(Last updated on: 03/04/2020)
Privatisation in the transport industry is something that we have seen more and more in recent years. In this post, I will briefly outline some of the benefits and limitations of privatisation in the transport industry, with some examples.
The transportation industry is a huge industry for the UK. It is also a very important part of the tourism industry, as I explained in this post- ‘The relationship between transport and tourism‘. The transportation industry consists of a few different forms of transportation including road, air, rail and water networks.
In recent years, this booming industry has made some significant changes. Like with all things, these changes have been both positive and negative on the economy of the UK.
One of the most prominent shifts has been privatisation in the transport industry.
What is privatisation in the transport industry?
Privatisation is the process of transferring an enterprise or industry from the public sector to the private sector. The public sector is the part of the economic system that is run by government agencies. What this means is that what once was part of the economic system run by the government will become privately managed.
One of the biggest examples of privatisation in the transport industry was British Airways in 1987. The company were struggling to make a profit at the time and so by the Conservative Government sold it off for a profit to lessen the burden on the British taxpayer. More recently, a significant proportion of British railway has been subject to privatisation in the transport industry. The effects have been somewhat less desirable, however, with continually rising train fares and disruption caused by employment disputes.
What are the benefits of privatisation in the transport industry?
There are a few benefits of privatisation in the transport industry. One of the most beneficial aspects is that selling state assets raises money to be used in the wider economy. This will inevitably positively impact the economy in the UK.
Improved efficiency is another benefit of privatisation in the transport industry. This is because private companies have profit incentives and are therefore likely to have cost-cutting practices that might not be well received in the public domain. They are also more likely to offer staff incentives such as bonuses or promotion prospects to increase efficiency.
With private organisations there is little political interference. This means that private companies are often better placed to make profit driven decisions than companies in the public sector.
Unfortunately, Governments often think only as far as the next election and this impacts the decisions that they make. Private companies do not have this consideration and are therefore more likely to have more strategic, long-term planning.
For more on the levels of planning in tourism I suggest you take a look at this post- ‘Different levels of tourism policy and planning‘.
Lastly, privatisation in the transport industry can be beneficial because it increases competition, which can help to regulate the industry and to drive down prices for consumers.
What are the disadvantages of privatisation in the transport industry?
For the economy of the UK, one of the prominent disadvantages of privatisation in the transport industry is that the priorities may be focused towards profits as opposed to public needs. This may negatively impact the people of the UK and the overall economy.
There is less ability to regulate prices, hence the continuous rises in train fares, as I noted earlier.
The Government may also lose out on potential profits by selling off businesses for private ownership.
Privatisation in the transport industry can cause fragmentation of industries. It becomes unclear who owns what.
Lastly, private companies may have short term plans, for example to make fit fast to please shareholders.
As you can see, there are a range of benefits and limitations of privatisation of the transport industry, as I have have summarised in this post. What are your thoughts about the privatisation of the transport industry? Comment below!
If you wish to cite any of the content in the post please use reference ‘Stainton, Hayley. (2020)