Privatize Amtrak the Right Way, Avoiding Pitfalls of British Experience, by Iain Murray
WASHINGTON – Given its recent troubles, Amtrak’s flagship Northeast corridor high-speed Acela train might as well be renamed “Decela.” Amtrak officials suspended the service and acknowledged that they had been unaware of a serious problem with Acela’s brakes. Yet the root of Amtrak’s problem lies with that word: “officials.”
However much they might pretend, the people running Amtrak aren’t businessmen, dedicated to selling a product to customers. They’re bureaucrats, whose main task is to get more money out of Congress, even if it means providing a lousy service. In such a situation, there is little incentive to change.
So what to do? A look across the Atlantic might help. Britain, a nation with much in common with the United States, recently has been down this road, and we can learn from the British experience in figuring out what’s next for Amtrak.
In the 1980s, British Rail was as big a national joke as Amtrak. It often ran late, it was accident-prone and it wasted millions in taxpayers’ funds by trying to develop a train that could tilt when turning corners. Its staff was surly, and strikes were commonplace. Its catering service was so bad that jokes about the “British Rail sandwich”—a moldy piece of ham between two pieces of cardboard that might once have been bread—still get laughs. In short, British Rail was not delivering.
So in the early 1990s, the government decided to apply the same solution that had sorted out other former “national joke” industries—privatization. The solution worked at first. For a couple of years after privatization, the network boomed. Passenger numbers rose by one-third, the service provided more trains, prices dropped and the trains even ran on time.
Yet that all changed because of the artificial structure that was imposed on the industry by a botched privatization. The British Rail monolith was split into more than 30 different companies according to their function—track ownership, train operation, maintenance, etc. This “horizontal” privatization—which stands in sharp contrast to the “vertical” approach of splitting up the industry into regional, integrated companies—was a disaster.
The problem was that the gaps between the companies left room for the regulators to creep in. For example, when communication breakdowns led to fatal accidents, the safety authorities demanded expensive fixes. Regulators were responsible to government ministers, not consumers.
Under nationalization, ministers could instruct their appointees about what to do, but those appointees could argue back. Under the so-called privatized structure, ministers acted through the regulator, with the power of fines at his command. Political control of the new industry was all stick and no carrot.
Eventually, the government renationalized one of the major companies without paying its stockholders a penny. The fragmented industry was powerless to resist. Rather than provide innovative solutions to Britain’s transportation problems, the remaining private rail companies were reduced to servants, subsisting on government largesse.
If a successor to Amtrak is to succeed, government needs to get its nose out of the business. The White House should apply only the lightest of regulatory touches, while members of Congress need to stop worrying about whether their districts are served by services that few people ever use.
So how to apply the lessons from Britain while avoiding the pitfalls? Thankfully, there is a model here for that. The 1980 Staggers Act deregulated freight railroads and slashed the powers of the Interstate Commerce Commission, which had been strangling innovation and deterring investment for decades.
Combining these two approaches—British privatization and American deregulation of an integrated system—should provide a viable solution to the Amtrak problem. Those who need trains will get better ones, ones with brakes that work, while the nation will be spared a serious drain of cash (the Acela problem alone is costing $1 million a week).
Privatization done right would provide better service at a lower cost. It’s time to accelerate that process.