As we near the date of the (2015) General Election we once more hear the bellows of private is good and public is bad from the extreme Right and vice versa from the extreme Left. In particular, in a ‘brave’ attempt to win the votes of those on the Left, the Green Party proposes to nationalise the national rail network so that it may be run in the interest of passengers and staff and not for a profit or even to break even, but with a permanent taxpayer funded subsidy.
I say brave in inverted commas, because if you are courting the votes of the sort of person on the left who thinks the original version of Clause IV explicitly called for nationalisation of the private sector then proposing to re-nationalise the country’s (loss making) rail network is a no brainer. Added to which, if you are pitching for the votes of electors in commuter land then proposing to spend more taxpayer’s money on reducing the cost of their daily commute is a logical, if rather unprincipled, policy to adopt. Such a policy combining as it does an appeal to a principled, but other worldly ideology and blatant self interest certainly shows that the Green Party are taking getting elected seriously these days.
For the uninitiated on both sides of the debate, the extreme Right for whom profit is king and the extreme Left, for whom profit is a dirty word, the primary purpose of any organisation or company is to remain in existence. Anyone may turn a profit, particularly in an established business. I could tomorrow. I could wander into Marks and Spencer, still a profitable company despite what some assert, and liquidate its assets. I would make, therefore, a profit next week, but after that, there would be no more profits. On the other hand, I could go into the same company, switch its product lines over to items more likely to be found in Aldi, sell them at the same price and watch the company founder into administration. M&S needs to sell products its customers want to buy, at prices they are willing to pay and that the revenue from which at least cover its costs. It has to exist to do all of these things and only then can it make a profit.
We are so pickled in this country in the teachings of the Anglo-Saxon Business School that many of us believe City types when they say M&S is one step away from terminal decline. Why? Well, its declared profits do not always meet the predictions of some callow retail analyst or (as Nigel Lawson once remarked) teenage scribbler in the City thereby raising questions about its future profitability. I recall reading some years ago that M&S made four times as much profit per square foot of retail space than Tesco. In other words, if M&S made £4 profit per square foot then Tesco only made £1, but, even then, there was a lot of tut tutting about M&S whereas Tesco was a shining example of how to run and grow a retail business. Well at least it was back then, according to people who were considered to be experts in retail management.
On the extreme Left, the answer seems to be to nationalise (loss-making) businesses so they do not need to make a profit or surplus thereby seemingly avoiding matters like trying to break even at least and/or meeting the needs of the customer, patient or passenger. If a business or organisation is within the public sector then the taxpayer will cover any loss. Moreover, if it is not meeting customer needs then, according to the writer of this article, formerly a management consultant, the following applies:
“Public services are democratic. If a service fails to deliver our needs, we can hold those responsible to account at the ballot box. Important matters such as wages, pensions and working conditions are the result of negotiation, and subject to internal and popular support.
Public services are funded by public money, paid to public workers, managed by public representatives, all co-operating to deliver social utility – every penny put in is recycled within the public economy.
By contrast, the primary responsibility of a business is to create a profit for its shareholders. It may well have other aims, but all must be subservient to this primary aim or the corporation will cease to exist, or be taken over.”
Apart from the fact that one may make profits quickly and relatively easily through fire sales, most companies are not corporations quoted on the Stock Market and the bulk of them employ fewer than 250 people. Tesco, which employs 300,000, is very much the exception and not the rule when it comes to both the size of its workforce and market share. In addition, I worked in the public sector for over 27 years and I do not recognise the idealistic, if not naive description of it contained in the first two paragraphs. And where is the taxpayer, who is quite often also the service user within those two paragraphs? Waiting for the next General Election to make a plea for better Value For Money?
We have a mixed economy in this country not two separate ones, a public and a private, and the twain do meet and they do inter-act. For example, the National Health Service does not own a building company and so has to contract with the private sector to build a new hospital thus the NHS pays public money to the private sector to meet the needs of the public. The public and private sector have an obligate symbiotic relationship.
Britain’s rail network is very much representative of our mixed economy as it has not been wholly privatised because, if it had then the size of the network would have shrunk, lines would have been closed, stations shut and services reduced or ended. How do I know this? The fact that before its semi privatisation it was receiving a subsidy from the taxpayer and that today it receives a subsidy too.
The writer whose paragraphs I quote above also said in her article that: “When Dr Beeching dismantled the railways in 1963, the narrative then, and now, was that the rail network was losing £140m a year. This is business-speak. It means the gap between ticket revenue and costs of running the service was £140m. If the railway had been a business, this would have been a loss. But the railway was a public service. A well funded, serviceable, cheap at the point of use railway service was, and is, an important social utility. The gap between ticket revenues and running costs could in this case have been entirely expected, since the priority was the accessibility and maximum utility of the service – not profit. This idea is anathema to business.”
Of course, if Beeching had dismantled the railways in 1963 then who owns and runs the network today would not be the major topic that it has again become. Any way, it may be business-speak to say that Britain’s railways were running at a loss, but let me put it another way that the network in 1963 was costing the taxpayer £140 million per year at 1963 prices. In 2013 that £140 million, inflation adjusted, would have equated to £6.25 billion per year. The United Kingdom Government’s total spend in 1963 was £12 billion. You may respond by saying that £140 million back then was just over 1% of the total budget, but that deficit (see what I did there?) was before any thought was given to new investment in the network. For example, investment such as the £1 billion Modernisation Plan that was authorised by a Conservative Government in 1955. A sizeable proportion of that serious sum of money (by 1955 standards) still keeps many a youngster, aged between 5 and 95, myself included, entertained on our preserved railways, partly because too much of it was a complete waste of the taxpayer’s money.
Unfortunately, that cobbled together modernisation ‘plan’ not only wasted public money, but made Treasury officials deeply suspicious about any future requests for money from the Department for Transport. Unsurprisingly, they wanted to know that any further investment would result in some improvement in the rail network’s finances.
What we have today is a hybrid in which the Government, standing in for the taxpayer (and passenger), has leased out rail services to the private sector for delivery. The private sector rail companies deliver services within franchises laid down by the Department for Transport. The DfT interferes significantly behind the scenes, for example, through the three rolling stock leasing companies from whom the rail companies lease their trains and from whom they commission new ones. In addition, since its inception Network Rail has been within the public sector. Effectively, the taxpayer already owns the rail network. The delivery of rail services is what are in private hands and we can change those hands, but we will not be able to do so if the network is both publicly owned and run. There will be no hiding place for those who say public good, private bad if nothing much changes post full re-nationalisation.
DfT’s interference is behind why a diesel unit leaves Euston for Holyhead and travels all the way there, even under overhead electrical wires, by diesel power. Elsewhere in Europe, trains switch from diesel to electric generation or vice versa as circumstances permit or the train is hauled by an electric locomotive and switches to diesel haulage when required. Trains able to switch between diesel and electric generation are frowned upon, as are locomotive hauled trains. To contend, therefore, that our national rail network would be better run than now, if completely run from the desk of the Secretary of State for Transport flies in the face of the evidence. Incidentally, DfT is responsible in part for why a lot of seats do not line up with carriage windows and why booking a window seat on a Virgin train actually means you have bought a seat other than on the aisle and not necessarily one with a glazed view. Moreover, if you are either an advocate of complete privatisation or nationalisation and the foregoing baffles you, then may I ask why you are confident that your remedy would improve the state of our rail network, improve the service for the passenger and, if rail remains in part or wholly within the public sector deliver Value For Money for the taxpayer?
The fact is that squabbling over who owns or runs important parts of our economy ignores the reality that whether in or out of the public sector too many organisations and businesses are poorly run and managed. Quite often, the root cause of customer dissatisfaction is the quality of the product or service being provided. For example, is anyone seriously suggesting that bringing the rail companies (with their existing business practices and management) wholly back into the public sector will make any significant difference to rail users? And, if you are then why do you think that they will see an improvement?
Will commuters be cock a hoop to know that, although their train is still routinely running behind time (or even cancelled) at least it is in public hands? I am sure that the taxpayer funded 10% off their season ticket, promised by the Green Party, might go some way to appeasing their chagrin at realising they had been duped into thinking public was better than private when it came to running trains on time or at all. Of course, 20 years before they had allowed themselves to be conned into thinking that the private sector could run trains better than the public and another 45 years before that Nan and Grandad had been told that a publicly owned and run (loss making since 1914) national rail network was in their best interests. Although the fact that each time rail was nationalised previously, 1914 to 1918 and 1939 to 1945, it was in a worse state at the end of those periods than at the beginning might have given them pause for thought.
I mentioned Beeching above in using a quote from this Guardian article. The argument that his review of the rail network and his subsequent recommendations were based on a lack of accurate information was right and he knew it too. He had wanted more time to gather information about the viability of a network. Up until then, no one had seriously asked the network to provide such data. Most organisations these days are data rich and information poor, but back in the early 1960s Britain’s railways were just data poor.
The people in charge of our rail network knew in 1963 that they had a bucket that was leaking money, but not where the leaks were. Beeching knew there were leaks and made an educated guess as to where they might be plugged and the bucket reduced in size. Those opposing Beeching’s recommendations mostly accepted there were leaks, but not from their bit of the bucket; that any reductions in the bucket’s size were unacceptable and that any patches should be temporary, requiring continuous maintenance. Eventually, when someone examined the bucket carefully some years later it was discovered that whatever its size it was always going to leak and the patches were never going to be permanent. Consequently, if rail had been fully privatised it would not now exist, but then it could not be privatised fully, because only the public sector would have been willing to run it at a loss, sorry, incur a deficit.
In or out of the public sector our rail network will cost us money and, if we must have one then the taxpayer will have to pay for it. And, if the taxpayer has to pay for it then most of the people who manage it today need to manage it a lot better in the future and politicians, elected and unelected, need to give them the space in which to manage. And, if the politicians do give them that space then the passenger and the taxpayer will have to curb their desire to blame Ministers for the shortcomings of the network.
If you want a case study about how our national rail network might be better run then I refer you to the history of Chiltern Railways, a company that lives and dies by its service to its passengers, its emphasis on good quality management, based on continuous service improvement and its empowered work force. The circle can be squared, a public service can be run in a businesslike way and even sometimes make a surplus.
Of course, Chiltern is a nationalised railway company. It is owned by Deutsche Bahn AG and is part of Arriva, which is responsible for Deutsche Bahn’s local and regional service outside of Germany. Finally, Chiltern Railway’s Mission Statement (its Clause IV) says:
To be the best Passenger Railway in the UK.
All day, every day, we aim to offer a safe, reliable, welcoming and value for money service.
Our business will prosper because customers use us repeatedly and recommend the service to others.
Well, I use their services regularly because I find their service to be safe, reliable, welcoming and valuable for money. And that is why I am recommending it to you. Is it the best? I do not know, but it is proof of what a company founded by managers who used to work for British Rail could have done (and could do) in the public sector.
Nationalisation: “a dead-end argument”