You can tell that the one state-owned train operator was never meant to be permanent by the goddamned awful name they gave it. They were probably right, directly operating railways isn’t a recipe for success, more competition is, as I’ll show below.
For this post I’ll refer to them as DOR. Directly Operated Railways seemed to catch the left’s imagination last month. A profitable, popular state-owned railway was going to be privatised!  Labour’s Maria Eagle attempted to seize the zeitgeist:
With the Government’s rail franchising programme in chaos, it is a bizarre and dogmatic decision to prioritise the privatisation of a service that is actually on track. Since running services on a not for private profit basis, the East Coast operator has returned £640million to the taxpayer and invested more than £40million in improvements to the service, achieving some of the best results for passengers since records began.
The company only exists because in 2009 National Express defaulted on the line in the face of recession and hubris induced gigantic losses. Are there convincing arguments for keeping DOR running the East Coast Mainline? Ed Miliband thinks so and has argued it should be kept in public ownership as a benchmark for private operators. I’m not convinced. Lets look at the arguments.
Maybe railways will just be better run by the state because at a state-owned rail company employees are motivated by “knightly motives“, as Julian le Grand describes. I doubt this for two reason. Firstly, these were people recruited from the rest of the rail sector to run a franchise. They don’t have a public sector “mission” like in the NHS, nobody does overtime etc. to set a benchmark. Secondly, I’ve met the people who run train companies, and they love running trains. They’re like children with toy sets. It’s sweet really. The problem isn’t passion for the industry, its service and profitability.
Perhaps DOR are run differently and more efficiently to other train companies? Nope. That’s not true. Nor is it really possible. Whereas, for example, Stagecoach have a couple of buses companies and rail franchises to run, gain experience, share best practice and variously enjoy economies of scale and scope DOR have one franchise and, of course, aren’t in a position to innovate if they’re meant to act as a benchmark.
So how can we make our minds up?
Luckily we have a comparator. There is also a West Coast Mainline run by a private sector company. They’re both much better than they used to be, that’s clear. You could probably argue that the East Coast Mainline offers as good a service at a lower cost, but you’d be relying as much on faith as on evidence. The data here is on overall service satisfaction and is taken from Passenger Focus’s National Passenger Survey and it illustrates gradual but real improvements in service on both.
The data I could find only went back to 2008 which isn’t far enough for my liking, but that’s what I’m working with. You can’t spot the National Express’s default in mid-2009 or the takeover by DOR. That is probably because National Express East Coast had been in trouble for some time and DOR had a mess on their hands to begin with and the data doesn’t go back to 2006 as I’d prefer.
What you can see is an accelerating improvement in service on the East Coast from mid-2011 onwards. Some people have argued that this is because it is a state-owned railway and therefore better. I’ve two words for you people: “British Rail.” That’s not good enough an explanation.
A good argument runs like this: DOR aren’t improving in a cost-effective because they’re state-owned, it’s because they face direct competition from better operators: First Hull Trains and Grand Central. Those two firms are Open Access Operators and run services in between those scheduled by DOR and they have always been better but smaller than the East Coast operator.
You could counterargue “well why is Virgin Trains so good.” But you’d only be falling into my trap. During quality spurt visible 2008-2010 they were facing competition from an Open Access Operator call Wrexham and Shropshire. In 2011 the company, stymied by regulation which favoured its larger regulators, folded and improvements in Virgin’s services somewhat plateaued.
What we learn looking at the East Coast and West Coast Mainlines is that improvements in rail service are not correlated with state ownership. If you look at Passenger Focus’s surveys, service has improved across the board (as have prices, but that’s another story), but service quality has really accelerated where competition was most intense.
So, should I answer my linkbait title? No, we shouldn’t nationalise the railways, what they need is the opposite: less direct state involvement, more private train operators and more competition. Rail is almost a natural monopoly but not quite. As I’ve shown competition is possible and where it can work it works really, really well. It should be encouraged.
 Actually, we’ve had profitable, popular state-owned railways in this country for a while, they’re just French, German and Dutch state-owned railways: Keolis, Arriva and Abellio.
Full disclosure: I occasionally help organise events in the rail sector.
Filed under: Economics, History, Politics