By Ricardo Torres (Progreso Semanal)
HAVANA TIMES — Over the last few weeks, we have witnessed another controversial episode along the long road to searching for real solutions to our many burdens. The government in the capital of Havana introduced price regulations to how small scale private transport operate, who are known around here as boteros (private collective taxi drivers). The first thing we need to ask ourselves is whether the government in the capital should be doing this, and if they are, on what conditions. This is no minor consideration, because the wrong decision can lead to disastrous consequences.
Let’s start here. It’s a pretty popular idea that governments have the legitimacy they need to be able to intervene in market affairs to ensure collective wellbeing and other similar interests. However, it is also widely accepted that these interventions must take place under certain conditions, so as to ensure these markets are viable and continue to work in the long run.
Nobody should be interested in creating chaos, or the feeling that any pretext is good enough to attack one of the players in a certain market. The results of this could well be, and this has been backed up by stats, that investment or competition can be put off, and society ends up paying the consequences in these cases. Meanwhile, some people could say that our market isn’t a market economy and that its regulations should be different, and this might well be true.
However, what’s happening right now is that there are markets operating in our economy, and it would be very wise of us to begin studying how to regulate them in a smart way. A recent example of this has been the significant increase in hotel prices in Havana ever since there has been a boom in foreign visitors. If the law of supply and demand works there, then why are we shocked when it happens in another sector?
Like on previous occasions, the fundamental objective was to “protect the population” against the excessive abuse of some private taxi drivers. Generally-speaking, almost all of this matter revolves around prices, around those which existed and were thought to be too high and increasing too quickly, along with other dishonest practices in this market, such as “cutting down on” the route, looking to maximize the income per seat.
One of the objectives of this exercise is to prove that “the people” maybe didn’t come out on top as a result of this decision. This is a very complicated issue, and this article doesn’t attempt to put an end to this conversation, it only tries to analyze other aspects of this discussion which are also valid.
Publicly announced on February 8, 2017, the measure introduces price caps of the services these private collective taxi drivers provide, depending on the routes and distances they cover. In several cases, these prices aren’t too different from what they were charging not too long ago, but it does suppose a price reduction for some routes, which of course sparked a negative response from the majority of drivers and owners.
In some studies, the fact that state transport isn’t enough and of poor quality has been recognized, that state taxis have skyrocketing prices, among other insights. If these facts are accepted to be true, then why reduce the “answer” to this sector’s situation…
There was also a precedent to this event. In July 2016, after cuts to fuel supplies were made in most of the public sector – resulting from a drop in oil deliveries from Venezuela-, prices went up on the black market, which meant that fares went up for customers as a result, since most of the fuel is purchased on the black market. At that time, the government first reacted and then the taxi owners followed this up by adjusting the situation. However, the root causes haven’t changed and drivers continued to look for alternative ways to keep their profit margins up. The following is an attempt to briefly describe the players and basic pillars of this market, at least in Havana.
This description begins with supply. The city has an average of 600 operating buses today, which make around 7600 journeys a day, transporting approximately 1.1 million passengers. Just to give you a reference, in 1984 (directors of the transport sector say that this was the best year for transport in the capital), there were 1700 buses which made 30,000 trips per day, managing to transport 4.3 million passengers. In other words, the public transport system transported four times more people 33 years ago than it does today.
Furthermore, there are other suppliers like buses which belong to state institutions, taxis (CUC), cooperative taxi buses, and of course private drivers. Different officials have recognized the fact that there are around 5,000 cars transporting 160,000 passengers every day in recent years, which is the equivalent of 15% of what the rest of state and cooperative operators manage to transport.
Now let’s take a look at demand. The city’s population is essentially the same as it was in 1989, just a little bit larger. But, there are other differences. Havana’s floating population has increased significantly, for many reasons, among them being the fact that there are greater economic opportunities in the capital, when compared to other regions. Add to this the number of international visitors, who mostly use the parallel tourist transport system, but more recently constitute an additional source of demand because of greater private accommodations and their hope to live a more authentic Cuban experience.
The dynamics described above are enough to explain what has been going on recently. Public transportation options are just a fraction of what they were two decades ago, while demand has increased quite substantially. This has led to the private sector playing a greater role in providing transport services, and fares which reflect market conditions on a greater scale than the State sector.
Why do these facts take so many people by surprise? If demand continues to increase and supply doesn’t increase at the same rate then prices will be adjusted and also go up. This is quite an intuitive outcome when the basic facts are laid out on the table. Let’s remember that while the state-owned system can run deficits indefinitely because it is a given that they will receive more public resources, the private sector can’t run into such a situation. Plus, those who dedicate themselves to this activity set their fares on the principle that they will make a profit, if they didn’t, what is the point of dedicating time and resources to a specific activity?
Nobody should be interested in creating chaos, or the feeling that any pretext is good enough to attack one of the players in a certain market.
Another dimension can be added to the latter point. An extended perspective, and not without grounds, explains what happened with the discriminatory treatment or belittling these key transport players receive in the capital. They have been called a “necessary evil”, with jingo that states that you have to “stand up to them” and other like-minded things.
In some studies, the fact that state transport isn’t enough and of poor quality has been recognized, that state taxis have skyrocketing prices, among other insights. If these facts are accepted to be true, then why reduce the “answer” to this sector’s situation, which is even recognized as only making up a relatively small number of all the citizens transported on a daily basis. For example, what would happen if the same strictness was applied to public bus drivers fulfilling their duties? Several articles have been written about the lack of discipline in this sector. What’s the solution in this case? Sould they be fired? Maybe they don’t do this because there aren’t a lot of replacements and the situation would only get worse. It’s also been said that there are many collective taxis are without a license. This might be true. Now, wouldn’t it be better to work together in order for most of them to become legal drivers, so as to increase supply?
Then there’s the conversation about fares. In order to determine how today’s levels compare with those in the past, we’ll use the inflation price index since 1989, which collects cumulative inflation since that year. As a reference, a peso in 1989 is equal to 9 pesos today. For example, the price of a bus trip in 1989 was 10 cents, and so today’s equivalent would be 90 cents. This means, in real terms, that public transport is a lot cheaper (40 cents officially) than what it used to be 28 years ago. This leads us to ask ourselves if it wouldn’t be worth thinking whether a company can be properly managed in these conditions. Greater revenue could contribute to paying employees better, who also form a part of society. In practice, almost everybody ends up paying a peso, so there wouldn’t be a big difference. These 10 cents represented 0.0005% of the average monthly salary in 1989 ($188). Nowadays, this number would be quite similar (40 cents and 697 pesos).
Regarding taxis, the analysis is a bit more complex because its regular service back then can’t directly be compared to what today’s private sector is doing, at least in terms of fixed routes. Fares in force in 1989 were 70 cents for the pick-up and then an additional 25 cents for every kilometer. We applied these figures (and the equivalent of 1 peso back then for 9 today) to distances in the city and the direct conclusion is that 10 pesos (20 pesos for longer routes), aren’t necessarily more expensive in relation to prices then.
How do you explain the current uneasiness and what can be done?
(End of part 1)