England's Sword 2.0

Monday, June 09, 2003

Railroad Tycoons?

Fascinating article by George Trefgarne in the Telegraph about how not to run a railway. The Third Way just doesn't work:

Network Rail is not a joint stock company, but something called a not for profit company. You can say that again. Network Rail made a loss of £290 million in the year to March, and without some fancy accounting, it would have been much worse.

The Government has effectively had to underwrite Network Rail's £21 billion of debts (although yet more financial engineering has kept this mighty sum off the Treasury's books). Driven by cries about safety, spending is out of control and the company will swallow £12 billion in subsidy by 2006.

Despite burning through all this money, the Network Rail locomotive has allowed delays to rise nine per cent in the past year. A fare increase for passengers is imminent. Costs are so high and service levels so poor that one of its biggest customers, the Royal Mail, is abandoning mail trains after 170 years.

Instead of shareholders, Network Rail has 116 members, including busybodies from the Crime Concern Trust, the Royal Association for Disability & Rehabilitation, trade unions, and the Cyclist's Touring Club. They are entirely unaccountable. Standards of corporate governance and disclosure are extremely poor.

The members' role has a contradiction at the heart of it. We are told they have "similar rights to those of shareholders in a public company", yet "no financial or economic interest" in whether Network works.

Ah, the stakeholder society at, erm, work...

Network Rail is a sort of Third Way on wheels. Tom Winsor, the rail regulator, believes it is a nonsense. He says a company with no shareholders is hard to incentivise. If he fined Railtrack for poor performance, it came out of shareholders' pockets.

But Network Rail has no shareholders, so just passes a fine on to the taxpayer or passengers in higher costs. "Shareholders with money at stake," said Winsor, "are far more likely to be responsive than public interest members.''

Trefgarne begins his article by telling how the joint stock company worked so well for so many years that Labour just had to improve on it by adding regulations, diktats and codes. Interestingly, that's precisely what regulatory bodies are trying to achieve over here in many other areas than just transport. Funny how "stakeholders" can achieve through agencies what lobby groups can't through Congress.