Who’s being taken for a ride

Everyone loves low, low prices, but as responsible citizens we should consider the cost of such a pricing policy.儲存 If you stretch affordability too thin, you'll run the hidden risk of hindering future investment or cannibalizing other social services. There is subsidizing and there is excessive subsidizing. Once you are entrenched in the latter, you gain a sense of entitlement that will blind you to the big picture. Beijing'smetro systemis considering raising its price fromthe current flat fee of 2 yuan ($0.33) a ride to a distancebased fare during the rush hours. This is certainly an unpopularmove and I'msurprised only 60 percent of respondents to a survey voiced their objection. Theoretically, all Beijing subway riders would flash a "No" sign, but the remainder couldwell be nonsubway users or people in other cities who are envious of Beijing's ultralowfares. Beijing used to charge 3 yuan for a ride and add 2more for some outlying lines. All this changed in the run up to the 2008Olympicswhen bus fareswere slashed by 60 percent and subway fares by at least a third. Itwas supposed to get people out of their cars and onto public transport. Itmust have been quite successful because there is rarely an empty seat on a bus or a subway car, not even during offpeak hours. And some lines during the rush hours are so packed youwon't forget it soon—if you are not a regular rider, that is. It is preposterous to suggest that a higher farewill significantly thin rushhour crowds. Amajority of riders are commuterswhose hours are determined by their employers. Maybe the retired,who are by nature priceconscious, will change their schedule, but itwon'tmake a visible dent. The 2007 reduction in fareswas well intentioned butmisguided. Theywere already very low, and reducing themfurther did not achieve the desired result of diverting car riders to themore environmentally friendlymode of traffic. What Beijing should have done at that time,with the installation of smart swiping sensors,was to introduce the distancebased fare,which is currently in use in almost every other Chinese citywithmetro lines. Don't getmewrong. I'mnot against subsidies for public transport. Unlike the taxi system, buses and subways have to be supported bymunicipal governments. Their prohibitive startup costmeans no profitoriented entitywould take themon as a regular business. Yet they benefit themajority of the residents, plus domestic and foreign visitors. The Londonmayor took a subway ride in Beijing andwas amazed at howcheap the farewas. Beijing currently spends 18 billion yuan a year on subsidizing public transport,most of it going to themetro system.Withmunicipal coffers flush with taxmoney, this does not sound likemuch. But economies go through cycles.We're living in the boomtimes, and what if there is a dip in taxmoney down the road? You cannot adjust bus and subway fares as you can fuel prices, so you'll need some sustainable plan—even for subsidies. Beijing's fare systemis not only out of touch with the cost structure, but way below that of any other city I know of. Frommy experience, London probably has themost expensive fare, with a subway ride costingmore than a Beijing taxi fare. Two yuan in the currentmarket is virtually negligible, especially for officeworkerswho use itmost heavily. I see it as a nominal charge. This canwreak havocwith the consumer price index. Iwas in an economics forumwhen the farewas initiated, and a speakerwhowas a consultant for a Statelevel decisionmaking迷你倉body used Beijing's newlow fare as a counterweight for the sharp rise in vegetable prices. I don't knowhowmuch transport weighs in the basket of goods and serviceswhen calculating inflation, but it has artificially dragged the figures down, rendering the picture rosier than it actually is. There is an argument that low subway fares benefit ordinary people, and if this fund does not go to such aworthy cause itwill go to wining and dining by corrupt officials. While it is true that the subsidy does not go to the privileged, it may not be an eitheror case between these two choices. If it is between subsidizing an officeworker's subway ride and an official's newAudi, I'mall for the former. But the choicemay also lie in allocating the amount to public transport or education or healthcare or helping the urban poor.Ormore likely, it could be between subsidizing current riders and funding future lines' construction. The lawof diminishingmarginal returnsmeans that a subsidy should go to those programs that help thosemost in need of help. If you ask Beijing residents to vote for a rise in subway or bus fares, there is noway it's going to pass. It simply goes against common sense for people to desire a higher price for something that is not considered a luxury. But if you ask themto choose among several government programs that need funding, I'm suremost peoplewould pick the right one. And very probably, extremely lowsubway fareswill not be high on the list of priorities. Even in amarket economy, government subsidies are necessary for certain public projects. But the amount of subsidy should be calculatedwith a profound knowledge of economics. It's not necessarily the lower the better. Take performing arts.Governments at various levels essentially own all performing troupes in China, which results in heavily subsidizing every ticket to every show. Whatwe get is not higher attendances for highquality shows, but large numbers of empty seats for extravagant shows that run only a few times. The amount ofwaste is staggering. On the other hand, the abolition of the nominal charge formany publicmuseums and parks is awise move. In the old days, these venues were grossly underutilized because the charge served as a deterrent to anyonewhowas not otherwise greatly interested. Free admission is necessary to cultivate the habit for museumvisits and to allowthe lowest of the social echelon,migrant workers, into city parks. Itwas a sad sight to see themlying outside a park getting a restwhile park bencheswere conspicuously empty. City officials in charge of public policies should study the theory of price elasticity—and of course the lawof supply and demand—before making pricing decisions.When a change in price does not affect consumers' behavior, it has gone beyond the pointwhere price as a leverage canwork. Sure, Beijing needsmore subway lines and longterminvestment in public transport.However, putting this in the same leaguewith parks and recreation is to ignore the fundamental differences of the two services. Unless the citywants to flaunt largess in public transport as a unique formofwelfare, it should consider both the pros and cons of pricing its bus and subway fares at close to gratuitous levels. Contact thewriter at raymondzhou@chinadaily.com.cn. Even in amarket economy, government subsidies are necessary for certain public projects. But the amount of subsidy should be calculated with a profound knowledge of economics. It's not necessarily the lower the better. 儲存倉