Government should be careful with transit

Opinion

Hey there, time traveller!
This article was published 24/07/2018 (2249 days ago), so information in it may no longer be current.

The demise of the Churchill railroad and the announced departure of Greyhound from major Prairie routes has constrained travel options for many rural residents. Predictably, calls have gone out for the federal and provincial governments to step in. Some even suggest nationalization of intercity bus transit and outright purchase of the Churchill rail operation.

So, what should the government do?

First, consider the rail line to Churchill. Canada has a storied history with railroads; much mythology attends the National Dream and the essential role played by Canadian Pacific Railway (CPR) in building a nation.

While Canada’s first major infrastructure project was rife with scandal, what’s relevant for understanding the current challenge is that upon its completion, the CPR encouraged entrepreneurs to engage in a frenzied expansion of branch lines to support a rapidly expanding Prairie population and to ship grain internationally. The result was an overbuilt rail network in which most branch lines quickly went bankrupt. In 1918, the federal government consolidated these failing railroads into a new government-owned entity — Canadian National Railway — that needed constant taxpayer subsidies.

Finally, after an arduous two-decade period in which government allowed closure of money-losing branch lines, CNR became private in 1992. Management further eliminated staff overburden, minimized passenger service and focused on freight. We now have two privately owned and profitable rail companies that operate services continent-wide.

Rail excels at moving bulk freight. The rail line to Churchill had some rationale when Canada was making grain sales to Russia and Europe, but the grain market has shifted to Asia, and even if the government had not chopped the Canadian Wheat Board, there will never be enough bulk freight to support a viable railroad to Churchill.

This is hard for Churchill’s residents, who have invested in businesses and homes with the expectation that the rail line will continue. Here is an idea: rather than putting some $43 million into the repair of a service that will certainly require ongoing public support, why not spend a fraction of that subsidy on the transportation of commodities by barge and air as well as compensating, at least partially, Churchill residents who wish to sell their homes and businesses? Such a plan must be time-limited, with the transport subsidy and offer to purchase expiring in three years.

Business owners and residents who choose to stay in Churchill would make the calculation that they could operate profitably with the higher level of transportation costs reappearing after three years. Those who elected to leave would receive partial compensation for the losses. Most importantly, the public would dodge a perpetual subsidy and could direct their taxes elsewhere to support sustainable economic activity.

Turning to Greyhound, the only mystery is why it took so long to make the final decision.

Declining revenue is the reason Greyhound cites for its decision to withdraw services in Western Canada. Indeed, according to Statistics Canada, intercity bus revenue has plummeted since 2010.

One might think that a declining rural population is to blame, but this tends to be true only for small towns and villages with populations under 500. Larger rural centres are posting decent population growth, so having a smaller population is not the source of the problem

No, the answer is much simpler: the decline in ridership clearly indicates that rural residents prefer cars over buses. They are more convenient, at least for those who can afford to own their own vehicle. Unfortunately, this leaves some rural residents on the side of the road.

The demise of Greyhound service opens opportunities for alternative forms of rural transit. It is likely that ride-hailing will emerge as a form of rural Uber, where, for example, those driving to Winnipeg from Thompson would post trips on social media to secure passengers willing to defray gas and operating costs.

Entrepreneurs may also well be willing to implement “jitney” service. Imagine someone driving a van of six people from Thompson to Winnipeg and back. Matching the Greyhound return fare of about $200, that means a $1,200 payday.

The government could assist such an entrepreneur by subsidizing the insurance, exempting PST and GST, and even offering a loan guarantee for those willing to acquire new vehicles. Again, the plan must be time-limited and regulated only enough to ensure basic safety.

Before government considers diverting ever-increasing tax dollars to subsidize a profitable company to offer an unprofitable service, it needs to wait to see whether the free market will produce viable options that minimize taxpayer exposure. Common in many other countries, these jitney alternatives could work in rural Canada, provided government offers selective, time-limited support with minimal regulation.

Gregory Mason is an associate professor in the department of economics of the University of Manitoba.