Why Japan’s Rail Privatization Worked — and Why Britain’s Failed

Stephen Smith has two new articles that provide valuable context for the ongoing U.S. debate over reforming passenger rail.

At Bloomberg View, Smith argues that before Republicans can successfully make the case for privatizing Amtrak, they first need to work with Amtrak to reform the onerous labor regulations and craft union restrictions that have proven such an obstacle to success. He points to Japan for a model of how to proceed:

Like Amtrak, Japanese National Railways, or JNR, was a struggling public corporation. It failed to make even operating profits on its most robust intercity railway routes. Ticket prices were high, and service was poor despite the yearly subsidies.

Japan’s suburban railways, on the other hand, showed what was possible with good management. They remained in private hands after World War II, and were renowned for their efficiency and low fares. They made profits for their private shareholders while their state-owned intercity counterparts were bleeding cash, not unlike the contrast between American freight railroads and Amtrak today.

The road to private ownership for JNR’s three successor companies on Japan’s densely populated main island was a long one, though. It began with labor reforms in the 1980s, and wasn’t completed until the last shares were sold to the public in 2006. Full privatization was the goal, but steps similar to what [former Amtrak CEO David] Gunn pushed for came first.

And at Atlantic Cities, Smith explains why Britain’s far more slapdash rail privatization effort has proven to be such a disaster — the British, like Bush administration officials, wanted to separate trains from track:

A key reason this latest privatization push failed is vertical separation. This was controversial from the start. Before the railways were nationalized by Clement Attlee’s Labour government in 1947, they were run by four major companies, each of which controlled its own infrastructure and operations. Rumor is that when the Conservative government won the 1992 general election and was deciding on how to privatize British Rail, the prime minister himself, John Major, was in favor of a return to this old “Big Four” structure.

But the view of the Treasury, and especially Steve Robson, its “privatization guru” (also later responsible for the Tube’s PPP scheme), won out. All of British Rail’s tracks would be owned by a privatized Railtrack, its locomotives and carriages would be distributed among three private “rolling stock operating companies,” and private “train operating companies” would bid for the various franchises.

Christian Wolmar was not an enthusiastic supporter of privatization per se – “once you have government involvement, you might as well have government ownership,” he says  – but he thinks that separation of infrastructure, rolling stock, and operations was the plan’s fatal flaw.

Essentially, this separation allowed for destructive buck-passing between Railtrack and RSOCs and TOCs. Incentives were misaligned between the various entities, and privatization as such was discredited when vertical separation was the ultimate culprit. 

Reihan Salam — Reihan Salam is executive editor of National Review and a National Review Institute policy fellow.

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