Until last Friday, it seemed that the London underground was headed for the same chaos that privatisation has produced in the railway system. Now there is some hope that this grotesque situation might be avoided, but the game is far from over.
Last Friday, John Prescott agreed to hand over the negotiations that will determine the future of London Underground to Ken Livingstone's appointee as transport commissioner, Bob Kiley. The agreement was hailed as a breakthrough and it is certainly a significant step towards reason from a government allergic to Livingstone and all he represents. But it remains to be seen whether Kiley can devise a scheme acceptable to the contractors, Ken Livingstone, John Prescott and, most challenging of all, a Treasury that seems wedded to the mistakes of the past. Kiley will have to accomplish this formidable task against the clock.
Kiley's critique of the terms that the government had set for the initial private-public partnership plan was devastating. The scheme was set to follow the John Major manual on How To Privatise a Railway in all but name. It repeated the folly of separating the wheels from the track - three subterranean Railtracks would have been created; it did nothing to meet the government's aim of developing an integrated transport policy for the capital; the initial targets for service delivery were set to lower standards even further; and the structure of the contracts gave every incentive for the consortia to deliver a poor and expensive service and few levers that the transport authority could pull to ensure a cheap and efficient one.
In his first report to Ken Livingstone on the PPP proposal, Kiley observed, with admirable self-restraint, that it seemed to be based on the idea that privatisation automatically produced efficiency because the profit motive ensured that it did. Not so, he said. It is competition, not privatisation per se that produces efficiency.
There was, of course, no more element of competition in the PPP proposals for the London underground than there had been in the overground railway. Under the original PPP proposals, the contracts would hand over 30-year private monopolies on everything bar the actual operation of the trains and the staffing of the stations. It would have created a system under which, as Kiley put it, the profit motive dictated that contractors offer "the least expensive product or service at the highest price" - a prescription for private profit and public squalor.
Having created the monster, the government would hand it over to Ken Livingstone's transport authority to run. But that authority would have to try, as the railway companies are doing today, to run trains on a system over which it had no control beyond compensatory payments for disruption to services that could be blamed on the infrastructure. Just as in the railway system, such an arrangement risked becoming a disincentive to pre-emptive maintenance, precisely because maintenance disrupts services and would trigger penalties.
It might have been more reassuring had any party to the proposed agreement had a clear idea of what the London underground needed. But beyond the observation, available to passengers on a daily basis, that the system is in deep trouble, there was no inventory of the state of the physical structure, which should have been the starting point of any negotiations. It was, a recipe, Kiley concluded, for worse service at higher public cost.
There were two important concessions last Friday: Kiley, who has an admirable record in salvaging New York's and Boston's underground systems, will have the opportunity to begin negotiations again. The second concession springs from the first - it is fundamental to Kiley's approach that the management of the system remain unified; in other words, that there will be no Railtrack-operator divide. The challenge will be to come up with a scheme that satisfies the Treasury's demand for PPP with a degree of management control of the private operators' activities that Kiley will want.
That is a difficult circle to square. Even if he squares it to his own satisfaction, the prospective bidders - and the Treasury - will be hard to convince. The Treasury position appears to start from a rigid commitment to private finance and go from there to the running of the underground. Kiley, on the other hand, begins with how to achieve the best management of the underground and displays an open mind on how to fund it. As a mere passenger, I know which approach I prefer.
In New York, Kiley largely financed the rescue of the subway system through bonds. Last week, the admirable French railway system, which is most things the British railway system is not - efficient clean, reliable, rapid and reasonably priced - went to the London bond market to raise finance for the next phase of its high speed network. Despite this offence to Treasury orthodoxy, the sun did not freeze in the heavens and Paris still seems to be standing.
The privatisation of the British rail network took one of the most cost-efficient rail networks in the world (although one of the worst funded in Europe) and turned it into a passenger's nightmare. It created a complicated system that is perfect for passing the buck and a nightmare to run. It has cost money and lives. Compared to that, issuing bonds to finance a system that remains in public ownership with democratic accountability seems a rather lesser evil.
Unlike his boss, Kiley is not a man with a track record of populism to whom the government could attribute political motives. He is an expert from an entrepreneurial culture of the kind that the Treasury likes, who is putting forward the modest proposition that a capital city depends on its public infrastructure and that it should be financed in the most cost-efficient way.
Long before Kiley got involved, the companies that were interested in the London Underground PPP warned the government that the price they were willing to pay would come down sharply if Livingstone became mayor. The consortia seemed well able to put a price on the conflict between a politician who wants to win popularity by delivering a better service and their own desire to benefit from the huge contracts.
Labour had hoped, of course, that this would be a done deal long before the election was called. There are a lot of votes to lose in the part-privatisation of the underground. We shall soon know whether Kiley can square the circle, using PPP, but there could be another - perhaps we could call it a third - way. If the benefits of PPP are so great, why not test them against a real alternative? Let Kiley devise a bid for London Underground to run itself, financed with public borrowing and let us compare it with the PPP proposals. And let the judgment be made on the basis of cost and quality of service, not on ideology.
Related articles
05.02.2001: Tube services crippled by drivers' strike
05.02.2001: Commuters face chaos on tube strike
London Underground: the issue explained
04.02.2001: Legal threat to Kiley tube deal
02.02.2001: Tube boss wins privatisation victory
02.02.2001: Drivers go ahead with tube strike
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