Government Intervention and the British Railway System - Case Study Example

THE BRITISH RAILWAY SYSTEM By Government Intervention and the British Railway System Introduction Arguably,the institutionalization of the railways system is the utmost significant incident in the history of the United Kingdom (UK). Since the inauguration of the “Liverpool and Manchester Railway in 1830” (Sussman, 2009, p. 1), the railway has become one of the most treasured transit system in the UK. Nonetheless, the growth and advancement of the road transport industry meant that the railway system would face stiff competition. In addition, the drop in car prices made a huge percentage of people to purchase and use private cars, or use taxis. This thus led to a decline in the number of passengers who relied on trains as their main mode of transportation. As such, by the mid-20th Century, the railway transportation system was faced by huge financial hitches. Notably important, the departments in charge of ensuring efficient operation of the railways had no plans to effectively deal with these financial problems. The lack of appropriate plans to deal with the financial hitches thus led to the government intervention in the railway system. As a result, the railway system underwent nationalization under the Transport Act of 1947 by the Labor Government (Callender, 2009, p. 162). Therefore, the failure of the laissez-faire approach in the management of the railway system resulted to close government intervention. Hence, in a bid to discuss how the UK government policies regarding railways transport have shifted since the early 19th Century, this paper will focus on the nationalization, privatization and post-privatization processes of the British Railways System (BRS). Generally speaking, the core objective of government intervention was to ensure that there was coordination and integration in the railway transit system. Therefore, through nationalization, the British government expected to shield the railways from the financial hitches that were caused by road transport. However, according to the US National Defense Transportation Association (NDTA), the nationalization of the BRS failed to solve the financial difficulties in the railway system, and thus this sector continued to receive losses (1949, p. 52). Due to this failure, the government began the privatization process in the aim of ensuring higher responsiveness to the passengers, make better use of the railways and to guarantee improved value for money (Great Britain Department of Transport [GBDT], 2007, p. 92). However, this privatization did not work out as expected and instead, it led to further chaos in the BRS. As such, it can be arguably true that railways privatization caused further controversy thus making this industry to be subject to more state intervention relative to other privatizations. As such, it is beyond doubt that since the inception of the BRS, the UK government has played a relatively significant regulatory role. The Nationalization of the BRS According to the Institute of Economic Affairs (IEA), the BRS was conceived in the period of “entrepreneurship and individualism” (2006, p. 237). To illustrate, in the early 19th Century, railway providers not only served their own geographical locations but were also exclusively autonomous. However, these railway providers were compounded into four main companies by the 1921 Railways Act, thus signifying the beginning of government intervention in the railways industry. Nonetheless, the economic regression that resulted from the Civil Wars and the increased competition from road industry made the railways to undergo excessive financial difficulties. The amalgamated railway companies therefore sought government intervention as a way of reducing the competition brought up by the road industry. This therefore led to the development of the 1947 Transport Act, whose core objective was to protect the BRS from excessive competition and financial adversity, and to manage the entire transit system as well. Subsequently, the government nationalized the transport industry, thus imposing substantial public governance more so in terms of the pricing and commercial policies. After the nationalization of the BRS, there was formation of the British Transport Commission (BTC) which was entrusted in ensuring the provision of an economical, adequate, efficient, as well as a “properly integrated system of public inland transport and port facilities” in the UK (Skog & Krantz, 1999, p.126). It is however worth noting that while these actions could be pragmatic, they could be barely achievable since it would be such a challenging task for a single commission to manage the transport system. As such, it could be argued that the nationalization process generated a monopolistic system which demolished the competition in the railway industry. In fact, even though the objective of nationalization was to shield the railway transport from further financial difficulties, the situation even got worse in the 1950’s (Gourvish & Blake, 1986, p. 96). Basically, this situation was worsened by the unwillingness of the state to grant commercial freedom to the amalgamated companies as a result of poor management. Notably important, in a bid to make the railways more profitable, the UK government initiated a £1.2 million nationwide modernization programme. Still, this investment did not improve the situation and between mid-1950 and 1962 the railway industry recorded increased operating deficits from £16.5 to £104 million. This situation continued to persist and thus there was need to devise ways that would decrease the weaknesses of the railway transit system. As such, the BTC was disbanded, giving way to the formation of a distinct British Railway Board (BRB). The BRB came with a report which sought to concentrate the on the tasks that they possibly will perform profitably. However, it is worth noting that the UK government did not conform to the prepositions of this report. However, the government decided to fund the railways on the financial reasoning that road transport lead to other problems such as congestion, accidents, and noise pollution among others. The UK government intervention upon the BRS amplified up to 1979, however, many people still preferred the road network. Basically, the British railways was perceived as a “social railway” since it had a resilient “culture of public service engineering” (IEA, 2006, p. 106). This therefore implies that despite the decline in performance of BRS, a large number of citizens still used the trains for transit. However, during the early 1980s the public expenditure increased due to train finances and thus the government set up an inquiry to inspect railway finances. However, as expected though, the Serpell Report from the inquiry faced high criticism from the media as well as the parliament and thus there was need for the government to formulate another way. As such, the UK government decided to privatize the railway system. The Privatization of the BRS Consequently, this phase was initiated by the UK government in 1993 and came to an end in 1997. Basically, as a way of reducing public sector involvement, the government promoted free market policies in the years succeeding 1979. Basically, the free market policies paved way for the privatization of public-sector industries such as telecommunications, electricity, gas and water among others. Notably important, during this period, other departments of the transport industry such as public transport coaches, National Freight Corporation (NFC), as well as the British Airways also went through the privatization process (Gupta, 1999, p. 56). Nevertheless, the deregulation of the BRS was predominantly problematic due to its unique place in the life of the British. Furthermore, it was also viewed that the railways structure was also unique and would thus not be easily privatized. In addition, in 1990s the BRS and other railway industries from Europe experienced extensive political and financial difficulties. In fact, Windhoff-Heritier points out that regardless of government’s fortification from excessive competition, the railways still unable to successfully compete with other modes of transport (2001, p. 203). Therefore, in order to increase the internal competition and liberate services in the railways, the European Union (EU) dictated that the railway operations were to be separated its infrastructure. As a result, in a bid to show its fortitude in the privatization programme, the UK government came up with a proposition denoted the “New Opportunities for the Railways” by 1992 (Parker, 2012, p. 460). To repeat, the core objective of this privatization programme was to ensure that there was an improved customer responsiveness, higher and better provision of quality service, better use of the railways and a better value for money for the citizens. It is worth noting that lasted for four years, that is, between 1993 and 1994. According to the University of Reading, besides being the last, the privatization of the BRS was possibly the most intricate and ambitious task (2014, para. 10). However, the railway service is sometime still regarded as a “natural monopoly” due to the vertical integration of the rail system and the fixed costs prevalent in the network. Furthermore, it is worth noting that a large percentage of operational costs in the UK railways are related to infrastructure provision. Generally speaking, it is arguably true that a single vertically integrated company will have the ability to satisfy the market necessities more cheaply as compared to several companies. Therefore, there was a heated discussion on the privatization model to be adopted, but eventually the ‘track authority model’ was approved in order to intensify internal competition. The track authority model presented that the main railway system to undergo divisions of up to 100 distinct organizations for the purposes of creating market economies. To begin with, in 1994, as a way to privatize the railways, the Railtrack Company took over infrastructure from British Rail (BR), (Cowles, 2001, p. 51). In addition, during this duration, all other BR’s activities, including track maintenance and train operations, were divided into huge amounts of distinct self-supporting units, all of which were sequentially privatized over a period of roughly three years. Nonetheless, it is worth noting that the UK’s government regulatory bodies had the mandate to control the fees and activities of these companies. As such the track-authority model was faced with great opposition, with its opponent describing it as an unsafe, unworkable and a “poll tax on wheels” (Headicar, 2009, p. 101). As such, it was thought that the whole segregation of the railways system into a distinct business during the privatization period was an entirely wrong move. This therefore implies that the act of privatizing the railway system was arguably unsuccessful because since then, the UK government intervention in the railway industry has never reduced. According to Hodge, the privatization of the railways system has been a combination of both success and failure (2006, p. 23). For instance, since 1995 there has been a significant increment in the quality of the service provided in the railway industry. In addition, due to privatization, the UK railways have managed to purchase new trains that have great comfort, and a relatively faster speed thus increasing the overall performance of the railway industry. Conversely, the concept of privatization has also failed since it has led to an increased public expenditure due to the complexity of the new railway structure. Relatively, despite the initial expectations that in the medium term efficiency savings would lower the demand for public support, the government subsidy significantly increased since mid-1990. Certainly, the financial disaster that swept the railways industry can be due to the poor political and management decisions. In addition, the increase in the amount of public subsidy can be attributed to the increase in the spending on rail safety. Profoundly, since the initiation of privatization, natural monopolies such as telecommunication, railways, and gas among others has retained a substantial quantity of monopoly power (Hemming & Mansoor, 1988, p. 12). Therefore, even though these natural monopolies are expected to improve their efficiency and pursue commercial goals, they have excessively continues to provide poor services and charge high prices on their services. However, it is worth noting that due to these reasons, economic regulators were established to ensure that the public was protected from exploitation. Therefore, in numerous industries, the concept of privatization is merely observed as the replacement nationalization by regulation, and thus the role of the government has since altered from that of producing public goods and services, to a more regulatory role. Generally, in a bid to ensure that there was high quality and economic viability in the railways system, the UK government established two regulatory bodies through the enactment of the Railway Act of 1993. One of these bodies was the Office of Passenger Rail Franchise (OPRAF), whose main objective was to supervise and monitor performance of the trains owned by various companies but operating within the UK (Great Britain National Audit Office, 2006, p. 26). On the other hand, there was also the establishment of the Office of the Rail Regulator (ORR), which was the main economic regulator, and it had been entrusted with the supervision of Railtrack’s Company economic activities. To add, the director of OPRAF was also vested with the responsibility of making general subsidy payments to the train transportation companies and collecting payments from arising from long-term operation of the franchises. Furthermore, the issues concerning safety were also superintended by the Railway Inspectorate thus suggesting that government intervention was still the main form of regulation in the railway system. The Post-Privatization of the BRS Ordinarily, the post-privatization of the BRS was initiated after 1997, driven with the fact that the UK government urge to nationalize the railways system. It is however worth noting that even with its intention of returning the railway system to the public sector, the UK government did not in any way focus on stopping the privatization process, especially after it had taken root. To achieve the nationalization of the railways, the Strategic Rail Authority (SRA) was formulated as regards to the government regulatory control. Thus, the SRA replaced and took over the duties and responsibilities of OPRAF and it was thus entrusted as the main body which would oversee the customer protection as well as passenger franchises. Furthermore, the SRA was also responsible for coordinating the railway system, investing and coming up with strategic plans that sought to improve the railway system. It also was given the responsibility of strategic planning and coordination of rail policy and investment (Robinson, 2007, p. 171). In this case, the SRA was envisioned to productively work together with both private and public sector in order to ensure that an efficient and effective railway system was in operation. Equally important, despite the fact that the institutionalized regulatory bodies closely examined safety issues after the privatization process, the UK experienced several train accidents. This can be illustrated with the fatal train accidents that occurred in Watford Junction, Ladbroke Grove, and Hatfield in the years 1996, 1999, and 2000 respectively. More importantly, the later accident was as a result of a broken rail The Hatfield accident was “caused by a catastrophic failure of a broken rail” thus creating the speculation that the main objective of the post privatization process, which was to enhance safety, was not achieved (Haywood, 2009, p. 270). As a result of this accidents, the UK government undertook huge inspection measures to ensure that the safety measures were enhanced. For instance, besides bringing the Railtrack Company under close government supervision, the UK government also significantly increased Railtrack’s operational and maintenance costs. Furthermore, in the year 2003, another nonprofit Company, Network Rail, was incorporated to ensure efficient maintenance of the railway tracks and network. As such, it can be argued that still, there is significant government intervention in the BRS brought about by the “failure” of the privatization process. Conclusion All things considered, the since its inception, the BRS has been the subject of government intervention. This is due to the fact that the railway system are relatively different from other sectors. As such, unlike other sectors which are economically managed, the railway system is subject to social and political management. Correspondingly, even though the BRS underwent privatization in 1993, the intended benefits of railway system were never achieved since the sector was largely regulated through subsidies and various policies. This in turn affected the market economy thus subjecting the railway system in to a long phase of financial adversity. However, it is worth noting that the concept of privatization failed to eliminate the financial crisis in the railway system and as such there was need for government intervention. Therefore, in order to achieve an efficient, effective and free of accident railway transport system, it is important that for the government to work closely with other private sectors. Works Cited Andersson-Skog, L., & Krantz, O. 1999, Institutions in the transport and communications industries: state and private actors in the making of institutional patterns, 1850-1990. Canton, Mass, Science History Publications. Callender, G. 2009, Efficiency and management. London, Routledge. Cowles, M. G. 2001, Transforming Europe: Europeanization and domestic change. Ithaca, Cornell Univ. Press. Gourvish, T. R., & Blake, N. 1986, British Railways, 1948-73: a business history. Cambridge, Cambridge University Press. Great Britain Department of Transport. (2007). Delivering a sustainable railway. [London], Stationery Office. Great Britain National Audit Office. 2006, The modernization of the west coast main line. London, The Stationery Office. Gupta, A. 1999, Towards privatization: lessons from the United Kingdom, East Germany and India. Delhi, B.R. Pub. Corp. Haywood, R. 2009, Railways, urban development and town planning in Britain, 1948-2008. Farnham, Ashgate. Headicar, P. 2009, Transport policy and planning in Great Britain. London, Routledge. Hemming, R., & Mansoor, A. M. 1988, Privatization and public enterprises. Washington, D.C., International Monetary Fund. Hodge, G. A. 2006, Privatization and market development global movements in public policy ideas. Cheltenham, UK, Edward Elgar. Institute of Economic Affairs 2006, The railways, the market and the government. London. National Defense Transportation Association (U.S.). 1949, National defense transportation journal. Washington, D.C., National Defense Transportation Association. Parker, D. 2012, The official history of privatization Vol. 2, Vol. 2. Hoboken, Taylor & Francis. Robinson, C. 2007, Utility regulation in competitive markets problems and progress. Cheltenham, UK, Edward Elgar. Sussman, H. L. 2009, Victorian technology: invention, innovation, and the rise of the machine. Santa Barbara, Calif, Prager Publishers. University of Reading. 2014, About Railways and Law: from Stockton & Darlington to HS2. Retrieved 24 April 2015 from http://blogs.reading.ac.uk/railways-and-law/how-law-has-shaped-the-railways-from-stockton-and-darlington-to-hs2/. Windhoff-Heritier, A. 2001, Differential Europe: the European Union impact on national policymaking. Lanham, Rowman & Littlefield. Read More