. Imagine bullock cart owners claiming that they are being impacted by engine-driven vehicles?

Simply, this is the evolution of the world and we have to adapt or we will lose in the market. Unfortunately, airport-based taxi services are becoming uncompetitive and more importantly, customers do not see any value in their services. If a customer sees the comparative value of one service being better than the other, they should be given the opportunity to make a choice based on the available options. This service should be valid even for customers whose hotel travel is coordinated directly.

Once we look beyond this and decide to connect our airport to multimodal transportation systems (such as connecting railways and highway buses to the airport), the airport-registered vehicles as well as Uber and PickMe taxis will witness an impact on the number of hires they receive.

Will policymakers delay connecting the airport to multimodal transport systems merely in order to protect our taxi services and drivers, overlooking affordable options for consumers?

In most airports around the world, the terminals are connected to some form of public transport while any type of taxi service is allowed. In fact, the infrastructure and signage enables mobile app-based taxis and other taxi services to pick up and drop off passengers at specific points. All modifications have been undertaken to make the lives of travellers easy, affordable, and safe, instead of protecting a group of politically-affiliated rent-seekers.

The manner in which our policymakers treat this issue is a good indication of how the majority’s choices have been compromised for political reasons, for the benefit of a few who are unproductive and uncompetitive.

This norm is not only seen in this particular scenario, but everywhere in our economy, including the State sector. Similar to how registered taxi drivers are objecting to mobile app-based taxi services, the Ceylon Petroleum Corporation wishes to keep other private companies out of the market. Some tile and bathroom fitting manufacturers wish for import bans on tiles and bathroom fittings, simply for their own benefit, as do aluminium manufacturers.

Things are the same in politics. They are all basically asking Sri Lankans and tourists who arrive in the country to take long journeys, wasting a lot of their precious time and call it a ‘beautiful life in the paradise island or Asia’s little miracle’.

‘So Sri Lanka’; is it actually a miracle?

Killing aspirations by regulating tuk-tuks

Originally appeared on The Daily FT

By Dhananath Fernando

What do regulations enforced after the 1st of August mean for tuk-tuks?

I live in Moratuwa, down Diggala road, a 2 km by-road from Keselwaata Junction on the Old Galle road. In my little hamlet, there are only two mini Lanka Ashok Leyland busses that operate in synchronization with the train time table from the Moratuwa Railway station to Diggala Road. Regardless of this inefficient bus operation, my saviors are an efficient and unique operation of tuk-tuks that cover a 2km radius from the railway station, enabling the commuting needs of the neighborhood. 

MAPPING OUT THE TUK-TUK OPERATION

In terms of the cost, the three wheelers engaged in this operation on this route only charge a ‘per passenger’ rate instead of a ‘per Km’ rate or a standard hire fare like almost all other tuk-tuks in the country. This means that each person has to only pay a fare of Rs.20 (despite the distance) and they take 3 passengers at a time in a single tuk. In simple words, it is a three-passenger bus system operating at every 10-minutes intervals. Their services are available until about 11.00 pm and I am very grateful to all the drivers operating their three-wheelers in the route and for providing us daily commuters with such an honorable and sustainable service.

You could even call me an over-satisfied customer as the journey is comfortable than the bus in many aspects. Seating facility, availability, frequency, reliability and ability to get off the vehicle right near the gate of my house are just a few advantages of this service. All this, is just Rs.5 higher than the bus fare (which is unreliable and mostly unavailable).

This is one, of the many services rendered by tuk-tuks that fail to reach mainstream newspaper headlines. Hence why it worries me of the adverse impacts that would overcome the industry when strict regulations are imposed by the “National Council for Road Safety” where they plan to regulate three-wheelers to have a meter with printed bills starting from the 1st of August, 2018. On the surface it looks like a step right direction as it seems to protect a consumer using this service, but in a practical world there would be many unintended consequences. Let’s analyse how these regulations would affect the tuk-tuk service in my area.

THE ADVERSE IMPACT OF REGULATIONS ON TUK-TUKS

If the tuks in my area were to adhere to new regulations and introduce a meter and a printed bill, they will no longer be able to charge a per passenger rate. Instead they have to charge a fare as per the standard meter rate. This results in someone like me, who initially only paid a Rs.20 for a one-way fare from the railway station to my house, now paying up to Rs.60 a ride, a price hike of 300%. Personally, I don’t think that I should bare this extra cost for the sake of receiving a standard fare rate and a printed bill. Eventually, this will result in me limiting my usage of tuk-tuks as a consumer. I know that the demand for tuks in my neighborhood would reduce and this isn’t a phenomena only limited to my area.

There is also a second possible outcome scenario of these regulations. The issue with regulations is the limited capabilities and downfalls of the government in terms of endorsing them. Most tuk-tuks will continue to operate as they do now, automatically creating a black market supply in tuk-tuk services. I am not arguing against regulations because of the inefficiencies in endorsing them, I am arguing against the case of regulations because regulations are not the best way to achieve the stated objectives; a standardized tuk-tuk fare across the country

UNLOCKING INNOVATION THROUGH COMPETITION, NOT REGULATION

Most Sri Lankan state institutions and politicians, across all parties, believe that state intervention and regulation is the only solution for public concerns as this. The practicality of regulations and its eventual reality does not agree. We often forget that the innovations made in the taxi services industry, like telephone call based taxi services such as “Budget Taxi”, “Fair Taxi” or taxi services utilizing the use of mobile phone and app technology, such as “Pick me” were not a result of regulation or strict control over the industry. These innovations were a result of minimum regulation and the presence of competition in the free market provision of tuk-tuk and taxi services. It was simply the freedom and space to innovate and serve customers and taxi drivers better to meet higher profit targets that drove these businesses to create such innovative solutions in the industry.

The world and markets evolve based on the needs of consumers and there needs to be market freedom to ensure innovative solutions to meet these needs. This is a fundamental in economics theory and not a concept of rocket science, or as some may call it, a “foreign conspiracy”.  

Additionally, according to the guidelines of the new regulations, every tuk-tuk must have a meter and should issue a printed receipt to the customer at the end of every ride. Does this mean that the many mobile app taxi services that generally provide an SMS receipt now require to provide a printed bill? When the entire world is going green, why an extra hassle for the driver to print a bill out at an extra cost?

As a passenger and a consumer there are services I expect a receipt for and there are services a receipt is not an expectation. If it is a household electronic item, I will definitely demand a receipt for warranty and returns purposes but from a taxi driver, the least I expect is a receipt. Rather I expect a safe and quick ride to my destination. This is not the first time the current government made attempts at regulating tuk-tuks. They imposed a minimum age ceiling for tuk-tuk drivers to be over 35 years of age. The justification behind this was apparently that three-wheelers contributed to the most number of road accidents of the recent past. However, as the data below shows, this was not the case.

LEAVE TUK-TUKS ALONE

Three-wheelers are not just merely a mode of transport. It means different things to those from different walks of life. For a rural commoner, it is an ambulance in a time of emergency. It is equivalent to a VIP Defender for an office worker, in a rush for his afternoon meeting. It is wedding car for a poor household. For entrepreneurs in urban and rural parts of the country, it is their mini lorry and companion. More than everything, it is an aspiration and product of pride for more than 1 million households in Sri Lanka. A poor man has to shoulder a tax of Rs. LKR 420,000 on a tuk-tuk. This tax, is then used to fund loss making state-owned enterprises; provide for the excess of government sector employee’s salaries and pensions; and a continuing list of unnecessary provisions. It is not rare to find tuk-tuks with logos of European cars pasted on its body. You’d see “Audi” to “BMW” stickers galore in some tuk-tuks. This sends a strong message to the rest of society. To a poor man, it is his BMW and his Audi. In other words, it is his aspiration and it is his world. Killing these aspirations with unnecessary regulations is never the solution, restructuring the service provided through competition and innovation, is.