Bob Langridge analyses the varying impact of liberalisation on public services in Europe

The privatisation of transport came about through trying to solve two initially distinct, but ultimately interconnected, problems. The first was simply ideological. How can the power of the state be diminished in the provision of services, in favour of a private sector that had all but given up the ghost in running most public services and utilities? The second was pragmatic. How do governments finance tax cuts, while maintaining the provision of essential services to the public?

It was only a matter of time before the solution was found: sell publicly owned industries to pay for the tax cuts.

The practical manifestations of liberalisation had come largely from the US, beginning with the deregulation of airways and coachlines. But the UK took the leading role in bringing the practice to Europe. In the UK the concept of operating public transport by public bodies had encountered regular opposition from the political right. This had never been such an issue in mainland Europe where the strategic importance of state involvement in transport was generally accepted. If it worked, don’t fix it and, if it didn’t, managers were expected to find out why. Poor performance was not seen as something to be expected in public enterprise.

The liberalisation of the UK bus industry in the mid-1980s was a bold venture, which combined deregulation, fragmentation and privatisation simultaneously. The idea was that changing the structure of the industry would result, inevitably, in the ending of entrepreneurial indifference and a greatly improved service to the public. In practice, though, there was nothing inevitable about this.

Hastening decline

The early years of management buy-outs brought chaos – queues of time-expired vehicles chasing each others’ tails through major cities, more intent on driving each other off the road than on providing a coherent service to the hapless travelling public. Not surprisingly, the historic decline in passenger levels accelerated as confidence in the service declined.

Financial solvency came through significant cost reductions. These entailed not only a lack of capital replacement. The bulk of cuts were achieved through reducing the terms and conditions of employment of public transport workers. Between 1986 and 1995, bus drivers’ real weekly earnings fell by 16.5 per cent, while for all occupations, real weekly earnings rose by 19.4 per cent. The unions and user groups campaigned against the whole privatisation process, but government was unresponsive to their lobbying.

Liberalising the bus industry was a relatively easy process, with competition supposed to follow the privatisation and restructuring of the former bus operators. However, government could not apply a similar model to the railway industry.

There is no open-access to railway track, and the barriers to entry are significantly higher than the cost of a few old buses. Here, sectorisation had been tried even under nationalisation.

Different groups of management focused on developing “their” part of the business, thereby fostering a culture of internal cost bargaining, and jealously territorial practices, which did nothing for the public good. It was also a period of significant job losses with a halving of railway employment between 1995 and 1997.

This culture was amplified by the decision to privatise the railways in the early 1990s, with its division of operators and infrastructure providers. Although division of operation had been pioneered in Sweden, Britain provided a system with far greater levels of internal competition. After some of the recent railway accidents, the ensuing blame culture between the various players presented an unedifying spectacle. Moreover, the resulting tightening up of arrangements between the track authority and the maintenance contractors was an indictment of the whole process of fragmentation, if not privatisation of the railways.

The railway unions suffered less than their bus compatriots from structural fragmentation. Nevertheless, significant job losses occurred, often to the point, as in the case of South West Trains, where train operating companies had insufficient drivers to provide the basic timetable.

The RMT union was active in exposing actions such as the Strategic Rail Authority’s indemnifying of rail employers against losses incurred in industrial disputes. It also campaigned against the government’s determination to re-privatise South-East Trains. This was a franchise snatched from French-owned Connex, a company exposed by another British union, TSSA, for its less than even-handed treatment of staff opting into and out of the EU Working Time Directive.

With high levels of competition in the bus industry, profits fell and wage rates for drivers and conductors followed. The ensuing period of instability resulted in so few orders for new vehicles that much of the UK bus manufacturing industry became decimated, with a significant and permanent loss of jobs. Eventually, the industry forewent notions of entrepreneurialism for improvements in profitability as witnessed by the amount of merger activity that took place.

Mergers boost profits

The three current largest UK bus operators, Arriva, First Group and Stagecoach represented 11 per cent of market turnover in 1989. By 1997, this figure had risen to 52.5 per cent, so that levels of competition were reduced and local monopolies created. However management and workers alike saw this as a qualified improvement. Since 1991, the real wages of bus drivers have risen by 16 per cent (although this is a lower increase than the 22 per cent average for all occupations and thus does not fully reverse the previous substantial decline in wages).

The industry remained privately owned, but the restoration of monopoly power to a handful of bus companies saw a return to rising industry profits. This, in turn, allowed for a return to more competitive wage rates along with capital investment in new vehicles.

Of the new conglomerates created, Stagecoach stands out as the one that came from nowhere, and engaged in a stream of individual purchases of companies, followed by the rapid sale of their property assets, providing the cash for the next purchase. This approach allowed it to amass a large number of operators over a relatively short space of time. Its tactics were often predatory, using its market power to drive established operators off the road through market flooding and free-fares policies. This activity gave unions a dilemma. Should they have opposed Stagecoach’s quest for market dominance, or acquiesced in the job security that a local monopoly would provide?

Liberalisation in Europe

The conflict between the European social market and the Anglo-Saxon liberalisation model had always affected the different approaches to transport development. While continental Europeans saw the state as an enabler of many things, including the strategic need to travel, the Anglo-Saxons saw the state as a burden, incapable of spending individual taxpayers’ money better than they could themselves.

The countries of continental Europe were susceptible to new approaches to market liberalisation, aided and abetted by a growing liberalisation of EU transport policy. However ideological solutions regarding the supremacy of the free-market approach did not gather sufficient momentum to trigger drastic change. The French and Belgian governments have tended to keep their distance from such changes.

The Italians and Germans have embraced the railway sectorisation model more keenly. But even they have shied away from more radical change in terms of ownership and competition within national borders.

An early attempt by Deutsche Bahn to sell seats rather than line access saw a sharp downturn in passengers and was promptly rethought. Further moves, by the European Commission, to liberalise the railways have met with less resistance in Germany and Italy than France or Belgium. Nevertheless, even the financial difficulties facing Germany are unlikely to act as a catalyst to full-blown railway privatisation. Meanwhile, an interesting development in Britain, that could act as entry by the back door to the public sector, has been the award of the Merseyrail passenger franchise to a consortium including the nationalised Dutch Railways.

Threats to public service

International co-operation, even between trade unions, is no easy task. Yet globalisation can only destroy the public service nature of transport as services and networks are sold to a small number of global players. These players can dictate not only what form the transport system will take in the future, but also the terms and conditions of employment for its workers, and the extent of public service at the margins.

The Anglo-Saxon model of market liberalisation hardly demonstrates a good example in terms of quality, performance or value-for-money for the user. The UK government now wants Europe to embrace globalisation. But why should the rest of Europe want to follow this model? Transport workers need to make the case against the globalisation and consequent loss of control of such a strategic industrial sector.

The other area in which unions need to be more prominent is that of the control of local transport by local communities. In many cities, there had been direct control of bus services through council ownership. British bus privatisation destroyed this and eventually left the private operators providing commercial networks simply on the grounds of financial considerations. While the profits of a strictly commercial network went straight to the shareholders, local authorities were left to pay through the nose for socially useful, but financially unviable, services. (The proportion of subsidised bus mileage rose from 20 per cent in 1986/7 to 28 per cent in 2004/5.)

One case study to watch may be the new Nottingham (UK) tram system, run by the French-owned Transdev, which already operates public transport systems across Europe. The company claims to insist on partnership with the local authority as a precondition of its involvement in their transport system – putting it at odds with the traditional model of completely pushing local authorities out of transport provision.

Prior to deregulation, the criticism of public transport in the larger towns and cities was that it had been protected from competition. After the post deregulation interregnum, public operators have been replaced by private monopolies who have acted ruthlessly to stamp out competition from new entrants, for example, running a free-fares policy with which a small opponent is financially unable to compete.

The only alternative – for those members of the public who have a choice – is to further abandon public transport in favour of the car. Consequently, transport unions representing members in publicly owned bus companies need to be vigilant regarding pressures from above to withdraw from direct service provision. The transport authorities in Britain’s largest cities still have a co-ordinating role, but are increasingly frustrated by their inability to influence the system other than to act as paymasters to the local privatised monopolies.

The task will not be easy, but widening our horizons to take account of the international threats to public transport, its passengers and its staff, even when the threat manifests itself ostensibly at a local level, is paramount.

Bob Langridge is a lecturer and researcher in economics and transport-related issues at Oxford Brookes University in the UK.