Chris Cheek ruminates on the problems of political control and calls for a realistic approach to profit and a change of industry culture
One of the many problems about being a senior manager in a nationalised industry is the fact that you’re working for a bunch of politicians. By their very nature, politicians tend to be tactical rather than strategic, conscious of their own position (in the Government, their party and history – a pretty toxic mix) and blissfully unaware of the complications of actually running anything.
They do nevertheless have enormous power and will seek to control bits of what you do, especially where it affects their electoral appeal. Thus, they will want to set your wages (or at least the Treasury will) and control your fares, usually to their own advantage and often regardless of the financial consequences on the business you are charged with running.
And that’s before you have to cope with the opposition politicians, who second guess virtually every major decision you make, are frequently incredibly rude about you (and occasionally to you) in Parliament, the press and social media. Their comments destabilise your workforce and can make you look a fool to your own staff, whilst their electoral promises make long-term planning and decision making well-nigh impossible.
What makes it all much more fun these days is the number of levels of political interference and second-guessing that you have to deal with: the EU (at least until next March), the UK Government, the devolved governments, local mayors, combined authorities, county councils, district councils and Local Enterprise Partnerships (LEPs).
What makes it really depressing is that you know in your heart of hearts that most of the politicians have not got the remotest clue about the realities of running your business and delivering the services day in, day out. And what’s even worse, they don’t want to know. ‘TMI, dear boy – I don’t do detail.’
That doesn’t stop everybody from having an opinion, ninety per cent of which is based on ignorance and prejudice. Welcome to the world of democratic accountability. Fun, isn’t it? But if you think that being employed by this bunch of crazies is fun, try being a contractor to them.
Not only do you get all of the above, but you get the active resentment of everybody for actually having the brass neck to want to make a profit. Congratulations, guys – not only do all the politicians and many of the staff hate you, but the civil servants resent you and constantly second guess your motives for saying anything about anything, because you’ll simply be driven by profit, and that’s fundamentally immoral, right? Wrong.
One of the greatest pieces of disservice that left-wing politics has done in this country over the last century is to make profit a dirty word. It poisons discussions about levels of profit and what it’s for, fosters ignorance and prejudice in politics and Government, the civil service and local Government officers and it polarises so many groups of people – people whose shared interests give them much more in common than that which divides them.
So, here goes: please excuse the lesson in GSCE Economics which follows and bear with me.
Rail’s economic model
Any business needs equipment and premises from which to operate. It rarely has the cash to fund these itself – especially not for something as big as a railway. Thus, the money – known as the capital of the business – has to be borrowed.
This is done in two ways – by inviting people to become shareholders in the business and by asking for loans from other lenders such as banks.
Borrowing money creates obligations – to pay interest on loans (and eventually repay the loans themselves) and to reward shareholders through giving them a small share in the profits of the business, known as dividends. Taken together, these obligations are referred to as the Cost of Capital.
A nationalised industry is one where the Government is the shareholder and funds the business through a combination of shares and loans in broadly the same way as the private sector. The main difference is that the loans tend to be cheaper, because lending to the Government is less risky that to private companies.
Nationalisation also means that the business probably won’t go bust if things go wrong: Government will step in and keep things going. Every business – including nationalised ones – need to meet the cost of their capital and they do so by earning more in revenue than they pay out in costs, i.e. they make a profit.
In practice, of course, it’s much more complicated than that – but fundamentally, profit is needed to meet obligations and to attract new investment to allow businesses to renew themselves, to expand the market and to grow their business.
So, if you are a serial entrepreneur like Elon Musk, Mark Zuckerberg or Brian Souter, how do you choose what to invest in? The short answer is where you can get the best return, but we all know that isn’t actually true. Musk invested in Tesla because he believed in the idea, Zuckerberg runs Facebook because it was his idea and he believes in the benefits it can produce. Brian Souter continues with Stagecoach and Souter Investments both because they have a business case and because he loves the world of transport.
People who have a passion for something will tend to invest in it if they can. They might do very well financially out of it, but fundamentally it is still their passion that drives them, rather than some Scrooge-like preoccupation with piles of cash.
So, I hear you wondering, what’s all this got to go with running a railway? Well, quite a lot, actually.
In the industry’s current FUBAR situation, it is almost inevitable that some form of organisational or institutional change will be on the cards, and that our politicians will be leading the charge, with the usual cry of ‘Something must be done’.
The great danger of that is that they are given a whacky idea by some nutcase and immediately cry ‘This is something! Let’s do this’. What we actually need in the railways is a period of political consensus and stability.
We need to construct an industry framework which aligns the interests of customers, employees and stakeholders and can deliver economic, transport and social benefits to a post Brexit Britain (and, God knows, we’re going to need them).
That sounds like an impossible task, especially given where we are sitting now, with a demoralised and militant workforce, panicky train operators hanging on by their finger-ends and an infrastructure company whose inability to deliver is in danger of making Railtrack look competent.
The biggest difficulty, it seems to me, is that we need to change the culture of the industry, which remains preoccupied by the need to move large lumps of metal around the place and focused on an ‘us against the world’ culture which sees the railway as something special that is constantly under attack from outsiders (amongst whom are counted the TOC owners, or ‘bus bandits’ as they are sometimes known).
My recipe would be to look to a culture that replaces all this with an approach akin to Johnson & Johnson, the US pharmaceutical giant, whose credo was set out as long ago as 1943. This places the customers first – and here we must define the customer as the rail user – followed by the employees and then the shareholders, pointing out that if the first two are looked after then the rewards for shareholders will follow.
You can read the full version of the Johnson & Johnson credo on their website at www.jnj.com/credo/. It is well worth the effort.
Culture change is never easy, nor quick. But then the endemic problems of the railway industry are never going to be up for a quick fix anyway. This brings us back to one of the problems, of course: our politicians. Instant gratification and social media wins are, one suspects, much more important to them than the long-term future of one of our most important industries – which is why, of course, our politicians should not be in charge of it in the first place.