The lesson of the railways: private is not always best

Ben Chu

In my Indy column today I mention that the public subsidy to the railways has increased in real terms since the days of British Rail. For those who are interested, this chart from Sir Roy McNulty’s report on the railways from last year  shows in greater detail how the public cost has exploded:

Untitled 13 The lesson of the railways: private is not always best

The orange bars are the subsidy.

As the McNulty report points out, one of the main objectives of rail privatisation in 1993 under John Major’s government was to reduce the level of public subsidy. That particular train is not just late, it’s heading in the wrong direction.

What we have here is a lesson for those tempted to assume that wholesale privatisation of public services always produces greater efficiency and reduces public expenditure. McNulty says the British railway system is around 30 per cent less efficient than publicly controlled European peers.

And why are our railways so inefficient?

This passage from McNulty (p28) suggests an explanation:

“Differences in performance gains between Great Britain and these European examples may result from differences in the approach taken to franchising. While Great Britain has franchised all services, franchising in Europe has tended to focus largely on subsidised regional services, with main-line services continuing to be operated by the former state monopoly. This has allowed new franchised operators some flexibility over staffing, with staff given the opportunity to transfer to the new operators or remain with the state incumbent…It has allowed new operators to improve labour productivity and therefore reduce  overall costs.”

In  other words, while a modicum of privatisation can be a public benefit, there can also be large public benefits from keeping key services in the hands of the state.

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  • chuckfreyer

    I welcome your thoughts. Please do not give up and let’s cut out ad hominnem attacks (calling me tiresome). We are exploring economics here.

    1. I have no doubt that you and your grandmother are nice people, like Freidman was too. That is not the point. The point is that he advanced an economic theory that won the Nobel Prize.
    2. The current system did Not arise due to free market economics. Quite the opposite ! That is the portion which is not enough in the news.In a free market: you do NEVER have government bail out companies. Full stop. Because in order to bail out FAILING companies, it means punishing the masses – YOU AND YOUR GRANDMA – for the natural failings of a few.

    In business, in sports, even in war: there are those who do well and those who do not do well (see football results). But if someone does Not do well, then one does NOT give them GOLD TROPHIES and if one does so, then where does the money come from, eh? 

    Sorry to state: from your grandma’s closest directly. How so?Every time she goes shopping (or you shop for her) you pay taxes, a portion of which goes to pay off a budget deficit; which got that way because someone gave the LOSERS a friggin’ Gold trophy ! 

    That is not fair, to you!That is the reason behind the problems in the U.S. AND U.K AND E.U.Let failing firms FAIL fast. Then people can self organise again and create value in new entities. That is laissez-faire: free market economics.I thought you will enjoy the below. Someone accused laissez-faire of :

    1. resulting in exploitation of workers

    2. dissed the concept of wealth being FAIRLY distributed : which is so in CAPITALISM3. believes a coterie of rich people is a bad ideaand other myths. Watch how I demonstrate “freedom”. In other words mate:

     YOU ARE SOVEREIGN. Your gramps is Queen. No one has a right over you, nor you over them . YOu can create trade by entering into voluntary contracts – such as employment, or as a trader (buy-sell) of goods or services as an entrepreneur

  • vanzetti

    Thank you for your comments – I’m afraid that you are merely reiterating neo-classical economics 101 – which is utterly without foundation – IN REALITY, I challenge you or anybody else to show ANY period in the history of capitalism where the free markets have prevailed – The notion of free markets, much like heaven and Valhalla m are mere fictitious idealised categories – In reality, capitalism has a structural tendency to centralise and concentrate capital. There is no substantive doubt that capitalism grew and expanded on the back of expanding colonial base – i.e. through plunder and slavery, domination of sources of raw material and exclusive access to markets..

    The infamous opium wars serve as a particularly odious example of enforcing ‘free trade’ at the point of a gun…to the detriment of the indigenous population and the astronomical benefit of the ‘trading’ interests holding the guns…Liberal democratic capitalism in much of the west has been sustained on a colonised plunder Diaspora facilitating the emergence of substantive technological advantage over the rest of the planet. Deregulated capitalism was made democratically sustainable as a direct consequence of Keynesian interventionism – the root of the post ww2 social contract – being dismantled as we speak…hence the erosion of fundamental democratic freedoms and….

    The period of great industrial putsch in post civil war united states occurred behind a curtain of protectionism which served to exclude cheaper British goods from the US market allowing indigenous capacity to develop. Indeed, further accelerated expansion of capitalism in the US was characterised by a rash of mergers, Trust and cartel formations in the early 20th century.

    The notion of free market operation in an oligopolistic/monopolistic economy is palpably absurd.

    The perennial problem with your viewpoint is typical to the proponents of neo-liberal-economics – it is rooted in abstract theory and, for very obvious reasons, avoids contextualising abstraction in real historical processes – I say obvious, as any attempt to do immediately reveals fatal systemic flaws in key assumption and hypothesis – neo-liberal economist avoid history like the plague!

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