December 31st was the deadline for jeepney operators to consolidate into cooperatives or corporations under the Public Utility Vehicle Modernization Program (PUVMP). The program aims to induce changes that result in vehicles with better emissions standards, more organized and predictable routes, and consistent income for operators. It proposes to do this by first nudging operators to join cooperatives or form corporations. These entities will finance vehicle purchases and updating while exercising monopoly power over certain routes. 

In some sense, the program is an acknowledgement that the Philippines at large needs a public ground transportation system – a void which the private sector fills. This is because mass transport exhibits the properties of a natural monopoly, which exists if a single seller can most efficiently service a given market. The average daily commuter does not need to be told that the current system is inefficient. In particular, competition for passengers among multiple jeepneys leads to crowding, overfilling within vehicles, and congestion on major stops and streets. Operators themselves also decry the difficulties of making their boundary and being unable to maintain their vehicles. On both the supply and demand side of this market, there is much improvement to be made. 

Why then are both operators and commuters joining strikes and protests against the PUVMP? On the consumer side, the worry is that the consolidation of operators into singular entities may disrupt service. Further, due to the eventual monopolization of routes, the costs of commuting might go up as market power allows operators to set prices. Just think of the stretch between Katipunan and the Cubao-Araneta station. This segment of Aurora Boulevard is serviced by possibly dozens of jeepneys each hour. If consolidation reduced the volume of jeepneys with the same amount of passengers, one can imagine long lines, delays, and a worse commute.

On the operator side, the biggest concern is the loss of jobs due to the barriers-to-entry that the program would introduce. These include: the costs of updating existing vehicles, purchasing new vehicles, and the costs of forming and coordinating a cooperative or corporation such as land for the headquarters and barriers to credit. The fact that the government set a ceiling of P80,000 of subsidies per unit despite the updated jeepneys costing  upwards of P1 million does not assuage fears that the program may simply push poorer operators out, letting well-financed corporations take over.

Despite these problems, I believe that the PUVMP can jumpstart a pro-poor mass transit reform by creating a new kind of Public-Private-Partnership between the government and operator-run cooperatives. Concretely, this means four things. First, the government should shoulder most if not all of  the costs of updating vehicles. Second, the government should finance the fixed costs for the cooperatives including the spaces for their headquarters. Third, it should guarantee some benefits to the operators such as covering their PhilHealth and social security contributions, and immediate inclusion in the 4Ps program. Finally, it should limit its assistance to operator-run cooperatives, whose board members and officers come from the ranks of operators and who regularly rotate, rather than extend assistance to private corporations.

The first two recommendations follow, once again, from the economics of natural monopolies. Subsidies are needed to get natural monopolies to operate since it may be difficult for them to start up. The jeepney operators who are needed to form the co-ops that will service different routes face high fixed costs. However, their reorganization is needed to provide a more efficient mass transit system which in turn means productivity gains from workers who can travel easier, and greater well-being for Filipinos from shorter commutes. By shouldering most of the cooperatives’ fixed costs, the government is effectively investing in the potential economic gains from better mass transit – just like the major cities in the advanced industrialized world. 

As for the additional benefits such as PhilHealth and the 4Ps, these simply make use of existing programs to make the government a sustained stakeholder in the operations of the cooperatives. As other commentators point out, consolidation, by cooperatives or otherwise, do not mean improvement in service. There has to be some accountability to commuters’ needs. By tying the cooperative’s continued financing to the government, taxpayers can have a voice (albeit imperfect) in their operations, allowing for improvements like those that made the point-to-point bus system a modest success.

As usual, the objection to these proposals is whether the government can afford such measures. After all, they can simply limit the subsidies, allow small, independent operators to fall by the wayside, and leave the transport system to well-financed corporations. However, since monopolies exercise market power, this may mean reduced service quality and higher fares. If the mass transport system can run more efficiently through coordination by cooperatives partially accountable to taxpayers, the system is more likely to avoid the pitfalls of higher prices and lower quality endemic in monopolies. This means that the economic gains of improving mass transit do not have to come at the cost of transit jobs. That is certainly worth at least as much as the confidential and intelligence funds that our public officials seem quite fond of. 

The PUVMP is an opportunity to overhaul mass transit in the Philippines only if the government puts its money where its mouth is. Otherwise, the program will simply erect barriers that create an opportunity for already well-capitalized corporations at the expense of consumers and smaller operators. Thankfully, the PUVMP can still accommodate changes in its implementation without changing its primary objectives. The choices that the government makes in this respect will ultimately reflect its priorities. – Rappler.com

Alfredo RM Rosete is an Associate Professor at Central Connecticut State University.