Is nationalising the Railways anti-capitalist?

Bet you did not expect to read that headline on this site!

However, I have been musing on a post on this subject for quite a while after discussing the state of the Railways with various industry leaders over the past few months. All are in broad agreement that the current position is poor, with Network rail unable to do much beyond maintenance and the long-term nature of the operators contracts and frankly bizarre bidding process not adding anything except guess work to the process.

The original 1993 nationalisation can definitely be said to have been botched. Stats about growth on the railways are fine - but with a booming economy and population for most of the last 20 years and next to no investment in road capacity, of course the Railways would benefit. Moreover, state run (in effect) businesses like Transport for London, have not seen a differentially poorer performance. In fact, it has matched or exceeded the Operator performance.

Of course, British Rail was a mess and its technology, whilst good, was never deployed on a scale necessary. The Operators, faced with some market forces, have indeed brought rolling stock up to scratch. But little else.

What is also noticeable, as with the Energy industry, is that the UK smashed its own national champion to pieces. Unlike say Deutsche Ban or SNCF, who thought vastly subsidised, run parts of our railways for us.

This in itself is no bad thing, but we did not smash British Airways into 20 small airlines when it was privatised, not did we break up British Telecom in the same way. Both of these businesses are strong and vibrant today, employing thousands of people and often leading in their markets - inspite of fierce competition.

The railway nationalisation did not achieve this for Britain's railways. The Opertors have not done well, as can be seen by them handing back the keys from time to time. Network rail is on its 3 incarnation and its suppliers like Balfour Beatty are all having a bad time of it financially. Customers still pay very high prices - who is happy? Only the Government who are able to cut subsidies more and more for the Railway industry. The subsidy is now back down to where it was for British Rail in real terms. HS2 will no doubt move this the other way again.

At such a point as we are now, Labour and UKIP are saying it would be better to re-nationalise the railways. I can't quite agree as the cost of doing this would outweigh the benefits. What would be better is to give a few companies some better scale in the sector and more control over the tracks, stations and rolling stock so that they can actually run lines as a full business. That way we might develop back our scale of companies that can compete internationally.

What is clear to me is that the sector today is in a state and the Government wants it all ways at the moment, reducing subsidy, demanding investment and pushing fare rises to consumers. So one way or another there will be change - just like the Energy industry which has a similar set of botched business models to contend with!

Privatisation, Taxation and Monopoly

Returning to the Grauniad Privatisation piece and our discussion of a couple of weeks ago: one of our commenters, Andrew, picked up on the writer's summation, which revolved around a point about taxation.  Here's a key extract from the end of the essay. 

A tax is generally thought of as something that only a government can levy, but this is a semantic distortion that favours the free market belief system. If a payment to an authority, public or private, is compulsory, it's a tax. We can't do without electricity; the electricity bill is an electricity tax. We can't do without water; the water bill is a water tax. Some people can get by without railways, and some can't; they pay the rail tax. Students pay the university tax. The meta-privatisation is the privatisation of the tax system itself ...  The commodity that makes water and power cables and airports valuable to an investor, foreign or otherwise, is the people who have no choice but to use them. We have no choice but to pay the price the toll-keepers charge. We are a human revenue stream; we are being made tenants in our own land, defined by the string of private fees we pay to exist here. 

Well.  Firstly, his list is silly, mixing categories that should be kept separate. If can't do without it is to be a criterion, what about food then ?  From first-hand experience, the public bakeries in Russia were pretty awful: everyone tried to get their bread elsewhere.  The only tax involved in food provision is VAT (if any, generally not) and perhaps a payroll tax if it hits supermarkets particularly.  The margin extracted by Mr Tesco is subject to competitive pressure.  So can't do without it isn't right; and to include electricity in with the rest is only fair if you've proved or decided that competition is impossible in that sector.  I say it's entirely possible - though also entirely fair to debate (as we often do) the regulatory shortcomings we currently suffer from.  Is he proposing 'electricity-free-at-the-point-of-use', like health services ?  We know where that leads.  Airports shouldn't be included either: his list only makes sense if it sticks to genuine 'natural monopolies'.  

Secondly, we all agree that monopolies need toughing-up rigorously on all occasions (see earlier post).  Everyone knows that monopolies are what every evil rent-seeker desires above all else - they have changed hands for large sums of money or other consideration at every point in history. What's that got to do with privatisation?  Again, it's a debate about regulation (and perhaps social subsidies for impoverished energy users etc), not private ownership.  Any 'authority' in charge of a true monopoly service, however 'owned', is prone to charging too much - call it tax, rent or whatever you like.  Why does the writer assume publicly-owned monopolies will be the more likely to act 'progressively'?  It  might be true if they are state-subsidised, or have a 'progressive' pricing policy - but again, this has little to do with the main thrust.  More significantly, experience - see that earlier post again - is that they charge wildly too much in absolute terms because they are so staggeringly inefficient.

(Historical note: British Gas had its de jure monopoly taken away some years before it was privatised.  this altered precisely nothing.  It was then sold off with its de facto monopoly intact: again, this achieved nothing - at first.  It was only when the regulator took the gloves off that the glacier started to melt - with very striking and highly beneficial consequences for consumers.  By the way, the old BG did indeed have a 'progressive' pricing policy, entirely of its own devising and with no statutory mandate.  It decided that medium-sized industrial customers would subsidise both the very largest industrials, and the residential customers.  But it charged everyone more than was necessary, as eventually became evident.)

So - we will be 'taxed' by monopoly services however they are owned.  Minimising the tax is the name of the game.  If you want some examples of really outrageous 'taxes' on which no-one ever gave me any choice, how about:

• the extra amount on my home insurance to cover the activities of burglars
• the extra on my car insurance to finance the 'crash-for-cash' and 'imaginary whiplash' brigade
• the extra on my general tax bill to pay for treating pie-munchers on the NHS 
• [ ... your favourite example here ... ]

The taxation argument is entirely spurious.  The essential services will get paid for anyhow, and the primary issue is to find whatever keeps the costs lowest.  All empirical evidence points to nationalisation being a very poor approach.

ND

Privatisation Revisited

A wet Bank Holiday weekend encouraged a goodly take-up of the 'privatisation paper' challenge in the post below, yielding lots of important challenges to the Gruaniad writer's attack on private ownership of what he considers to be essentially public assets.  His provocation will stir me to write a few posts on his themes, and a good starting-point is this para from part-way through the piece. 

There's no doubt that since privatisation the old nationalised industries have sacked colossal numbers of workers and brought in new technology. If efficiency is doing the same job or better with fewer workers, many of the privatised firms are more efficient. But this simply suggests some or all of the nationalised industries should have been commercialised – that is, had their subsidies shrunk and been removed from direct government control, obliging them to borrow money at commercial rates and operate in a world of market prices without making a loss.

 The first operative word is colossal, acknowledging as it does that there was massive inefficiency in play, in some of the very largest industries of all.  This is no trivial matter and, given that many of them including the biggest were monopolies, his flippant 'solution' - should have been commercialised - is laughable.  No economy can be sanguine about monstrous systemic waste in vital sectors unless (as, say, the French sometimes claim) it is a conscious part of employment policy.  Even then, quantified justification in terms of a proper cost-benefit analysis would be a major challenge: and we capitalists already know what we reckon the outcome would be.

For this first riposte, and particularly for those too young to know these things from first-hand experience, harken to one of Old Drew's tales ...

Back in the early 1990s, the opening-up of the gas market had only just got properly started.  (The 1986 privatisation per se had been an empty gesture because ther old British Gas Corp was sold off as a de facto monopoly, a privilege it guarded and enforced with commercial brutality.)  But things were gradually changing for the better, and one day an experienced US gas company obtained regulatory approval to do something that had never been done before: an independent company was going to build an entry-point for gas going into the BG grid system.  (Previously, BG built them all.)  Obviously the new entry-point needed to be compatible with BG's existing infrastructure, so the newcomer was given BG's technical specifications, one of which was for provision of metering, a very necessary aspect.

The metering spec was for three densitometers be installed (for measuring gas density - one for use and two for back-up), and likewise three gas chromatographs.  For those who don't know, a GC analyses the molecular composition of the gas very accurately, and simple A-level chemistry allows things like calorific value - and density - to be calculated quite precisely from the results.  

Now both these pieces of equipment are standard, robust, and very reliable.  It is entirely reasonable to provide for a back-up (which will probably never be used) because continuous accurate metering is vital: but a single back-up meter is universally considered to be adequate - universally, that is, excepting for BG in 1990.  So the US interloper - a company well-recognised for its expertise in such matters - refused to install the third meter.

It gets funnier.  BG's operating procedure was for the GC density calculations to be compared with the densitometer readings at all times: and in the event of discrepancy, the GC calculation would always prevail.  In other words, no densitometers were required at all ! 

So the newcomer refused to install any.  BG resolutely insisted on 3 of each: the regulator was invoked, and wisely ruled in favour of just two GCs and of course no densitometers at all.

But here's the sting.  Obliged to accept that the newcomer needn't install a third GC, or any densitometers, BG itself installed the utterly redundant 4 pieces of kit ! - 'at its own cost', which needless to say meant at the cost of all gas users everywhere.  We may be 100% certain this accurately reflected gross inefficiency the length and breadth of BG's extensive systems.

And lest we forget, that ladies and gentlemen is why monopolies must be resisted everywhere: and, when they are found to be inevitable (as occasionally they are), they must be watched over night and day.  It is to the various attempts to resolve this problem that we will turn in later pieces.

ND   

"Privatisation Scam" - Your Weekend Reading

A great essay question:  read this Grauniad piece - & discuss. 

Sale of the century: the privatisation scam.  Privatisation promised to turn the UK into an island of small shareholders. It failed: the faceless state bureaucrats have been replaced by faceless (better-paid) private bureaucrats – and big foreign corporations. How did we get to this point? 

Your papers will be marked next week. (Leniency will be shown to candidates too young to remember what nationalised industries were like in the 1970s.)

ND

Post Office: Privatisation and Doctrinaire Politics

Privatisations are an interesting phenomenon.  The first handful of big British public asset sales in the early 1980's were for simple reasons: Amersham (because it didn't really have any reason for being in public ownership); British Steel (because it was horribly loss-making).  Rolls Royce and the government's stake in BP followed for simple revenue-raising reasons.


But British Gas, and the even bigger flotation of the various electricity companies, were different.  Rationale became how (a) mass share ownership could beneficially become as much a part of British politico-economic culture as mass home ownership, and (b) stripping monopolies of their privileges, privatising them and forcing them to compete, would bring significant efficiencies to the economy.

I'm interested in two related aspects of these aims:

• they are essentially doctrinaire, in an era when political doctrine (as it would have been understood in, say, the 1930's) has been on the wane
• there was no absolutely groundswell of pressure for taking these measures - not even from business, still less from voters

Of course, Joe Public got the taste for under-priced (or even free) share issues, and started looking forward to the next stagging opportunity.  And business got the idea too.

Some of these exercises have worked well.  I am a strong proponent of privatising and liberalising energy monopolies and will argue all day that they have achieved excellent results, mostly in category (b) above (whatever baleful effects subsequent regulatory botch-jobs have brought about): I'm not so sure about (a).

But, though no expert on railways, I have to believe that one was badly cocked up.

So - what do we reckon about the PO ?

ND  

Privatise the BBC improve journalistic standards

I nearly put a question mark on the title but realised that would only make it a rhetorical question. The BBC has been brought low by two appalling decisions recently. One not to explore its own history with Jimmy Savile and the second to join in a Labour-inspired (yes, that is you do the inspiring Tom Watson) piece of crazed journalism implicating a Tory in a paedophile ring.

This really stinks of the worst days of Damian Mcbride and shows how many on the left-wing in this country will believe anything they are told about Tories, I guess this is why the moniker 'baby-eaters' has stuck.

However the BBC is meant to be a non-political organisation, indeed its TV news broadcasts are forced by law to walk the middle line. Now we all know that Channel 4 News has this mandate yet manages to bend most stories round to a very left-wing approach. Yet in the Country as a whole, right-wing media outsell left-wing media. But somehow the BBC manages to host a huge amount of left-wing bias and to my knowledge no right-wing broadcasters or journalists at all. It news reporters focus on cuts and austerity and as a huge state backed institution it instinctively backs all moves to bigger Government and the status quo which sees us all pay for its existence under threat of fines and imprisonment.

If people in this country were top be freed from having to the pay the TV licence then this would change overnight - it would have to for the realities of a commercial existence would mean the BBC was unable to ignore such large parts of its potential audience or else it would have to shrink quite rapidly. I would imagine in reality the latter would happen and the BBC would retreat to its left-wing core and let other organisations step into the breach.

For the Country as a whole, the subsidising of our TV, Radio and Internet services is simply not needed. We don't need every recipe in history stored for free on a BBC website. There is plenty of scope to reduce the influence of the BBC. Commercially, the organisation would thrive given its brand and quality of production and understanding of its audience. Yes it would be smaller, but more attuned with the needs of its audience and host country. The opportunity for international expansion would open up too.

Finally of course, everyone in the Country would get a £130 tax cut which would be nice and stimulative to the economy. So when can we see this Bill in Parliament?