Tuesday, April 3, 2012

Using systematic corruption for good

Some years ago, I had an epiphany about John Major, Britain's first post-Thatcher Prime Minister. One of Major's signature achievements was the privatization of British Rail, Britain's battered state-owned railway company.

British Rail was a textbook example of how taking an industry into state ownership and then subsidizing it can cause it much harm. Originally intended to be profitable, the Government panicked after it made large losses for a few years in a row in the 1950s. A corrupt Minister of Transport, Ernest Marples, appointed a commission to look into BR's problems, and then appointed a contrarian member, who'd argued for BR receiving a lobotomy to return it to profitability, to take charge of the business itself. That man was Richard Beeching, and his cuts proved to be disastrous, causing a once universal rail system to drastically reduce in usefulness. The cuts did nothing to reduce British Rail's losses, indeed, I'd argue that they caused them to continue, when BR was in the midst of modernizing a network whose problem was more the high cost of maintenance than a lack of demand for services.

A second attempt, in the 1980s, to cut British Rail, was in some ways foiled precisely because Beeching's cuts were discredited. But there was no guarantee that this would continue, with the Thatcher government generally being rail hostile, and the risk of another corrupt minister deliberately undermining the rail system.

The British railway system is a critical part of British infrastructure, and it's virtually impossible to imagine the UK continuing without it. Roads of any size are overloaded, cities are too crowded to allow for every resident to own a car (just finding a parking spot outside of your own home is a rare luxury few enjoy.) And, quite honestly, public transport is pleasant. It's not perfect, but the view in America of buses being something you get mugged on, for example, which itself is ridiculous, is considered laughable.

And with environmental concerns about road based transport, as well as the oil dependency issues it raises (taken more seriously in the UK than US, where high gas taxes exist to attempt to prevent repeats of the 1970s), it's as much a national security issue that the rail system exist and be useful to passenger and freight alike as it is a practical issue.

So "something had to be done", and John Major, to give him credit, did something - intentionally or otherwise - that I think is pretty good: he used the corruption of government against itself.


Now, at this point, you can probably guess this is a kinda follow on to my last JE. In the UK, just like the US, there's a corruption in government. In the US, it's more obvious and arguably more tolerated. It's just assumed that you can buy influence, and to a certain extent people informing themselves about politicians vote in part based upon who's sponsoring them, rather than against them because they're being sponsored at all.

The UK has two major parties, the Conservatives, who are owned by the business community, and Labour, who are owned by the unions. The union ownership is largely uncontroversial - unions exist to represent their members, who are ordinary people, so giving them representation within government doesn't seem evil. But it should be kept in mind that this doesn't mean Labour does the right or most democratic things because of that: consider, for example, whether given the choice between an environmentally correct choice, and one that protects the jobs of coal miners, the system is set up to ensure Labour makes the right decision.

Now, Ernest Marples, above, owned a road haulage company, taking steps to disguise his continuing ownership of the company when he was in power. The biggest threat to road haulage was British Rail, which operated a relatively open freight and light freight network. Since the Beeching re-organization, routes have been cut, and the bars for being able to use the freight network have been drastically raised. So Marples directly benefited from his choice of Beeching to manage BR. But that's not all that was going on.

Let's look at the situation in the 1960s.

  • British Railways was a branch of government. It couldn't lobby for itself, in the sense of making campaign contributions and aiding the election of friendly candidates
  • The road haulage industry could lobby for itself, and did, causing the Conservatives to become anti-rail.
  • The car industry could lobby for itself, and did, also causing the Conservatives to become anti-rail.
  • The car industry and road haulage industries could also lobby non-political, but influential, entities like the media, a route not available to the state-owned rail company.
  • The unions were split between the road haulage industry and the rail industry. Labour therefore followed the path of least resistance, which was to continue what was already in place. That meant implementing Beeching's cuts.
How do you protect British Rail (or rather, the railway system) going forward? Well, the only way is to build a counterweight to the road industry. 
  • You create businesses that rely upon the existence of the railway system to survive.
  • You bring in companies that would otherwise be rail hostile, such as other transportation companies, and make them reliant upon railway income.
  • You ensure the subsidy system is not open to question, by creating mechanisms that at least suggest that if it were possible to run a system for less, the subsidies would be less.

John Major's privatization of British Rail looks exactly like what you'd expect it to look like based on a "Protecting the railway" agenda above.

1. You create businesses that rely upon the existence of the railway system to survive.

British Rail itself ceased to exist in the privatization, but several corporations were set up to manage the actual infrastructure and own British Rail's former rolling stock. One of these, Railtrack, the company that managed the infrastructure, was controversial from the start and was eventually brought back into national ownership, and arguably this is the one part of British Rail that should have remained nationalized.

2. You bring in companies that would otherwise be rail hostile

British Rail's operations were devolved into a set of franchises. Companies were invited to bid on each franchise, with the winner given a semi-monopoly on services covered by that franchise. BR's competitors were specifically encouraged to take part, and they did. Bus companies National Express and Stagecoach were involved from the start, as was Virgin, owners of Virgin Atlantic.

Suddenly companies that were competing with the rail network, were now directly benefiting from it. They had no reason to lobby against the network, and indeed had good reasons to argue for more government support.

3. You ensure the subsidy system is not open to question

While, to the surprise of some I guess, large parts of the rail system are profitable, many parts aren't, and so part of the process of picking companies to run franchises involves requiring each business bid on a subsidy (or lack of one.) The company that has the most positive effect on the Treasury, while being competent and able to run the services required, gets the franchise.

This makes it much more difficult to suggest that parts of the network are over-subsidized. If it were possible to run a serviceable train system for that franchise for much less of a subsidy, the company that bid on it would have been out bid.


So there you have it. Corruption used against itself. To be fair, the current British railway system is far from perfect, and there are a lot of complaints about the privatized system. Still, travel on it is astonishing cheap compared to 15 years ago, there are more services, and more frequent services, and most agree it's still the best way to get around Britain.

Moreover, Beeching is finally being undone. Train operating companies are demanding new lines be built, often to replace lines that Beeching killed. Until the privatization, there was virtually no entity with power capable of lobbying for those new lines, and still less any chance of them ever happening.

Other countries might learn a thing or two from what Major did. I'd like to see something similar in the US, with state owned rails, and privately owned trains. This would, at the very least, remove some of the inequities that make running passenger trains in the US so unprofitable, such as the absurd property taxes. And it would create "Big Train", a lobby that'd argue for expansion of the network. Unfortunately, legally and morally, it would be immensely difficult to do such a thing. The right time would have been with the break-up of Conrail, or even at the formation of Amtrak, but the concept of "Private lines, public trains" is so embedded in the US rail system it would be difficult to undo.

1 comment:

  1. Meh, no, please. The United States has probably the most optimized rail network in the entire world. The "problem" is it's optimized for freight, not passengers. The US is large. Extremely large. There would no way the US could exist in its current form without a solid rail network. They are cheap to operate for bulk cargo that is not time sensitive. Want to move a billion tons of coal, cheaply, to nearly anywhere in the US? Rail can do that.

    There is some government regulation and interference in the freight rail industry. The current level is entirely acceptable to everyone involved.

    Trying to repurpose our no-kidding extremely awesome rail infrastructure to being optimized for passenger light rail would be problematic. You could lay new rail to the urban areas that would be preferred. But it'd be a very expensive undertaking only beneficial to a limited subset of the population. We have a handful of them already. It may make sense in niche markets, but not for the entire US.


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