Renationalizing British Utilities and Rail Would Be a Mistake

Yes, prices are up, but privatization was worth it.

A Heathrow Express train is seen at Paddington station, London, England, March 7, 2013
A Heathrow Express train is seen at Paddington station, London, England, March 7, 2013 (Renaud Chodkowski)

Rising energy rates and railway fares in the United Kingdom are lending credence to the argument that privatization was a mistake.

YouGov last year found majorities in favor of taking energy, water and railways back into state ownership.

Telecom is the exception. Only 30 percent believe it should be run by the government.

The reason may be that the benefits of telecom privatization have been obvious whereas those of other privatizations are harder to discern.

Compared to the 1970s, however, utilities and railways provide a far better service today.

Success

The Financial Times‘ Martin Wolf remembers what the nationalized industries were like:

They were chronically overmanned and heavily politicized. They either underinvested or made poor investment decisions. Not least, they treated users with indifference. I was among those users. This form of ownership did not wither because it worked. It withered because it did not.

Wolf points to research (PDF) which found that, on balance, privatized businesses have been more efficient and invested more than publicly owned ones.

British consumers pay less for electricity than many of their European neighbors. Energy has become more expensive since privatization, but so has everything else. Cost has far more to do with price of coal, oil and natural gas worldwide than with the ownership structure of British industry.

In rail, privatization may not have improved conditions for workers, but it has made a difference for passengers.

Between 1948 (when the railway was nationalized) and 1993-94 (when it was privatized) total passenger kilometers fell by 11 percent. Between 1993-94 and 2015-16, however, passenger kilometers rose by 128 percent. […] Not surprisingly, congestion has now become a concern. But the growth in journeys is in itself a powerful indicator of success.

Railway challenges

Wolf’s colleague Sebastian Payne has argued that railways’ two biggest challenges are not about ownership.

  1. Britain is a small, crowded island. It doesn’t have vast empty spaces for shiny high-speed railways. Even when there is a concerted effort to build, the ingrained British habit of “nimbyism” (objecting to construction projects in one’s own backyard) kicks in.
  2. The network is old. Britain pioneered railways and has for decades carried out upgrades in a haphazard, piecemeal way. £130 million is now being spent on upgrading lines each week. Obsolete carriages are being replaced. Old railway stations have been given a facelift.

Fares pay for these investments. Passengers complain, but they can see the fruits of high ticket prices around them.

In five years’ time, Payne predicts, “the result should be a transformed railway system that is more reliable and offers more services and more seats.”