An interesting article here from the Imeche journal as regards the end effect of privatisation of the UK railways. In the 1990s before privatisation was introduced, it cost the UK government £1 Billion to subsidise the railways. 18 years of private ownership later and it now costs the UK government £5 Billion to subsides the railways, i.e fives times more than before privatisation 88|!
Privatisation has therefore failed as regards it principle goal, reducing the costs of the railways to the exchequer. Furthermore, not only is it costing the government more to subsidise the railway system, but ticket fares have soared since then and (going by the grumblings of passengers) the service has gotten worse on many commuter lines.
The Black knight effect
I blame the failure of Thatchers privatisation on what I call The Black knight effect (after the infamous black knight of Monty Python) as it represents a belief held by many neo-liberal cheerleaders that capitalism and free market theory always triumphs, even in circumstances where it is at a distinct disadvantage…much like our armless, legless black knight! Yet like him, the neo-liberals will refuse to give up, or concede that theyre economic ideology is a tiny bit flawed, even when its glaringly obvious that its failing (tis but a flesh wound!).
The truth is free market theory will only work in certain circumstances, notably situations where there is truly a free market (not a cosy cartel), where there is actual competition (not the illusion of it) and the economic model being promoted is actually sustainable and water tight (our numbers add up). None of these conditions applied to the UK railways at privatisation. Firstly companies had to bid to get the contracts. As a result from day one all the individual rail companies had a huge deficit on their balance sheet and lots of share holders looking for a profit to be turned in quickly to give confidence to the markets (else the companies would find it impossible to raise money later without going to the government).
Hence, the rail companies started off by cutting back on services, selling off land (such as maintenance yards to property developers), laying off experienced staff and otherwise cutting corners while at the same time hiking up fares. This netted big profits for investors, but in the end it was an unsustainable bubble, and a very brief one at that. It also burst any bubble in the Torys heads about how privatisation would see free enterprise whisk away the UKs old dodgy railways and replace it with a cheap sleek and new, gleaming high speed alternative. Investment in new railway projects were in many cases shelved rather than new ones being put forward. Of course just to make matters worse, the various bits of BR that had actually been profitable had been sold off in the early stages of privatisation in the 1980s.
Certain long term issues were put on the back burner, most crucially track maintenance, eventually leading to a deterioration in track condition that would several years later come back to haunt the industry in the form of a series of 4 rail crashes (Southall (1997), Ladbroke Grove (1999), Hatfield (2000) and Potters Bar (2002)). These crashes effectively ruined the industry, as Railtrack was all but forced back into public ownership and the rail companies, dependant on Railtrack and its monopoly of track maintenance, were forced to pay an increasing amount of money to use its track as it hastily began a program of track renovation to correct previous problems.
Another problem with privatisation is that, as noted, in order for capitalism to work there has to be an element of competition, and the privatised railway network has very little room for that, as most of the rail companies have a de-facto monopoly in each geographical area. Privately owner or publicly managed, any company thats left in a position of a de-facto monopoly will evitably become bloated and in-efficient over time. The UK railway companies are a textbook example of this. They can set prices for ticket based not on what is a competitive price (i.e a price that will attract the customer away from their competitors) but on whatever they reckon they can get away with (i.e how much can we fleece the punter for without getting physically attacked!). Managers award themselves generous and unjustified bonuses, the unions (peeved at their lazy managers getting paid so well) regularly demand this and that and management just rolls over, suppliers and contractor golfing buddies of the bosses get overly generous service contracts, staff at all levels arent suitably motivated to perform better, etc.
Also, in fairness to the railway companies, competition will only occur when theres a level playing field. The things the railways should be competing against, cars and short haul flights, are both massively subsided by the government (a lot more than the measly 5 Billion the railways get).
Its hard to believe that the train companies have to pay tax on fuel, but the UK airline industry doesnt. Add in the costs of maintaining the UKs airports, air traffic control, fire and emergency cover, the cost of building all those airports and support infrastructure to begin with, not to mention the costs of climate change, air travel being a 5-10 times worse (depending on who you ask, see here and here) per km travelled than trains. Taking all this into account and you can see that there are a whole set of hidden costs that youre Ryanair £12.99 Glasgow to Stansted ticket doesnt cover.
Similarly, all the talk you hear from the Top Gear crowd about a war on motorists is baloney. The UKs car owners are the biggest receivers of state welfare in the country. Yes motor tax and petrol tax maybe high, but its not high enough to cover the true costs of motoring, i.e maintenance of roads and motorways, the huge costs of originally building these in the first place, emergency cover, policing of roads and the costs to the country of dealing with climate change (petrol heads will often try skewing the numbers to show cars are better than trains by comparing a Prius driven slowly with 4 people and no luggage vs a half fuel diesel commuter train, while the reality of course, a large car driven fast with 1 or 2 people against an overcrowded commuter train its the train that winds out, car travel being about parallel to air travel for vehicle emissions ). Then theres the other environmental costs of cars (CO2 isnt the only think coming out of tailpipes) and the health effects of vehicle emissions. Then of course there are the costs of maintaining cheap and readily available fossil fuels (so we should really include a war tax surcharge on all car travel then!). Motorists dont know what a good deal they are getting. Unfortunately, post-peak oil theyll be getting a rude awakening.
So obviously, its all but impossible for the railways to compete against cars, buses and planes if the latter are being massively subsidised while the railways being heavily constrained. So its probably no surprise that by and large the railway companies havent even bothered to try and compete and have ended up degrading into the same listless inefficient behaviour seen under the latter days of BR…only now with a 25% premium on top for profit :no:!
Solutions? Re-nationalisation or Re-privatisation
Clearly the solution is to do one of two things. Option one is to accept the whole thing was a bad idea and re-nationalise the entire railway network. Many of the train companies now have large debts so I suspect some would actually be happy to have the whole sorry mess taken off their books. The others could be either bought out easily or nudged out as most have committed enough violations of theyre conditions of franchise to warrant it being revoked if the government decided to do so. Nationalised railways are not the first stop on the road to communism (as the Daily Mail would have to believe). Many countries have a nationalised railway network, notably the USA, Yes! you heard me correctly, the land of free enterprise has a Federally supported railway network in the form of Amtrak.
Option two is, re-privatisation, but doing it properly this time. That means the government paying companies to take the railways off its hands, and I dont mean token sums (i.e lowest bidder like last time), I mean what it will actually cost said companies to take on the burden. We would need to allow these companies to compete against each other on routes, and more importantly pulling the welfare rug out from under motorists and budget airlines. Of course, such a project would be hugely expensive and extremely unpopular with many motorists or the Nouveau Jet Set. Unfortunately with a Tory government in power I cant see either being done, so it will be a case of just paying £5 Billion a year, taking a regular shafting from ticket agents over fares and just putting up with it until (hopefully) the whole sorry mess collapses under it own ineffective weight.
A note to the Austrian school
And Libertarians need to accept the fact that, as the UK railway privatisation shows us (or indeed the economic train wrecks that are the UK water, gas and utility companies), capitalism isn’t Invincible (and some of them, like the Black knight, are raving lunny’s!). It not some sort of magic formula bestowed upon us by the gods (and on the 2nd day God did tell Jesus to set up a private equity firm giving-ith an annual rate of return of 15% & he dith decree that the lepers should not be healed, as that would be socialised health care…). Its merely an economic system that allows us to maximise resource use, while minimising costs. Nothing more nothing less. It works and works well sometimes yes, but that isnt universally true in all situations. And it certainly doesnt work in situations where we actively prevent a free market from forming.
And then theres the law of unintended consequences and externalities to consider. For example, the purpose of public transport isn to provide a cheap, clean and efficient way for us to move large amounts of people from their homes to their place of business (or recreation) as quickly as possible. If we dont do this with trains, then we have to do it with road traffic, and how much more would it cost the UK taxpayer if everyone who takes the train to work suddenly got into a car Monday and drove into work instead? (hint, the UK road network would collapse if that happened) Whose going to pay the cost of those upgrades to road and car parking facilities? And how many working class people afford to drive their own car? Im not even working class, and I cant afford a car! and if someone doesnt pay up then thats a huge chuck of the UKs work force who cant do their jobs anymore because they cant get to work! Who is going to pay the costs of climate change? What about the huge amount of the UK tourist industry dependant on public transport (to move punters around the country)? How are little old ladys who cant drive anymore (and we dont want driving any more!) supposed to get to the shops without public transport?
There are times when capitalism works and works well, but there also things we dont want to leave to the whims of the market.