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Derailed: The UK''s disastrous experience with railway privatization. (Privatization: Rip-Offs and Resistance).

Article Excerpt
LONDON - Even Margaret Thatcher thought British Rail as off limits. Virtually no public service was safe from privatization under Thatcher, British Prime Minister from 1979 until overthrown by her own Conservative Party Members of Parliament in 1991, but her instincts for political danger were more highly developed than her ideology. So, while she starved rail of investment, she refused to privatize it.

She has been proved right, and how ironic it will be if the state of Britain's railways leads to the downfall of today's British Prime Minister, Tony Blair.

That is no longer a far-fetched idea, and there would be some justice in it too, even though Blair's Labor government, which replaced the Conservatives in 1997, only inherited the mess from Thatcher's successor, John Major. Having done so, and despite Blair's on-the-record commitment in opposition to restoring a publicly accountable, publicly owned railway, his government has tried to make the privatized system work. This has involved pumping an ever greater public subsidy into the pockets of shareholders whose commitment to safety or reliability no longer commands any public confidence in a service that, in Britain, has core economic and social significance.

After two major collisions caused by faulty signals killed a total of 38 people, a third crash, which killed another four people and was caused by a broken rail outside a town called Hatfield, brought the national rail system to a grinding halt in October 2000. Railtrack, the private company established to manage the privatized track, signals and stations and oversee their development and maintenance, imposed thousands of speed restrictions on the train-operating companies (TOCs) throughout the country, because even its own confidence in the state of its assets had evaporated.

The system's collapse came four years into what had been a highly complex - as well as controversial - privatization. The integrated network was broken up into more than 100 separate businesses, all held together by contracts. In addition to Railtrack and 25 TOCs, track renewal companies, track maintenance companies, rolling stock leasing companies and many more were created to provide this or that part of the package. Some of these had common parentage at the time of privatization or soon afterwards, but many were also to subcontract some of their responsibilities.

The total proceeds to the government were 5.3 billion British pounds - around three years' worth of the increased state subsidies provided as a sweetener. Subsidies have risen much more than planned, because of successive failures, and the government now plans to increase them still further.

Meanwhile, some of the newly privatized companies changed hands for far more than the buyers had paid for them, making clear how taxpayers had been taken. In one case, a rolling stock company sold for [pound sterling]536 million six months after privatization for a profit of [pound sterling]300 million.

Undervaluation has been a standard feature of British privatization - British Telecom's share price rose by 80 percent in the first week, for example - but privatization's advocates argued that incentives were required to secure the benefits of privatization. Private investment would renew the infrastructure while gradually decreasing the burden on the taxpayer, proponents claimed. Although subsidies were initially increased following privatization, they were planned to decline over time. Reliability and customer service would benefit from the efficiency and entrepreneurship of commercially oriented managers, the argument went, and the state would get a direct return on its investment through corporate taxes.

There have been some improvements since privatization, such as investment in new passenger trains, which are gradually replacing the old rolling stock. However, that process was already underway before privatization, albeit slowly, and could have been accelerated under British Rail had it enjoyed...