Mazda Bongo Van from 1968

Last summer I wrote about why Ontario's bus system is so uncompetitive. That blog post has received a lot of traffic and I've even received a few emails from entrepreneurs wondering how to start a bus company. This summer the Ministry of Transportation (MTO) is discussing reform and has put out a discussion paper. The paper contemplates removing legal barriers to entry/reforming the Ontario Highway Transport Board and poses seven questions. My answers are at the end of this blog post.

The Proposal

The MTO proposal contains many great ideas that will help a segment of the population that is not well-represented in Ontario. If the MTO ends up following through on this proposal it'll bring about new jobs, cheaper transport and more options for Ontarians other than owning/renting a car. It'll also bring the current illegal van transport companies into the light (which will probably increase safety, tax revenues and business for the van operators).

The goals of the regulatory reform are:

  • The goal is to create a new environment for industry operators that foster:
  • Opportunities for companies to enter the market more freely, as long as they meet all safety and insurance requirements;
  • Opportunities for innovative service delivery models;
  • Increased integration between intercity services, municipal transit services, and other community-based transportation services (e.g., non-emergency health and socials service transportation services); and
  • Opportunities for expansion of the sharing economy to fill service gaps such as last mile connections to transit systems as well as more “on-demand” and smaller scale services.

The proposal concludes with seven questions:

  1. Do you support the removal of market entry controls of the intercity bus industry? Why or why not?
  2. What are the benefits of removing market entry controls? What are the drawbacks?
  3. A system needs to be in place to ensure that all vehicles, including those carrying less than 10 passengers, are safe and properly insured when being used to transport people between municipalities for a fee. What do you think the minimum safety and insurance requirements should be for these vehicles?
  4. How much of your business is currently attributed to non-urgent medical transfer (patients, supplies, etc.)?
  5. Could municipalities and social and health organizations better partner with transportation providers to serve the public? If so, how?
  6. Are there any innovative services or policies currently in operation in Ontario or in other jurisdictions that you think provide a good model for how transportation networks can develop in the future?
  7. Is there any other feedback you would like to provide on the issues and/or proposal outlined in this discussion paper?

My answers to the MTO proposal:

1. Market entry controls need to be removed. The current system of OHTB regulation is outrageous. See my comments last year in my blog post: Ontario needs to have a modern, competitive economy. The benefits to the public of market forces are clear and we don't need 1920's era regulation.

2. The benefits are cheaper service, more service, and service that aligns with customer demand. Every first year economics student knows that monopolies are bad for consumers and that regulatory barriers reduce competition. The current system only exists due to a lack of political power: rich people don't ride buses. MPPs don't ride buses. I doubt many MTO staff who work on regulating buses ride buses. If they did, the sector would have been modernized years ago. Most passengers are elderly people, students and people who can't afford cars.

The drawbacks of removing market controls will be that service will likely suffer in areas that are not economical although these places hardly have good bus service as it is.

3. Vehicle safety requirements and insurance levels should be set at a level that allows poorly capitalized entrepreneurs to start a service. It's already happening right now with illegal van services, Uber, and other unlicensed transportation schemes. If this proves to be an actual problem down the line then the system can be changed but the initial position should not be heavy-handed regulation based on speculation. Modern vehicles are quite safe. If anything the focus should be on the drivers and their licensing (e.g. complaint-driven investigations).

4. N/A

5. If transportation services were deregulated then municipalities and social/health organizations could purchase transportation services on a market basis. A competitive economy with multiple providers will lead to huge savings for government payors.

6. Low-cost providers like HolaBus on the eastern seaboard in the US are worth looking into. But the best systems to look at are those of less developed countries (with less regulation tilted to incumbents). I suggest looking at the Chilean bus system and the tro tros of Ghana:

7. Other thoughts:

The proposal does not address access to bus terminals. Regulatory reform should address this issue. How can terminals be converted to competitive marketplaces?

Licensing of routes and companies should be eliminated. Anyone should be able to run a bus service in Ontario provided they meet a certain standard (and perhaps registration) but there shouldn't be a requirement for a special license. Licensing is a significant barrier to new entrants. Even a light touch licensing scheme would still discourage many entrepreneurs, especially recent immigrants who may find navigating the Ontario legal/bureaucratic system challenging.

Could this regulatory reform go further and include intra-city transportation? Uber is already operating UberHOP in Toronto.

The OHTB should be eliminated. Ontario doesn't need boards to regulate its economic actors. Board control of many other sectors of the economy has been eliminated over the last 75 years.

Closing Thought

I'm impressed to see the MTO is so forward-thinking on this issue. Ontario's intercity bus regulation has remained largely unchanged for nearly 100 years. It's time for change.