Veolia and Transdev, Transport Operators, Propose Huge Merger

Domination of new company puts into question the role of private operators.

Neo-liberalism has become the defining approach most western political systems take to developed their economies after the fall of the Berlin Wall The repeated failure of left-oriented regimes to articulate a popular alternative to corporate welfare and reductions in government size hasn’t helped much. One prominent consequence in Europe and North America has been a privatization of formerly public services. This embrace of the so-called Washington Consensus has had a major effect on public transportation systems, which remain largely owned by local, regional, and national governments, but whose operations increasingly are being transferred to private firms.

I have no interest in extolling the value of these corporations, and their profit motive is likely resulting in less-than-ideal service provision, but the outsourcing of transit operations is undoubtedly producing a massive new industry whose business should be of interest to those in the public transportation trade.

In the U.S., Veolia Transport already manages the operations of Tri-Rail in Miami, New Orleans RTA, San Diego Sprinter, and Los Angeles Metrolink, among others. Though most large cities in Europe and the U.S. continue to run their own services through municipal or regional authorities, the tirades of conservatives against government control will likely result in more and more such operations being transferred to private control. In general, these private operators bid to provide a service that a city requests and then get a contract derived from city funds that lasts several years. There’s little proof that private contractors do this work any better than the public authorities had done it before.

The basic idea? Private profit at public expense.

Nonetheless, four large companies — Veolia Transport, Arriva, Transdev, and Keolis — are leading the way, and making big bucks doing it. Except for Arriva, which is British, the other three companies are French, and tightly aligned with the French government, which invests directly in the companies. Veolia Environnement, which is France’s largest private employer, and whose interests also involve water, waste, and energy distribution, is 10% owned by the Caisse des dépôts et consignations (CDC), which is a sovereign funds investor that funds infrastructure projects and major French companies. Transdev is a direct affiliate of the CDC (70%) and also connected financially with RATP (25%), Paris’ transport operator and a French government subsidiary. Keolis is 55% owned by SNCF French rail, a government subsidiary, and 26% controlled by the Caisse de dépôt of Québec, similar to its French counterpart.

Veolia, which has been having financial difficulties with its transport unit, recently announced its interest in acquiring Transdev. The operation is supported by the CDC and (its ultimate leader) French President Nicolas Sarkozy, a staunch supporter of the privatization of public services. The new company would have 130,000 employees, annual revenues of €8 billion, and be 50% controlled by CDC, 50% by Veolia. The merger would be finalized in early 2010 if it comes through. As part of the deal, SNCF, in affiliation with Eurotunnel, will assume control of Veolia’s cargo operations in France and Germany.

The merged company would control 42% of the French transit market, and collectivities in the country are already worrying about the merger’s effect on competition. Less of it could mean increased costs for municipalities looking to outsource their bus and train networks.

As these companies expand, the French government and its private interest are making their mark on transit service provision around the world. SNCF, which has taken control of Eurostar and has a managing stake in the Italian upstart NTV, is planning a similar take-over of European high-speed operations as they’re opened to privatization; SNCF has made well-known its interest in operating American services such as California High-Speed Rail. This isn’t necessarily a bad thing — anyone who has visited French cities knows the quality and reliability of service provided there.

But French transit and rail services work so well because there’s a strong political will to support their well-being, even when they’re privately run. Is that true in the U.S.? Will private operations run by mammoth European corporations be supported adequately by public subsidies? Or will this de-governmentalization of service provision mean lower wages for workers, less safety, and a general disinterest from the public perspective in continued investment in alternative transportation?

I don’t have the answers to these questions, but they’re worth asking as global corporations take command of driving our buses and trains here, there, and everywhere.

13 Comments | Leave a Reply »
  • EngineerScotty

    I think a big reason that many conservatives (in particular) push for privatization is an (alleged) reduction in labor costs. Public entities are less likely to bargain hard (or try to bust outright) transit unions–in some places, the transit authority may see provision of high-wage jobs as part of its organizational mission. (Right-wing critics, of course, interpret that stance as “rewarding union bosses for political patronage”). Even in places where there isn’t (excessive) friendliness public officials and public employee unions; public administrators–motivated more by keeping voters happy, and not at all by keeping shareholders happy–are less likely to take hard lines with labor.

    And of course, private contractors running transit operations have the opposite motivation. Generally, their fee is independent of their expenses; dollars saved on labor go to the bottom line. Their fees is also largely independent of public satisfaction–getting people to ride transit is the problem of the transit agency, not the operations firm.

    A lot matters, I guess, on how contracts are structured. If the private contractor is penalized for poor customer service (or compensated as a percentage of the farebox take), then actions which increase contractor profits at the expense of riders are less likely to occur.

  • Abe

    “private profit at public expense”? that, while technically a true statement, implies a false point; that corporations will be profiting while giving worse service. Firstly, the whole reason governments would contract out the operations would be to minimize costs, resulting in (in theory) a better deal for the taxpayers. secondly, that article from streetsblog was highly anecdotal, only citing 1 accident by one operator. a horrific accident, but one caused by factors that could have easily occurred under a public operation (google “WMATA bus drivers texting”). In fact ,this article reflects the flawed paradigm of public>private ownership. If the Red line crash had happened under a private company, this would be blamed on privatization. Instead, because its public, the cause is “lack of funding”. see the double standard. while private operation does have pitfalls, such as in Britain, just BECAUSE transit is privately owned dosent mean its automatically unsafe or of lower quality.

  • Sean

    Great post. I could not agree more. Mass transit is a PUBLIC benefit and should remain in public hands. The poisonous ideology of privatization must be destroyed and replaced with one that emphasizes the public welfare over private profits.

    Government are accountable to the people and not beholden to a bottom line. THis is the main reason why privatization is a bad idea. Not to mention it doesn’t work. Look at the Iraq War.

  • Abe

    In the same way that private companies aren’t always unaccountable, government isn’t always accountable. sure, we elect our leaders and representatives, but even they only have limited authority/say over the particular functions of government. While I do agree that privatization is seccond best to public ownership in terms of transportation, the real problem is when corporations run companies without being penalized for poor service. the supposedly evil “profit motive” actually works FOR the people if the company has to respond to the demands of consumers. “market forces” which dictate profit, are dictated by consumers. if they know that ‘x’ transit company is providing bad and unsafe service, in an ideal situation, they could use transit company ‘y’ or take their car, and ‘x’ company would go out olf business because their service is bad. the problem with British privatization is that companies can make money regardless of the quality of the service. One again, the DC metro is a good example of a system that is supposedly ‘accountable’ and run for the ‘public benefit’, yet has had a series of malfunctions that have endangered riders.

  • The repeated failure of left-oriented regimes to articulate a popular alternative to corporate welfare and reductions in government size hasn’t helped much.

    No, neoliberalism defines itself against subsidies for large corporations, as practiced in the import substitution regime it replaced. Governments throughout the developing world had large state-owned companies and subsidized large private corporations, and that promoted complacency and reduced competition. The Washington Consensus argued that they needed to let companies compete without subsidies, and that state money should instead be spent on health, education, and infrastructure.

  • EngineerScotty

    One problem that immediately comes to the forefront is that the question of privatization is frequently tainted by ideology, especially in US political discourse. Those on the right frequently take it as a given that it will produce better outcomes–and some on the right go further and support privatization solely on the grounds that it is less “socialist”. (Not to mention those who take the ridiculous position that public transit of any sort is “socialist”, while insisting that the publicly-maintained road network is not).

    Likewise, some on the left seem to be terrified that a private concern might actually make some money providing a public service. Actual analysis of when and where privatization might be useful (providing a more desirable level of service and cost) is ignored–many here known the answer already.

    A useful example to look at is the transportation system in Hong Kong. Hong Kong transit is highly utilized; it is generally regarded as excellent–and much of it is privately provided. Generally, nobody cares what is public and what is private. Bus service is (FTMP) provided by one of five carriers on a franchise basis; the heavy and light rail systems are operated by a private concern called the MTR. The Hong Kong government regulates rates, assigns franchises and routes, and imposes a uniform fare collection system (the Octopus card).

    How much does Hong Kong apply to the US? Probably not a lot–other than Manhattan, no place in the US approaches the population density of Hong Kong. Operation of automobiles is expensive (that said, Hong Kong nowadays has an extensive freeway network, which the busses generally utilize). HK is one of a few places in the world where provision of public transit can be profitable without subsidy. But some of the debates around privatization that occur here would seem downright silly across the ocean.

  • Alon –
    The point is not that theoretical neoliberalism defines itself against public support for corporations, but rather that regimes embracing neoliberalism — almost always closely connected to a business elite — invariably also support corporate welfare, irrespective of the reasoning behind neoliberalism.

  • Yonah, in East Asia the experience has been the exact opposite: protectionism and industrial policy came hand in hand with lavish subsidies for large corporations, whereas the adoption of free trade following the 1997 crisis was accompanied by cutting those subsidies.

    Even elsewhere, neoliberalism aids corporations by cutting their taxes more than by giving them welfare. The history is nowhere near as stark as in East Asia, but Israel has a lot less corporate welfare than it used to back in the day of lavish military contracts, EU rules moved countries toward less state ownership and subsidy for industry, and so on.

  • Some organizations are efficient and successful. Some are not.

    Likewise, some governments and political dynamics are beneficial to their citizens and some are not.

    It’s highly simplistic to paint all privatization with the same brush. In some places public transit indeed has rampant featherbedding and union protected staff with little interest in customer service. I believe this is the exception, but one example has been the MBTA in Boston. So privatization might a happy solution in these cases.

    In other instances, privatization is just an excuse for corruption; for the contracts to go to somebody’s uncle, etc. This is a risk, and media reports suggest the Iraq war is an example, but it doesn’t automatically mean that all privatization goes this way.

    The advantage of more competition is that the dysfunctional organizations will fade away, be they local government operators or private companies. However privatization is *not* the same thing as competition when corruption or politics gets in the way, which it often does. Also in the US the government usually retains control, only contracting the operation to the private company — thus eliminating the incentives to provide great service to passengers and changing the customer from system users to the local government.

    This is the kind of question that isn’t solved by arguing over ideology and theory, it is solved by good management and leadership on the ground which is much less sexy and unfortunately not always encouraged by our political system.

  • Christopher, the presence of powerful public service unions is not enough to make privatization work. In London, whose union issues are similar to the Northeastern USA’s, privatization of the London Underground was a complete failure. Conversely, in Hong Kong and Tokyo, privatization was successful. It appears that the systems where privatization has worked are exactly those where government ownership worked as well.

  • SPeaking of neoliberalism, generally the benefits of public investment are reaped by the private sector in the model.

    The HK example ioffered by EngineerScotty s not a pure one at all, compared to the U.S. MTR is an active developer and half their revenue stream is from lease income from developments at their stations. In the U.S., typically this development occurs privately and the income does not come back to the transit authority, except indirectly if the transit system is funded partially by property taxes.

    So MTR is profit positive, not from transit so much but from transit and property development (which is how it was done in the old days anyway).

  • >The point is not that theoretical neoliberalism defines itself against public support for corporations, but rather that regimes embracing neoliberalism — almost always closely connected to a business elite — invariably also support corporate welfare, irrespective of the reasoning behind neoliberalism.

    It seems to me that there is either no correlation neoliberalism and corporate welfare in practice, or the correlation runs the other way. I don’t think countries that have relatively resisted neo-liberalism are likely to have less corporate welfare. They probably have more. Or even in countries that have relatively embraced it, has there been an increase or a decrease in corporate welfare? Just look at which representatives voted for the bailout of GM.

    But even if that weren’t the case, this is a deceptive and uncharitable way to argue. The point is to debate the virtues and vices of returning a certain sector to the private market. If some percentage of advocates of privatization have other beliefs about other issues, that is irrelevant to the case at hand. Democrats are more likely to believe in astrology (they are, I believe), that would be a totally ridiculous point to in an argument about who to vote for. If you could show that being a democrat committed you to believing in astrology, you might have a point. But I don’t think you could do that any more than you could show being a neoliberal committed you to supporting corporate welfare.

  • mark

    I’d just like to make a point with regard to Veolia/Transdev partnership.
    One of the main reasons in my opinion for a merger is the fact that Veolia have been losing transportation contracts around the world mainly due to the fact they where the only transport company that would take on the illegal route of running a service that ran from israel Into palestine. After much pressure from around the globe and the loss of huge contracts mainly Sweden, they withdrew their services, they have also lost contracts in several major countries in their other interests such as enviroment & water.
    Because of its bad reputation and loss of billions they have decided to make a merger with a rival competitor Trandev.
    One example is the metro line proposed for Dublin, Ireland. Five companies originally made bids for this $10 billion contract, Veolia and Transdev being two of the five. As it transpired because of the negative press and Veolia’s loss of contract work around the globe they where dropped from the bidding at the first round leaving two bidders one of which was Transdev. Within a week of Veolia being dropped as contenders they announced that they wished to make a merger with Transdev. COINCIDENCE??? you decide!

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