On the Subject of Privatization

A recent post to this site reminded me of developments last month in Britain.

A brief history: Near bankruptcy as a result of WWII, the big four British rail companies (which had been under government control during the war) were nationalized by the British government in 1948. The four companies were amalgamated and a new operator, British Rail, emerged.

Fast forward 45 years or so to the early 90s, the British Rail, once a diverse, powerhouse of an organization has been steadily shrinking due to gradual privatization under more than a decade of Conservative Party rule. In 1993, the Railways Act became law under Prime Minister John Major and the era of nationalized rail in the UK effectively came to an end. British rail, which had been vertically integrated (owned its own tracks and trains and was responsible for maintenance of both), was broken up and many of its parts were sold. The entity that owned the tracks, stations, signals, tunnels, bridges, and level crossings became Railtrack; while the both passenger and freight operations were sold off to private operators. Railtrack, although responsible for the infrastructure, contracted much of the maintenance work to large private contractors.

A favorite subject of many Brits is the miserable quality of their national rail system. The privatization effort of the 90s was in large part intended to solve many of the service problems that had plagued British Rail. In actuality (ask any Brit) the problems seemed to have worsened. Additionally, this period also saw an increase in fatal accidents, including notably the Ladbroke Grove disaster also, known as the Paddington Crash, (10/5/99, 31 dead, 400+ injured), the Hatfield Crash (10/17/00, 4 dead, 31 injured), and the Potters Bar crash (7 dead, 76 injured). The Hatfield crash was directly attributed to poorly maintained tracks; investigators of the Paddington crash have pointed to corporate driver training courses, signal maintenance issues, and Railtrack’s emergency escalation procedures; the Potters Bar crash was caused by a faulty set of points that should have been spotted by a maintenance employee.

So where am I going with this? Well, on 10/03/02, ownership of the system was transferred from Railtrack (then facing manslaughter charges as well as bankruptcy) to the non-profit, Network Rail. Although Network Rail is not technically considered a public agency in and of itself, the British government is the guarantor for its debts. Some saw this transfer as the first step toward renationalizing the rail system.

In a more recent development, late last month, Network Rail announced that it was suspending all seven contracts with private rail maintenance companies for financial and safety reasons--a move that would save an estimated 300 million pounds per year. It is this step that is gaining wider attention, seen by many as a giant leap toward renationalizing the world’s oldest railway system. Wresting the maintenance contracts from the corporate giants has been hailed by unions as a leap forward that will translate to a safer, more efficient rail system. Unions had criticized the private contractors for implementing cost-cutting shortcuts at the expense of safety, a sentiment echoed by government audits.

However, problems abound for Network rail. A reported 295 million pound profit in 2002 dropped to an almost 300 million pound loss in 2003, while its debts have soared to more than 9 billion pounds. Reasons for this dramatic shift vary; some contend that the organization is only now recognizing the effects of reversing cost-cutting shortcuts implemented by Railtrack and its contractors.

Britain’s situation offers us a few reminders. Most importantly, rail travel is in most cases, not a profitable venture, it does not generally pay for itself. Turning an industry such as this over to for profit companies exhibits a severe misunderstanding of this segment of the transportation industry. Such actions inevitably result in a decrease in the quality of service to ridership and in some cases produce the most dire of consequences.