Lukas Rosenstock's Blog

Lukas Rosenstock's Blog

Just nine euros to travel throughout the country! It was probably the most-liked policy the German government introduced this year, designed to help with rising energy costs. A highly subsidized monthly ticket granted access to the entire public transportation network in Germany, only excluding long-distance trains. You could buy it for June, July, and August, so it is currently the last month where it’s available. In our fight against the climate crisis, changing modes of traffic is a crucial building block. There was hope that it would move some commuter traffic from individual cars to buses and trains, but the effect seems small, probably because it was a temporary measure. However, the ticket supported local tourism and granted the financially poorer members of society the ability to travel.

One of the ticket’s effects was that it rekindled the discussion about public transportation prices. There has always been this idea it should be free for all. No tickets, no restrictions. Some countries or cities have already implemented it. The German government said they couldn’t afford to prolong the policy, but they want to evaluate and look into future approaches to make public transport more accessible. Political parties, transport groups, and NGOs have come up with suggestions such as a yearly 365€ ticket (1€ per day) or a tiered system with 29€/month for regional and 49€/month for national network access.

For me, the idea of whether public transport should be free or not is one for which I found it hard to form a clear opinion. As the discussion is ongoing, I’d like to share my thoughts. First, I find it hard to argue that something is too expensive when the price doesn’t even cover the cost. Long-distance train services are usually profitable, but local transport tickets sometimes cover as little as half the service’s actual cost; the rest is tax subsidies. If we further reduce ticket prices, we will eventually reach a point where the expense of running a ticket system (vending machines, etc.) exceeds the revenue. There is still an advantage to selling tickets, such as the ability to do yield management. For example, monthly passes only valid after 9:00 are often cheaper to dedicate earlier trains and buses to commuters who have to be in them and incentivize other passengers to wait till later in the day. It shouldn’t be the only reason to make people pay, though.

I have a general belief that makes me not too fond of subsidies: if there’s a person or group X that cannot afford a product or service Y, but we believe they should, we shouldn’t ask how to make Y more affordable; we should make sure X has more money (for example, by reducing taxes, increasing social security benefits or eventually through universal basic income). The problem with lowering prices through subsidies is that we minimize transparency and disguise the actual costs from the public. It also means that the government establishes preferences about the products and services it wants its citizens to purchase. It goes against free markets, so we should use it sparingly and only for good reasons. Of course, improving traffic and its climate impact could be a perfect reason. Finally, if people can’t afford or don’t want to pay even the subsidized price, they still pay for the subsidies with their taxes without getting access to the goods.

Due to the reasons laid out in the previous paragraphs, my reasoning is mainly between two alternatives: one is the current system or an even more expensive one, and the other is entirely free, ticket-less public transport. With the first option, we’d only focus on making buses and trains more attractive to use. I presume people who can get anywhere they want without a car will do so, and it will probably still be cheaper than the total cost of ownership of an individual vehicle. The second option begets the question of who will pay for it and how we can align demand and supply.

I assume we all agree that shifting traffic from cars to buses and trains is a desirable outcome because it reduces emissions and uses less urban space. However, we also know that public transport cannot cover every use case, especially in rural areas with lower population density. We still need cars, ideally small and electric, and we need to include walkability, bike lanes, and micro-mobility (think e-scooters) in the mix. Carsharing, ridesharing, hailed shared taxis, etc., can all help people get around. Which leads to another question: if all these other forms of transport (except walking) cost money, why should buses and trains be free? It would undoubtedly express a strong preference for them over any different mode of transportation. Our primary focus should be cars, though, since they are the most problematic form of transport.

One thing about privately owned cars is that they incur mostly fixed costs: purchase price or leasing rates, taxes, insurance, and checkups. The only cost that entirely depends on kilometers driven is gas or electricity cost. Still, the average car spends over 90% of its life in a parking spot, losing resale value and only 10% on the road. As a result, car owners are incentivized to use their car as the primary option to get around, and it will be mostly the cheapest option as well, as they already paid the fixed costs. If we want to minimize the use of cars, we have to reduce car ownership or move to usage-based models like carsharing, shifting from fixed costs to flexible costs. Those should be ideal for people who don’t need a car daily. The advantage is we also have to produce fewer cars because their utilization is higher. Alternatively, we need to make other forms of transport cheaper than the car you own. When we figure in the barrier of ticket purchase, I’m sure there’s only one price that works: zero.

Alternatives to car ownership, combining micro-mobility, public transport, and carsharing when you need it, already exist for those who want to use them. If we want more people to use them, we must make car ownership and use less attractive or the alternatives more attractive. The problem with the former is that it is politically hard to do. Car lobbyists and conservative politicians will frame it as “the war on cars”. Also, it will hurt people with no alternatives available who can’t afford more expensive vehicle use. Making other options more attractive, like introducing free public transportation, will likely meet less opposition. Therefore, let’s focus on this strategy. While charging for using buses and trains is fair, considering that all other options cost money and there’s no right to free mobility, I think it’s a viable way to lead the transition.

Some concerns remain when it comes to a free, tax-funded system. First, it will be considered unfair by those who cannot use it but still have to pay for it. Second, there’s a lack of incentive to improve the availability and quality of the system. Hence, I want to suggest an alternative approach.

Local public transport will be free, and there are no tickets or other access controls. However, it won’t be taxpayer-funded. Instead, there will be a mandatory fee for households and businesses connected to the network. This type of funding is not without precedence. In Germany, every home pays a media fee, separate from taxes, to fund public TV and radio channels. It is justified because everyone benefits from the existence of these media. In other countries, a TV license is mandatory for TV ownership, independent of the consumption of publicly-funded channels. There are also schemes where homeowners must pay for street maintenance in front of their homes. Why not apply something similar to public transportation? Everyone benefits from a good network, including car owners. A national government could define tiers of services, setting expectations on the quality of service. For example, a tier one household or business would have a bus stop within 300 m, from which buses run every 15 minutes during peak hours and every 30 minutes otherwise. Upon meeting the conditions, households pay a fixed fee for access to the network, and businesses might pay a minor percentage of their revenue. Another way to frame this is that the bus stop is a perk that justifies a higher rent.

The advantage of the system I described is that it doesn’t make households outside the network pay for something they can’t use, decreasing the likelihood of opposition. On the other hand, it incentivizes local governments and transport companies to extend their services to include more households and businesses and earn more money by capturing higher tier fees from more participants. The downside, however, is that some car-heavy suburbs might lobby for exclusion from the network to save money. Those who would otherwise lobby against public transportation, in general, may be the same, so at least the damage is contained within their neighborhood.

I’m not saying my system is perfect, but I think it’s at the very least an interesting thought experiment about funding public services. Let me know what you think! I’m curious to see how the discussion continues.