Renationalise the railways? No!

At least one of the Labour leadership contenders (and the one most likely to win), plus many others, think we need to renationalise the railways.

Here's the latest, and supposedly credible, salvo fired in the crusade: the Conversation's Case for renationilising the railways.

My objections are not ideological, they are based on the basic principles of economics, and on a critique of lax standards of empirical verification.

I'll respond to each argument given in the Conversation's piece:

1) "Transport for London shows the success of an integrated network run by the public sector" TfL shows that public ownership works on a smaller scale, therefore it should work on a larger scale. Obviously a weak argument, there's no reason why it should work on a larger scale just because it's worked in London.

2) The public support renationalisation. Just because many people think something, does not make it the right thing to do. Of course, policies are more likely to succeed if they are popular, but simply willing something to work won't mean it will work.

3) Fares would go down.

a) This is because apparently there would be cost savings from nationalisation; things like avoiding the tendering process, avoiding duplication of duties in different rail companies. It's not clear to me that this would deliver much in terms of savings. Rail companies are geographically distinct by and large, and will need various types of management in all parts of the country. I see no reason why any duplication would fall just because what are essentially routes become publicly run rather than privately run.

b) Such an analysis is beautifully blinkered, since it looks at some one-off change as if that's all that would change. It totally ignores the dynamic impact of competition, for example. Even if there were some savings from getting rid of the tendering process, what about the costs of monitoring the publicly employed staff to ensure they are doing a good job, and up-to-scratch job? That would still need to occur, and many would argue would actually become greater once the railways were in public ownership. Public sector inefficiency is a well known phenomena, and there's no mention of this whatsoever in the TUC report linked up in the Conversation piece.

c) The evidence provided for fares falling is that fares have gone up a lot since privatisation. It's this kind of argument that says hospitals make people more sick. We have no idea what would have happened to fares had the railways remained public. The argument makes no reference whatsoever to forces pushing those fares up, such as the cost of oil, and greater demands being placed on the system.

d) This argument relies on the idea that all costs savings would be transferred into cuts in fares. Why is this realistic? No mention is made.

e) Apparently a saving is the paying of dividends. This appears to be a great misunderstanding of how the world works. It appears to assume that shareholders get these dividends in return for just being them, while they sit around doing nothing useful. They put their capital into these firms, they contribute to decisions being made by these firms, they are a crucial part of corporate governance. So by cutting them out, clearly a cost to the taxpayer is incurred since the taxpayer has to foot that capital investment that previously shareholders were putting in.

The more general argument that is behind all renationalisation is that the current system doesn't work particularly well. That assumes the current system is the only way in which the railways could be organised privately. It rather obviously is not. The problem of under-investment under Railtrack referred to in the article is a consequence of the incentive structures put in place by the government for the "private" market created. Just as the "competition" between franchises is something monitored and closely controlled by the government. As a result, it's not particularly private at all, it's heavily controlled and monitored - about as private as UK universities, in reality.

When I can get another service as quick and convenient from Didcot to Reading that competes directly with First Great Western (FGW) on a day-to-day basis, that's when I'll see some proper competition forcing FGW to get their act together. There's no competition on this route since no other train service does it, nor can any bus service do it in a competitive amount of time.

So no, the current system is not an argument for renationalisation. It's an argument for setting up a proper competitive market for our trains.