Going Further Off the Rails

Going Further Off the Rails
Boris Kagarlitsky
The Moscow Times, 16 July 2002

The privatization of the railroads is underway. Why? The answer is so simple even a Neanderthal could understand it: If the government owns something, it has to be privatized.

At a conference in Washington once I asked an American economist, who had delivered a paper on the success of reforms in one of Russia's regions, what he considered to be the criteria for determining the success of privatization. He said that he had only one criterion - the number of privatized enterprises. Following this approach, privatization is pretty much guaranteed to succeed. "But what if we introduce some additional criteria", I said. "Like determining how privatization affects production, prices, profit and employment. Or finding out if consumers are satisfied". "Somehow that never occurred to us", the economist said.

Too bad. If economists had thought about these issues they would understand why more and more people in Russia regard private property with deep skepticism, and why the transfer of state-owned property into private hands is seen as nothing short of theft.

There's nothing simpler than labeling critics of privatization as defenders of the old regime who would send us all back to a totalitarian hell. And there's really nothing more ridiculous than a government trying to provide women with fashionable footwear, or a meeting of the ruling party's central committee devoted to bringing in this year's harvest. The problem is that in 10 to 15 years people will laugh in the same wry way at the current attempt to fix our rail system by entrusting it to private entrepreneurs.

In search of a suitable model, Western-oriented Russians turned to the experience of Britain, an experience that in Britain itself now evokes not laughter but tears. Britain's railways monopoly was privatized and broken up in order to promote competition. The track became the property of one company, while the trains became the property of a number of operating companies. As might have been expected, trains soon began jumping the tracks and crashing into one another. News reports of the dead and injured in railway accidents came to resemble reports from the Middle East. Average train speed slowed to a pace not seen since the reign of Queen Victoria.

Behind the mechanical problems lie economic and social ones. Not all routes are equally profitable, for instance. But closing routes that operate at a loss means inconvenience for passengers and financial ruin for entire cities.

Following privatization, the owners of railway companies in most countries soon began asking their governments for subsidies to keep the trains running. And they got them. Otherwise many lines would have been closed for good.

The left is not alone in calling for renationalization of the British railways these days. Even some commentators at the Financial Times contend that since transportation networks cannot survive without financial support from the government, it makes more sense to return them to the public sector. But admitting the failure of privatization would spell political suicide for politicians.

All this and more still lies in store for Russia. In fact, the plan is to carve our rail network into even smaller pieces than the British did. Russia is a much bigger country, after all. It has enormous sweep and scale. And this applies in equal measure to the disasters that will, almost certainly, ensue once the promised reforms are implemented.

When privatization is completed, we will be told, as always, that we've headed down the wrong road, but that it's too late to turn around. The results of reform, you see, are irreversible. And that's just the railroads. Imagine what fun it will be when they break up the country's power grid, complete housing reforms, and introduce new rules for telephone service providers.

When all these grand enterprises are finished, a quarter of Russia's population might well wind up without electricity, phone service or transportation. Nothing out of the ordinary, if you think about it. Most of the world lives in similar conditions. Why should Russians be any different? The top 10 percent of the population won't be affected, and somebody will surely get rich off the whole mess.

Faith in the omnipotence of the market's invisible hand is no better than faith in the guiding role of the party. But it's even more dangerous when ideology is driven by financial gain. If the stars come out each night in the heavens, somebody must need them to do so, Vladimir Mayakovsky once wrote. And if the railroads are being privatized, you can be sure someone's going to profit.

Copyright 2002 The Moscow Times