The Railways, the Market and the Government IIEAEA RRailways.indbailways.indb 1 228/3/068/3/06 112:50:142:50:14 The Railways, the Market and the Government edited by philip booth The Institute of Economic Affairs IIEAEA RRailways.indbailways.indb 22-3-3 228/3/068/3/06 112:50:142:50:14 CONTENTS First published in Great Britain in 2006 by The Institute of Economic Affairs The authors 000 2 Lord North Street Foreword 000 Westminster 000 London sw1p 3lb List of tables, fi gures and boxes in association with Profi le Books Ltd PART ONE: WHO SHOULD RUN THE The mission of the Institute of Economic Affairs is to improve public RAILWAYS? THE HISTORICAL CONTEXT 000 understanding of the fundamental institutions of a free society, with particular reference to the role of markets in solving economic and social problems. 1 Railways and the power of emotion: from Copyright © The Institute of Economic Affairs 2006 private to public ownership 000 The moral right of the authors has been asserted. John Hibbs All rights reserved. Without limiting the rights under copyright reserved above, Feelings and reality 000 no part of this publication may be reproduced, stored or introduced into a Government meddling, 1921–39 000 retrieval system, or transmitted, in any form or by any means (electronic, 000 mechanical, photocopying, recording or otherwise), without the prior written Monolithic management permission of both the copyright owner and the publisher of this book. What followed 000 000 A CIP catalogue record for this book is available from the British Library. References isbn-10: 0 255 36567 5 isbn-13: 978 0 255 36567 3 2 Railways and the power of emotion: seeking a market solution 000 Many IEA publications are translated into languages other than English or are reprinted. Permission to translate or to reprint should be sought from the John Hibbs Director General at the address above. A success story forgotten 000 Typeset in Stone by MacGuru Ltd New government – new thinking 000 [email protected] Government meddling – it still goes on 000 Printed and bound in Great Britain by Hobbs the Printers What is so special about the railways? 000 IIEAEA RRailways.indbailways.indb 44-5-5 228/3/068/3/06 112:50:152:50:15 What is the future? 000 5 Environmentalism, public choice and The people problem 000 the railways 000 Conclusion 000 Richard Wellings References 000 Introduction 000 Public choice theory 000 PART TWO: WHO SHOULD RUN THE The environmental movement 000 RAILWAYS? AN ASSESSMENT OF RAILWAY Emissions concerns 000 PRIVATISATION 000 Road protesters 000 The rail lobby 000 3 The restructuring of the rail system in Britain The road lobby 000 – an assessment of recent developments 000 New Labour and transport policy 000 Rico Merkert and Chris Nash Conclusion 000 Introduction 000 References 000 The privatisation process 000 Performance since 1994 000 PART THREE: WHO SHOULD RUN THE The rail structure review 000 RAILWAYS? THE FUTURE OF RAILWAYS AND Rail restructuring – success and failures 000 THE MARKET ECONOMY 000 References 000 6 Railway privatisation in the UK – a laissez-faire 4 The UK railway: privatisation, effi ciency approach to an interventionist failure 000 and integration 000 Oliver Knipping David E. Tyrrall Failing state railways 000 Introduction 000 UK railways between privatisation and re-regulation 000 Privatisation: process and structure 000 Towards a market for railways 000 The successes and failures of privatisation 000 References 000 The causes of cost failure 000 Conclusion and possible futures 000 References 000 IIEAEA RRailways.indbailways.indb 66-7-7 228/3/068/3/06 112:50:152:50:15 7 The public–private partnership and the general welfare 000 Rana Roy THE AUTHORS Introduction: the decade of experimentation 000 Separation, liberalisation and competition 000 Privatisation 000 Pricing, investment and the role of public subsidy 000 References 000 John Hibbs 8 Rail in a market economy 000 John Hibbs started his career in the bus and coach industry, and Richard Wellings later moved to British Railways’ Eastern Region headquarters at Introduction 000 Liverpool Street, where in the 1960s he was successively Traffi c Central planning and political control 000 Survey Offi cer, a Costing Offi cer and Market Research Offi cer for Transport and social cost 000 the region. He still asks ‘what’s so special’ about the railway, but Transport and poverty 000 he retains his respect for the loyalty of managers to ‘the service’, The privatised railway 000 which was so ill rewarded in the process of privatisation. ‘Once Distorted competition 000 a railwayman always a railwayman’ is something he feels to this Towards free competition in transport 000 day. John Hibbs is Emeritus Professor of Transport Management Conclusion 000 at the University of Central England and has written widely on References 000 the transport industry, privatisation and road pricing. His most recent publication for the IEA was The Dangers of Bus Re-regula- About the IEA 000 tion, Occasional Paper 137. Oliver Knipping Oliver Knipping, PhD, is president of the Institute for Free Enter- prise, Germany’s free market think tank. He graduated from University College London with a PhD on railroad liberalisation in 2002 after studies in economics at Humboldt-University Berlin. Following an assignment in the German telecommunications 9 IIEAEA RRailways.indbailways.indb 88-9-9 228/3/068/3/06 112:50:152:50:15 the railways, the market and the government the authors industry on market deregulation, he is currently advising a major group of the European Conference of Ministers of Transport telecommunications provider in Croatia. (ECMT), and the Transport and European Union Select Commit- tees of the British Parliament. His current work includes advising the Offi ce of Rail Regulation on its structure of charges review Rico Merkert and participating in both Rail Research UK, the British Universi- Rico Merkert is a Marie Curie Research Fellow at the Institute ties’ rail research group, and EURNEX, the European Network of for Transport Studies at the University of Leeds. He previously Excellence in Rail Research (for which he is a pole leader in the worked in the automotive industry, at the Berlin University of strategy and economics fi eld). His publications number more than Technology and at the University of Potsdam. His research work a hundred books, contributions to books and journal articles. focuses on benchmarking and institutional issues in the trans- port sector, particulary in railways. Since 2004 he has also been Rana Roy a member of the national expert committee on transport policy of the German FDP. Dr Rana Roy, FCILT, is an international consulting economist based in central London. He has worked on rail and transport- sector reform for HM Government, the European Commission Chris Nash and the ECMT, as well as the Railway Forum, the Community Chris Nash is Professor of Transport Economics at the Institute of European Railways and the International Union of Railways. for Transport Studies, University of Leeds (ITS), which is one of Prior to setting up his own practice in 1997, Dr Roy served as Chief the leading transport research groups in Great Britain, with the Economist for the European Centre for Infrastructure Studies, top (5*) rating for the quality of its research. Professor Nash leads Economic Adviser for the UK Department of Trade and Industry, research in the fi elds of rail policy and transport infrastructure and Senior Policy Adviser for the Department of the Prime charges, in which fi elds he has led many projects for both the Minister and Cabinet in Australia. British government and the European Commission. He was coor- dinator for the PETS, CAPRI, UNITE and IMPRINT-EUROPE David Tyrrall projects, which sought to advance the theory and implementation of marginal-social-cost-based pricing in transport, including the David E. Tyrrall is a Senior Lecturer in Accounting and Finance at quantifi cation and valuation of transport externalities, and now the Sir John Cass Business School, City University, London, and leads a further European project in this area, GRACE. He has acted a fellow of the Chartered Institute of Management Accountants as expert adviser to many groups, including the High Level Group (CIMA) and of the Chartered Association of Certifi ed Account- on Transport Infrastructure Charges of the EU, the Railways ants (FCCA). He worked as an accountant and fi nance manager in 10 11 IIEAEA RRailways.indbailways.indb 110-110-11 228/3/068/3/06 112:50:152:50:15 the railways, the market and the government multinational companies in the chemicals, oil and railway indus- tries for fi fteen years before becoming a university lecturer. FOREWORD Richard Wellings Dr Richard Wellings completed a PhD at the London School of Economics in 2004. His thesis examined the development of British transport policy from a public choice perspective. Subse- The building and management of Britain’s railways in the quently, he has been working as a consultant and researcher for mid-Victorian period was a great private enterprise success story. A & F Consulting Engineers, specialising in environmental issues. Though railways have never been without government interference He is also writing a book about road privatisation. in the UK, a relatively laissez-faire approach to their development was allowed in the fi rst instance. When comparisons with other countries are made, it appears that this approach bore much fruit. Unfortunately, laissez-faire did not last. The railways became a plaything of politicians. Gradually, ‘coordination’ and ‘integra- tion’ of transport networks became something that governments thought they could achieve through bureaucratic management rather than through allowing the coordinating power of the price mechanism to operate. The British people, as Hibbs points out in his chapters in Readings 61, have always been rather sentimental and emotional about the railways, thus making rational policy-making diffi cult.