Today I received an IEA email newsletter, which drew my attention to a (fairly) recent (May 24th) blog posting by Richard Wellings at the IEA blog, calculated to confirm all our prejudices here about privatisation (good) and government regulation (bad).
The recent history of Britain’s railways has undoubtedly brought the whole concept of privatisation into disrepute. But this is unfair. Rail privatisation was a pastiche of genuine privatisation - in many ways it actually increased the level of state control.
A truly private railway would be efficient, innovative, responsive to consumer preferences and would not require taxpayer support. It is time the critics (such as Will Hutton) stopped blaming privatisation for problems caused by government intervention.
The guts of Wellings’ argument is that in a truly free market, railway companies would have been free to integrate vertically, and being free to integrate vertically, they would have. The irrational separation of ownership between track and trains would have ended. The government did not allow this.
Maybe the new government will?
I haven’t yet watched Richard Wilson’s programme on British railways that was on Channel 4 the other day but I’ll stick my neck out and guess that it makes the following claims:
Fares are really expensive
Trains are frequently delayed
Subsidy is high
Trains are frequently overcrowded
This is all the fault of privatisation
I’m going to stick my neck out again and guess that it won’t be saying any of the following:
Railways are highly regulated
Rail fares are highly regulated
The wheel-rail split is the source of many of the industry’s problems and is mandated by the EU
That trains are much cleaner, brighter less vandalised and more reliable than they used to be
That many fares (restrictive as they may be) are extremely cheap
Overcrowding is a classic example of price controls causing shortages
That railways are expensive
That most of the subsidy goes to little-used rural lines
That railways are capital intensive, that it takes a long time for investments to become profitable and that franchises are typically short-term thus removing any incentive for rail operators to invest for the long-run.
Or, to put it another way, a lot of the things that get blamed on freedom are, in fact, the result of state violence.
Buried in the middle of this excellent piece by Allister Heath about the top ten causes of the banking crisis is a fascinating point (number 3) about transport (and also energy) infrastructure:
3) There was no bankruptcy code for failed multinational banking groups. Regulatory stupidity meant that they were treated like ordinary firms: the choice was either a disorganised collapse, or a bail-out. Other network industries – airports, nuclear plants – have long operated under special bankruptcy codes, ensuring an orderly wind-down and handover of assets. Unlike every other private businesses, big banks knew they would never be allowed to go bust. So they took too many risks and leveraged themselves to the hilt, to maximise returns on capital (and hence profit and pay); while lending criteria were slowly loosened.
I thought that was interesting when I read it. Antoine Clarke picked up on this point also. “I never knew that” says Antoine. Me neither.
So, what are those “special bankruptcy codes” that are in place for big airports (I’m guessing not for all airports), but not for big banks? Anybody know about that?
It’s an important issue, because the fact that airports, railway networks (and energy supplies) must be “protected” by the government - must, basically, be kept going no matter what - is one of the big arguments against the private ownership of such enterprises, with all the competitive benefits that this brings to customers. Maybe it isn’t true that such things “have to be kept going”. But almost everybody thinks it is true. So that opinion has somehow to be separated by libertarians like ourselves from the argument about private ownership. That hasn’t happened with banks, but has with airports. How?
The new UK Libertarian Party has a transport section in their manifesto. It’s something of a living document and may change over time, but there are some interesting ideas. This one could be controversial, it’s a bit like what the Australians are trying but perhaps the truckers will be placated by the abolition of income tax:
We will end the indirect subsidy of road freight. This may require retention of a form of distance-based road pricing for HGVs, which in 38-tonne form, do 10,000 times more damage to roads than a 1 tonne car.
I like this bit best:
Motorists and riders should have the right to make their own choices on their use of safety equipment; insurance companies should have the right to charge additional premiums (or decline cover) to those who do.
These parts sound like a good opportunity to properly privatise rail, although I don’t fully understand the current situation (does anybody?)
Disband the cartel of the rolling stock leasing arrangements. Resolve geographic monopoly that is the rail tendering mechanism.
And then came this:
The country’s worst-performing rail company has been warned it could lose its franchise unless services improve over the next 12 months.
In a move unprecedented since privatisation, First Great Western has been told it faces being stripped of its licence unless standards are raised.
Personally, I get a feeling of yet another last chance. I can imagine why. You can’t exactly re-let the franchise immediately. It took 18 months in the case of SouthEastern (yes, such a move is not “unprecedented") which means if the government strips Great Western of the franchise it is going to the government that gets the blame every time a train is late. From a minister’s point of view best to procrastinate in the hope that he gets moved before he really, really has to do anything.
Whether First Great Western really is as bad as everyone says it is, I really don’t know. In my experience it seems just fine but I know at least one commuter who bought himself a car rather than rely on their service. And The Truth About First Great Western has gone awfully quiet recently.
I see The Telegraph is asking if train travel has got better since 1997. And the replies are filled with the usual complaints about delays, fare increases and overcrowding1.
For what it’s worth I think things have got a lot better in recent years - certainly in terms of the service. Punctuality, cleanliness, customer information, lighting, the general state of the stations, ticket issuing all seem better.
A few weeks ago I even bought a Travelcard and took a tour round some of the lines round London just to check that we in the South West weren’t just receiving special treatment. I found that things seemed to be vastly better everywhere I went3.
Of course, this is just my opinion and readers may well have their own.
My real beef is with the cost2. Subsidy to the rail industry is estimated at £6bn. In the last days of BR it was about £1.5bn.
1. Doesn’t it seem rather bizarre that we manage to get complaints about overcrowding and high prices? My view is that in many cases fares are too low but there you go.
2. Oh, and seating
3. Or, still at the rare high standard of five years ago.
It’s been creeping up on me for some time but I have to admit and against all my prejudices that trains seem to be getting better. They are new or refurbished, clean and punctual. Passenger information is first rate even letting us know how many coaches each train has and vandalism and graffiti seem to be down.
The question is, is it just me?
Punctuality in Britain is a funny thing. Before Hatfield, if memory serves, they hovered around 91% which was about the same as they were on privatisation. During the 1980s I can remember a British Rail poster proudly claiming 95% punctuality. I didn’t believe them. It certainly didn’t feel like it.
The other day I stumbled across this cutting from the Times from 1933 in which the London, Midland and Scottish reported and annual average of 92%.
Oh, and their definition of on time was to within five minutes. Today it’s to within 10 minutes for long-distance services.
There are times when I am writing about the railways that I think I am the only one. So how nice it was to come across The Truth about Great Western which I found from a comment left on a Telegraph Speaker’s Corner.
The nature of the franchising system is probably the primary barrier to the growth of the rail network. The central issue with franchises is the short time periods for which they are granted: the majority of franchises are given to Train Operating Companies for periods of 7 to 10 years, with the final years usually being conditional on meeting certain performance criteria.
The proper way to solve the problem of a lack of vertical integration is to give train operating companies (TOCs) far more control over their essential infrastructure.
And there’s a readable pdf.
And there’s this:
It all looks suspiciously professional. But he’s right, so I don’t care.
I don’t often read the Guardian so I have to leave it to the kindness of friends to point me in the direction of its pearls of wisdom. Pearls such as this from Ian Jack:
John Major may never be forgiven as the prime minister who instigated railway privatisation, but, bless his sentimental English soul, as well as the warm beer and cricket he remembered the chocolate-and-cream carriages of the Great Western and imagined, foolish man, that the return of capitalism to railways would restore an old pride in their local identities.
Oh dear. Once again: capitalism and contracting out are not the same thing.
The really weird thing about this article is the way Jack praises the railway companies of the 1930s and condemns the ones of today whilst not once asking himself why they should be different.
Alex appears in the top part of this image
Yup, scare quotes. They’re there for a reason.
To privatise means to alter the ownership of an institution from the state to the private sector. To own means to control. In the economic sphere it means to be able to decide what you sell, to whom you sell it and at what price.
On privatisation, Railtrack was supposed to “own” the infrastructure - the tracks, the stations, the control centres. The main services it had to sell were what are known as track “paths”. Could it decide how many of these to sell? Not really, that was decided by the government in the form of the Rail Regulator. Could it decide to whom to sell them? No. That too, was decided by the Rail Regulator. Could it decide at what price to sell these paths? In almost all circumstances, no. That, again, was decided by the Rail Regulator.
We have a term for a system where the government decides everything. It is known as communism. And Alex Singleton (at least, when it comes to the railways) is in favour of it.
And, just like communism in every other sphere, it doesn’t work.
It got picked up by the Evening Standard who in turn asked little ‘ol me to respond. This is what I wrote:
I see in your report (Rail chiefs in talks over renationalising train services, Jason Beattie, News, 12 April) one interviewee talked of: “...the damaging fragmentation caused by privatisation.”
Well, he’s right about the fragmentation. Splitting wheel from rail has been shown time and again to lead to delays, spiralling costs and organisation chaos.
But privatisation? Are the great private railways of Japan fragmented? No. Are the great private freight railways of America fragmented? Again, no. Did our great private operators who invented, built and developed our railways over the course of 100 years, open up their permanent ways for all-comers? Like hell did they.
Sorry, I’m wrong. Actually there was a case. The Stockton and Darlington, the world’s first passenger railway experimented with it for about three months in 1825. They learnt their lesson very quickly.
So, if private enterprise doesn’t cause fragmentation, what does? Government, of course. By law. European law, as it happens. So, how Network Rail and their Scottish politician chums think they can re-integrate the railway is anyone’s guess.
Are they planning to leave the EU?
Strange that in the days when Britain's rail network was much closer to a free market, the fare system was much simpler. Could it be that state-imposed fare control and franchising just might have added to the confusion?
Boris Johnson piles in on the (not actually – we wish!) First Great Western train disaster:
Unbelievable! And even if they did want to lay on more capacity now, the Government interferes at every turn. There are currently 14 officials in the Department of Transport who are working on the railway timetable, and at a recent meeting with angry MPs Alistair Darling, the Transport Secretary, was seen to be poring over his copy of Bradshaw and musing on whether or not an 0848 service could be added to some branch line, in addition to the 0932. The Secretary of State!
The Government is simultaneously blaming the train companies for the mess, while bleeding them of cash and micromanaging the timetable to destruction, and at a time when passenger numbers have risen by 40 per cent over the past 10 years.
That was up at the Boris blog four days ago, so sorry about the delay linking to it. But, I don’t suppose things have improved that much since then.
Some interesting comments at Boris’s, of which this was my favourite, from “idlex”:
I got lost on the subway of a Japanese city some 18 months ago, laden with shopping, baffled by the ticket machines and the maps. All of six Japanese people came to my assistance, one after the other, independently of each other, and guided me to my destination. The last one came up to me to simply ask if I needed any further help.
I wonder if that ever happens in London?
Probably not. In London, we mostly mind our own business. Which can be scary, I’d be the first to admit.
Most of the rest of the comments are of the “You started it”, “You’ve had time to fix” it, political bickering variety. Apart from some nincompoop recommending this.
David Aaronovitch is not really writing about transport in this piece, but it includes this:
My favourite living British playwright is Sir David Hare, who understands - where others don’t - the ambiguities of political existence in a democracy. But not always. Three years ago Sir David put on his play about deaths on the railways, The Permanent Way, and described it as a “painful parable about the badness of British government”. He went on: “The play is really asking: why do politicians not see what is completely obvious to everyone else? And the answer is that it suits them to privatise things, because then they’re able to blame other people when things go wrong.”
Yes, that would be it. But in 2005 there were exactly zero passenger fatalities on British trains. That’s none. So where’s the parable now? Is Sir David likely to do a follow-up in which he discovers the essential goodness of government through the numbers our trains (compared with France and Germany) don’t kill? I look forward to Marcus Brigstocke bringing us a skit on the lack of rail casualties.
I suppose a really daring libertarian like me - well not really like me – might argue that what this at least suggests is that too much attention may now be being paid to rail safety, and not enough to other useful things. Such as, most obviously, value for money spent by the taxpayer. (Is Britain’s railway system now a grubby and cunningly disguised Concorde? Discuss.) But, on the other hand, safety is not only good from the non-killing point of view, but because it also contributes to other good railway things, like punctuality, ticket sales, and even, eventually, perhaps, value for money spent by the taxpayer.
Sort of like liberty, also good in itself, and good for causing other desirable things.
Certainly Transport Boss supremo Patrick is now fond of telling me about how he lives one minute’s walk from a railway station, which of course means that he always leaves leaving to catch a train until the last possible minute, what with it being so easy to calculate. But, now, most inconveniently, the trains are never late.
Certainly safety and punctuality do appear to go together, railway-wise.
I have a lot of time for the ASI. They did stirling work in liberating large sectors of the British economy from the crushing embrace of the state and if it were possible to found a museum dedicated to their efforts it would be on the grand scale indeed.
But, their railway policy would not be one of its exhibits. Which is why it saddens me when Eamonn Butler argues that everything would have been just fine but for the original implementation and the effective renationalisation of Railtrack.
It wouldn’t. The ASI policy was based around the vertical fragmentation - the wheel/rail split. Vertical fragmentation on the railways doesn’t work.
This does, however, illustrate and important divide amongst those who believe in private enterprise between those who believe in free markets and those who believe in competitive markets. I believe in free markets, so I am quite prepared to accept the existence of monopolies in certain sectors and localities. Those who believe in competitive markets want to see the coercive power of the state used to enforce competition where otherwise it would not exist.
But isn’t competition essential for free markets to operate?
It certainly is. But what is often overlooked is the competition between monopolies. Look at the Internet. It is chock full of full and near monopolies like Amazon, eBay and Expedia (hey, the other day I even found a site that had cornered the market in laptop hard drives) but few would say it was uncompetitive or that these businesses were abusing their monopoly positions. Similarly, while railways may tend to (local) monopoly they face huge competition from road, air and (even) the choice to stay at home.
OK, so they don’t abuse their positions but why not?
I wish I knew. Amazon have pretty much cornered the market in online book sales so why not double the prices? Beats me. I think the classic free market argument is that if an enterprise does abuse its position then competitors will quicly enter the market and take away its market share. Certainly, it has taken a long time for BT to recover from the hatred of it held by many of its customers. Ditto IBM. But in the case of BT competition and price control were enforced. In the case of IBM they were operating in a fast changing marketplace where new opportunities were constantly appearing. What if the marketplace is neither regulated nor fast-changing and the barriers to entry are high? Even there it is difficult to find an example of monopoly abuse.