The decision by one of Victoria’s main transport operators (British-owned National Express) to withdraw from the rail and tram part of its business has potentially important implications for the State’s quasi-privatised public transport arrangements and also for the role of the union movement. But it also needs to be assessed against the background that the continued decline in usage of public transport – down to only 6 per cent of travellers Australia-wide according to the 2001 Census - suggests that the quality of service needs considerable further improvement. With increasing urban congestion from car traffic, this will assume increasing importance.

National’s decision can be looked at in one of three ways.

Supporters of government operated public transport systems will see it as an indication that the franchise cum leasing arrangements introduced under the Kennett Government are failing and that the State should resume direct control. An alternative view is that the withdrawal reflects on-going losses by National Express that have been incurred because it paid too high a price to run the rail services for 10-15 years under the franchise contract arrangements it entered in 1999. A third perspective is that the Brack's Government has failed to deal with problems outside the control of National but which have contributed to the losses incurred by it.

Advocates of government operated public transport will find no comfort in Transport Minister Peter Batchelor’s decision to rule out the resumption of government control although they may be encouraged by his questionable idea of moving to a one train and one tram business. This sensible decision for the system to remain in private operation is hardly surprising given the enormous cost the old Victorian Public Transport Corporation imposed on the Victorian budget and the associated gross over-staffing that the union movement had obtained.

A major defect of government run transport or other enterprises is that politicians are hard put to resist union disruption and similar political pressures without making concessions that add to costs and involve the uneconomic use of resources. Governments are not suited as managers of enterprises and the Labor Government’s infamous cave-in to the Tramways Union in the 1980s illustrates the inherent difficulties.

Indeed, notwithstanding problems with the privatisation of the railways in the UK (which seem due more to the particular arrangements adopted than to privatisation itself), just about every government overseas continues down the privatisation track. True, the OECD recently reported a decline in privatisation proceeds from $US 140 billion in 1999 to "only" $US 100 billion (mainly from telecommunications) in 2000: but mainly because there are fewer government enterprises left to sell!

The World Bank has also pointed out that, while "some state-owned enterprises have been efficient and well-managed for some periods, .. government ownership seldom permits sustained good performance over more than a few years" . Significantly, "the process of privatisation can and has worked ..for a variety of enterprises in a variety of settings, including in poor countries".

In Australia a recent Productivity Commission report on movements in prices charged by trading enterprises since 1990-91 shows the benefits of increased exposure of such enterprises to competition as a result of privatisations and corporatisations. While in urban transport prices have risen slightly faster than inflation, they needed to do so to reduce the enormous costs being met by taxpayers because of the deficits previously incurred on investment in that area.

Since 1998-99 the increase in Victorian urban transport prices under privatisation has been less than in NSW and, while Minister Batchelor could not resist yesterday highlighting what he perceives as the "disastrous financial consequences" of the Kennett Government privatisation, these (unexplained) consequences have not stopped him praising the improvements under the system. Indeed, he acknowledged that "over the last three years we have seen dramatic improvements in the punctuality and reliability of our train and tram services. Customer satisfaction is at an all time high, service levels have increased and new state-of-the-art trains and trams are coming on to the network each week."

He also offered National an additional $90 million subsidy under the franchise arrangements. As negotiations between National and the Minister extended over a year, it is difficult to assess the reasons for National’s decision to reject this offer. Perhaps its one off nature and the rejection of guaranteed caps on future losses were the clinchers. But there is also an implication that National’s original bid may have assumed too great a scope for productivity improvements.

There seems little doubt, however, that there are problems existing in the present system with which the Government needs to involve itself to a greater extent. Any contractual arrangement between private enterprise and government that involves the provision of a subsidised public service – as this does - requires the Government to provide an institutional framework that allows the enterprise to function efficiently. There is a need, in particular, to bring union disruption under better control and to help overcome the high fare evasion levels that have caused significant revenue losses.