Like many people, I need to travel into London on a daily basis – a train trip of around 45 minutes. And while I have a choice of substitute products (I could drive, catch a taxi, car pool) I catch the train because it is (usually) the quickest and most practical.

However, what really irks me is the fact that I have no choice when it comes to supplier – its South West Trains or nothing. Essentially then, South West Trains have the monopoly on rail travel from Basingstoke to London. They can pretty much charge what they want and deliver any quality of service they see fit.

Talking to people that have lived in England a lot longer than I have, I hear that this is a result of the privatisation of British Rail and rail prices were a lot cheaper before privatisation. However, these people also begrudgingly concede that service was also a lot poorer before privatisation.

The case for privatisation is attractive, it relieves government of certain obligations and allows them to focus on more critical services such as policing and healthcare, it provides the opportunity for more commercially astute organisations to run a service more efficiently and more profitability, and in theory it removes the barriers to entry for potential competitors, thereby benefiting consumers in the long run.

When considering the above then, it seems that all these benefits have been realised with the exception of the last one. There are now a number of privatised rail companies (South West Trains, First Great Western, Northern Rail, etc.) who own geographic monopolies. When I fly to most places, I at least have a choice of two carriers, maybe more. When I travel by rail, I have no choice. Sometimes the cost of a day return ticket to London is the same as an EasyJet ticket to continental Europe!

What then is the solution? Privatisation has not realised all the intended benefits, and consumers are probably not much better off than they were before. As an advocate of free market economics, I abhor nationalisation, so this is clearly not the answer. One only needs to look at countries like South Africa, who wants to nationalise the mining sector when they cannot even effectively operate the health or police services. This would be a failure of gargantuan proportions.

That is not to say though, that all nationalised institutions are a failure. Consider a company such as Deutsche Bahn (DB) who runs the train services in Germany. It provides a superior service at a lower cost than operators in the United Kingdom and is still remains profitable. That is not to say that talks of privatisation are not happening as the German government realises that it needs new ways of raising capital to assist in growth.

This public sector success must be explained by the varying commercial capabilities of different governments? In a way, but not entirely. The difference is explained by competition, and in this case various private train operators compete with Deutsche Bahn, with customers realising the benefit.

The question then begs, why don’t we see that sort of competition in the UK? Virgin Rail competes on some UK routes but seems to differentiate themselves on service and not price, effectively creating an oligopoly rather than a monopoly.

Why don’t we see more private rail service providers coming into the mix? Are the barriers to entry too high?

Surely though, there must be some more ‘Bransons’ of the world, willing to take on the established players?

 

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