» If transit isn’t better operated by the private sector, why is it still being privatized?
European politics are in many ways defined by opposing views about the role of public services — a debate ignored or sidelined by the considerably more conservative U.S., where the supremacy of the free market is accepted by both major parties.
The socialists and social-democrats on the European left generally believe that offerings such as transit, electricity, gas, and garbage collection should remain in public hands, with infrastructure and operations run by the government. That point of view held sway throughout the post-war period, reaching its zenith with French President François Mitterrand’s mass nationalizations of industrial concerns at the beginning of the 1980s.
Right-wing parties, on the other hand, intent on increasing competition and spurring the market, have been fighting for privatization since the end of the Cold War. British Prime Minister John Major’s decision in 1993 to end the public monopoly of British Rail was the first major step in terms of transportation. European Union edicts in the following years, imposed by a liberal (in the traditional, non-American sense) right-wing majority on the Council, have forced national governments to privatize their public services and open them up to competition.
As indicated by the considerable political weight of the 20th anniversary of the fall of the Berlin Wall — a demonstration of the ultimate success of liberal democracy over other modes of governance, according to political scientists such as Francis Fukuyama — the strain of argument that proposes that the best way to run a society is to make its economy as free as possible is still accepted wholeheartedly by politicians in the West, from President Obama to German Prime Minister Angela Merkel. This despite the recession, whose cataclysmic effects have put into question whether the advance of the free market has produced more positive outcomes than possible alternatives.
Indeed, the celebrations revolving around the 20th anniversary of the defeat of communism in Eastern Europe mask the economic pain in many of the affected countries’ economies, suggesting that the imposition of western mores on the role of the free market have not necessarily produced the miraculous outcomes initially suggested by their proponents. The rapid rise of economies in the Middle East and in Asia, meanwhile, runs contrary to the claim that liberal democracy is the best way to advance public well-being; most of the countries that have become successful in the world market have state-run economies, state run corporations, and fewer human rights than we’re used to in the West.
Which raises the question: if the best-performing nations in the 21st century aren’t liberal democracies, should the West continue to hew so tightly to its existing governance strategies? How does this apply to transportation?
A review of recent transportation management decisions is indicative of the failure of this pro-market ideology.
There is considerable evidence that the most extreme examples of privatization, in which infrastructure is handed over to non-public concerns (a bit of a flash-back to the days of the railroad barons), have fallen apart rather quickly because of the inherent limits on the market. When corporations pay for new rail lines, for instance, they’ve got to justify their investment to their investors, and usually over a short period of time. The fundamental problem is that infrastructure pays off over a very long period. Governments, in contrast, have the ability to pay for new capital projects (or pay off debt) during recessions that bankrupt private enterprise.
Indeed, the collapse and subsequent nationalization in 2002 of the United Kingdom’s private railroad owner, Railtrack, was the first warning that something was amiss in the idea that infrastructure could be provided efficiently outside of the public sector. The similar failure of London & Continental, which managed the construction of the High-Speed One project, provided more evidence. Yesterday’s nationalization of Taiwan’s defunct high-speed rail line, constructed with private money, suggests that the problems are not limited to the British Isles.
But if it’s becoming increasingly apparent that private construction and management of infrastructure is problematic — France and Germany, for instance, have kept their tracks in public hands — it’s worth returning to evaluate the potential benefits of private operation of transportation. If a system in which the free market rules is supposed to create the most benefits for a society, it should have produced some valuable outcomes in Europe’s most free transportation market, that of the United Kingdom.
There, the non-profit Network Rail (which replaced Railtrack) — backed by government guarantees, making it pseudo public — leases rail route franchises to private corporations for five to ten-year periods. Those corporations, members of the Association of Train Operating Companies, are to pay a set amount to Network Rail for the use of track over the period. At the end of the franchise, the rate is renegotiated and another operating company can be brought in if desired.
The system, to describe it quickly, doesn’t work.
Take the example of the East Coast mainline franchise, which concerns services running from London to Glasgow, running through Edinburgh, Newcastle, York, and Peterborough. In 2005, Network Rail awarded the service to GNER for 1.3 billion pounds over ten years. By 2007, the company had to hand back its services because it could not handle the costs of the line, which had suffered ridership losses after the London terrorist attacks. That year, the contract was renegotiated with National Express, another company, which agreed to pay 1.4 billion pounds by 2015 to operate the line, which is the country’s busiest long-distance route, with 17 million riders a year.
During the summer of 2009, National Express announced that it would have to walk away from the line because of the recession and the government’s unwillingness to renegotiate the contract at a lower rate — unsurprising considering that just two years ago National Express had agreed to the contract and its price, which was to pay for necessary maintenance along the line. The failure of this private service should serve as a warning to other European companies whose services have been split from infrastructure maintenance operations: there is a disconnect in both philosophy and interests on the part of an operator and an infrastructure owner.
The result? The government will take over operations of the line in three days, forming a new public company called Directly Operated Railways that will take responsibility for National Express’ 3,100 employees along the route. Branding, names, and uniforms will all have to be altered to reflect the changes, all at the cost of the U.K. taxpayer. National Express is expected to renegotiate the line for private operations beginning in 2011. The government, which wasn’t able to profit from the “good” years of 2007 and 2008, is now having to commit to the line’s operations during the “bad” years of 2009 and 2010. In other words, a private company took the profit and the government was left with the losses.
In order to prevent a similar situation from occurring on train lines running from London to the West Country and Swansea, the government is providing a huge subsidy to private operator FirstGroup with the goal of preventing another company from defaulting.
From the perspective of British legislators on the left, the failure of National Express and the subsidies necessary to keep FirstGroup afloat suggest that a government comparator — a sort of “public option” — should maintain control over the East Coast Main Line with the goal of demonstrating the advantages of having a public sector operator. For the RMT rail workers’ union, the system is completely flawed. Says Bob Crow, general secretary of the union:
“This is a massive taxpayer bailout, which makes a mockery of the rail franchising system. These figures show that companies are being propped up by taxpayers’ money and it reinforces the RMT’s argument that the whole system has been an expensive disaster.”
Of course, the Association of Train Operating Companies sees the situation differently and has argued that the answer the the problem is not more government involvement but rather less of it. The organization argues that franchises should be expanded to up to 20 years to encourage more long-term investment and that private companies should run their own infrastructure. But private ownership of the rail lines in the 1990s proved such a financial and customer service disaster that that claim seems completely irrational. Private involvement meant poor maintenance, unchecked safety, and profit above service. Why should the UK repeat that mistake?
This is no minor discussion, because it gets at the heart of the neoliberal claim that the best, most efficient way to advance public services is to put them into private hands. The history of transportation in the UK is indicative of a system-wide failure.
The flaw in that right-wing argument is that it fails to ensure that both profits and losses go to the same organization. Because railroad services must continue to be provided during both good and bad economic cycles, no citizen-minded government will simply allow a corporation to stop services when a bad economy makes profitability more difficult to achieve. Rather, as proven by the examples noted above, what typically occurs when the government allows public services such as these to be privatized is that corporations will profit during healthy years and then force the government to either subsidize operations or take them over during less healthy ones. In the end, the government has assumed the losses and the private sector has won the profits. That’s a major problem if you want transportation to be well managed.
Transportation is just one type of public service, but the very nature of private involvement in the provision of rail services in the UK has demonstrated that the growth of the market has frequently produced the adverse effect of worse service and more government expense. Meanwhile, countries with transportation that remains in public or pseudo-public hands have been able to offer their customers far more straight-forward, reliable services. This is true both in Western social-democracies and in Eastern command-control systems; either way, the market’s involvement has been limited at best.
I do not intend to suggest here that liberal democracy’s effects have been entirely negative; on the contrary, it is undoubtedly true that the fall of the Berlin Wall brought considerably increased human rights to people on the eastern side of the Cold War. Nor is communism as it was construed by the Soviet Union any kind of solution — there is never a case to be made for mass suppression of peoples’ ability to assembly, press, or speech.
But the increasing opening of the market and its intrusion into the domain of public services is putting under threat daily necessities such as transport, which should be guaranteed rather than liable to the fluctuations of investor confidence. Though the failures of the market are rarely put into discussion in the United States, the expected expansion of public transit and rail offerings over the next decade should be done in such a manner that recognizes those flaws. Not to do so would mean increased taxpayer expense and fewer benefits.
Update, 12 November: A group called Bring Back British Rail has been founded. Its goals are self-explained.