The Failures of a “Government Enterprise” A periodic series on government trying to run businesses, Part 4

The private management companies are gone and the government controls all subway lines. The system fails post 1940

The promise of labor peace in the New York City subways along with efficiently run lines that would make money once the private management companies were gone was a mirage. Labor peace was based on the idea that subway workers would operate under open shop rules.

That never happened.

Unfortunately for Mayor Fiorello LaGuardia and subsequent mayors, numerous illegal strikes and threats of strikes have happened since 1940. Many crippled the city, a large part of which is dependent on this ramshackle government transportation service.

Indeed, the transit-worker’s union in 1966 illegally struck even after the city obtained an injunction. Its leader, Mike Quill, famously told the new mayor, John Lindsay, and the court ordering his workers back to work, to“go to hell.” Yet the union ended up winning most of what it wanted, and it would continue to defy the city and the courts. (Some forty years later, the transit union would also break the state’s Taylor Law, designed to prevent a repeat of the 1966 strike. It didn’t.)

The union would play a big part in the politicization of a subway system that was crumbling under government control. Its ability to pressure politicians to give it all sorts of deals—such as a pricey pension plan that costs the taxpayers huge amounts—has been one of the factors in why the system is consistently in the red.

Clearly, the riders and the taxpayers—who have repeatedly had to bail out the system since unification through higher fares and other taxes—are the big losers. (When a system is publicly owned, a fare increase effectively constitutes a tax increase.). However, the politicians who fought for unification nevertheless could see the dangers of a political class trying to run a poorly run business. So they have been careful to shield themselves from any possible political damage when trains are delayed (I will not say “late.” Subways have no posted schedules, although supposedly a government authority keeps track of train performance).

I Don’t Ride the Subways, but You Should

Some politicians feared the effect of a public system on their careers. So, in the post-1940 era, there was the issue of getting politicians out of the line of fire. After the first thirteen years of government control—first by a city agency, the Board of Transportation, that had some political accountability—politicians turned to a system of various authorities (The city Transit Authority, in 1953, followed by a state authority, the MTA, in 1968).

Whether under a mayor accountable for the subways or an authority few understood, the public system continued to have problems. Still, politicians knew that operating the system could be a dangerous issue. So they didn’t want accountability. By the late 1950s, it was obvious even to a Soviet visitor that the system was a mess.

Subway historian Clifton Hood noted that in 1959 a visiting Soviet official, in the wake of the bitter kitchen debate between Vice President Richard Nixon and Soviet premier Nikita Khrushchev, pointed to the New York City subways as an example of why capitalism didn’t work. (Did he understand that, by this time, there was no private management of the system?)

The Soviet official called the subways “lousy. He said the subways were ‘dirty’ and that ‘the air was very bad.’”

These problems remain to this day.

Indeed, today rats in some stations come right up on the platform as though they expect to join you on the next F train to Queens. Another problem was and is the fare: fare increases were coming, and no mayor or governor wanted to be responsible for them.

Today, the governing system of the subways is one in which no elected official is ever held directly accountable. The mayor was the point man for the subways in the 1940s and 1950s. He would take the heat or the credit. (A mayor running for re-election was defeated in 1953 when the fare rose from a dime to fifteen cents. Before that, Mayor William O’Dwyer, who succeeded LaGuardia in 1946, received thousands of angry letters when the fare was raised from a nickel—the fare the private management companies had never been able to increase—to ten cents in 1948.)

There’s an irony of this politicized system: New York’s political ruling class, both in the 1950s and today, generally shuns the subways. One can draw an analogy: Many of pols praise public schools, then send their kids to private schools. At a “town hall meeting” in Briarwood, Queens, with then U.S. representative Charles Schumer some 15 years ago, I noticed that he arrived and departed by car. I had found the same thing a few years before when environmentalist Barry Commoner, at a meeting in Brooklyn at Prospect Park, near the subway, came and departed by car. That’s even though in both cases subway stops were nearby.

The Little Flower and the Subways

Possibly the city’s most famous chief executive, mayor LaGuardia, known to many as “the Little Flower,” is regarded as the patron saint of modern New York City mayors. His name is often invoked by city officials the way national officials from time to time try to cloak themselves in the Lincoln mantle. LaGuardia was one of the leaders in the battle for the city subway takeover. However, he was generally uninterested in the subways, according to several subway historians. He rarely rode them. And, like most of our elected officials, used a car.

LaGuardia preferred to fund new highways. The money for these highways that would ultimately starve the subway system of needed improvements and even basic maintenance funds. Politicians ducked responsibility by turning it over to authorities. Many realized that frustrated subway riders—and there were lots of them, then as now—would take it out on them at election time. So they got out of the line of fire and handed over accountability for running the trains to an authority.

This is a familiar process in the modern welfare state democracy. Congress or a state legislature passes massive reform bills, but only a handful of people understand what is in these laws. Then huge bureaucratic organizations, which translate the legislation into rules, actually make the day-to-day decisions on how things get done. Complaints to elected officials are channeled to the “experts,” the authority members. But authority members do not run for office.

This is also true in the securities markets and in the New York City subways. For instance, how should one regulate swaps, those controversial contracts that some believe caused the crash of 2008? Lawmakers, in the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, repeatedly called for general principles—-clearing of these transactions whenever possible—then leave most of the work of working the rules to regulators and authorities.

Who’s in Charge? It Isn’t Me!

In New York, the state legislature is supposed to oversee the transit bureaucracy. But few lawmakers actually understand it, no less take an interest in supervising it. The trademark of this anomalous system is that the politicians take less and less responsibility at the same time the public sector has more and more power. An economist writing about the London Transport Board brilliantly made this point more than seventy years ago. “More and more the state interferes or controls (according to the political bias of the observer); but the more it interferes and controls, the less does it show a disposition to accept ultimate and direct responsibility for what it has done,” wrote British economist Alexander Gray.

Today, a big, unelected, and virtually invisible state bureaucracy makes the most important decisions about the New York subways. The Metropolitan Transportation Authority (MTA) operates the subways, along with the region’s bus system and commuter railroads. It has its headquarters in the most expensive part of town, Madison Avenue in Midtown Manhattan. But even many of those who favor public ownership concede that few understand the MTA.

Still, possibly because so few New York power brokers ride the subways today, save for perfunctory media events around election time, there is little pressure for radical change. The system, without the profits needed to ensure improvements, continues to run down.

The More Things Change, the More They Stay the Same

So the subway problems documented by Caro and others in the last century have continued into this century. Indeed, some sixty years after the government takeover and the ousting of the last private management company, the problems of the subways are still considerable. Just some ten years ago, New York Magazine would write of frequent system breakdowns. “Beset by floods and fires and built on technology that predates the Model T, the subway, the very essence of New York, has become frighteningly fragile.”

And, in an echo of what Caro was writing about in the 1950s, New York Magazine complained that “Money for basic maintenance has been drying up.”

But the results of a government running subways or trains or almost any “enterprise” is an old story. It is one we will revisit in our next installment.

Editor’s note: This is an abbreviated version of a scholarly essay entitled “Generations of Transit Disaster: The New York City Subways” that is appearing in the fall issue of “The Journal of Private Enterprise.”) – See more at: http://gregorybresiger.com/failures-government-enterprise-periodic-series-government-trying-run-businesses-gregorybresiger-com-2/#sthash.hzZoQjY2.dpuf

About The Author

Gregory Bresiger

Gregory Bresiger is an independent business journalist from Queens, New York. His Personal Finance articles have appeared in publications such as The New York Post & Financial Advisor Magazine. He is the author of the eBooks “Personal Finance For People Who Hate Personal Finance” and “MoneySense”.