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Privatization of Public Transit

Privatization is the transfer of publicly owned assets or publicly operated services to private ownership or operation. Privatization of public transit systems takes many forms. Moves to privatize public transit are usually motivated by a combination of cost pressures on governments and a desire for improved transit services. At the same time, though, the operation of public transit requires legal and regulatory powers that only governments can provide. There is also political pressure for transit operators to provide services in circumstances that do not generate commercial returns. Not surprisingly, therefore, privatization is almost always a controversial and contested process.

Historical Context

Prolonged worldwide economic stagnation in the 1970s and 1980s diminished the capacity of governments in modern industrialized countries to fund many projects. Privatization became a significant part of a reform agenda to shift control and ownership of productive resources to private-sector entities. At the same time, those activities left in state control and responsibility were subject to marketization reforms. These involved the competitive supply of services by the private sector, on the one hand, and the expectation that government enterprises would mimic private corporations, at least as far as management practices were concerned, on the other.

The United Kingdom became a worldwide leader in privatization following the election of Margaret Thatcher's Conservative Party government in 1979. Privatization became widespread shortly afterward across Europe and in the United States, especially, under the leadership of President Ronald Reagan (1980–88). The collapse of communism in eastern Europe in the late 1980s and early 1990s saw the onset of privatization measures in that region. This was part of the widespread dismantling of systems of state-planned and -controlled development, as well as the sell-off of state-owned enterprises (SOEs).

Concerted privatization programs in developing countries also date from the 1980s and 1990s. The initial impetus for the sell-off of SOEs came from rising public indebtedness in a number of Latin American, east Asian, and sub-Saharan African nations in the mid- and late 1980s. In these regions, privatization was a central part of the International Monetary Fund's (IMF) structural adjustment programs for developing nations in need of assistance.

Types of Privatization

It is possible to identify three general types of privatization. The most common form is the sale of SOEs into private ownership. However, there are considerable difficulties when it comes to the outright sale of public transit systems. This is because a public transit system is usually a bundle of integrated assets acquired as the system developed over time, usually in the hands of a government-owned utility. In the case of a rail or metro service, for example, this bundle of assets might include the rolling stock; the rail and signaling assets; stations and associated amenities; fare-collection systems; operational, administrative, and management teams; integrated retail spaces; parking spaces; unused land and air spaces that might be valued for commercial property development; the property rights that guarantee passage across a city; and other infrastructure assets, such as information technology (IT) cabling or water pipes, which often co-use a rail passageway.

Some of these assets can be dismantled quite easily to be sold to commercial operators or developers. For example, car parks and idle land around railway stations could be sold to a parking lot operator. Even a fare-collection service could be run by an external company, in a similar way to how large retailers outsource their credit and cash register systems to specialist financial-services firms.

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