South Africa could end up like Zimbabwe. Hans-Joachim Löwer

To Regulate, Or Not

The ideological debate over regulation misses the point: it’s not a question of more or less, but of good regulatory designs. The London bus system provides an instructive example.

“Regulation” and its counterpart “deregulation” are dull words that have evoked the kind of passionate political fury since the days of Reagan and Thatcher one would normally associate with religious conflict and war. The dogmatic rhetoric of scorn and disdain with which each side of the “regulation” battle characterizes the other produces a painfully oversimplified view of the issue. All of this ruckus would be comical were it not so counterproductive. On one side of the debate, any expansion of the wasteful public sector or any brake on the engine of free enterprise is a deadly sin antithetical to individual liberty. On the other side, the nefarious machinations of greedy capitalists must be restrained at all costs lest we suffer a wholesale McDonaldization of society under plutocratic rule.

But we have to look past the unidimensional caricature of the debate – more regulation versus more market – and beyond the monolithic abstraction of these ideas including that of neoliberalism, social democracy, and the so-called “Third Way.” Instead, we have to think very tactically and ask: for each specific area of economic activity, what is the most appropriate regulatory design?

The case of the London bus system is an instructive example. The fact of the London bus system is that it basically works fine. Depending on one’s level of cynicism, this fact alone may not seem impressive. But consider the perfect storm of complicating factors: the general population of London and London bus use have been growing rapidly. Bus fares are relatively cheap £1.35 – $2.10 – per trip for Oyster card users), even with the recent 5.6% fare hike, and include generous concessions such as free travel for the elderly and disabled. Public subsidies for London buses have fallen by 24% since 2005 on a per passenger-journey basis. And of course, the state of London traffic is appalling to say the least, ranking as the worst in Europe. Given that the universe seems to be aligned against it, the London bus system holds up quite well.

The London bus system pulls this off through a feat of economic engineering that creates a balanced ecosystem of central planning, private sector risk-sharing and competition. London Buses, a subsidiary of the government agency Transport for London, sets the parameters for the overall system including routes, stop locations, fares, and vehicle specifications down to the level of bus colors. Given these parameters, private bus companies bid on contracts to operate specific routes and are selected by the government based on the quality of their proposals and the price of their bids. During operation, each route is monitored according to specific performance criteria such as bus timeliness and reliability. More qualitative factors such as customer experience are cleverly assessed through hidden ride evaluations called “Mystery Traveller Surveys.” Bus route operators that score especially well are rewarded with bonus payments and contract extensions. All in all, it is a very tightly integrated and fine-tuned system that drives down costs by squeezing the most out of private sector competition while ensuring a quality service for the public.

Is the success of the London bus system the result of deregulation and privatization or strong regulation and public control? The answer is it doesn’t matter. The London bus system works because it fuses together elements of the public and private sector in a way that uniquely matches the situation and its demands. Contrast this with the local bus systems for the rest of England where an unstructured competitive framework and poorly defined regulatory parameters have resulted in declining bus service quality and usage.

Ultimately, each area of economic activity – be it finance, healthcare, pharmaceuticals, transportation or defense – needs to have a thoughtfully designed regulatory framework that fits it. Ideological squabbling over more versus less regulation only serves to distract us from finding pragmatic solutions. Most bus passengers couldn’t care less how regulated or deregulated their bus service is. They just want something that works.

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