Jan/Feb 2002 - VOLUME 23 - NUMBER 1 & 2
P r i v a t i z a t i o n : R i p - O f f s a n d R e s i s t a n c e
By Brendan Martin
The UKs Disastrous Experience
With Railway Privatization
London Even Margaret Thatcher thought British Rail was off limits.
Virtually no public service was safe from privatization under Thatcher,
British Prime Minister from 1979 until overthrown by her own Conservative
Party Members of Parliament in 1991, but her instincts for political danger
were more highly developed than her ideology. So, while she starved rail
of investment, she refused to privatize it.
She has been proved right, and how ironic it will be if the state of
Britains railways leads to the downfall of todays British
Prime Minister, Tony Blair.
That is no longer a far-fetched idea, and there would be some justice
in it too, even though Blairs Labor government, which replaced the
Conservatives in 1997, only inherited the mess from Thatchers successor,
John Major. Having done so, and despite Blairs on-the-record commitment
in opposition to restoring a publicly accountable, publicly owned railway,
his government has tried to make the privatized system work. This has
involved pumping an ever greater public subsidy into the pockets of shareholders
whose commitment to safety or reliability no longer commands any public
confidence in a service that, in Britain, has core economic and social
After two major collisions caused by faulty signals killed a total of
38 people, a third crash, which killed another four people and was caused
by a broken rail outside a town called Hatfield, brought the national
rail system to a grinding halt in October 2000. Railtrack, the private
company established to manage the privatized track, signals and stations
and oversee their development and maintenance, imposed thousands of speed
restrictions on the train-operating companies (TOCs) throughout the country,
because even its own confidence in the state of its assets had evaporated.
The systems collapse came four years into what had been a highly
complex as well as controversial privatization.
The integrated network was broken up into more than 100 separate businesses,
all held together by contracts. In addition to Railtrack and 25 TOCs,
track renewal companies, track maintenance companies, rolling stock leasing
companies and many more were created to provide this or that part of the
package. Some of these had common parentage at the time of privatization
or soon afterwards, but many were also to subcontract some of their responsibilities.
The total proceeds to the government were 5.3 billion British pounds
around three years worth of the increased state subsidies
provided as a sweetener. Subsidies have risen much more than planned,
because of successive failures, and the government now plans to increase
them still further.
Meanwhile, some of the newly privatized companies changed hands for far
more than the buyers had paid for them, making clear how taxpayers had
been taken. In one case, a rolling stock company sold for £536 million
six months after privatization for a profit of £300 million.
Undervaluation has been a standard feature of British privatization
British Telecoms share price rose by 80 percent in the first week,
for example but privatizations advocates argued that incentives
were required to secure the benefits of privatization. Private investment
would renew the infrastructure while gradually decreasing the burden on
the taxpayer, proponents claimed. Although subsidies were initially increased
following privatization, they were planned to decline over time. Reliability
and customer service would benefit from the efficiency and entrepreneurship
of commercially oriented managers, the argument went, and the state would
get a direct return on its investment through corporate taxes.
There have been some improvements since privatization, such as investment
in new passenger trains, which are gradually replacing the old rolling
stock. However, that process was already underway before privatization,
albeit slowly, and could have been accelerated under British Rail had
it enjoyed as much subsidy as the TOCs have received. Another plus
a paradoxical one in the fragmented circumstances has been the
institution of a National Rail Enquiry Service. Although initially understaffed,
it increased its capacity in response to fines for early failures to meet
call-answering targets set by the regulatory authority, Ofrail, and now
boasts Britains most dialed telephone number.
Effective regulation has also been responsible for a moderation in fare
increases, which has in turn contributed to the major success claimed
for privatization: increased usage. Passenger journeys have increased
by 25 percent and freight traffic by 40 percent. Ironically, however,
the privatization designers did not foresee any increase, which is a product
of Britains worsening road congestion and rapidly rising gasoline
prices, coupled with economic growth in the London area, where most of
the increased usage has occurred.
The unplanned increased usage has actually exacerbated the privatized
railways troubles, because the track usage fees charged to the TOCs
by Railtrack were largely fixed. This meant that as more and more trains
wore out more and more tracks, Railtracks revenue did not increase
proportionately. Coupled with the fact that the privatization scheme neither
imposed investment targets on Railtrack nor empowered Ofrail to do so,
the inevitable result was a growing maintenance backlog.
In October 2001, rail privatization claimed its first major corporate
casualty when the government pulled the plug on Railtrack by placing it
in administration in effect, bankrupting it. Where
the fiasco will head remains unclear. Blair himself is no longer making
any promises, but he knows that he must do something to remedy the legacy
of privatization and cuts that have shattered Britains public services.
There remains huge frustration at some of our public services,
particularly the railways, and the transport system in general,
Blair admitted in his New Year message. I am not going to pretend
that we can put our transport system right quickly. It will take investment
and a constructive long-term partnership between the public and private
sectors. Money alone is not enough.
There is no doubt that the privatized railway system we inherited
was too complex and fragmented, Blair continued. Following
Railtracks problems, we now need to put that right. Proposals are
being put together for a new, simpler, less bureaucratic system which
will provide managers with stronger incentives to put the traveling public
A more simple, less fragmented system which prioritizes the traveling
public would be welcome, but whether Blair and his advisers can come up
with a way to produce it while still allowing it to be run for profit
is far less certain.
Throwing Workers Off Track
The private operators have, however, lived up to expectations that they
would shrink the workforce and seek to cut costs. Rather than enhancing
efficiency, this cost cutting has decimated the system. All the TOCs as
well as Railtrack and the maintenance companies cut jobs, causing problems
ranging from cancellations due to too few drivers being available to dangerous
Railtrack acknowledges that, because of cost-cutting following privatization,
it is true to say that a lot of experience did leave the industry.
The Association of Train Operating Companies (ATOC) also admits that some
companies let too many drivers go, and that new drivers receive less training
than they did during British Rails day. The shortage is now being
tackled, says an ATOC spokesperson, and the reduced period of training
was justified because driver training is now tailored to the particular
types of services operated by particular companies.
A further unforseen consequence of cutting the number of staff while
increasing the number of services has been that the train drivers
union has driven hard bargains, securing much higher wages. Now the less
skilled workers in other unions want proportionate raises, which the companies
refuse to concede, with the result that cancellations caused by strikes
are now causing further commuter misery.
Pay is not the workers only beef. In the case of track and signals
maintenance, the effects of staff reductions have been compounded by the
replacement of a trained, integrated and knowledgeable workforce with
an unstable and wasteful structure of contractors and subcontractors.
Again, the numbers are disputed, but a conservative estimate based on
what little information the companies provide financial and other
transparency has been another of privatizations victims is
that the maintenance companies cut their staff by about a third.
The privatized companies commitment to commercial secrecy is such
that maintenance workers who would once make a virtue of sharing valuable
information among themselves were ordered not to do so with employees
of rival contractors. Railtrack has admitted that adversarial relationships
have caused problems, and the Blair government hopes to tackle them through
a new Strategic Rail Authority, which will oversee and attempt to coordinate
the fragmented structure and, in January, announced a new £64 billion
10-year investment plan. Half of that investment is to come from government,
which means that, if the plan is delivered, rail subsidies will soon be
about three times higher than they were before privatization.
Railtrack feels it has unfairly been pinned with responsibility for privatizations
failures, pointing out that it inherited years of neglect and that infrastructure
capital spending will be more than three times higher this financial year
than in the last year of British Rail. Its shareholders are threatening
legal action against the governments decision to wind the company
up, but since they earlier enjoyed rich dividends; there is little public
sympathy for them.
More interest focuses on what will replace Railtrack. Public opinion
polls show large majorities in favor of renationalizing the whole system,
but the government appears most likely to reconnect the wheel-rail
interface by setting up a new infrastructure management company,
perhaps not-for-profit, largely owned by the TOCs. Whatever transpires,
and whatever it achieves, there are some other problems that will be harder
Rails New Money Culture
The lesson of experience is that the rail networks integrity as
a knowledge system, far from having been strengthened, has been destroyed.
The railway used to be organized on a logical, geographical basis
with a hierarchical management structure in which everybody knew his or
her responsibilities, says independent rail safety consultant Peter
Raynes. There was one set of instructions and one timetable, bearing
the operating managers name, which everybody worked to. It was a
time-serving, uniformed hierarchy somewhat old-fashioned, maybe
but with safety running through it.
Somewhat old-fashioned is putting it mildly. British Rails
performance epitomized the weaknesses as well as the strengths of the
bureaucratic model of public service management and was the butt of many
a weary joke. The effects of privatization are no laughing matter, however;
people in Britain had no idea until their rail network was broken up and
privatized just how infuriating public service could be, nor how dangerous.
Before privatization, says Raynes, a former British Rail senior operating
manager, when an accident happened, everyone was dedicated to the
task of finding its cause to prevent recurrence. Staff, trades union representatives
and managers alike worked to this end. There was no doubt on the site
of an accident who was in charge, and no delay in clearing the lines.
Over the years, lessons were learned from each accident; each one brought
about an improvement in equipment or procedures.
The changing ethos in British railways after privatization undermined
these processes of vertical and horizontal dissemination of information
and experience. Severing the wheel-rail interface by separating
responsibility for the systems infrastructure from responsibility
for operating services was one major reason, but the 100-plus companies
that resulted from the break up represent only the tip of the iceberg.
Underneath, the privatized maintenance system rests upon layers and layers
of subcontractors, each making money out of hiring the next down the food
chain until, at the base where the work is done and where the greatest
strength is needed labor is casualized and individualized. While,
formally, the privatized structure has one company responsible for maintaining
and improving infrastructure, it contracts with a dozen others, which
in turn subcontract further and further. In reality, there are more than
2,000 companies involved, not including the self-employed laborers even
further down the hierarchy.
The consequences of this casualization and cheapening have been vividly
described in the Financial Times, a newspaper not noted for its hostility
to privatization: The first consequence was the breakdown of the
old comradeship, which used to mean that problems were easily spotted,
repairs made, and people could talk to each other. Track workers operated
in gangs and knew their stretch of rails like their own back gardens.
Instead, workers became nomadic, moving to the next job with little or
no local knowledge and instructions not to talk to rival workers except
via a supervisor miles away. The second big problem was a growing lack
of control over the staff and their work. There have been complaints of
subcontractors recruiting workers out of pubs to fill gaps on the night
That driver had not been the first to pass that very signal at red. Other
drivers had reported that the signal was badly positioned and easy to
miss because of overhanging cable and sunlight reflection. In fact, the
problem had been the subject of a series of meetings, including site meetings,
between representatives of TOCs, Railtrack and its maintenance contractors.
Each had incentives to either duck the problem or pass responsibility
for dealing with it to another. Meetings were followed by letters and
letters were followed by memos in a sort of caricature of the worst kind
of bureaucratic buck-passing. The delay was, quite literally, fatal.
Buck-passing rather than problem solving is now the norm. Privatization
broke traditional bonds and practices of passing on skills and experience,
as the Financial Times put it, and at the same time it introduced
hard-nosed commercial tensions into relationships that often needed to
be cooperative, with the result that today the railway industry
employs hundreds of people just to fight over whom is to blame for every
minute of delay to trains.
Safe working of the network is hardly possible in such a climate,
John Hurst, British Rails former organizational development manager,
told the public inquiry into the Ladbroke Grove disaster. Merely
taking steps of a technical and operational nature, in light of any particular
disaster, will not address this underlying malaise which will inevitably
chronically manifest itself in new disasters.
Tragically, Hurst proved correct. In October 2000, one year and 12 days
after the Ladbroke Grove crash, came the Hatfield derailment, in which
an inter-city train traveling at nearly 100 mph derailed and shattered
into 300 pieces, miraculously killing only four passengers.
More than a year earlier, a health and safety report had indicated a
21 percent increase in broken rails compared to the year before. On August
12, 1999, the regulatory agency, Ofrail, had written to Railtrack demanding
an action plan to deal with the problem. Again, correspondence
went back and forth between Railtrack and Ofrail, and between Railtrack
and its maintenance contractors, and, no doubt, also between the contractors
and their subcontractors. This continued for the rest of the year, despite
the fact that by September 1999, in response to the companys admission
that it was faced with rail nearing the end of its life in high-tonnage
routes, the regulator had retorted that the increasing incidence
of broken rails does not seem to suggest that the rail was nearing
life expiry, but that it was already at or even beyond life expiry.
So the general and urgent problem of broken rails across the network,
especially affecting high-speed routes, was well known. Worse, it was
known that the particular rail responsible for the Hatfield crash was
cracking. Again, the responsible companies had extensively discussed what
to do about it. Eventually, Railtrack awarded a contract to replace the
rail to a company called Balfour Beatty Jarvis, one of the companies that
had bought up British Rails maintenance division. Jarvis delivered
the new pieces of track to the site in April 2000. Now the problem was
to arrange a track possession slot, which is a time, agreed
upon between all the interested rail companies, when the work is done.
But Ofrail, Railtrack and the operating companies could not agree on
a time to conduct the repairs. The inter-connecting contracts and penalties
create a system in which each company is putting the squeeze on the other,
all trying to pass responsibilities, pressures and costs away from themselves.
Big money is involved, and, in the case of the cracking Hatfield track,
another seven months of delay resulted, as yet more correspondence went
in and out of Railtrack to negotiate the date and duration of the necessary
track possession. Finally, the renewal was scheduled for November
2000 which turned out to be a fatal month too late.
The Hatfield crash led to the departure of Railtracks chief executive
Gerald Corbett with a severance package worth around $400,000 generous
even compared to the shareholder dividends paid out during his tenure,
which he marked from the start by getting rid of most of the senior managers
inherited from British Rail and bringing in McKinsey, the management consultants.
Corbetts hold on power became untenable because the Hatfield crash
threw the government and the rail companies into such a panic that speed
restrictions were imposed throughout the network for months afterwards
many of them, paradoxically, as a result of over-reaction by ignorant
accountants in defiance of their engineers more measured advice.
At a time when oil refineries were being blockaded by fuel protesters
opposed to rising gasoline prices, and no one could fill their tanks,
the whole country pretty much ground to a halt.
According to former senior British Rail manager Chris Green, the collapse
of professionalism has been the most fundamental consequence
of privatization. He cites contracting out and the jettisoning of so many
junior and middle managers with vital experience as the cause
of the problems. The net result has been a collective loss of memory
on the basics of running a railway, he says.
The Labor government is pinning its hopes on the SRA effectively coordinating
its £64 billion answer to the investment question. In the short
term at least, however, it appears that worst is yet to come, and not
only because of rails deteriorating labor relations. (One TOC, South
West Trains, owned by the anti-union bus company Stagecoach, was threatening
at press time to fire and replace striking guards.) A December 2001 investigation
published by The Observer newspaper concluded, Britains railways
are on the brink of a catastrophic safety breakdown, with senior executives
warning that much of the network is worn out and that even the most basic
repairs are not being carried out.
Whatever Thatcher foresaw that the men around her did not, even she could not have imagined this. But Blair would do well to imagine the consequences. Thatcher was brought down by the effects of introducing a regressive local taxation system dubbed the poll tax which Major scrapped even as he privatized rail. One dissident Conservative backbencher of the time called rail privatization the poll tax on wheels. As long as Blair remains hooked on market solutions to every public service problem, it could yet roll over him.
This article is adapted from a chapter of Brendan Martin's forthcoming book, In the Public Service (Zed, 2002), a companion volume to his earlier and recently reprinted In the Public Interest? (Zed, 1994). Martin has produced two reports on rail privatization for the International Transport Workers' Federation (ITF), one focusing on Africa and the other on Latin America.