In Praise of Privatisation

Firstly, a point I have to make. Examples of good government service and bad privatised service are not arguments against the validity of privatisation. Governments also can give bad service, and private companies can give good service. If the examples of privatisation we see today have led to the cutting of services, it is because the companies don't understand some of the principles I outline below.

The problem we usually see today with private companies is excessive rationalisation, cutting of costs to the point where services are shoddy and safety is threatened. Both government and private railway systems can rationalise - and many have. Australian National, for example, closed many South Australian branch lines, cut staff numbers drastically, and did all the things that people complain the private companies do - under government ownership.

Another problem we often see (under both government and private operation) is laziness - nobody can be bothered chasing customers, so they go by road instead. Nobody can be bothered putting in a third track to allow for more express services, so people demand a freeway extension.

So, privatisation is not the problem. Rationalisation and laziness are the problems.

Now here's where privatisation comes in. A minister for transport is presented with a first-class mess of a country and suburban rail/public transport system. He knows that trying to get his department to fix it is like kicking at a wall of blubber (See "Yes Minister" www.yes-minister.com for confirmation of that!). He knows some new blood is needed - someone who can run a rail/PT system well and attract customers. So he privatises the system, and sells it off to a foreign PT operator with a good track record and hopes that they will appoint someone who will do what he and his department can't.

So privatisation is a short-cut to a solution, a way of bypassing all the lazy bureaucrats who don't care anything about PT or the public and only want a soft life. It brings in people from outside who know how to run PT systems and really want them to succeed. All the minister had to do was put the requirements in the contract and the private companies (who, incidentally, had a lot more experience with PT) would have to do what the government was too lazy or too busy to attend to. Keeping the trains running and on-time, refurbishing and getting new rollingstock, aiming to increase patronage, all the things the private companies have done, the government could have done but just didn't.

So much for the general basis for privatisation in theory. Now let's look at how it was implemented in Victoria in the 1990s.

Some errors were made. In hindsight we can see that giving V/Line Freight a 45-year lease on the track was a mistake.

Also the split-up of the train and tram companies hasn't worked as well as expected - since it's very difficult for real competition (like we see in the privatised telephone, energy and water industries) to occur in public transport - people will take the first service that arrives.

Apart from that, all the problems would have happened in government hands as well - the ticketing woes, disadvantages of rationalisation, undermanning, etc.

A Working Model

My ideal model (and this is for country passenger and freight services as well as suburban) is where the government does nothing except set minimum service levels and safety standards. Minimal government involvement is desirable as outlined below.

One company owns and maintains the track - ideally the ARTC. They have a charging system which means they get more money for better track. That gives them an incentive to keep it in top condition, and upgrade it for higher speeds whenever possible.

Another company owns the trains, employs the drivers, and operates the services. They can put on as many services as they like (as far as the track allows). They can advertise to get more passengers.

These operating companies should be as small as possible - ideally operating on one line only. This makes the service more personal, and prevents the management of the company from being overwhelmed by the size of the job and unable to put in heaps of improvements everywhere. That, I think, is what actually killed National Express's Victorian operations - available resources (by which I mean brain power as well as money) were stretched too thin.

West Coast Railways was a prime example of this. They got absolutely no subsidy for the service they provided - all they got from the government was a top-up of concession fares to the price of a full fare. So they were literally betting the company on their success - if they didn't get enough customers to pay the bills, down the gurgler they would go. So they had to attract customers, and did it by increasing services - buffet on all trains, connections with tourist attractions in Warrnambool, etc. And they succeeded (for 11 years). Probably a large factor of this was the passion of its directors, which brings me to the next point: the attributes of the ideal Chief Executive Officer of one of these operating companies I describe.

• He should be really passionately committed to public transport and willing work 36 hours a day to see it succeed. He should be the sort of person who actually sees red when he looks at crowded freeways and empty trains.
• Preferably, he should know heaps about every aspect of running a railway, having been a driver, station master, conductor, etc, talking to passengers every day. The company's business expertise should come from other members of the executive board if a CEO with both railway and business experience can't be found.
• Ideally, he should be required by his contract of employment (or else he should require himself, knowing it's for the good of the company and therefore in his own interest) to sell his car and use public transport for all his journeys. If his time is worth too much for him to be kept waiting on stations for ages, maybe other people's time is too?
• He should also be required to visit each and every station on his network at least once per year (on a big network - more often on a small one) to talk with the staff and generally see what it's like. Of course he should get there by train, so he can see if the track needs mending, the service is slow due to single track sections, etc.

I am only half joking when I say I should be given a contract to run the Stony Point line - following the above rules I could hardly do worse than the current operators. The area is growing population-wise but for Connex it is a hidden corner of the system, which they can't give the attention it needs because they have so much else to do.

Are governments the right ones to operate PT services?

Some people believe that the government should operate passenger rail services because they will never be profitable but need to exist as a service to the community. Private companies, they say, exist for the good of their shareholders, but governments have a responsibility to provide a service, even if it is not profitable, because the community needs it.

This point of view ignores the fact that eventually, by whatever means, the money has to come from our pockets. Whether it is taken from us in taxes or or charged to us in fares makes comparatively little difference.

However, a more important point is that the government (and I'm not talking party politics here - the parties are almost identical in this and many other ways) really doesn't care about us once they have our vote. The only reason they want to look like they're doing the right thing is because it's good for their popularity, which means they might beat the opposition at the polls next time.

Politicians, because they need to be popular in time for the next election, will seldom do the "right" thing for public transport such as installing a new heavy rail line to an unpopulated area in order to encourage its growth. They will be more likely to "patch up" an area with bad public transport by paying a bus company to operate a service in a new residential area. That is, if they bother to do anything at all.

Also, PT services are likely to become a political football, with marginal seats getting better services (to induce them to vote for me) and strong Labor/Liberal seats getting next to nothing (because whatever I do it's not going to change the way they vote).

On the other hand, a private company is much more likely to have a CEO in place for five or more years, in which case he will live to see the fruits of his early labours. Also, shareholders are more likely than taxpayers to be able to see the wisdom of spending money now, eg putting in a third track, in order to be able to give good service (which means more customers, which means more profits) in the future.

A private company must serve its customers well in order to stay afloat (government subsidies aside). A government operated system will just require more money out of the state's budget next year if it drives all its customers away by giving bad service. A company's CEO loses his job if the customers are angry enough. A government minister or public servant feels no personal repercussions.

The underlying idea is this: money talks. If it is made worth a company's while financially to give good service, they will give good service. A prime example of this is the on-time running of today's privatised tram and train services - since financial incentives were made for good service, cancellations and late-running have dropped dramatically. Compare today's figures with some from the PTC days.

It is quite easy to place a privatised PT service on such a footing. Tell them that they will get an extra subsidy if they put on more late-night or weekend services, or anything else that "should" be done but nobody has done yet - and stand back and watch the results (over a few years, of course).

Conclusion

Privatisation is not a "silver bullet" which will magically fix every railway problem. However it is not the death knell of the rail system either - it has some distinct advantages to offer, but needs to be managed correctly.