Train in Vain

I was sitting in a café in Clapham Junction train station on the first Monday of a month and was noticing the incredibly long queue of people trying to buy their monthly rail tickets. It was completely dire, people must have been waiting over half an hour to get their ticket. And yet nobody was coming to help them. I got up from my seat and went up to the counter to get another coffee, and as I stood there I became the fifth person in the queue for the coffee. Seeing me arrive in the queue the guy serving the first person left his customer for just a second and went into the back room to fetch somebody to come out and help. They started working and suddenly there wasn’t a queue any more and the second guy went back to his break.

That’s what real businesses must do; they must serve their customers because if they don’t then the customers will simply go somewhere else. The closest other coffee shop to this one is one minute walk away. That’s competition. If I didn’t want to wait for my coffee it would have taken less time for me to walk to the other shop than it would to stand in the queue. And that’s what’s not happening in the British railway system and that’s why the system doesn’t work. Despite all of the claims and counter claims there is no real competition in the railway system.

So how can we fix it? It’s simply unmanageable to have lots of competing train services operating on a commuter line, because people will always take the first train anyway. So how can we create competition in the system?

We already have a situation where the lines are run by a non-profit making firm National Rail. This system seems to work well because it provides a way for the government to centrally finance the investment in the system. The biggest problem is that the government seems to be nervous of admitting that these firms need to make profits to return to shareholders. If there are no profits then there will be no companies in the system.

Now you may prefer this method, a nationalised railway system back as it was. But I can remember commuting under British Rail and it was terrible. Trains were delayed all the time and nothing ever seemed to get done. It was like now but worse.

If we leave the system like it is now though firms are basically sinning whenever they make profits. That’s how people see it. How can they make money when the train system has got worse?

Well I have a solution which I think deals with this.

Each firm that runs a train company must set up a non-profit subsidiary which runs the train system. All ticket revenue and government subsidies sit within this subsidiary and all monies go to reinvestment in the train network – not branding, senior management or shareholders. Branding, senior management and the shareholders would sit in the holding company which can be profit or loss making.

Each year in January the government would award or fine the rail company’s profit making division based on the previous year’s performance. This would work by having, for example, five simple categories like: punctuality, reliability, accessibility, customer numbers and customer satisfaction. The last one would be the result of a survey which would take place throughout the year so the companies couldn’t just get better for a bit of the year.

We would then tot up the totals for the whole network. And come up with one single score for the year. Has train transport improved or worsened over the last year? Based on this number we would be able to determine the size of the winnings pot. This too would be very simple we would have different amounts in the pot set for -5% worse, no change, +5% better, +20% etc. Maybe 10 bands with 10 figures. There should be an amount in the pot even if the whole network got worse by more than -20% for reasons that will become obvious in a second.

Then we rank all of the train networks from top to bottom. Any who got worse in the year have a fixed penalty amount. Say for example we set -100% which you could never reach as a fine of £100 million. If you got 15% worse in the year you’d have to pay £15 million fine. The fines would help finance the pot that we’ve set up, and if they exceed the amount set in the pot then the excess money would be secured to help pay for future years when the services might improve.

Any companies that did improve would get a share of the pot calculated in order of performance. So the best company gets the most and the worst (of those who improved) gets the least.*

This is why even if the network did really badly there must be some money in the pot because it would be wrong to not be able to reward the one firm that was working well. But by tying them to the other firms nationally we do have less of a situation of tax payers paying for services they can’t use.

This method seems incredibly simple to me. I’ve explained it here in six paragraphs. But it could be explained even more simply, it is a plan to make train companies compete against each other for profits.

That’s it! And you know I think it might work.

* The way I imagine doing this is slightly complicated to explain but here goes: Take 100% and divide by the number of winners. Say 5 for this example, so 20%. Initially assign this 20% to each company. Then select the top company and give it 4% extra because it beat 4 other companies, this 4% gets taken from the 4 companies they beat 1% each. So each is on 19% temporarily. The second company now gets 3% extra because that’s how many it beat taking it to 22% and the 3% comes from the 3 companies below it (leaving them on 18% temporarily) and so on. This would end up with a distribution of 24%, 22%, 20%, 18% and 16%.

2 thoughts on “Train in Vain

  1. Nick Ollivère says:

    The problem that I see with this – and I’m quite obviously not an economist – is that you give money to the best company, so they just keep getting better. Whereas the worst company gets less money, and thus doesn’t have the funding to get better so it keeps getting worse. Or not?

  2. Alex Andronov says:

    This is exactly correct, and how capitalism works.Bad companies fail, good companies succeed.Companies choose to run the rail networks now and win bids based on government contracts. Presumably if they have only lost money for years they will not continue to seek contracts whereas currently there is almost no way to loose money. Good companies who do well will take on more areas and apply the skills that they have learnt in one area to the next.Also if the economy teaches us anything we find that sometimes it isn’t just massive investment which causes companies to succeed. This is explicitly rewarded here. It might be very expensive to increase accessibility for example but customer satisfaction might be greatly increased by engaging well with customers and keeping them informed and make them feel more included and consulted. That might be a very cheap way to do well which would have an equal impact on how much reward you receive and with the greater reward you receive you could then choose to go after the more expensive options to help you continue to improve your score.But yes in principle the bad companies become worse until they stop trading and a better company takes over the trading using the money to expand.

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