Clinker Lecture Slides
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Public Service or Private Profit? British Railway Policy 1825-2020 The Clinker lecture 2020 Mark Casson University of Reading 1 Part I: Introduction 2 Key questions • Railway history is strong on detail but does not always engage with wider issues. What sort of general questions can it address? • A previous generation of transport historians – Michael Robbins, Jack Simmons, Theo Barker, etc. – linked railways to the wider social, economic and political environment. They addressed two main types of question: – What was the impact of economy and society on the railway? – What was the impact of railways on the economy and society? • But they did not always answer these questions directly. • This lecture addresses another general question, focused on the ‘public service’ aspect of the railway system. It asks: – To what extent did railway managements pursue public service? – What was the impact of public service strategies on the service they provided? 3 Concepts and definitions • Private profit: – Operating surplus net of interest and other charges = Dividends paid out to shareholders plus retained profit – Profit may be retained to exploit new opportunities, address new challenges, or build up reserves – Pursuit of profit is driven mainly by shareholder interests. Pensioners want stable dividends. Speculators want capital gains. – Managers want retained earnings to grow the business, but they don’t want profit at the expense of salaries. • Public service is a contested concept: it includes – meeting the transport needs of people and industries – providing value for money to customers – fair wages, secure employment and good working conditions – safety of passengers and workers, etc. 4 Some specific questions (and answers) • Did the railways pursue a public service agenda? Yes. • Why did they do that? To begin with, because government regulation compelled it. Later because it helped to win government support • When, if at all, was public service on the railways at its zenith? 1914 • How good was the public service provided by the railways? Quite good at the zenith, but could have been even better • Did public service obligations reduce profitability? Yes, definitely. There was a trade-off. Public service increased operating costs and discouraged cost- saving changes that might damage the interests of customers, employees etc. • Did the speculative nature of construction in the Mania period impede the subsequent delivery of public service? Yes. It burdened the railways with high costs and left them with an inadequate system of cross–country routes. High costs and consequent low returns prevented later improvements, e.g. mainline electrification. • Did public service requirements have differential impacts? Yes: greater for passenger traffic than freight traffic, and for rural traffic than inter-city traffic. • Overall, was their public service role a cost or a benefit to railway companies? Pre-WW1 it was a cost; later a benefit. But it was more of a benefit to managers than to shareholders 5 Part II Basic chronology 6 Drivers of change on the railway system • Public service issues were not the only factors impacting on the railway system. Technological, economic and social changes were important too: – Rapid technological innovation – Continued industrialisation – Improving living standards – Population growth, urbanisation and suburbanisation – Development of capital markets • We add to the list: – Government policy changes, particularly those driven by a public service agenda. • Charting changes year by year is difficult. Seven key phases are distinguished in the tables that follow 7 Seven phases of railway development: factors influencing railway performance Period Phase Key factors affecting the national railway system 1825-45 Experimental Improved technologies (locomotives, track, etc.) increase phase productivity and quality of service Superior speed and reliability eliminate most road and canal competition 1845-70 Boom and bust Manias (1845, 1860-6) with intervening recession. Access to finance dictates which lines are built. Mergers generate regional companies with contested boundaries. 1870-1914 Maturity Major social and political change. Increased government regulation. Rise of trade union power. Some competition from trams and coastal shipping. 1918-1939 Consolidation Inter-modal competition: Growth of road and air transport . and survival Inter-company competition is relatively superficial 1945-1964 Nationalisation Cars for business and leisure travel. Labour shortages. wagon- load and parcels traffic switches to the road 1964-94 Rationalisation Motorways. Jet travel undermines holiday traffic 1994-2020 Privatisation Road congestion and parking charges stimulate passenger traffic and ‘parkway’ stations. Growth of London as a ‘world city’ 8 Phases of public service provision Period Balance Remarks 1825-45 Private profit with limited Maximum fares per mile; Parliamentary public service constraints approval of new construction. Board of Trade regulation of operations 1845-70 Private profit with public Parliamentary trains (1844). Common carriage service obligations of goods (1854) 1870-1914 Private profit from delivery Safety regulations (signalling, braking, etc.); of a public service workmen’s trains, shorter working hours, etc. 1918-1939 Public service provision with Uneconomic lines retained profit incentives 1945-1964 Public service with limited Nationalisation with six regions. Standard steam budget constraints locomotives. Dieselisation (1955). Beeching cuts (1963-4) 1964-94 Public service with tight Freightliner (1965-8), HST (1976) Sectorisation budget constraints (1982) 1994-2020 Private profit with public Franchising, revenue attribution, separation of regulation track and train. Move towards subcontracting Note: The dates are only approximate 9 Part III: Public service with private profit: 1870-1914 10 ‘Boom and bust’: the legacy • The World’s First Railway System focused on the period 1845-70. It argued that the system was over-built by 30 per cent: too much track, and hubs in the wrong places. • Railway construction incurred fixed costs (independent of the traffic carried) and so did railway maintenance and operation. Excessive construction increased recurrent costs throughout the lifetime of the system. • As the network expanded, and geographical density increased, so competing routes proliferated. Competition between companies intensified; downward pressure on fares and rates made high recurrent fixed costs a serious problem. • Railways were committed to a high-fares policy. They charged maximum rates, which they considered too low. They encouraged local residents to travel long- distances over their own network rather than using shorter routes involving other company’s networks (e.g. travelling cross-country via London). 11 Government policy, 1870-1914 • The period 1870-1914 witnessed major social and political change (as highlighted by Peter Cain; see also Colin Divall). – The Reform Act of 1868 widened the franchise. – Gladstone became prime minister in 1868 and re-launched his railway regulation agenda (his last spell as PM ended in 1894). – Longer holidays and shorter hours for workers increased popular travel and stimulated the market for third-class travel. – Trades union act 1871 and subsequent employment legislation . Artisan trade unions became increasingly militant, followed by general unions later. – Local government reform. Municipal Corporations Act 1882 empowered local boroughs to undertake large projects. Agitation for better urban housing promoted suburban commuting. 12 Impact of policy on the railways, 1870-1914 • UK railways requiring compulsory purchase of land have always been regulated in the public interest, using a template developed for canals. • Once the novelty of railway speed wore off, standards of customer service were perceived to be poor. Punctuality, the quality of station accommodation and passenger safety needed improvement (derailments, crashes and murders). • The negative image of the railways encouraged Parliament to take a tough line. MPs believed that – competition was not sufficiently strong to drive improvement and that regulation would be required instead – regulation should rely on ‘sticks’ and not ‘carrots’: railway improvements should not be subsidised by the state • Impact on railway costs. Railway companies faced a ’double whammy’: – Generic impacts from increased wages, shorter hours, etc, and – Specific impacts from railway legislation on safety etc. 13 Marketing strategies 1870-1914 • To avoid fares being driven too low, companies tacitly agreed to compete on quality of service rather than price. • They developed new forms of traffic rather than competing for a larger share of existing traffic. • They adopted market segmentation. Five main types of traffic were targeted. – two were traditional: express passenger; coal and mineral; – three were new: holiday; commuter; and perishables (cattle, milk, fish, etc.). • Customer brands were developed, later supported by poster advertising, exploiting advances in colour printing. Each form of traffic was marketed in a slightly different way. • There was less emphasis on developing general passenger and freight, post and parcels. • Companies maintained their high fares policy on existing traffic. New traffic was more fare-sensitive. Low fares were therefore used to attract new traffic, e.g. lower-income passengers pursuing tourism and recreation. Commuting was encouraged using season tickets. 14 Tourism: market