Full Circle:Rail Industry Privatisation in New Zealand, and a New Theory of Its Fundamental Conceptual Weaknesses
R Clark, Transport Scotland, UK
This paper looks at rail privatisation in New Zealand and why it ultimately did not work.
When New Zealand?s railway system was sold by the Government in 1993, it was privatised as one entity, thus avoiding any issues arising from the ?separation of wheel and rail?. Yet, in time, the privatisation failed, in that in 2003 the New Zealand Government had to come in and bail out the operator, specifically by buying back the track. In May 2008 it elected to purchase the operator outright as well, rather than persevere with what had become a very difficult relationship.
This paper will outline the situation for New Zealand, and argue that the debates over the privatisation of rail have neglected two major considerations. First, there have been few substantive treatments of how market failure would bear on privatised railways. Second, no comparisons have been made with the privatisations in other transport and infrastructural industries, which have mostly worked, in financial terms anyway.
If ?railways are different?, as many in this industry insist, then the paper will argue that the difference derives from the extent to which the industry needs to be subsidised. While public policy can deal with competitive privately-owned industries which need subsidy (such as ?social? bus services), and privately-owned monopolies which don?t need subsidy, such as airports or telecommunications, it is the combination of these two elements (subsidy and monopoly, and especially in a context of market failure) which explains why the privatisation of the railway operator in New Zealand did not work. It also explains why any privatisation of European railway infrastructure would almost certainly not meet any of its public policy goals.
The paper will also provide an up-to-date view on the situation in New Zealand. A substantially completed version of the paper, with presentation, is also available for consideration.
Association for European Transport