March 15, 2003

The UK Transport System, Can it be Fixed?

Patrick Crozier | Best of Transport Blog | Transport General

Last week I spoke to the London Junto here in London on the subject "The UK Transport System, Can it be Fixed? Does a Free Market Solution exist?" This is what I said:

It is generally-accepted in this day and age that the free market is the best way of providing most of the goods and services we want. There is really no question that when it comes to fields like food distribution, TVs, telecoms, pharmaceuticals, holidays and home improvement that these things are best left to the market.

Indeed even in the field of transport there is little question that it should be left to the private sector to build the cars, trains, buses and other vehicles that we require. OK, Airbus is an exception to this rule but again, generally-speaking, it applies.

So, why shouldn’t the market take over everything else?

Imagine that right now on this table in front of me there is a button. When pressed this button will disconnect the state from the transport industry. There will be no more state regulation. No more state ownership. No more state subsidy and no more state safety regulation. Everything, the railways, the underground, the roads are, at a stroke privatised.

Now just imagine that I press that button. I bet most of you, even the committed free marketeers amongst you, would find that a little bit scary. You may be thinking:

What will happen to fares? Won’t they go through the roof?
What about safety? The privatised railway’s record isn’t so good here. Come to think of it isn’t very good anywhere. Doesn’t that mean that nationalisation is the answer?
Who will build the new lines that we so desperately need?
Would lines have to close?
What about all the unlicensed mini-cabs that would spring up?
Would I be able to venture outside my own door?
On the roads how would tolls be collected? Would there be a mismatch of standards with all this freedom meaning that you couldn’t travel from one side of London to the other?
Wouldn’t everyone drive around drunk?

And I am sure that most of you can think of a few more.

Let’s start with rail. The railway in the UK has been privatised, right? And it hasn’t exactly been a rip-roaring success. Therefore, privatisation is not the answer, right?

Wrong.

The railway’s difficulties have nothing to do with privatisation.

Check the record. UK railways were entirely privately owned from their inception in the 1820s until nationalisation in 1948. They were probably (pace America) the best in the world. They were faster, more frequent and served more places than anywhere else. Although headline fares were quite high the fares people actually paid were often a lot lower. Safety, certainly by today’s standards, wasn’t great but it seems to have been no worse than anywhere else.

Or take the modern day examples of Japan and the US. The US, although it is largely a freight railway, has the largest network in the world. But the Japanese example is particularly interesting. With the exception of the Tokyo subways (subways, incidentally are always the exception) the entire network is privately owned. Most of it, and certainly the important parts, operate without subsidy and are operated by substantial publicly-quoted companies. Ridership is enormous. One in every three of the world’s rail journeys takes place in Japan. Punctuality and cleanliness are second to none. And fares aren’t vastly different from the way they are here.

Private railways have worked in the past and work right now. The exception is the UK now.

Why is that?

Fictional detectives always say “cherchez la femme”. I say “cherchez l’état”. And not just in railways either. But we’ll stick to them for the time being. The problem with UK rail privatisation was that although it was privatised it was not liberated. It is still tightly controlled and tightly controlled by government.

When the railway was privatised the government split it up. It split the wheel from the rail. One company, Railtrack, got the track, the signalling and the stations. 25 or so companies got to run trains on this infrastructure on short-term contracts - no longer than 15 years and usually a lot less. Fares were controlled. The safety bureaucrats were given massive new powers and an entirely new bureaucracy, the Rail Regulator, was given sweeping powers to determine the contracts between the operators and Railtrack. This is known as vertical fragmentation and though it may work in other industries it doesn’t work on the railways. The Japanese certainly didn’t do it this way.

Almost no one in the industry thinks it is a good idea and (for reasons that have never been entirely clear) it has made managing the railway, expensive, slow and ineffective. That is why our railways don’t work.

OK, so let’s imagine that the button gets pressed and those restrictions disappeared. Then what? I think we would see re-integration take place very quickly.

But what about fares? What about safety? What about unprofitable lines? And what about new lines?

The empirical evidence on fares from the past is pretty good. Which seems odd. After all, if railways became local monopolies couldn’t they charge what they liked? I think not. Even if every railway in the South East was owned by one company they would still suffer competition from the road and the greatest competition of all – staying put.

What about safety? Don’t we need all that regulation? Again, I think it is significant that the safest modes of transport are air and rail the very modes that use the most expensive pieces of kit. If you are operating a £4m train you do not want it to crash. OK, so you get the insurance - after a fairly hefty excess. But afterwards your premiums go up. In the end you pay. A private railway operator has every incentive to run a safe railway.

So, what about new lines? The Jubilee Line extension is a marvellous thing. It is vital to the future of Canary Wharf. It cost £3.5bn to build and London Underground will be lucky if it ever sees a penny of return on that investment. QED, the government must pay.

Not so fast. London Underground may not have made so much money but plenty of others did. Anyone who owned property near to the JLE’s stations made a killing. London property developer, Don Riley, estimates they made something like £13bn. If the Underground could turn property developer all sorts of new lines could become possible. Indeed, only last month a group of entrepreneurs unveiled plans to build a tunnel capable of taking main-line trains between Paddington and Liverpool Street. Making the most of the land around the stations is a key part of the proposal.

That’s rail, what about roads?

If you imagine that with privatisation you might wake up one morning to find that the new owner of the road you live on has banned you from using it well, you’re not alone.

But let us imagine that roads can be privatised in such a way that people can still get to their own homes. And let us also imagine that those roads were run by dynamic, thrusting entrepreneurs. If so, I think the first thing they would do would be to introduce a sensible charging system: one that wouldn’t be too bureaucratic, would allow more or less free movement and one where the charge varied according to demand and the actual amount of congestion the vehicle created.

Actually, I think they would probably introduce several such systems – each incompatible with the other – not unlike VHS and Beta. But just like VHS and Beta eventually one standard would win through.

What would be really interesting would be what happened to the roads then. The great problem with the Congestion Charge is that although it seems pretty good at removing people from their cars it is pretty lousy at finding them an alternative. In a free market entrepreneurs would be champing at the bit to provide people with alternatives – just as they were a hundred years ago. Bus companies would be introducing new services, faster services. More people would start to run taxis. And, as likely as not you would see the re-introduction of jitneys. Don’t know what a jitney is? Well, it’s a sort of cross between a bus and a taxi. Essentially, the route, the fare and the stops are all up for grabs. A well-travelled acquaintance of mine tells me they are the main form of public transport in cities as far apart as Cairo, Delhi and Bankok. They could well fill a very important niche in London. They can’t right now because they are banned.

So far, I have confined myself to talking about making better use of existing road space. The alternative, of course, to making better use of existing roads is to build entirely new roads. Now that roads are priced it would be possible to work out what the market can stand and precisely which routes are not being catered for as well as they could be.

In the 1920s, before the state really started to stick its oar in, London had the best public transport system in the world. Most of it was privately owned and free from the constraints of government. How far we have fallen. But I believe that were we to adopt free market policies then within a very short period things would massively improve and within a slightly longer period we would find that, getting around London would become a pleasure.

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