Should the tube be privatised?
Created | Updated Sep 4, 2004
The tube, being one of London’s most prominent transport systems, is always under pressure; pressure to improve the services, pressure to lower prices. As the government holds the control of the tube, pressure is therefore put on them also and they are often heavily criticized. But for one minute stop. Ask yourself what the tube service would be like if the government gave up control, if they sold to a private company and allowed them to do as they please. This is privatisation and is what I will be discussing in more detail in this essay.
The first side of the argument for privatisation that I will discuss is the argument for. This would be selling the entire system to one or more privately run companies, with the government holding no control over the running or maintenance of the service.
One of the arguments would be that a privately run industry falls prone to market discipline. This is the idea that if you do something good you are rewarded (with profits) and if you do something bad you are punished (with losses or eventually bankruptcy). A publicly run company has, theoretically, unlimited money, so it isn’t important for them to try and create profits, but with a privately run company this is very different. If the service is of bad quality and people stop using it, the company will make losses, and maybe suffer bankruptcy. To prevent this they will do all they can to improve their service (in this case trains) so it is widely used. If they do this well they make profits.
Another argument that is linked in with market discipline and making profits is the idea of efficient running. Running efficiently means getting the same task completed with fewer resources, or getting more tasks done with the same amount of resources. Above the word idea of ‘tasks’ is used. If it were an industry making goods then instead of ‘tasks’ it would be making more ‘units’ of a product or something similar. With a service like the tube this could be running more trains on the busier lines and less on those which are less used. If a company is run more efficiently their output costs will be lower, thus creating more profit. In a government run company, as there is no incentive to make profits, there is no incentive to produce efficiently. A private company, however, is always looking for ways to run more efficiently to increase their much desired profits.
A private company in order to make profits has to respond to consumer demands as and when they come along. As with the previous two arguments the government run company has no need to do this as they don’t need profits, thus have no incentive to do respond quickly. For the private company on the other hand, this is essential in running a popular service.
One of the reasons the government sometimes chooses for privatisation is to get a lump sum payment. As nationalised industries are very big they will usually sell for several million, if not billions, of pounds. This will obviously be a very attractive option for the government as they can use the money to lower income tax, creating popularity among citizens. If it is a time of political uncertainty this can result in the much needed support. Another thing they can do with the money is, instead of lowering tax and providing the same service, keep tax the same and provide a better service which will also create government popularity.
The next reason for privatisation also lies in politics. A private company is completely free of political intervention, whereas a government company may be placed or made to produce in such a way that will win political favour, but not be in the best interest for the company.
Now the arguments in favour of privatisation have been explained, those against the idea will also be laid out. These views are in favour of the government keeping control over the running and maintenance of the tube.
If the tube was privatised, a private sector monopoly would instantly be created. This means only one company in a certain good or service with no competition. If such a monopoly is created, the company can charge almost as higher price they like, as the demand for the tube is price inelastic. The consumers may end up being exploited with high prices and a low quality service that they have no alternative to. This would be prevented if the tube was kept in government hands.
The tube, being such a large organisation, will employ many people. These people will depend on the tube for their job but they are not the only ones who gain from it. Other small businesses which are located in and around the tube and its stations may rely on the custom brought from it, whether it’s from workers, or the consumers using the service. If the tube was to be privatised and the use went down, these businesses would also suffer as their customers would vanish. This is called a multiplier effect and may be caused if privatisation were to occur.
Another reason to maintain government control is to keep control is to keep unemployment low. There will be some people who work for the tube service who are not really needed and are surplus. The reason these people’s employment is not terminated is to keep the unemployment figure low. If the company were to be privatised these people would be dismissed in a bid to become more efficient, and unemployment would rise.
It is the government’s ongoing mission to keep the clutches of inflation at bay. A way of doing this is by using industries in their control to charge low prices, which create losses, but help reduce the inflation figure. If a company were privatised then this would not happen, as the owners only interest would be to make profits. The inflation figure would therefore rise from what it previously had been.
When a nationalised company is privatised, the first thing they do is try to cut costs. The easiest way for them to do this on a service like the tube is to reduce the expensive safety measures. If there was an accident on tube, the results could be horrific, so the government keep control to ensure a safe service is maintained. Another event that could be caused by cost cutting is the loss of unprofitable, but essential services. This would mean some people would suffer because their needs are too expensive for the company.
Although the government get a large lump sum of money for selling off one of their industries, this is only a one off thing. Once it’s gone, it’s gone. This is the idea of selling off the family silver. Because the government are often desperate to sell, prices lower than the value of the company are accepted, meaning that not as much money that could have been acquired, was.
A reason for the government keeping control over a company is to keep power elsewhere. If a government owns all the countries major industries and services they have a very large amount of control over the running of a country that would otherwise be lost if privatisation occurred.
In conclusion I think that the privatisation of the tube is a bad thing as the arguments against outweigh those in favour. I think that although some improvements could be made, the tube is fairly well run. If a private company were to take over consumers may well be exploited will a bad quality and expensive service instead of one of reasonable standard.
The first side of the argument for privatisation that I will discuss is the argument for. This would be selling the entire system to one or more privately run companies, with the government holding no control over the running or maintenance of the service.
One of the arguments would be that a privately run industry falls prone to market discipline. This is the idea that if you do something good you are rewarded (with profits) and if you do something bad you are punished (with losses or eventually bankruptcy). A publicly run company has, theoretically, unlimited money, so it isn’t important for them to try and create profits, but with a privately run company this is very different. If the service is of bad quality and people stop using it, the company will make losses, and maybe suffer bankruptcy. To prevent this they will do all they can to improve their service (in this case trains) so it is widely used. If they do this well they make profits.
Another argument that is linked in with market discipline and making profits is the idea of efficient running. Running efficiently means getting the same task completed with fewer resources, or getting more tasks done with the same amount of resources. Above the word idea of ‘tasks’ is used. If it were an industry making goods then instead of ‘tasks’ it would be making more ‘units’ of a product or something similar. With a service like the tube this could be running more trains on the busier lines and less on those which are less used. If a company is run more efficiently their output costs will be lower, thus creating more profit. In a government run company, as there is no incentive to make profits, there is no incentive to produce efficiently. A private company, however, is always looking for ways to run more efficiently to increase their much desired profits.
A private company in order to make profits has to respond to consumer demands as and when they come along. As with the previous two arguments the government run company has no need to do this as they don’t need profits, thus have no incentive to do respond quickly. For the private company on the other hand, this is essential in running a popular service.
One of the reasons the government sometimes chooses for privatisation is to get a lump sum payment. As nationalised industries are very big they will usually sell for several million, if not billions, of pounds. This will obviously be a very attractive option for the government as they can use the money to lower income tax, creating popularity among citizens. If it is a time of political uncertainty this can result in the much needed support. Another thing they can do with the money is, instead of lowering tax and providing the same service, keep tax the same and provide a better service which will also create government popularity.
The next reason for privatisation also lies in politics. A private company is completely free of political intervention, whereas a government company may be placed or made to produce in such a way that will win political favour, but not be in the best interest for the company.
Now the arguments in favour of privatisation have been explained, those against the idea will also be laid out. These views are in favour of the government keeping control over the running and maintenance of the tube.
If the tube was privatised, a private sector monopoly would instantly be created. This means only one company in a certain good or service with no competition. If such a monopoly is created, the company can charge almost as higher price they like, as the demand for the tube is price inelastic. The consumers may end up being exploited with high prices and a low quality service that they have no alternative to. This would be prevented if the tube was kept in government hands.
The tube, being such a large organisation, will employ many people. These people will depend on the tube for their job but they are not the only ones who gain from it. Other small businesses which are located in and around the tube and its stations may rely on the custom brought from it, whether it’s from workers, or the consumers using the service. If the tube was to be privatised and the use went down, these businesses would also suffer as their customers would vanish. This is called a multiplier effect and may be caused if privatisation were to occur.
Another reason to maintain government control is to keep control is to keep unemployment low. There will be some people who work for the tube service who are not really needed and are surplus. The reason these people’s employment is not terminated is to keep the unemployment figure low. If the company were to be privatised these people would be dismissed in a bid to become more efficient, and unemployment would rise.
It is the government’s ongoing mission to keep the clutches of inflation at bay. A way of doing this is by using industries in their control to charge low prices, which create losses, but help reduce the inflation figure. If a company were privatised then this would not happen, as the owners only interest would be to make profits. The inflation figure would therefore rise from what it previously had been.
When a nationalised company is privatised, the first thing they do is try to cut costs. The easiest way for them to do this on a service like the tube is to reduce the expensive safety measures. If there was an accident on tube, the results could be horrific, so the government keep control to ensure a safe service is maintained. Another event that could be caused by cost cutting is the loss of unprofitable, but essential services. This would mean some people would suffer because their needs are too expensive for the company.
Although the government get a large lump sum of money for selling off one of their industries, this is only a one off thing. Once it’s gone, it’s gone. This is the idea of selling off the family silver. Because the government are often desperate to sell, prices lower than the value of the company are accepted, meaning that not as much money that could have been acquired, was.
A reason for the government keeping control over a company is to keep power elsewhere. If a government owns all the countries major industries and services they have a very large amount of control over the running of a country that would otherwise be lost if privatisation occurred.
In conclusion I think that the privatisation of the tube is a bad thing as the arguments against outweigh those in favour. I think that although some improvements could be made, the tube is fairly well run. If a private company were to take over consumers may well be exploited will a bad quality and expensive service instead of one of reasonable standard.
