Serious talk of re-nationalising the railways here in the UK has emerged in the media over the last few months, as the public has become increasingly vexed about rising rail fares. Paul Nowak, the assistant general secretary of the TUC (Trades Union Congress), recently said that “Rail privatisation is the economics of the madhouse” and that “there is a very clear case for public ownership on a line-by-line basis”.
He’s not just wrong, he’s totally wrong. There isn’t a clear case for public ownership of the railways, and here’s why.
It’s been approximately 80 years since the UK had truly privatised railway infrastructure and operations. Since passenger operations were franchised to individual private sector operators in 1994, services have expanded, increased in quality and become much safer – which has been reflected by the huge increase in passenger numbers over time.
This is fundamentally the result of for-profit management and the much more diligent funding of private investment, as opposed to not-for-profit management and the much less diligent funding of taxation – which is what nationalisation or public ownership is. Franchising, not ‘privatisation’ as people who should know better keep inaccurately calling it, led to these improvements, but the one thing it was never likely to achieve was lower fares over time.
Franchising overcomes some of the flaws of nationalised railways, but it doesn’t solve the problem of a lack of competition. Competition, or at the very least the ever-present possibility of it, is what incentivises operators to innovate or seek greater efficiency in order to lower fares or at least to keep them from rising.
Without even the possibility of competition, at least not for the period of its franchise, a private operator under the current system has little or no incentive to innovate and seek greater efficiency; because the consequences of not doing so are much less financially profound than they almost certainly would be in a free market environment where there was competition or the possibility of it. The consequences of failure in this regard in a competitive free market could easily outweigh, in the long run, the kinds of sums of money that the government currently fines operators for failing to meet targets set for them.
The only competition under the current franchising system occurs when the contracts of each individual private operators come up for renewal. However, this is competition to win the favour of a few people in government, who get to decide which operator gets to monopolise each line for the next several years – and not competition to win the favour of the majority of millions of people who want high quality, safe and affordable railway transport.
This is a perverse kind of competition that is potentially highly lucrative for private operators, but only potentially marginally beneficial to passengers – if at all. Ultimately it means private railway operators have much more incentive to behave in ways that please a few people in government, rather than in ways that benefits millions of people in society.
Rail fares have increased above inflation over the last 20 years or so because the current system prevents truly free competition in the provision of railway transport and because government regulation of railway line operators increases the cost to them of providing their service. Railway travel has not become more expensive because private operators are ‘greedy’ or because privatisation is harmful to society. To believe that is to be led to believe the complete opposite of the truth.
We basically already have a nationalized rail industry in this country. The operating companies just compete for contracts to do the work that government specifies for them. Like in many of our key industries, the government or its regulator decides the price consumers will pay.
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