Can't Anyone Here Run A Railroad?

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The benefits of competition in the passenger sector are murkier. The British experience has been horrendous. Britain completed the privatization of its rail system in 1997, breaking the formerly integrated network known as British Rail into more than 100 different firms. At the center was Railtrack, which had the task of maintaining the tracks, signals and stations. It contracted out the work, resulting in spiraling costs and a record of erratic maintenance that had fatal consequences, including a 1999 collision between two trains outside Paddington Station in London that killed 31 people. Criticism of the safety record was heightened by its status as a publicly-traded company that paid out dividends to shareholders. Whenever an accident took place, critics charged that the company cared more about profits than safety. Following a public outcry, Railtrack was placed in administration in October 2001 with debts of €5 billion. Says Andrew Murray, spokesman for train drivers' union a.s.l.e.f.: "Privatization has been an utter disaster for the railroad industry." Polls show most Britons agree, with a majority calling for the railroad to be renationalized. Last week, Railtrack's successor, Network Rail, disclosed that it is looking for a further 2,000 job cuts — and a whopping €78 billion in investment over the next decade — to get back on track.

Advocates of liberalization on the Continent say they'll be careful not to repeat Britain's mistakes. They look instead at Sweden. It became the first European nation to split its track operations from passenger and freight services in the late 1980s, and has seen an upturn in rail traffic and a growing number of private rail operators. They include IKEA, the big furniture company, which has set up its own rail operations between Sweden and its biggest market, Germany. But elsewhere, the official reaction to liberalization is far more skeptical. No private operators have yet been granted licenses in France or Spain, even though both nations have implemented legislation that should technically allow for it. In Germany, where some private operators have been allowed, DB's ceo, former aerospace executive Hartmut Mehdorn, is cutting staff and spiffing up stations to knock the railroad into shape before a planned public offering in 2005. He has also bulked up the company's international-freight operations with the acquisition of former state-owned firms in Denmark and the Netherlands. Some worry that DB is assembling a dominant position in Europe's freight market that will enable it to counteract the market opening. "Old monopolies don't want to lose market share," gripes Klaus-J. Meyer, who runs a Brussels-based association of private rail-freight operators. Mario Monti, the E.U.'s tough antitrust Commissioner, made it clear at a rail conference last year that he won't tolerate merely shifting the monopoly; he warned state-owned flag carriers that they "do not have blanket immunity from the competition rules."

Rolf Georg is testing to make sure. He owns a four-person firm, based in Frankfurt, that runs an overnight sleeper service between Berlin and Malmö, Sweden. When DB charged him what he says were exorbitant prices to lease one of its engines, he took the case directly to Monti in Brussels, where it's still being examined. "They need to see they can't get away with it," he says. If people like Georg can prevail, a flourishing private sector for rail could develop in Europe. The question is whether it will be enough to reverse rail's long decline — or whether that train has already left the station.