Sunday, January 27, 2008

RIP: can consumers make economics work in their favour?

Yesterday, another bus accident happened, this time taking the lives of three passengers. At the time of the incident, the driver was suspected of speeding in the rain while typing text messages on his phone.

This is not the first time we have heard of bus crashes; the safety standards of inter-state bus service companies have been questioned before, and the issue is again being raised.

The first reaction to this is to call for the vengeance of the authority- for the driver at fault to be arrested, a witch hunt through the transport authorities to find out why a driver with 13 outstanding traffic infringements is allowed on the road, for the bus company to be shut down, for more speed traps, etc etc.

The basis for these reactions is similar- by exercising a severe punishment, it will send a signal to other drivers/operators that offenders will be prosecuted. And also allows a measure of revenge to be exercised.

However, I believe there are fundamental flaws in this approach- it relies on regulatory enforcement. Given that the resources of the government is finite (if all personnel are stationed along the highways and bus terminals, there would be none leftover to man the immigration department, patrol the borders and censor our movies), the all-seeing regulatory approach is not feasible.

The use of data-loggers, GPS devices, speed governors are more sophisticated methods to regulatory approach, and rely on disciplined enforcement.

Perhaps another approach is to ask why drivers speed, and why bus companies allow such drivers to be on their pay roll.

If one of the fundamental axioms of economics is true, then firms exist to make a profit.

Fast drivers allow journeys to be completed in a shorter time, and thus require fewer buses to complete the same number of trips in one day. Thus, fast drivers provide better profit.

With the current level of enforcement, bus companies find that the profit gained from speeding offsets the costs of the occasional speeding tickets. Drivers need employment, or their family members starve. Drivers that do not speed will find that it will be difficult to retain employment.

Given the lackadaisical policing we have in Malaysia, it is not likely that clampdowns and vows for stricter enforcement will have any long term benefit.

To provide a safer bus service (with bus drivers who obey the highway code), no doubt additional costs will be involved. Firstly, by not speeding, the bus company will require more vehicles to provide the same volume of service. Secondly, the training to be provided to drivers requires both time and money.

From the consumer’s point of view, is a longer bus journey acceptable for the reduced risk of accidents? It’s not a trivial matter, and should be considered carefully before shouting, ‘YES.’ A 400 km journey will take 4.5 hours if a bus travels at the speed limit of 90 km/h, but the travel time can be dramatically reduced to 3 hours if driven at 130 km/h.

If the consumers themselves favour fast service over safe service, there is nothing the government can do to stop this carnage. The forces of economics will continuously drive the market equilibrium back to where we are now- fast journeys sprinkled with morbid accidents every now and then.

However, if consumers are willing to pay for safe travel (after all, the companies can no longer skimp on driver training and the number of vehicles in service), operators must be made aware of it. A market opportunity exists here, and the operator that can satisfy demand for safe travel will profit.

If we are indeed in favour of safe travel and willing to pay the premium, we need to use the power of economics to drive the market to a condition which provides safe transport services:
-Refuse to do business with companies with questionable safety standards.
-Lodge reports against drivers who act irresponsibly, so that the operators are aware that they have drivers that compromise their business plan to provide safe travel

This will send a clear signal to operators that money lies in safe travel, not high-speed time-trails between Penang and Kuala Lumpur.

In the face of money, ethics do not exist. The consumers must utilise the flow of money to change the market into one which has a semblance of having ethics. Vote with your business, and unethical companies will either adopt ethical practices or drop out of the market.

Rest in peace, and condolences.