Wednesday, July 01, 2009

National Express - an example to demonstrate that the private sector doesn't always want a free market

Whilst National Express frantically try to renegotiate their franchise for the East Coast Main Line, and CEO Richard Bowker resigns to take a plum job overseas - can you abandon a sinking train? - I am reminded that introducing the private sector to public services is not the universal panacea that some of my colleagues suggest it to be. Yes, that means you, Tristan, and you, Liberal Vision. Oh yes, and you, Cllr Papworth...

The Train Operating Companies signed up in a bidding contest to run train services for a fixed term - all entirely fair so far. Their business model made a series of assumptions, and they were promised fare increases linked to inflation. So far, so good. In the early years, when times were good, they made decent profits which, for the most part, were doled out to shareholders rather than reinvested. It's a free country, and they had taken the risks. Ah, but it turns out that they only wanted to take the risks when there actually weren't any.

Life is suddenly rather tougher - passenger numbers aren't increasing at the presumed rate, and there is a shortfall in predicted revenue accordingly. All of a sudden, running trains isn't so profitable and guess what? It turns out that it's all too difficult and the Government must step in. I get it - the private sector makes all of the profit, the State takes all of the risk. Pardon me for being grouchy here, but wasn't it intended that we, the people, obtained certainty for the running of our services and the cost thereof?

If I was Andrew Adonis, I would send a stiff note to Richard Bowker saying, "You asked for it, you deliver it. If you want out, you can compensate us for the additional costs. Otherwise, the punishment for failure is corporate oblivion. Your choice. Oh yes, and you're barred from bidding for a franchise for ten years.".

Now I'm not one of those people who pine for the glorious days of British Rail. They weren't glorious, and any sense of initiative, innovation and adventure had been knocked out of them years ago. However, it is noticeable that the two TOC's with the greatest satisfaction levels are the Wrexham & Shropshire and the Grand Central, the two companies who have had to struggle to gain access to the tracks, and which have been restricted in the services they can provide by the bigger franchises.

So, National Express, suck it up. And whilst you're at it, reintroduce a full restaurant car service on the London to Norwich run...


Liberal Polemic said...

I am fairly sure that I have never written about rail privatisation. But if insist of flinging mud around, Mark, I guess I'm bound to get spattered.

National Express should be treated like any other company. If it gets into financial difficulty, it either finds the money (by floating a bond or shares) or it goes bankrupt, its assets (in this case the remainder of its franchise) being sold off to the highest bidder.

The advantage of this well-worn and thoroughly capitalist system is that the public continue to get their service, while the only losers are the shareholders who were suckered into investing in a poor business model.

In fact, I will be very surprised if the change of ownership disrupts passangers in any way at all.

Julian H said...

Please provide quotations of anyone at Liberal Vision saying that companies always support the free market.

The opposite, of course, is often true - government and companies get in bed and produce lots of little bits of legislation favouring them both. I've sat in policy sessions at the EU where the room has been almost entirely filled by vested interests.

This point is regularly made, more articulately, by people like Tristan and Jock within the LD 'sphere. The former has frequently explained of late that favouring markets is not the same as favouring government-run monetisation or systems where government controls the activities of private companies.

Mark Valladares said...


So sensitive to a friendly prod...

Actually, you were being offered an opportunity to defend the private sector. Perhaps you aren't so devoted to it after all...

Oh, and Julian, I'm not misrepresenting Liberal Vision's position, although you might possibly imply that I am, reading between the lines and all that, although if you (and I mean by that Liberal Vision) want to be consistent about such practices, I'm happy to tag along...

Tristan said...

I have always maintained that businesses very often do not want a free market.
Again, the rail sector is hardly a market, let alone a free market. The competition in transport is massively distorted by regulation and subsidy, and it has always been.

Perhaps several years ago I may have been a fan of privatisation as we have it, today I recognise its not much different from nationalised industry, its just a different section of the ruling class in control.

I do disagree that there's any such thing as a 'public service' in the sense you mean.
In a freed market, only things which are of service to the public would exist, otherwise how would they do business?

I would also maintain that there is no universal panacea, but that a freed market is the only just economic system and would result in a massive reduction in poverty and an expansion of equality.

Tristan said...

Defending the private sector:

I will do this when you offer up the private sector for defense where it needs it.
The rail companies are not part of the private sector, they are pseudo-private. They are nominally in private hands, but gain their income from the state and are essentially told what to do by the state.

Also, the private sector is not by its nature moral, just as a human is not by virtue of being a private citizen moral (and not all actions of politicians are immoral).
Those in the private sector can steal just as much as the state can, they can go to the state to get legislation or favourable court decisions (such as compulsory purchase orders).

There is a tricky question about whether one should defend a private company which operates within the immoral institutional framework we have even if it could not have gained its position without intervention it never asked for (the classic case is supermarkets - their business model is only sustainable because they do not pay the full costs of transportation - but they are only using the road system created and subsidised by the state without their request).
Generally in these cases I prefer to criticise the framework (Walmart bashing is all well and good, but Walmart is a symptom of larger institutional failures and the removal of Walmart would not do any good)

Mark Littlewood said...

It never fails to amaze me how some LibDems seem unable to distinguish between (a) the free market and (b) the self-interested lobbying behaviour of private businesses.

LV is a keen advocate of the former.

No need to read between any lines, Mark.

Jock Coats said...


I'd suggest that the hey-day of rail innovation and so on was in fact ended the day the British Railways Board was created and stole all the property of the formerly private investors who had created the railways. Cirkey - some of the most important without even the government protection of limited liability!

Even then of course there was some state intrusion in the market because eminent domain had been used in many cases to acquire some of the routes.

But you also have to remember that the market here is not the "rail market" but the "transport market" and other "players" have emerged - road, air and so on. Liberal governments decided to support road over rail in 1909 when they decided that roads had to be paid for nationally and publicly through the road fund license. So we too have distorted the transport market in response to what appeared at the time to be a market inevitability - the private road vehicle beating the railway as the preferred mode of transport.

But as others have said, first of all the breakup of the rail system was nothing like a market operation. It might have been possible for example to do something a little like airports and landing slots where TOCs bid for spaces in a finite network capacity rather than being handed the advantage of a monopoly on a particular line. It was all done in the least imaginitive, cheapest way and was a series of state controlled monopolies. Hardly a market, but eminently suitable for what the operators wanted - no competition.

I'm not clear why flexible tickets should be necessary - I cannot use my Oxford TUbe return ticket on the OxfordExpress coach - it's tough titty if my one is running late. But if it really was a necessity I see no reason why a range of ticketing agencies could not have sprung up (probably not as at present run by one of the rail operators) with insurance contracts so that if the ticket they had issued to a customer turned out not to be best or not to run it could be transferred and the ticket broekr claim from the late running company or such like.

Jock Coats said...

(and not all actions of politicians are immoral)

I can think of perhaps brushing their teeth - though only if they use their own fluoride if they want it and not some stuff foisted on us.

Other than that I'm struggling.


neil craig said...

Of course free marketeers don't always want to participate in a free market. The free market of selling ice to eskimos is not entered by them. Nor the free market in running stagecoaches.

If you knew anything about liberalism rather than simply bureaucracy you would know why & why it is a good thing that there is somebody with an incentive to make competent choices.

MatGB said...

"I am reminded that introducing the private sector to public services is not the universal panacea that some of my colleagues suggest it to be."

These would be non-Lib Dem colleagues elsewhere, right? Because I'm severely underestimating the people you name if they support the state-granted oligopolies in the current franchise setup.

I favour competitive markets giving consumers choice when possible. That would mean, in a rail context, allowing different companies to run trains along the same route at different times. If that's not possible, then the state should run it, there are either areas where competition is possible or there are natural monopolies.

What we have is a halfway house where we have privatised monopolies buying the rights to the monopoly from the Govt, which hands it out to the highest bidder in a classic case of Rent Seeking.

No sane liberal would support that, regardless of what wing of the party they're in. Private sector involvement in something is good if it's allowing for a genuinely competitive choice on a level playing field.

We don't have that in the rail system, we just have oligopolies paying rents.

You're making the exact same mistake as John Rentoul is today, but from the opposite perspective.