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| Re: Service Contracts vs. Franchises (350957) | |||
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Re: Service Contracts vs. Franchises |
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Posted by BusMgr on Wed Jun 3 22:31:30 2026, in response to Service Contracts vs. Franchises, posted by New Flyer #857 on Wed Jun 3 18:28:47 2026. I see quite a bit of confusion in classifying services. There are four main models, which might be ordered but do not really constitute a continuum. At the two extremes are public monopoly--meaning that the government controls and does everything itself with no room for the private sector--and deregulation--meaning that the private sector controls and does everything itself with no room for the government. In the middle are two variants. On the left side, there is government contracting. The government controls the system, specifying the services to be operated, typically well-defined timetables, taking credit for the fares collected, and paying a private company to operate that service as a contract. The private company might share in efficient performance, by taking a share of fare revenues, but the service is that of the government. The government "owns" the transit system as intangible property (regardless of whether the hard assets--the actual buses, trains, facilities--are owned by the government or by the contractor). On the right side there is franchising. The government bestows upon a private company the right to operate a transit system, but it is the private company that makes all the decisions on the service that is operated, at least within broad limits. The government might share in efficient performance, by taking a franchise fee, but the service is that of the private company. The franchisee"owns" the transit system as intangible property (regardless of whether the hard assets--the actual buses, trains, facilities--are owned by the private company or leased to the private company by the government).Once very common in the United States, today franchising is used rarely, largely for the same reason that deregulation is also rarely used: operating public transportation within the United States is inherently unprofitable. Subsidies would be required for these types of operations on a large scale. Otherwise, service would be maintained only in niche markets (which is what the U.K. experience shows). But if we start with the reasonable baseline that government, in general, does things poorly, whether doing it directly with its own workforce or indirectly through contracting with private entities, then franchising (or deregulation) makes complete sense. In turn that then requires subsidies. Yet the very nature of subsidies then opens the door to the government, in its role of subsidy-provider, to meddle with the private company subsidy recipients. This is where effort needs to be expended: finding means of providing subsidies, without leading to either corruption in their distribution or meddling by the government. |
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