by Tom Walker
Last week was a mixed week for competition in the railway industry. On Thursday 12 May the government’s Office of Rail and Road (ORR) made its decision on applications from three different operators for new services on the East Coast Main Line (ECML).
Shortly after that, the Competition and Markets Authority warned new Northern rail franchise operator Arriva that they were investigating 44 cases where the franchise duplicates the company’s existing bus routes. The two stories combine to paint an interesting picture of struggling competition in one of Britain’s most heavily over-regulated industries.
Britain’s franchised rail system is often referred to as being privatised, but little could be further from the truth. Most services are set out in government franchise specifications, with operators winning contracts with obligations to provide services over a network of routes at given frequencies. The infrastructure they run on is owned by the virtually public Network Rail, whose permission is required in order for operators to launch any new services beyond those set out in the original specification.
However there is another class of operator alongside the specified franchises. Open access operators, as they are known, propose completely new services outside the franchised system. Although countless proposals have been made, only two such operators currently run long-distance services on the British rail network: First Hull Trains and Grand Central.
Both of these provide services from London along the ECML to new destinations away from those served by the East Coast franchise. Stops on the main line are limited to a few major interchange points, due to the fact that open access applications are judged in part by how much revenue they abstract from the franchised operators. On a network privatised to introduce the benefits of competition, applications have been repeatedly refused precisely because they would cause competition.
Latterly the ECML has been subject to a number of new applications. First Group and Grand Central owners Alliance Rail both wanted to introduce new London-Edinburgh services in competition with incumbent franchisee Virgin Trains, with Alliance also applying for new routes to Cleethorpes and West Yorkshire. Virgin had a host of new services they sought to add to those required by the franchise, including extra Edinburgh trains and new routes to Harrogate and Lincoln.
The ORR elected to approve all of the proposals made by Virgin, while dismissing Alliance Rail’s extensive plans on the grounds of value for money and revenue abstraction. First Group’s limited proposal of five trains a day from London to Edinburgh was approved, but not without concern over its effect on the Virgin franchise.
The decisions made here seem curious and inconsistent. While Virgin’s new services to Lincoln and Harrogate connect those cities to London and the south, Alliance’s similar services to West Yorkshire and Cleethorpes are rejected for revenue abstraction and the cost of providing new infrastructure for tilting trains, despite the clear benefits brought to these communities.
Meanwhile Virgin’s extra Edinburgh services seem to deliver little in comparison to Alliance’s proposal, which would have cut the journey time between the two capitals. First’s approved proposal creates a kind of budget train, a single-class low-fare alternative more likely to attract passengers from coaches and airlines than from the competing rail service.
Competition between different modes of transport is always going to exist in any system, and the unrelated decision by the Competition and Markets Authority on the same day to investigate monopolisation of routes between Arriva buses and the new Arriva Rail Northern franchise is even more irregular.
Rail franchises and buses have been run by the same operator on the same corridors in countless cases before, such as the entire section of the Midland Main Line from Luton to Leicester, without drawing any attention from the CMA. Furthermore, these concerns should have been brought up during the awarding of the franchise, not after its commencement.
Both of these announcements highlight how the rail franchising system is a disjointed mess of conflicting regulation, and the benefits envisioned in the 1992 privatisation plan have been all but lost under overpowering government control and intervention.
With a return to nationalisation clearly offering no real prospect of change in what is already a heavily regulated industry, it seems the better option would be to move towards a deregulated approach, with open access services coming first. Operators could compete on the busy corridors and respond to passenger demand, leaving government, or preferably local authorities, to contract only those essential services left unprovided. Only then would true competition be possible. Only then would the needs of the passenger come before the needs of the state.
Applications for this year's John Blundell Studentships are now open. These are grants for students starting or continuing postgraduate research at a UK university in the 2016/17 academic year, who have themselves made a tangible contribution to the classical liberal movement and whose work will help to further the cause of classical liberalism around the world.
Full details are here. Applications close at midnight on Saturday June 18th, 2016.
For example, we are bombarded with information, much of it incorrect, about food and diet. At the edges this bleeds off into the truly absurd:
I'm a bubble sceptic. Pretty much every time I see someone claim something is a bubble, I disagree. To begin with, the model is sketchy. You only need a decent amount of rational money to drive out the irrational money—and in practice people just don't make money beating the market.
On top of that, most of the instances people claim as examples are dubious. I don't think the tech bubble was a bubble. I don't think the housing bubble is a bubble. I think that a lot of departures from the efficient markets hypothesis are driven by legitimate factors.
But even I thought that some examples in history were "true bubbles"—though I hadn't researched them. Well it turns out that even the south sea 'bubble' and the tulip 'bubble' may not have been bubbles—at least according to a book reviewed for the Journal of Political Economy by John Cochrane in 2001 (pdf). This is because prices were not prices in regular terms, and often represented options, or derivatives, or effectively bets.
1. Tulip speculation used futures contracts, which were illegal. The threat of being excluded from trading was sufficient to get people to pay for small losses, but buyers of futures contracts could and did default on large losses, with backing by the courts.
2. Buyers paid only one-twentieth of each contract price up to a maximum of 3 guilders.
3. The main evidence for a bubble in the classic stories consists of very high prices paid for specific rare bulbs in the winter of 1637, prices hundreds or thousands of times higher than prices for those bulbs years or decades later. (There are no price data immediately after the crash.) Garber documents that other rare tulip varieties continued to command high prices long after the mania, even to the present day, and that "bulb prices decline fast: it is their nature." The first bulb captures the present value of its offspring. Prices then decline rapidly as the supply expands, and newer varieties still are introduced.
4. There was a fundamental shock: "In France, it became fashionable for women to array quantities of fresh tulips at the tops of their gowns. Wealthy men competed to present the most exotic flowers to eligible women, thereby driving up the demand for rare flowers. Munting (1696, 911) claims that at the time of the speculation a single flower of a particular broken tulip was sold for 1000 guilders in Paris. This was a final demand price for a consumption good and not the [speculative] asset price of the bulb."
5. The myth tells of a large inflow of foreign money, lending to speculate in tulips, and economic distress after the crash. There is no evidence for these parts of the story, especially (and most importantly) the last. Shares in the Dutch East India Company rose from 229 in March 1636 to 412 in 1639.
The whole paper is extremely readable, and reaffirms my belief that just-so stories of irrationality and 'behavioural' behaviour are very often untrue in equilibrium.
Political ‘progressivism’ is a difficult concept to pin down. It began around the end of the nineteenth century, and advocated the application of ‘scientific’ principles to social affairs. Scientific method had produced great improvements in our understanding of the physical world, leading to rapid material progress. The progressive insisted that this physical progress was vital to the improvement of the human condition. And they further believed that the ‘scientific’ management of society would advance social and economic progress still further.
Progressive Conservatism tries to introduce such interventionist ideas (expressed largely in income redistribution and economic planning) into the paternalist but otherwise anti-interventionist Conservative mainstream. This by itself is a difficult balancing act. And authors from Adam Smith through Ludwig von Mises to F A Hayek have highlighted the unintended consequences of interventionism, noting the limits of our ability to understand society and make it do what we want. So Progressive Conservatism is both a tricky and potentially forlorn approach.
‘One Nation Conservatism’ is easier to pin down. It goes back to Benjamin Disraeli, whom David Cameron has cited as his favourite Conservative leader. Disraeli coined it round about 1845 as a warning against Britain becoming two ‘nations’ – rich and poor. Based on the idea that society was organic and that the different classes had social obligations to each other – particularly that the upper classes had an obligation to those below – it was a brilliant PR move. It at once suggested to the working classes that they could rely on Conservative paternalism, and that Disraeli’s Liberal opponents were selfish individuals who did not regard themselves as having any such obligation.
By the end of the nineteenth century, the Conservative Party had become more free-market and less interventionist, but after the depression era of the 1930s, and particularly after the Conservatives’ defeat by the radical postwar Atlee government, the One Nation phrase began to be used much more; so much so that people talked of a ‘postwar consensus’ between Labour and Conservative political movements. And more recently, after Margaret Thatcher’s more free-market policies were replaced by the dominant centralism of Tony Blair, the phrase has come back as the Prime Minister’s new watchword.
There is, however, a difference between these modern usages and Disraeli’s. Both agree that the rich have a duty to the poor. Disraeli regarded this a largely a duty of individuals to individuals. Given the expansion of government today, it has instead come to mean a duty of taxpayers to beneficiaries. Disraeli’s idea, that the better off should willingly be generous and honourable to others and ensure their equal treatment under the law, has morphed into the idea that the better off should be forced to pay higher taxes for the benefit of others, which of course treats people very differently under the law. It replaces the idea of an organic society that prompts natural interpersonal obligations, with the idea of a politically designed society whose leaders impose political and financial obligations on particular groups (of their choosing), to support (in ways of their choosing) other groups (of their choosing). Indeed, even to use Disraeli’s phrase (or even ‘Progressive’ and ‘Conservative’) for this seems to stretch the language beyond endurance.
Reason rather flies out the window when discussing the NHS, that Wonder of the World that it is. Yet we do rathre insist that we must retain that very reason when discussing it. For if the structure of the NHS, that idea of not just government financing but direct government provision of health care, is so good and wondrous then we should be spending less upon it than everyone else:
Worse than that, a lousy, stupid, no good, bad, law is being proposed to solve something that is not in fact a problem. Yes, the political classes have managed to get their knickers in a twist over people, spontaneously and on their own, allocating something to people who value it the most. They want to ban ticket scalping, or as we might put it, they want to stop people disposing of their own private property in whatever manner they desire:
Noreena Hertz being appointed as an economic editor has rather surprised some. But it's also led to this very good description of the purpose of politics:
Yet the traditional Tory and the modern Leftist nihilist have something important in common: both thought the point of politics was different from this. That was why the Tory thought everything was going to pot when democracy was expanding, and why the leftist nihilist thinks everything has gone to pot now when democracy has long been in place. Neither understood the purpose of politics as the facilitation of people going about their everyday business, making things, making money and making love. They thought the point of politics was to overthrow and oppose the natural products of orderly, peaceful life. That was why the Tory feared it and that is why the leftist nihilist sees it as having failed.
We entirely agree with that central thought: the purpose of politics is to enable people in what people wish to do. And we would extend it too: that's also the purpose of economics, the study of it and the management of the economy that results.
We're not trying and should not be trying to make people do whatever. We should be solely and only enabling people to do whatever it is that they wish. If it turns out that people would rather take higher incomes as more leisure rather than greater amounts of goods and services then so be it, ever rising GDP be damned. Further, if some people would work 30 hours a week and others 50 then leave them to it: it's their life and their choice.
In fact, this is the entire point of the liberal world order: to maximise the ability of people, individually and en masse, to maximise their utility in whatever manner enters their pretty little heads. The whole idea is to facilitate, not manage nor direct.
Apparently so: that's the latest news from one of the more interesting corners of academia. That the rise of politicians like Donald Trump and Bernie Sanders, the populists, is linked to the European Union's Single Market. No, really:
In recent research with Michèle Lamont at Harvard University and Elyas Bakhtiari at Boston University, my coauthors and I link the success of Trump’s kind of politics to the worldwide adoption of neoliberal economic policies.
Neoliberal policies are government measures that shift control from the state to the market. Examples are the privatization of health care, the gig economy and the deregulation of the energy market. Our research describes how like the U.S., European countries rolled out many such neoliberal policies in the 1990s and 2000s.
The figure below describes this trend for Eastern and Western Europe from 1990 to 2010. Values on the vertical axis are scores on the Chinn-Ito index of capital account openness, which are a commonly used measure of neoliberalism. The chart shows the growth of neoliberal market reforms across Europe. The trend started in the West, but Eastern Europe is catching up.
They then go on to show that everyone's getting much more beastly to immigrants, Muslims and other outsiders and there we have it. Neoliberalism is to blame. No, really, that is their logic:
Citizens’ diminishing solidarity with the poor, the rise of anti-immigrant sentiments and the growing populist vote are different aspects of social exclusion. We link these to the adoption of neoliberal policies across Europe.
And pretty silly logic it is too. Because quite obviously the largest influence on that Chinn-Ito measure is the EU's single market over those years with a close runner up being Eastern Europe's recovery from half a century of idiot autarkic socialism. Thus we can indeed say, using this logic, that the EU is responsible for the rise in populist politics and racism. QED.
Except of course it's ludicrous to use a measurement of how open the capital account is in this manner: when the entire point of the whole political structure has been to insist that the capital account must be entirely open.
It's even worse to then go on and claim that this is related to mistrust of outsiders. For there might be other reasons for such mistrust of course: like, umm, perhaps there's been many millions more foreigners to interact with over this period?
No, we are not convinced by this product of academia at all. And the more we look at what academia is producing of this type then the less we think that more education is going to be the solution to anything quite frankly. Unless it's as a place to keep those who cannot think off the streets. A useful purpose of course, but we do think this could probably be achieved at less cost in some other manner.
Did we actually knock all those asylums down?