An organization in transition

Many consider the poor performance of the train in Europe to be a consequence of two situations. One of course is the unfavourable development of external factors (that is, the context) discussed above. The other is the fact that train services have become the product of the restricted freedom and autonomy of the railway companies. This is often connected to their being operated as public services instead of private businesses. To this (not unquestioned) line of argument one could add a destructive comparison with profitable passenger services in southeast Asia (The Economist, 1996). An examination of the performance of western European railways in the period 1977-1990 (Railway Gazette International, 1994) shows a varied picture. All railway companies had productivity gains. Train kilometres per staff member rose on average from 2302 to 2926. Internal differences were pronounced, ranging in 1990 from a high of 4484 km per staff member in the Netherlands to a low of 1568 km in Italy. However, in all cases receipts were less than the expenses. Also, the cost recovery ratio worsened: it dropped from an average of 59% in 1977 to 46% in 1990. The sole positive exception was in the UK, where it rose from 71% to 82%. Furthermore, the report saw evidence of a deteriorating financial situation. This was attributed mainly to inadequate public service compensation for social services, and failure of investment to produce adequate returns. Other sources confirm these points. For instance, the supply of social, non-profitable services is currently estimated at about half of the costs of rail operations in the UK, France, and Germany (The Economist, 1996). Indebtedness is particularly severe for railways that have taken the path of otherwise much needed massive investment spending (Batisse, 1994).

In the period covered by the Railway Gazette International (1994) report, the market share of the train decreased from 7.6% in 1977 to 6.7% in 1990. The exceptions were in the Netherlands, with a rise from 6.4 to 6.9%, and Sweden, with a rise from 5.4 to 6.1%. The biggest market shares in 1990 were those of Austria and Switzerland, with 11.1% and 10.8% respectively. The lowest were in Ireland, with 3.6%, followed by Norway (5.1%) and the UK (5.4% and declining). The UK data are disturbing: they give the impression that any higher cost recovery may be at the expense of market share. Indeed Fitzroy and Smith (1995) reach this very conclusion.

Many initiatives have been taken in an attempt to reverse these trends. In Europe, a quite remarkable (if not always unambiguous) consensus exists on the need to defend and further develop the railways. Emergency measures, reforms, recovery plans, restructuring, investments and cut-backs: all these approaches have been tried, sometimes with noteworthy results. A persistent problem is the extreme compartmentalization of policies and programmes at the national level, with little communication between European railways. While there are some recent signs of change, several parallel, alternative programmes are for example running for the development of high-speed technology. This is a striking example of the absence of the international and open approach that has been fuelling innovation in the air and sea transport sectors (Batisse, 1994). A similar conclusion was reached in our interviews with the property departments being set up by railway companies throughout Europe (Bertolini and Spit, 1996). There was interest in each other's experiences, but actual knowledge appeared to be limited; and there was little evidence of learning any lessons from across the border.

Paradoxically, the range of possible organizational innovation is limited by the European Union's agenda, outlined in Directive 91/440. The Union pursues for its railways (Cornet, 1993) management autonomy, clearance of past debts, separate accounting for infrastructure and operations, fees for the use of this infrastructure, the possibility of creating new railway ventures, infrastructure access rights for these ventures, and special access rights to infrastructure for intermodal transport operators. For its part, the International Union of Railways (UIC) has also agreed on a set of objectives, which entail (Cornet, 1993) complete autonomy in international traffic, special contracts for transport covered by public service obligations, total freedom in the management of human resources, a substantial increase in the level of investment, harmonization of the conditions of competition between all modes, a significant reduction in production costs, improvement of the financial situation, separation of infrastructure and operating accounts, balancing of the budget on a company level and in each business sector, increased market shares in profitable growth sectors, and internalization of external costs for all modes.

While there are significant shifts in emphasis, a common orientation seems thus to be taking shape. But there are several fundamental questions still awaiting an answer. Some particularly important ones are the following:

• Should railways concentrate on areas of strength (high-speed lines or commuting, for example) or on improving the whole network?

• In what measure should railways enter the business of travel-accessory services?

• Which are the most appropriate institutional arrangements in the light of national heritages, which are often strongly conditioning?

• What is the right mix of cooperation/integration and competition/ disintegration between railway companies and services?

In each European country different, tentative answers to these questions are being tried. There is as yet no unequivocal picture emerging. The challenge is daunting: European railways have to find ways of making more efficient use of a transport mode that is gradually losing market share. In this context a particularly important development appears to be the move towards separation of management of operations and infrastructure. However, here also there are in practice many different interpretations, ranging from simple separation of accounts to total disintegration, with France and the UK occupying the two extremes in Europe (Bowers, 1995; Brooks and Button, 1995). And the real point may be yet a very different one. In a study of 16 OECD countries, Oum and Yu (1994) concluded that, besides contextual factors, it is not so much the ownership regime but rather the degree of freedom for managerial decision-making that is the crucial variable in achieving economic efficiency.

The situation is thus still one of continuous change. A balance sheet is hard to draw up. However, it is already apparent that until now no approach has unequivocally solved the central dilemma of how to increase economic efficiency while also satisfying wider political goals such as sustainability, equity and regional development.

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