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The long road back

October 25th, 2003

Britain has taken another small step back from privatisation, with the news that the renationalised owner of the rail network will cancel contracts with private firms for maintenance. (The best coverage I’ve found, oddly enough, is in the New York Times. This has been on the cards for some time. For the background to all this, you can’t do much better than watch Ken Loach’s film The Navigators, which I reviewed for the Canberra Times (my hope that this would lead to a new career as a film critic proved baseless). You can read the review at Australian Policy Online. The NYT article notes that the private contractors whose work proved unsatisfactory on the rail network are the same ones who got jobs under the biggest privatisation initiative of the Blair government, that of the London Underground, and that a partial reversal of this initiative is also on the cards.

In my assessment, the evidence shows that privatisation of “natural monopoly” infrastructure has been a failure. The only cases where the public has got a reasonable price for the sale of their assets have been those where the private buyers have paid too much in the expectation of getting high rates of return. In some cases (for example, Australian airports), the response has been to change the rules to give the buyers what they want at the expense of consumers. In other cases,the buyers have taken their lumps and resold at huge losses. In still other cases, they are still trying to extract higher payments with the threat of withholding capital investment.

The best long-run solution to this is a return to full public ownership. The likely alternative is the kind of quasi-private solution favoured by the Americans when they need a public enterprise but aren’t willing to admit it (Amtrak, Fannie Mae etc).

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