The free-market ideal

The idea is (or has become) the same as that behind the EU's rail privatisation drive: state monopoly means no competition, so let there be competition between private companies on rails, just like there is competition of lorry companies on roads, and there'll be Efficiency and Capital and there'll be Competitiveness with road!

The centerpiece of this reform would be the separation of infrastructure and operations. And just that was the big clincher for a decade now. The main opponent of Separation was the management of DB AG itself – even if they had little knowledge of railways, they sensed danger. The negotiations about if and how to do it were an endless bickering about details.

In the political arena however, there was near unison about the 'need' for Separation. All problems were and are just blamed on the monopolistic tendencies of the state railways, and those in government were criticised for not pushing it enough or pushing it in the wrong way, whether the traffic expert was from the FDP, the CDU, the SPD, or from the Greens. Even most pro-rail groups seem to have swallowed this line – the problem is never the privatisation drive, only the how and when of it.

The road to privatisation covered so far

In 1991, Heinz Dürr, a former AEG CEO, was made boss of the West German state railways by the conservative government of then chancellor Helmut Kohl. This was the beginning of the rule of managers taken from the private economy. The idea was that they shall make the giant as fit as a big German private corporation, a questionable task even without considering the problem that they lacked prior experience with railways, and had no idea of their complexities and interdependencies.

In 1994, Re-unification was completed in the railway world with the fusion of the former West and East German state railways into Deutsche Bahn AG. The AG stands for Aktiengesellschaft, that is a company by shares. But it is only nominally: 100% of the shares were (and still are) owned by the federal state, but the idea was that once the managers succeed in making the company fit, the shares could be sold on the market.

The managers were trying and not succeeding ever since. I mention two significant reforms: one was to divide the company into semi-independent branches (passenger, express, freight, infrastructure), the other was the infamous "MORA C", the 'rationalisation' of freight transport by closing off a lot of loading points producing small volume.

Meanwhile, other steps were taken. The rights for private railways to use state railway tracks were expanded, and those railways grew rapidly, again boosted when they saved part of the freight transports kicked by MORA C. The states got the right to order (and duty to subsidize) passenger train services. Later competition for such orders was first allowed, then made the rule.

How it didn't work out

If you don't have or expect that you won't get capital and want to run for profit, you can do two things: be more efficient or cut costs.

Cost-cutting as a loss-reducing measure has some very direct results obvious for and discouraging passengers: reduced services, weedy tracks and platforms, stinky dark abandoned station buildings.

But indirect effects are worse. A passenger no more able to board trains on a branchline station is likely to be lost as express train passenger, too. This is even more true for freight. Why the managers believed that customers would want to transport freight on lorries for 80 km and then re-load on trains, and a few hundred kilometres later again load on lorries, is beyond me – but there was for example the infamous project of such a loading station near Erfurt back in the Dürr years, which received practically zero traffic.

So cost cutting was also income cutting. What about efficiency?

The most expensive part of rail track is switches. So the DB managers thought, let's remove as many as possible during line upgrades!

The result: increased delays.

On one hand, the options for slower trains to make way for faster trains reduced, so the choice for traffic controllers was either small delays cascading down to other trains, or small delays becoming big ones. On the other hand, if there was some exceptional situation, be it an accident blocking the tracks of track works forcing diversions, there was less spare capacity and chaos ensued.

Cutting up the railway into branches, as well as giving the states control of passenger transport, was meant to reduce centralised decision-making. However, if a transport or train or technological reform concerned more than one branch, or if a railway line led through more than one state, there was now trouble...

Where the effects of separation into branches were the most hilarious is locomotives. Initially, they were to be in a separate branch, that lends its services to the operating branches. But that wasn't too convenient for the latter, so the locomotives went over into the passenger, freight and express branches' ownership.

Now on one hand, this was done at a time the decades-long dream of railways, the universal locomotive became a reality: electric locomotives that are equally fit for slow and heavy freight trains, lighter and fast express trains, and light passenger trains with frequent stops; and thus a railway could make do with a few types in large numbers, reducing purchase and maintenance costs with economies of scale. So instead, every branch had to care for itself, meaning either locomotive shortage or more locomotives, and more types in smaller numbers.

On the other hand, locomotives also need regular checks and maintenance – and maintenance shops were divided between the branches, too. So either distances for shop runs increased greatly, or capacities had to be doubled, expertise was lost, and say express locos that could be sent out again for a night freight run sat idle more. What efficiency!

And what customer friendliness. In the eighties, the West German railways created the InterRegio brand: lower-quality, lower-frequency long-distance express trains, above limited-stop local trains but below the IC/EC express and ICE high-speed trains. They proved very popular – but not with the heads of the new branches: they felt it draws away customers from core business. The service was slowly killed and partly replaced with slower long-distance local trains (which are a treat on longer distances), despite loud passenger protests.

Competition with the new privates, as suggested before, was marked by use of monopolistic power that only hurt the rail sector overall. High track use charges at critical points, removal of infrastructure a private would have used were the more obvious moves. Another notorious practice was to send all old locomotives immediately to a scrap metal trader, to prevent competitors from purchasing cheap rolling stock that already has permit to run on German tracks.

The current plans and their criticism

After DB AG at last achieved some profits, the current Grand Coalition government finally got itself to put Separation into a law proposal. But that only nominally: the federal state would be the nominal owner of railway infrastructure, but for 15–18 years, the privatised DB AG would continue to manage it – where of course the main issue is money, money collected from train operators for track use.

And money is the reason that the states rebel. They ordered a study of the plan, which also notes that a private DB AG's drive for high yields will lead to more branchline closures and service reduction, but what made a splash is the issue of track use charges. DB AG plans to continue to raise those with an annual 2.4%. But in the current construction, that won't be the problem of train operators: they can pass on the costs to the states subsidizing passenger trains!

Meanwhile, the parliamentary faction of the CDU made modification proposals to the SPD-led ministry's plans, sensing problems:

• What if DB AG uses its infrastructure management powers to kill off lines by lack of maintenance or overpriced track use charges, even against government plans? So let's give the federal state the power to command execution of its plans! Sensible, but then why privatise at all?

• Can we trust the managers to keep promises? Let them first present financial and service plans, and see if they can keep them in a one-year test period! Sensible, but wasn't just that what DB AG did for fourteen years now?

...and some similar points. These were also expounded on in the German parliament a week ago. To which a Left Party member of parliament responded:

CDU/CSU Fraktion im Deutschen Bundestag | Aktuelles

Why it was bound to not work out and won't in the future

...or some considerations on the level of principles.

Did railways suffer from lack of competition? I think that is a silly question. Railways were exposed to competition: road, also air and river barges. Railways aren't a market, just a market share.

The position of rivals on the transport market is influenced by taxes, subsidies, effects of past subsidies, accounted and unaccounted externalities, rules to abide by. Changing those takes state intervention.

Are railways like roads in operation? No. Railways is transport in large amounts. Trains have to be scheduled to follow each other efficiently. Instead of one car all the way, trains are changed, which calls for coordination and similar standards and rules for users.

Most importantly, infrastructure and rolling material is deeply inter-dependent. You install a new lineside signal, trains have to be fitted with detectors and drivers re-trained. You save money spent on new vehicles by sparing maintenance-intensive suspension elements, you get higher track wear, and from that worse ride quality for all trains. You can't run through services with your shiny new electric train if a different system or none is maintained in the middle, you can't access a certain terminal station if a certain switch is missing. I already mentioned maintenance shops and sidings.

So, in my opinion, separation of infrastructure and operation (and also separating operation into different branches) can only lead to more short-sighted decisions, more breakdowns of cooperation, and much more attempts to shove off costs – and investments even more so – as externalities. The latter practice may lead to overall increased costs and increased neglect at the same time, see British example.

Not that the standard for stupid decisions is high with managers from elsewhere, who, say, don't even know that force and power aren't the same (and order powerful freight locos whose wheels would slip at much less than full power on a climb in a rain).

Now this only considers the desired end state. But one would have to get there. But the way there on one hand involves a frantic effort to save money that is bound to deteriorate service, on the other hand, counter-forces generated by the process itself.

I mean, if you let private companies suck off profit from a busy mainline, the less you can maintain a branchline. I mean, the folk sport of shoving off costs as externalities will get opposition from those who are supposed to pay the bill, see present reaction from the states. I mean, how can you expect anyone to gladly give away market share, wasn't it to be expected that DB AG will fight the new rivals tooth & nail with every trick it can find?

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