This article originally appeared Aug. 5, 2011, at Citiwire.net.
There is really no denying that transportation makes money. Just consider the huge shopping malls perched around interstate off-ramps, the office parks positioned close to airports, the skyscrapers next to subway stations.
But transportation itself is usually a money loser. We pour billions of public dollars into highways, airports and transit systems, while others, the home builders, the department store mavens, make the money that comes from those public investments.
Hong Kong’s metro system, MTR, has changed this equation, and that is why it’s worth looking at.
If you are ever lucky enough to visit Hong Kong, which is Manhattan-like with its narrow streets lined with high rises, you will see that the MTR’s services are excellent. You may ride the gleaming new high-speed rail line from the new airport that takes you into the new central rail station. Or one of the nine rail and subway lines, including the special train that goes to Disneyland Hong Kong.
What’s amazing about the agency that runs these lines, MTR, is that it actually makes money. So much money that it’s listed on the stock exchange, although the government still owns a majority share.
The Hong Kong’s metro system has been in the news in the New York City region because the chief of New York City’s transit agency, the Metropolitan Transportation Authority, shocked the region by announcing his departure to lead Hong Kong’s system for a million-dollar plus annual salary. He left at a particularly bad time, breaking a seven year contract just as the MTA was facing yet another round of funding gaps and necessary cuts.
Given the perennial money-losing nature of most transportation departments, from highways to rail, it bears asking: how does Hong Kong do it?
The answer is that Hong Kong’s MTR doesn’t let private developers be the only ones that perch next to its stations. It builds its homes, offices and stores. In short, MTR acts as a real estate developer and business company, as well as a train operator. It owns, among other things, 12 shopping malls built around its stations. These properties and businesses produce substantial cash, which keep the transit agency as a whole in the black.
Hong Kong’s MTR is unusual in that it is also actually making money from its fares as well. How it can do this relates in part to the uniqueness of running trains on an intense few strips of land filled with development. But for our purposes it’s worth looking at its actions as a developer, and as a model for transportation agencies and departments in this country.
By many standards, MTR is an unusual company.
The MTR only began service in 1979. But once cash was flowing (through development around stations), the government “graduated” MTR to become a private company, still majority owned by government, so that it could raise funding through capital markets and more nimbly enter into joint ventures with private investors.
In 2000, the Hong Kong government converted the public MTRC into the private MTR Corporation Limited (MTRCL), although the government maintains a majority stake. Shares are traded on the Hong Kong stock exchange. Wikipedia reports that MTR also invests in railways in different parts in the world, and has obtained contracts to operate rapid-transit systems in London, Stockholm, Beijing, Shenzhen, and Melbourne.
Could transit and highway departments in the United States ever do something equally innovative? Why shouldn’t a highway department make money on the shopping malls built around its exits? Shouldn’t it at least get a cut?
While it may seem extraordinary to have a transit company operating like a profit-making company, it’s not novel. A century ago private streetcar lines made money more on the homes and shops built around their tracks, on company-owned land, than the nickel fares they received.
While retaining public control of vital infrastructure systems—a crucial point—governments can facilitate new versions of these old arrangements.
Let me be clear here. I don’t want the transit agencies or highway departments to be only concerned with making a profit for their shareholders, which is how private businesses act. I want them to make a profit for the public, so that roads can be maintained well and taxes and fares kept down.
It’s a long way from anywhere in the United States to Hong Kong, but there’s no reason we can’t learn from it.
Alex Marshall is a regular columnist on transportation for Governing Magazine. He is a senior fellow at the Regional Plan Association, the seminal urban planning group in New York City, where he edits a bi-weekly e-mail newsletter, Spotlight on the Region. He teaches classes on infrastructure at the Architecture School of the New Jersey Institute of Technology.