We’ll offer a cheer for fare increases on New York City’s subway lines. After all, if the municipal government had let the fares increase to market rates in the early part of the last century, we wouldn’t have the inefficient, city-run, cash-bleeding system we have today. But we’ll limit ourselves to one cheer, because with the system entirely in government hands, it’s impossible to know what a real market rate is.

New York’s subway began as a public-private partnership with the debut of the Interborough Rapid Transit line in 1904. (Among the earliest subway experiments was a secret one-block tunnel built by the proprietor of The New York Sun). The Brooklyn Rapid Transit Company followed in 1915. Both of these ventures were built and operated privately, but owned and regulated by the government. The system worked quite well for a time, while costs remained low. After World War I, however, costs rose with inflation. But the public and the politicians were wedded to the system’s nickel fare, which obtained for quite some time past when it was tenable.

The result was a system that went broke, broke down, and was “consolidated”in 1940 and put under the control of the New York City Transit Authority (now MTA New York City Transit) in 1953. As with any government-run system, the MTA has had its ups and downs. Safety and efficiency have waxed and waned, and fares have crept up in fits and starts, whenever politically feasible. And, remarkably, the system hemorrhages money. In 2001, the subways and buses took in about $2.1 billion in fare income and another $80 million in advertising and other revenues. But this makes up less than half of the $5.3 billion it takes to run the system. The remaining money comes from places like the Triborough Bridge and Tunnel Authority, which throws off about $600 million a year in net revenues.

So, what can the MTA do to make the subway system pay for itself? The option it has chosen is simply to raise fares. And maybe $2 is fair-market value for a ride on a system that maintains and operates hundreds of miles of track. The problem is that there is no market to set prices. The cost of operating the system is inflated wildly by inefficient government operation, embodied in lucrative union contracts and other political considerations that corrupt every aspect of management. While full privatization might be difficult to pull off politically, other cities around the world, when pushed, have resorted to contracting out aspects of their mass transit systems’ operations.

According to Robert Poole of the Reason Public Policy Institute, Japan’s commuter railways were privatized about a decade ago and are now running at a profit. In Melbourne, Australia, the government has farmed out long-term contracts to run bus and commuter rail lines. Companies submit proposals to maintain a certain level of service, and then compete based on which plans are feasible while requiring the least subsidy. Mr. Poole recently visited Melbourne, where the experiment is under way, and reports that things seem to be coming along nicely. In London, while the government has not surrendered operation of its London Underground, the city has entered into a refurbishment contract to rejuvenate the aging system.

While there has been no wholesale privatization or contracting out of a large, currently money-losing system like New York’s, Mr. Poole argues, “If there’s anywhere it might be feasible, it would be in New York City.” After all, we could create competing systems with the rough outlines of the three that were consolidated in 1940. Maybe fares need to come up. Maybe they need to come down. Maybe they need to vary with the distance traveled. We’ll never know until there is competition.