Straws in the wind
Two stories which may not. on the surface, seem to have much to do with us.
New Zealand has decided to buy back its railway and its ferries. It seems that sometimes privatisation is not the solution to every problem, and the movement back to public ownership is happening elsewhere too. Both Railtrack and Metronet in Britain are now back under public ownership, as is the Croydon Tramlink. Some places had to learn some very hard lessons - and we should take note. For the BC government mandates P3s for large projects. This approach almost makes it certain that we will be paying more for worse public services, since we seem to be incapable of framing contracts in a way that ensures that non-financial but still important concerns are taken into account.
The other lurch back to reasonableness is in Quebec which had been following a policy of insisting that its buses be built locally. With predictably bad results. So now they are going to allow open and fair bidding.
I am not actually against privatisation. I am against dogmatism in the face of hard evidence. If something is clearly not working as intended then you should stop doing it and try to work out why. It is not true that “government is the problem”. The private sector is concerned with making profits - and sometimes loses sight of the need to balance other concerns against that. That is why most industries require some degree of regulation - of only because left to their own devices, profit making enterprises behave very badly indeed. When I started learning economics, the example was of children being employed in coal mines. Sadly we now have plenty of more modern examples of the outrageous lengths entrepreneurs will go to make a quick buck. And the life and health of their customers, employees and even shareholders is of no concern at all.
If you set out the terms of the contract clearly, and ensure an open and fair bidding process contracting out can work well. Sadly, in many cases the only reason to contract out has been to reduce employees wages. But of course the spin doctors say it is about innovation and new methods, and the much greater efficiency of modern management methods. And most of that turned out to be hogwash.
First Great Western close to losing its franchise
Regular readers will know that I am, on the whole, against privatisation. That of British Railways was done very badly indeed, and has resulted in a huge increase in public expenditure, most of it being drained off to investor’s pockets, not spent to the benefit of the travelling public. But this story shows a feature of the contracting model that is worth noticing.
First Great Western has a really bad record. And now Ruth Kelly, the UK Transport Secretary, is going to do something about it
Transport secretary Ruth Kelly today ordered FGW to buy more carriages, increase passenger compensation payments and hire more staff or else the franchise will be terminated. The Department for Transport found that FGW, voted the worst service in Britain last month, misled passengers by under-reporting the number of service cancellations last year.
…
She added that instead of fining the franchise, which operates throughout the west country as well as the London-to-Cardiff route, she had imposed an improvements package including higher compensation for commuters affected by endemic punctuality problems.
“Any penalty would be paid to central Government. Having considered this carefully, and given that a penalty would not, itself, help passengers, I have opted instead for passengers to receive a better benefits package,” she said.
Now let’s imagine that Translink had been contracting out the delivery of services, instead of being required to give them to one of its single purpose subsidiary “companies”. And as a passenger you had been subject to pass ups, or cancellations due to staff shortages, or failure to provide an advertised service like bike racks after dark. Don’t you think that this model might have produced more satisfactory outcomes than press releases and soothing platitudes?
If FGW do not deliver what Secretary Kelly has told them to do, they will be booted, and someone else brought in to run the trains who can do a better job. Any chance of that happening here? If the Coast Mountain Bus Company fails to deliver adequate service, there is absolutely no penalty at all. Indeed it is usually made as difficult as possible for an outsider to determine whose responsibility it is to carry the can for many failures. And it is always easy to fall back on “circumstances beyond our control”.
Come to that, given another story in my local freebie this morning, have you ever heard of any of the contractors to Partnerships BC being required to do anything to smarten up? So far, as far as I can see, the fact that they deliver profits on time to their shareholders is all that matters. Clean hospitals? Fines or requirements to make up to those harmed? You must be kidding.
£2bn of public money goes down the Tube as Gordon Brown counts cost of failed deal
This one of the privatization stories that you can bet Wendell Cox will not be writing about.
Taxpayers will have to pay £2 billion to rescue the failed privatisation of London Underground, the Government admitted yesterday.
Ruth Kelly, the Transport Secretary, had to raid the Government’s contingencies fund to settle the debts of Metronet, which ran nine of the twelve underground lines but went bust in July.
The scale of the public liability for Metronet’s failure will be a severe embarrassment to Gordon Brown, who forced through the controversial Public Private Partnership of the Tube when he was Chancellor.
It was supposed to transfer risk. It didn’t. It was supposed to improve the system. It didn’t. It was supposed to be more efficient than public ownership. It wasn’t and now has been taken back under public control.
Just who benefits from P3s you may ask. It isn’t the customer and it isn’t the taxpayer. But a heck of a lot of public money seems to be finding its way into somebody’s pocket with very little to show for it.
UPDATE There is also a useful summary in the Economist
Chief among the criticisms—most recently stated in a report from Parliament’s transport committee last month—was that the PPP contracts failed to transfer risk to the private sector. Metronet’s five constituent firms—WS Atkins, Balfour Beatty, Bombardier, EDF Energy and Thames Water—put in £70m each. In return for their minimal exposure, Metronet’s shareholders expected to earn returns on the equity portion of their contribution of around 20% a year—justified at the time on the grounds that the huge PPP deal was a unique and untried proposition. But the firms’ exposure was slight. “There simply wasn’t enough equity at risk to give incentives for Metronet to perform,” says Stephen Glaister, an economist at Imperial College, London, and a member of TfL’s board.
The transfer of risk is supposed to be one of the main selling points of P3s - but too often it isn’t. And there are of course, a growing number of local examples with similar failings.
UPDATE Feb 9 Useful commentary in the Guardian too
Why the rush on public-private partnerships?
Globe and Mail
Nice to see that a journalist at the Globe can question conservative dogma. Usually the Report on Business does not show this kind of objectivity. Being Toronto’s national newspaper, it is all about the federal government’s determination to go for P3s. I would have thought that it would have been easy to find a lot more examples - especially in the UK but also Australia and the US. From what I read, the bad and the ugly outweigh the good when it comes to P3s. Not only that but the critics of P3s are certainly more than just civil servants worried about their jobs. People in Toronto impacted by the toll structure of Highway 407 for a start! Not to mention hospital patients in the UK, prisoners in the US and the victims of Blackwater in Iraq. I may be wrong but I also have the distinct impression that there are some investors who are not too happy either.
The real cost of privatisation
This story comes from Britain, one of the pioneers of the Public Finance Initiative or “P3″ as they are called here. The idea was that the private sector was so much more efficient than public sector organizations (seen as blundering bureaucrats) that bringing in companies to run public services would save taxpayers money. Well, on the whole, it cannot be said to have been a happy experience - although there is a pleasing symmetry to note that it is the public sector that is taking the blame. Because, it is said, they don’t know how to award contracts.
Just to whet you appetite here is the first para
The huge cost to the taxpayer of Labour’s commitment to the private finance initiative since it came to power a decade ago is revealed by the Treasury in a report by MPs published today. It shows that Gordon Brown has committed future governments to pay back £170bn by 2032 to banks, investors and private entrepreneurs for more than 800 schemes for new hospitals, schools and prisons.
Now in case you wonder why I am bringing this to your attention you should be aware that any project over $20m in BC gets the once over for a potential P3 - including municipal projects. And Jim Flaherty thinks the pension funds should help him to repair our crumbling infrastructure
Infrastructure
Jacqueline Thorpe, Financial Post
Published: Saturday, November 10, 2007
Jacqueline has drunk the cool aid. She drives the QEW and 401 and then writes about the need for more freeways.
I leave Jordan, Ont., for the 100-kilometre trip east to Toronto one recent morning at 7:30 a.m. I pass new subdivisions that ring the west side of Lake Ontario like a giant barnacle. Twenty-five minutes into my drive through the Golden Horseshoe, I run into traffic at Burlington. It never lets up. I slow down, speed up, get cut off, swear at the moron in front of me. I cruise talk radio and resist the urge to check my BlackBerry. My blood just begins to boil amid the sheer tedium and inefficiency of what is for hundreds of thousands of Canadians a typical everyday morning commute.
Two hours and 15 minutes later — at least twice as long as it should have taken me–I arrive at my office in north Toronto a frazzled mess.
A couple of questions occur to me. Why does she expect to be able to average 100kph? And why not park when you hit Burlington? The GO train service along the lakeshore is not only fast (compared to the freeway) it is also frequent and runs all day, not just peak hour peak direction. And why does she think that more freeway capacity will make any difference? Isn’t doing the same thing and expecting a different outcome the definition of madness?
These highways have been steadily widened over the years. The central section of the 401 is a multilane nightmare, and as she notes the privatised 407 really didn’t make things much better, despite its electronic tolls. The “giant barnacles” see to that. The developers would not have put up those subdivisions if it had not been for the freeways. And that land in Southern Ontario, especially the area around the Niagara escarpment was high value farm land. Some of it, like the unique ecosystem of the Oak Ridges Moraine (the watershed north of Toronto) was early identified as being too important to allow for development. But it is happening anyway. And since it doesn’t have access the York Region trunk sewer (which follows Yonge Street from Lake Ontario to Lake Scugog) most of it is on well water and tile field drainage, and thus low density.
This is the future that Kevin Falcon and Gordon Campbell want to bring to the Fraser Valley. This is what they think of when they talk about “sustainable development” - but without the GO trains. This is why we have to speak up - soon - at the process that currently is trying to ignore the environmental impact of the Gateway.
This being the FP, the article is all about how private sector partnerships and how the public sector can be “securitized”. She does mention that the 407 experience “traumatized” Ontario. She just assumes that the reader will either know enough about that or able to look it up. But the impression is that it was an exception, born out of inexperience. Actually, no, P3s have had very mixed results indeed. And “securitization” does not actually provide provide much security either. That was the process that meant banks in the United States could lend far too much money to people who could not afford huge mortgages - with the results we now see. There is a real prospect of a major recession south of the 49th.
And there is no mention of what other ways there might be to deal with the supposed “crisis” in our infrastructure. What other ways there might be to organise ourselves so that we do not need freeways and truck sewers. The word “sustainability” does not appear in this piece - or “peak oil”. Or the need to diversify our economy since it now looks like our biggest customer will not be able to afford the things we sell them. The assumption behind this article is that business as usual and its 100km commutes will continue and all we need is a bit more financial wizardry.
The article does not say why the private sector is better able to build and run projects than governments. On the whole, it seems to me that the imperative to maximize profit does not serve the public very well. The conduct of the war in Iraq is very good business for Halliburton: somehow it does not seem to benefit the people of Iraq or the US very much. The privatisation of British Railways now ensures that the formerly “intolerable” level of public subsidies is now three times higher than it was before it was sold off to the highest bidders (who mostly made out like bandits). The cost in terms just of the death toll of an unprecedented series of train crashes in Britain since privatization should be enough to make us think twice. The private sector consortium that took over the maintenance of part of the London Underground has gone bust, and is now owned by London’s equivalent of the GVRD. In BC, the sale of BC Rail meant that we lost all the fish in a river since CN felt that cutting cost was the only thing they had to be concerned about.
The sorry state of railway safety in Canada
TheStar.com | comment
Emile Therien is former president of the Canada Safety Council
A very professional and objective assessment of what has been happening on Canada’s railways recently - but especially CN.
At one time, the railway culture was determined by safety. Now that appears to have been replaced by the desire for growth and ever increasing profits. There is no doubt at all the CN has been very successful from the point of view of its shareholders. But the cost to our environment and the working conditions of employees has been dreadful. And I cannot help but draw the conclusion that government has not just allowed this to happen, but has actually encouraged it. We need to think very carefully before we subscribe to the notion that private sector business practices are the touchstone by which all activity is measured. They are very bad indeed when it comes to notions of “externalities”. But just because they do not show up in the quarterly financials does not mean they are not very significant indeed.
Right wing governments across the world have indulged in an orgy of privatisation and deregulation, mainly due to ideological rather than sound performance reasons. Governments started to take enterprises into public ownership when private sector business could not deliver the required performance. Often, in the case of Canada’s railways, when companies failed and went bankrupt. While society’s needs do change over time, some fundamental public concerns remain and they were supposed to be incorporated into regulatory regimes. But the same ideologues have been cutting into government’s ability to do its job - mainly on the excuse that less government (and more tax cuts) are good for us. Well looking at the transportation sector, I think we can now draw the conclusion that these policies were wrong, and must be reversed. And if something manifestly doesn’t work, continuing to do it is a sign of insanity.
Great Modern Buildings: Arnos Grove Tube Station
The creation of the London Passenger Transport Board brought to an end the last time the capital of the Empire was the subject of private sector competition in transit. Alongside the municipally operated trams of the London County Council, East and West Ham and Croydon, were private sector trams, and buses of all sorts. The underground had been started by several different companies but had been gradually brought under one, largely American, ownership. The streets had been chaotic, with “pirate buses” chasing after passengers. Indeed it was so scary that Mrs Thatcher started looking at deregulation again, Christopher Foster (one of my profs from the LSE) brought out a monograph on what London was like before the LPTB, which resulted in a much less draconian reform, and left what became Transport for London in charge.
The task of coordinating all the disparate bits was huge. At the same time, public works as a means of getting Britain out of the economic depression were extensive. This was also the time when large swathes of underutilized farmland [formerly mainly needed to provide fodder for horses (the main source of motive power before the first world war) were no longer needed and Empire preference kept cheap food for humans flowing from Canada, New Zealand and Australia] were being developed for low cost, owner occupied housing. In fact the tube lines were so expensive to build that they never had enough traffic to pay for them until the largely surface routes into the suburbs were developed.
The stations on these new lines were monuments to good design, partly due to the foresight of Frank Pick. The tube map and the Johnson typeface were both introduced at this time. The buildings were modern, but not designed to surprise or shock but to be easy to use. In fact the interruption of the second world war meant that these designs continued into the late forties and early fifties. London’s first new tube line (the Victoria Line) followed the same principles when it was built in the sixties.
When I compare what has been done in this region, to what was done in London in the thirties, it seems clear to me that they had a much clearer idea of what they were about. There are now at least three different generations of SkyTrain stations. There is still no corporate identity. LTPB very quickly sorted out standards, and made sure that, for example, all its buses in Central London were red - to make them distinct and easy to identify in traffic. It is still impossible to detect any corporate coherence in the type faces used by Translink - not an earth shattering issue I agree but indicative, I think, of the lack of coherence and “joined up thinking” at that body, which will, of course continue under the ill advised “governance” changes about to pushed through.
LPTB brought a new spirit of public service to transport. They were not there to make money, but to make the lives of Londoners better: and that they achieved against some extraordinary obstacles. Of course, you cannot expect a dogmatist like Thatcher to appreciate that: the disciples of Hayek think that markets cure everything. But as the recent winners of the Nobel for Economics point out, markets are not very good at dealing with social or environmental issues.
No detail was too insignificant for Holden, Pick and Arnos Grove station. From 1937, LPTB bus stops, at Arnos Grove as elsewhere, were standardised to a streamlined concrete design adorned with signs by Hans Schleger. Seat fabrics of tube trains and London buses - hardwearing, innovative moquettes - were styled by textile designers such as Enid Marx (1902-199
and the American-born Marion Dorn (1896-1964). No wonder architectural historian Nikolaus Pevsner described Frank Pick’s LPTB as “a civilising agent”. No wonder many of us still look at Arnos Grove station today and think, why can’t we ensure such high standards of integrated, imaginative, wholly convincing and well-crafted public design today?
And as a completely irrelevant aside, the name of the station reflects a typographical error. The place was named for a man named Arno - who owned the woodlands (or grove) that once stood there. But the chap who did the station nameplates forgot the apostrophe. So it should really be Arno’s Grove - and pronounced accordingly. But it isn’t.
And I am sorry about that double set of parentheses but felt some explanation was in order: Britain in the thirties didn’t see the need for an ALR. Once the life line across the Atlantic was cut by submarines, agricultural policies changed from dependence on cheap imported food to security of supply. A lesson we still need to learn, apparently.
CN Rail faces 5 charges over 2005 spill in B.C. river
This event made me so angry I have a difficult time writing coherently about it. Naturally the official enquiry looked at what happened on the day of the incident - and immediately preceding it. But there is an awful sense that this incident - or something very like it was entirely predictable. While CN, quite properly, will carry the can, the real perpetrator in my mind is Gordon Campbell. He bears the ultimate responsibility. For it was he who said unequivocally, prior to his election, that he would not privatize BC Rail, and then did exactly that.
BC Rail’s operational route from North Vancouver to Lillooet has always been very difficult. It was hard to build and worse to operate. BC Rail had built up a wealth of experience about running trains on a steep and winding track. That experience was lost when CN took over, as they bought out the contracts of staff who understood why it was important that things be done the way they were. CN brought in its own people and started to “rationalise” the locomotive fleet. The operation of the southern end of the line is actually not critical to CN as they have their own route to the north from Vancouver, which is easier and cheaper to run. They were obliged to keep it going for the first five years of the lease but will obviously abandon the route as soon as they can.
So the take over was about cutting costs. Fewer, longer trains. But without the local knowledge that would have told them that this was a risky undertaking and without the specific knowledge about how to keep the distributed power all pulling in the same direction. Yes, CN must bear responsibility for their cavalier attitudes. But so must the BC Government for abandoning its commitments. It is also important to note that when it was sold off it was actually doing quite well. Many of the problems had been understood and rectified. The similarities with British rail are interesting. Arguably, BR just before it was broken up was doing better than it ever had- and that is in commercial accounting terms, not just social cost benefit.
But social CBA is why governments have to be in the railway business. Trying to make railways commercially viable in all their aspects is just a sop to the road lobby - who by no means pay for the full social costs of their infrastructure and get much more subsidy now than the railways did on the heyday. If for no other reason than the fact that a steel wheel on a steel rail is still the most efficient way to transfer energy from its source to motive power, governments must support railways in a world that has already run out of cheap energy.
The privatization of British Railways lead to a series a rail disasters - unprecedented in the system’s history - mainly due to the separation of responsibilities between track and train operations. The privatization of BC Rail was done differently but had a hideously similar result - though the human death toll has been much lower. Both are the results of dogmatic insistence that private businesses are better than public ones. This is not only wrong, it is willfully ignorant. Businesses were taken into public ownership - especially railways - because the private sector failed to meet legitimate public needs. There are values that are not always captured well by the market - if at all. And if we are to achieve important societal objectives - like having safe trains - then some measure of public control and cost support is inevitable. Just staring at the bottom line all the time means you miss out things which are important. Like ecosystems.
And no sooner did I finish this piece, and look at my RSS feeds than I turn up this headline
CN train aflame near Prince George
Train, planes and automobiles: A right mess for British transport
“They have been seduced by models that appear to give you a lot of infrastructure on the cheap,” said Stephen Glaister, professor of transport and infrastructure at Imperial College of London. “And of course they dont.”
He used to be at LSE when I was. Great bloke. Good economist. He is talking about privatisation. Or, as it is called here P3.
Let me summarise - it didn’t work.
