Earlier this week, I read this article on the Guardian's "Comment is Free" section about a revolutionary idea: Zopa. The idea is simple: if banks are the middlemen between savers and borrowers, why not cut them out altogether and get savers to lend directly to borrowers?
It's certainly an interesting idea, though not without its flaws: even Zopa itself admits that getting people to lend enough money for long enough that people can take out mortgages is not going to happen any time soon, so the bank as we know it is here to stay, even if it is in for a bit of healthy competition.
This got me thinking about competition on Britain's railways. Ostensibly, the Conservative Party, in privatising the railways in the mid-1990s, thought that the railway services could be made better by allowing competition between more than one private operator, instead of having the government run it all itself.
This idea had revolutionised many other industries, for better or for worse, in the 1980s under Margaret Thatcher. Arguably the biggest success has been in telecommunications: privatising British Telecom in 1984 led ultimately to cheaper prices - not only for traditional telephone services, but also for the internet.
Why did privatisation work well in telecommunications? Because there's a level playing field: every company can provide the same level of service using the same basic infrastructure; it's the same wires to your house regardless of who's providing you with internet. This led to genuine competition between companies, driving prices down, which is good for the consumer.
Or is it? Game theory tells us that if each individual tries to choose what's best for themselves, we may all end up worse off. (If you don't know what I'm talking about, go read about the prisoner's dilemma.) If we're all paying less for our internet, this means there must be less money around to actively improve the network, so there's less investment in the infrastructure.
So while we're all paying less money, we're also paying the price of not having as fast a connection.
In fact, this is so much the case that a couple of months ago it was suggested that people should be taxed £6 a year to fund the improvements that we so badly need.
Imagine a counterfactual for a moment: suppose that BT had not been privatised. We might suppose that bills for internet access would be higher - maybe even £6 higher. But since there would have been no drop in prices, there would have been no drop in investment, so our network would have been able to cope.
In other words, if BT hadn't been privatised, it's quite possible that we'd all be paying £6 a year anyway in higher bills, and none of us would be complaining - at least, we wouldn't be complaining as much as some who say "£6 in tax per year? Outrageous!", etc.
So, is the same thing happening on the railways? I think we must separate the discussion into freight and passenger traffic, since the two are very different.
Railfreight is, in many ways, quite similar to telecommunications. There are several railfreight companies - DB Schenker, Freightliner, Direct Rail Services, FirstGBRf and Advenza - most of whom will be happy to take your goods from point A to point B, at a reasonable price.
The companies can then consult with the regulators and find suitable times to run the trains. Since allocation of the train times is, in theory, on a first-come, first-served basis, it doesn't matter which of the operators take your goods; they'll all get it there in the same time.
In other words, there's a level playing field. Admittedly, you have to book the transit of your goods a little in advance, but you would also have to book lorry drivers in advance.
There are two questions here, then: is it driving prices down, and is the quality of service getting worse? Unfortunately I don't know enough about railfreight to answer those questions directly. However, the percentage of goods moved by rail increased from 8.5% in 1995 (at the time of privatisation) to 11.5% in 2005.
A increase of a third in freight moved by rail doesn't happen for no good reason, and it is, at least in part, down to the free-market competition of privatisation. But it's also down to the investment that happened because of privatisation: because of the upgrades on the West Coast Main Line, there is far more capacity for freight trains than ever before.
So why not adopt the same model for passenger trains? Why not let companies run whatever trains they want, based solely on market forces? The most important reason is that there isn't enough capacity.
Take London to Manchester as a random example: assuming that we want to keep all the other local services, it's pretty much only possible to run three trains an hour between London and Manchester. While it might theoretically be possible to have more than one company operating such services, it would be a logistical nightmare trying to ensure it all worked.
Imagine the following: you need a car to commute to work. Instead of buying one car, you lease three cars at the same price as buying one. The catch is this: if you leave home or office between 0 and 19 minutes past the hour, you must use the VW Golf. If you leave between 20 and 39 minutes past the hour, you must use the Ford Focus. If you leave between 40 and 59 minutes past the hour, you must use the Renault Megane.
Since you have to use the same car to get home as you did to get to the office, you may only leave the office in a given 20-minute window each hour. Even if you normally leave home at 7:30am and the office at 5pm, you'd have to wait till 5:20pm to use the car.
What if you go out with some friends after work? Oh dear, the rules change at 7pm. To leave the office between 7pm and 8pm, you must use the VW Golf; 8pm-9pm is the Ford Focus and 9pm-10pm is the Renault Megane. After 10pm, you may not use the car until 6am. If you break these rules, you pay a heavy fine to the leasing company.
Now, what if one of your cars breaks down? Are you allowed to use another car outside its permitted period? No: because you left home at a particular time, you're stuck with one car all day. You can't get a friend to bring one of the other two cars you have, which are working perfectly, unless you pay a massive fine for using it outside the proper time. And by the time you've got on the phone and paid the fine, the mechanic has come out and fixed your car anyway.
Want to go to the garage on the way home and pick up a pint of milk? Oh my, no. You should have leased a Vauxhall Vectra for that.
Think this all sounds ridiculous? Imagine buying a plane ticket: you're stuck with one company, who only leave at given times, and changing companies at short notice is usually prohibitively expensive.
Fortunately, our railways aren't all that bad - yet. But it does highlight the folly of comparing trains and planes. With airlines, the only major capacity constraints are the airports themselves: planes queue in an orderly fashion to take off and land, and other than that they work, frankly, pretty well. With railways, there are many more capacity bottlenecks: not just stations, but junctions, tunnels, and curves.
Moreover, because trains are so heavy, they take quite a while to stop: a train travelling at 100mph takes more than a mile to come to a complete stand. So trains have to be kept very far apart - so they don't crash into each other - and so you can't fit that many on a given line.
Competition works on telephone lines - and indeed, airlines - because there's enough capacity to go round. With the railways as they are today, there's barely enough capacity for one company, let alone the dozens we currently have.
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