ECONOMIC RESEARCH CENTRE

EUROPEAN CONFERENCE OF MINISTERS OF TRANSPORT

PARIS 1 991
 ECONOMIC RESEARCH CENTRE

REPORT OF THE
EIGHTY-THIRD ROUND TABLE
ON TRANSPORT ECONOMICS

Held In Paris on 7th-8th December 1989

on the following topic :

THE ROLE OF THE STATE IN A DEREGULATED

TRANSPORT MARKET

EUROPEAN CONFERENCE OF MINISTERS OF TRANSPORT

 THE EUROPEAN CONFERENCE

OF MINISTERS OF TRANSPORT (ECMT)

The European Conference of Ministers of Transport (ECMT), an inter-governmental

organisation established by a Protocol signed in Brussels on 17th October 1953, constitutes a forum for
the Ministers of Transport of 19 European countries1. The work of the Council of Ministers is prepared
by a Committee of Deputies.
The purposes of the Conference are:
a) to take whatever measures may be necessary to achieve, at general or regional level, the
most efficient use and rational development of European inland transport of international
importance;
b) to co-ordinate and promote the activities of international organisations concerned with
European inland transport, taking into account the work of supranational authorities in this
field.

The matters generally studied by ECMT include: the general lines of transport policy;
investments in the sector; trends in international traffic and the relevant infrastructural needs; specific
aspects of the development of rail, road and inland waterways transport; combined transport issues;
urban travel; road safety and traffic signs and signals; access to transport for people with mobility
handicaps. Two other subjects on which attention is now being focused are the future applications of
new technologies and protection of the environment, while statistical analyses are also made of trends
in traffic and investment and are published each year.
The ECMT organises Round Tables and Symposia. Their conclusions are considered by the
competent organs of the Conference, under the authority of the Committee of Deputies, so that the latter
may formulate proposals for policy decisions to be submitted to the Ministers.
The ECMT Documentation Centre maintains the TRANSDOC database, available on-line
through telecommunication networks.
For administrative purposes, the ECMT Secretariat is attached to the Secretariat of the
Organisation for Economic Co-operation and Development (OECD).

1. Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, the Netherlands, Norway, Portugal, Spain,
Sweden, Switzerland, Turkey, the United Kingdom and Yugoslavia. (Associated countries: Australia, Canada, Japan, the United States. Observer
countries: Hungary, Morocco, Poland.)

Public en francais sous le titre :

LE ROLE DE L'ETAT DANS UN MARCHE

DES TRANSPORTS DEREGLEMENTE

© ECMT, 1991

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Application for permission to reproduce or translate

all or part of this publication should be made to:
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 TABLE OF CONTENTS

THE ROLE OF GOVERNMENT IN A DEREGULATED TRANSPORT MARKET

(ACCESS, COMPETITION, SAFETY)

BAUM, Herbert 5

UK EXPERIENCE WITH FREIGHT AND PASSENGER REGULATION

BEESLEY, Michael 45

REGULATORY REFORM IN THE TRANSPORT SECTOR: EXPERIENCE AND

IMPLICATIONS

The Japanese Delegation to the OECD

NOULTON, John
VIOLLAND, Michel 77

SUMMARY OF DISCUSSIONS

(Round Table debate on reports) 125

LIST OF PARTICIPANTS 137

ECMT - ECONOMIC RESEARCH CENTRE

Forthcoming publications , 141

 THE ROLE OF GOVERNMENT

IN A DEREGULATED TRANSPORT MARKET

(ACCESS COMPETITION, SAFETY)

Herbert BAUM

Universitat Gesamthochschule Essen

Essen

Germany
 SUMMARY

1. INTRODUCTION 9

2. MARKET ACCESS 10

2.1. The market failure theory 10

2.2. Deregulation experience 11
2.3. Structural crisis in transport competition? 12
2.4. Turmoil on the transport market? 15
2.5. International market entries under distorted conditions of competition 16
2.6. Market entry policy under deregulation conditions 17

3. COMPETITION 22

3.1. New programming 22

3.2. Concentration and market dominance 23

3.3. Cartels 23

3.4. Abuse of market power 24

3.5. Competition-neutral transport infrastructure policy 26
3.6. Need to adapt competition policy 27

4. ROAD SAFETY 28

4.1. Road safety an economic problem? 28

4.2. Modal split and safety 29
4.3. Concentration and road safety 32
4.4. Social regulations and speed limits 33
4.5. Technical defects in vehicles 34

4.6. Proportion of foreigners and road safety 34

4.7. Regulatory measures to increase road safety 36

5. CONCLUSIONS 38

NOTES AND REFERENCES 39

Essen, June 1989

 1. INTRODUCTION

The existence of the single European market as from 1993 will mean the deregulation of
goods transport. This will directly concern frontier-crossing traffic between the twelve member
States of the European Community. Liberalisation measures have already been introduced: road
haulage quotas are being increased in stages and all limits will be removed after 1992. The compul¬
sory price system has already been abolished and was replaced by reference rates on 1st January
1989. Work on the harmonization of the conditions of competition is proceeding at full pace.

The situation on the individual national, domestic transport markets is different. They are, de
jure, still subject to the market regulation of the individual state. However, it is expected that the
deregulation of international traffic will act as an economic lever on the national markets too, and
have liberalising spin-off effects on them. In what follows, it will be assumed that the "deregula¬
tion and competition" scenario will win through.

What would the state's tasks be on a liberalised transport market? It might be thought that the
need for state action would be reduced to a "laissez-faire" minimum. This view would be wrong:

The institutionalisation of a liberal market constitution requires close political and ad¬
ministrative accompaniment;

The state has to provide a surrogate control as an alternative to the former regulatory sys¬
tem: market, instead of hierarchy control to ensure competition, rather than control of
competition;

Deregulation will have a positive influence on allocation, productivity and growth. Dis¬
tortions and unpleasant surprises cannot be excluded, however1, so precautions will need
to be taken.

The quality and quantity of the action required from the state will depend on the effects of
deregulation. The direction and force of these effects will determine the political task. In what
follows, therefore, the question of whether and why state action is required will be the first consid¬
eration. What needs to be done derives from this.

The case examined here is the European goods transport market with conditions of free com¬
petition between railways, inland waterways and road haulage. The deregulation problem reaches
its culmination in road haulage, so this sector will frequently be given special consideration in the
discussion. The effects of deregulation are complex and felt in many different fields (including the
use of road infrastructures, environmental pollution, regional effects and income distribution).
This study is limited to the market access, competition and road safety aspects.
 2. MARKET ACCESS

2.1. The market failure theory

The following groups of transport suppliers can be expected to enter or exit from the market in
the case of liberalisation:

Established commercial carriers who expand their capacity;

Local delivery carriers who were formerly excluded from long-haul traffic;
Firms with their own transport fleets, who will offer commercial haulage services if the
ban on carrying for third parties is removed;

Newcomers to the transport sector, including new independent operators;

Foreign carriers, who will be increasingly active in frontier-crossing traffic, but also in
domestic traffic with the removal of the ban on cabotage;

Road transport forwarders are likely to exit from the market because of a sharper division
of labour between forwarding and carrying enterprises.

One of the arguments against deregulation is that carriers and shippers would wrongly inter¬
pret and use the signals and incentives of the free market. This would lead to distortions of alloca¬
tion with undesirable consequences for the quality of transport services, technical progress, road
safety, working conditions in transport companies and environmental protection. In order to pre¬
vent this, the state should either continue to control market entry in the future or at least take precau¬
tions against exaggeratedly fierce competition. Competition on the goods transport market or
so the argument runs is only possible within framework conditions set by the state.
The consequences of market failure are seen as creating the following undesirable
developments2:
Chronic insecurity on the market for transport firms as the result of too many entrants and
the difficulty of exit. Symptoms are overcapacity, lasting price pressure, inadequate re¬
turns over the long term, below average wages, deterioration of service quality, inade¬
quate innovation;

Market fluctuations of the hog-cycle type with overshooting cyclical market entries and
exits. Equilibrium at a new level would be found only after a long, painful adjustment
process causing considerable losses to the economy as a whole. Efficient as well as ineffi¬
cient transport undertakings are caught up in the general turmoil of the market. There
would be constant swings between overcapacities with depreciation of capital and redun¬
dancies, and bottlenecks with price increases and inadequate supply;

Concentration of transport undertakings. In free competition conditions only the stron¬

gest firms would survive. This would lead to a compulsion to grow, resulting in cut¬
throat competition, mergers and the accumulation of market power;
Unfair competition on international transport markets with a growing market share for
foreigners and increased "flagging out" of domestic transport undertakings. This could
lead to a thinning of the supply of transport services and a deterioration of service quality.
This fear of market failure is not equally marked in all European countries. It is felt particu¬
larly in those countries that have hitherto been highly regulated, whereas in countries that have ex¬
perienced competition and recognised its advantages, there are scarcely any fears on this subject.

10
2.2. Deregulation experience

Attempts are made to use the "tragedy of American deregulation [3]" to point up the looming
dangers of liberalisation. But, in fact, it is very difficult to make a clear-cut evaluation of the evolu¬
tion of economic parameters on the United States transport market since the Motor Carrier Act
(1980), or to be conclusive about cause and effect. American exegetes paint quite different pic¬
tures, depending on which interest group they belong to.
The following facts are undisputed, however4:
Since deregulation there have been a great many entries to the road haulage market. Be¬
tween 1978 and 1987 the number of commercial carriers registered by the Interstate
Commerce Commission more than doubled from 17 000 to 38 000. It is the smallest

firms, the owner operators with only one or two trucks, that have increased in number.
The number of large and medium firms has actually been falling since 1980;
The number ofbankruptcies has risen sharply since deregulation. Before 1980, about 250
road hauliers "went to the wall" each year. Since then there have been about one thousand
a year;

After deregulation there was a substantial fall in prices and hence reduced profit margins;
In recent years the profitability situation has become more normal and in some cases there
have been considerably increased margins. This has been made possible by improve¬
ments in productivity and efficiency;
In the carriage of small consignments ("less than truck traffic") there has been an in¬
creased concentration of firms.

However, these market developments are not exclusively due to deregulation. The general
economic situation has been largely responsible for the falls in prices and earnings and the rise in
the number of bankruptcies. Deregulation in the United States came at the very time when the
American economy was entering the worst recession since the world economic crisis of the thirties.
The strong dollar at the beginning of the eighties allowed a sharp increase in imports which reduced
the demand for and transport of domestic goods. Rising costs (fuel, compulsory insurance) re¬
duced profits. Price reductions were not only the result of competitive pressure, but also a result of
greater efficiency.
There were no serious distortions of the market following deregulation in the United King¬
dom (Transport Act 1968)5:
The number of market entries and exits certainly rose considerably, but without causing
any lasting instabilities;
The proportion of bankruptcies is no higher in transport firms than in other types of
business;

Competition in road haulage is relatively fierce. This results in price fluctuations that
depend above all on short-term economic trends;
Road haulage productivity rose substantially after deregulation and capacity utilisation
was considerably improved;
The competitiveness of transport undertakings was strengthened by deregulation. The
decline of own-account transport shows that the quality of service of the commercial
hauliers has improved.
The deregulation experience in the United States and United Kingdom does not confirm the
theory of failure of the market entry mechanism. What is to be expected following liberalisation in
the European Community?

11
2.3. Structural crisis in transport competition ?

The abolition of quotas in road haulage will trigger market entries. But a structural crisis in
the haulage industry, with exaggeratedly high numbers of entries, chronic overcapacities, poor
service quality and market turmoil is unlikely. A supply surge as a result of opening up the market
will be dampened by the entry-retarding effects discussed below.

2.3.1. Price expectations

The higher price level on the hitherto regulated market, as compared with the free transport
market, incites market entries. But the number will be limited after deregulation to the extent that
the newcomers base their decision on the post-entry price6. Falling prices due to increasing market
entries and the price reaction of established competitors will limit the potential profitability of
market entry.
It is difficult to estimate the post-entry price. Forecasts for Germany indicate that the trans¬
port price level will fall by 30 to 40 per cent '. There are possibly wrong expectations here (price
illusions) on the part of potential entrants, for example very small suppliers, leading to an over¬
shoot of market entries. But these are only frictions that will be ironed out in a dynamic adjustment
process leading to the establishment of a new market equilibrium. In the longer term the decision
calculation of the basis of the post-entry price will take the drama out of the market entry process.
Liberalisation will lead above all to a change in the price structure8. Price pressure will re¬
main relatively slight on market segments where there are high qualitative demands on transport
services, and where services go beyond just the pure transport operation (e.g. logistic chains).
These demands are increasing in the economic growth process. On markets with low quality re¬
quirements, where simply the transport operation is what matters, considerably larger price falls
are to be expected.

2.3.2. Growth of goods transport demand

As a result of the overall economic trend, the integration effect of the single European market
and the deregulation of the transport market will be greatly increased.
On the basis of econometric and opinion poll estimates of the price elasticity of demand in
goods transport, we have established9 that shippers are relatively responsive to price changes. Lib¬
eralisation could potentially cause substantial switches of traffic between the transport modes.
However, the most marked effect of deregulation will be the substitution of own-account transport
by commercial haulage. Shippers will be increasingly inclined to buy the specialised and then also
cheaper services of the haulage industry.
Table 1 below10 shows forecasts and the author's own estimates for traffic growth in Germa¬
ny to the year 2000.

Railway and inland waterway traffic will increase only slightly, while there will be a very
considerable rise in road haulage. This is particularly true of international traffic. The total road
haulage traffic volume will change only slightly as a result of deregulation, however (because of
the decline of own-account transport). The favourable growth prospects for road haulage will in¬
crease the propensity to entry, but the reasons for this lie in the general economic trend, not in de¬
regulation.

12
 2.3.3. Trends in return on capital

The propensity to entry depends essentially on the profitability trend. The road haulage in¬
dustry in Germany has long been complaining about the poor profit situation. Only 6 per cent of
haulage firms are said to have a substantial return on capital. Over a quarter of them have virtually
no own funds11. On the other hand, the prices for concessions (DM 150 000 to 200 000) indicate
that substantial profits are made. On the eve of deregulation the profitability situation of the haul¬
age firms is not so desperate that potential newcomers will be frightened off.

The thesis of reduced returns on capital as a result of liberalisation is not very convincing ei¬
ther. Reduced turnover resulting from price reductions will, to some extent, be compensated by
increased tonnage. Potential reductions in profits will be offset by productivity gains and greater
market flexibility.

After deregulation, differences in profit margins will appear. Firms with a predominantly
forwarding function will earn greater profits as the result of better prices for transport services.
Purely transport undertakings and truck forwarders, on the other hand, will have their profits
squeezed.

Table 1 . FORECAST DOMESTIC GOODS TRAFFIC IN GERMANY FOR THE YEAR 2000

Inland Road haulage

Railways
waterways LongJ Local

Base forecast' 297.1 222.1 440.5 2 367.6 3 327.3

Deregulation effect2 -7.2 +7.0 +0.8

Integration effect +8.6 +2.0 + 10.8 +96.4 + 117.8

Total 298.5 231.1 452.1 2 464.0 3 445.7

Change since 1990 (%) of which due to: + 1.2 +5.8 +21.2 + 13.0 + 12.4

Growth +0.7 + 1.6 + 18.1 +8.6 +8.5

Deregulation -2.4 +3.2 +0.2

Integration +2.9 +0.9 +2.9 +4.4 +3.9

1. According lo Ihe Prognos estimate of 1988 supplemented by the author's estimates of transit and GDR traffic.
2. The deregulation and integration effects operate from 1993, the base forecast is valid from 1990.
3. Commercial and own-account long distance haulage.
Sources: Author's calculations.

2. 3. 4. "Contestable market " criteria

After expected profits, the market entry of potential suppliers depends mainly on the contest-
ability of the market12:
Established firms and potential competitors must have access to the same technology.
There are no economies of scale in the transport business and the vehicle market is open to
anyone interested13. There are size advantages in the forwarding sector, however (stor¬
age, transshipment and communications infrastructures);

13
 Market exit must be free, i.e. there should be no sunk costs (e.g. liquidation losses on capi¬
tal goods). The transport vehicles certainly represent fixed costs but, because of their
geographical mobility, not sunk costs ("capital on wheels"). The situation is different
with the distribution and communications networks in the forwarding sector, as these are
immobile and thus more difficult to dispose of. "Hit and run" strategies in the forwarding
sector are therefore out of the question;
There must be no significant information or transaction costs. Deregulation will increase
the information costs as regards price and service conditions on the goods transport
market.

Summarising, it turns out that the road haulage and inland waterway transport markets come
very close to the conditions required for a contestable market. On the other hand, these conditions
are not fulfilled on the market for forwarding services, so that there are barriers to market entry
here.

2.3.5. Barriers to market exit

American experience has led to fears that the exit of transport firms from the market will be
delayed or blocked. Firms might not react to falling prices and profits by simply getting out of the
market. The smallest units in particular, the owner-^operators, tend to maintain their supply so long
as their operating expenditure is covered. The price threshold that forces market exit is very low
indeed.

This type of behaviour is encouraged by the cost structure of transport firms. Only 30 per cent
of total costs in road haulage are variable (i.e. dependent on vehicle-kilometres) and 70 per cent are
fixed costs. Through accepting period transport contracts, undertakings optimise the time costs
which are regarded as fixed and are willing to accept higher variable costs.
Empirical studies seem to indicate a trend towards "new independence" (sometimes through
subcontracting). The shift to independence is seen as an alternative to unemployment and this new
entrepreneurship comes about under poor conditions: no capital other than the operator's own la¬
bour, dependence on a single customer, no possibility of getting other contracts14.
The practical significance of such staying put is a matter for debate, however. In the transport
business the new entrepreneurs often earn considerably more than in their former jobs. The main
cost items (interest and repayments on the vehicle, fuel, insurance) necessitate direct expenditure,
which makes it difficult to remain in the market just to take the income. Certain costs (mainte¬
nance, repairs) can admittedly be delayed, but they eventually become necessary if the entrepre¬
neur doesn't want to be forced to stop operations. There is some room for manoeuvre in remunera¬
tion (renunciation of profits, no pay for members of the family who help in the business), but
whether a tendency to "self-exploiteiion" can prevail beyond the short term is very doubtful
notably in view of the existence of the social insurance system. Past experience has shown that
market exit does occur ir 'he transport industry. On receiving the appropriate market signals, thou¬
sands of small firms have opted out. "The idea that small transport firms are inclined to economic
suicide is untrue and contrary to experience15." If small transport firms actually manage to provide
their services at lower cost or manage to avoid certain costs, this is all to the good from the stand¬
point of the economy as a whole. This increases cost competition and promotes technical progress.
It would be to misunderstand the free market economy to think that the covering of the average
costs for the industry should be guaranteed by prices. The limit is reached only when capacity is
eliminated that is necessary for the longer-term supply of transport services. However as will
be shown by the analysis of potential market turmoil there are no signs that there is any real dan¬
ger of this.

14
2.4. Turmoil on the transport market?

Another market failure argument is the threat of turmoil on the deregulated goods transport
market. Not chronic overcapacity, but an adjustment process in a series of wild swings, with se¬
quences of market entries and exits through which liberalisation causes losses to the economy as a
whole (e.g. elimination of capital and know-how, quality deterioration).

2.4.1. Deregulation as an evolutionary process

Deregulation will not appear overnight, but is being introduced as an evolutionary process.
This will extend the period of the cycle of market entries and exits and damp down the swings.
Some steps toward deregulation have already been taken (building up of quotas and introduction of
reference rates in international traffic, price reductions in domestic traffic). According to our cal¬
culations, at most 10 per cent of the forecast deregulation potential has so far been exploited in Ger¬
man domestic transport (the position in 1988). The main consequences of liberalisation will thus
not be felt until after 1993 and it will take several years for the full effects to work through on the
market.

2.4.2. Time lags, rigidities and capacity adjustment

Market turmoil (in the sense of the cobweb or hog-cycle process) can be caused by time lags
and rigidities in the markets' parameters (output, capacity, demand). Inflexibility of this type leads
to the establishment of a new equilibrium being made more difficult through wrong estimates and
hence wrong decisions on the part of suppliers.
This kind of malfunctioning of the market is not typical of the goods transport sector. On a
free market, prices fall relatively quickly in response to market entries, and snippers' demand
reacts with only a short time lag.
On the other hand, there remains the question of delays in market exits. However, this prob¬
lem is mitigated by the fact that, on liberalisation, capacity is increased in the first place by estab¬
lished undertakings. Genuine newcomers enter the market only after a delay of several years16.
The reason for this is that the planning of engagement in a new business takes time. Established
large firms work virtually on an industrial basis and exhibit much less hesitation as regards market
exit than do newcomers. Because of the time lag for entries the market will not be flooded with
newcomers so, to this extent, the problem of barriers to exit is eased.
Even if supply is expanded, rapid reaction is still possible, so unbalanced, erratic market os¬
cillations can be avoided. There is scope for better capacity utilisation, output elasticity is relative¬
ly high and vehicles can be acquired rapidly. Certain obstacles are seen from time to time in inland
waterway transport, however. Because it takes a long time to build inland waterway craft, they tend
to appear on the market when demand has already shifted to the other transport modes. The high
capital cost of the craft is then an obstacle to market exit, so that the market as a whole is burdened
with overcapacity. However, increasing stabilisation of capacity policy is to be expected in the
context of the shipping companies' long-term planning. In any event, because of the existing over¬
capacity in inland waterway transport no investment is required to increase supply.
The biggest disturbing factor lies not in the private transport undertakings themselves, but in
the state's infrastructure policy. Transport infrastructure investments require very long planning
and implementation periods and once built cannot be corrected. Infrastructure bottlenecks affect
the market for transport services and create cyclical fluctuations on it. The particular importance of
infrastructures for market stability argues in favour of any such investment being part of an

15
integrated long-term transport infrastructure planning process, which itself should be oriented to¬
ward demand trends.

2.5. International market entries under distorted conditions of competition

In international competition on a deregulated transport market there are advantages for some
countries and disadvantages for others, because of unequal conditions of competition. Transport
undertakings from the advantaged countries are likely to react to liberalisation by increased market
entries, forcing out the disadvantaged domestic firms. The differences in the conditions of compe¬
tition also favour the trend towards "flagging out". These developments would damage the welfare
and the supply of the domestic industry. This again, so the argument runs, justifies the regulation of
national transport policy in order to protect the domestic transport industry.

2.5.1. Invasion by foreigners?

International competition in goods transport will become much fiercer in the single European
market. This is particularly true of road haulage.
Who will be the winners and losers in this international competition will depend on the per¬
formance of individual firms, geographical conditions, economic potential and political support:
Certain countries have already geared their transport industry to the Europe of the future.
This advance will reap its reward. In the Netherlands in particular, the concentration of
firms, service efficiency and innovation were promoted at an early date. In other coun¬
tries (e.g. in Germany), on the other hand, there was much "weeping and wailing" about
the looming foreign competition. The aim was to block competition by political means.
This aversion to competition is bound to damage the undertakings concerned;
For certain countries there are geographical advantages, e.g. for the Netherlands, because
of the great importance of the Rhine delta ports. Germany's position at the geographical
centre of Europe, and its being the country with the greatest traffic volume, means that it
is very attractive for market entry by foreigners. Conversely, the German transport indus¬
try has no very great interest in such things as cabotage traffic in foreign countries;
Advantages and disadvantages arise because of the differing conditions of competition
(including the tax burden, social and technical regulations, subsidies, company taxation,
wage costs). This is why harmonization is needed.
Prognoses such as those for Germany seem to fear a flooding of the market by foreign
carriers1 '. Because of the increased EC quotas, the number of foreign trucks operating in Germany
is expected to be three times as great in 1992 as it was in 1987. These estimates are based purely on
capacity, however. In fact the market share of foreign transport undertakings will depend not so
much on the number of concessions as on future demand. Substantial growth rates are certainly to
be expected in international traffic, but these will remain considerably below the growth rate of the
supply potential. It is also uncertain what capacity increase there will be with respect to the still
undecided cabotage regulations. The market potential for foreign firms will very much depend on
the extent to which a harmonization of the conditions of competition is implemented. This would
remove the problem of the prospect of a rapidly growing foreign market share.

2. 5. 2. Exodus of nationalsl

Another undesirable result of discriminatory international conditions of competition could

be the "flagging out" of domestic transport undertakings (as in maritime transport), i.e. shifting the
firm's registered office abroad and serving the same markets from the new location.

16
 Why is flagging out undesirable? The loss of autarky is no argument in view of the high elas¬
ticity of supply on the single European market. There could be negative effects on domestic em¬
ployment (labour market, vehicle industry sales) or on working conditions ("social dumping").
There are also reservations with respect to road safety. As compared to German carriers, foreigners
are more prone to break social regulations and speed limits, have less stringent technical inspec¬
tions of vehicles and are more resistant to sanctions. The increasing distance from the market of
flagged out undertakings makes dispatching more difficult, capacity utilisation deteriorates, more
vehicle-kilometres are covered for a given number of tonne-kilometres and the road infrastructure
is correspondingly overloaded.

Will flagging out be a serious problem? The allocation of the transport volume between do¬
mestic and flagged out firms will be determined by cost and efficiency differences between the two
segments of the international transport market18:
A successful harmonization policy in Europe will reduce artificial cost discrepancies. To
a certain extent there will always be some cost differences nevertheless (wages, company
taxes, capital and management costs); .

The cost-induced incentive to flag out will be partly compensated by the inverse efficien¬
cy differences. Relocating abroad means some deterioration of market presence and cus¬
tomer care, and transaction and information costs rise.

The duality of the international road haulage market will not be a serious problem as regards
these determinants. Already today it is possible to see a tendency towards European transport un¬
dertakings and forwarding firms with establishments and co-operation arrangements in foreign
countries. This "Europeanisation" process will continue and intensify in the single market. The
problem of legal nationality will be overtaken by economic reality in fifteen to twenty years:
"What is the nationality of a transport undertaking operating under Belgian law, using German ve¬
hicles, employing Portuguese drivers, and in which the majority holding is in the hands of a Dutch
group?"19.

2.6. Market entry policy under deregulation conditions

2.6.1. Qualitative market entry conditions

Subjective market entry conditions, connected with the quality of the transport entrepreneur,
should still remain on a liberalised transport market. They form no objective (quantitative) ob¬
stacles to competition, as it depends on the person of the potential entrepreneur whether he can ful¬
fil them. Qualitative market entry restrictions are intended to ensure that there is not an influx of
unqualified transport entrepreneurs with the attendant potential risk for the economic stability of
the market and for road safety.

In order to offset the abolition of the quantitative barriers to market entry, more stringent
qualitative market entry conditions are envisaged for frontier-crossing traffic in the European
Community20:

The personal trustworthiness conditions are not fulfilled if the applicant has been con¬
victed of a serious crime, or if his suitability for the position of transport entrepreneur is
disputed, or if serious breaches of the regulations governing wages or working conditions
or the carriage of goods have been proved against him;

17
 The financial conditions are fulfilled if the financial resources necessary for setting up
and running the enterprise in accordance with the regulations are available. Taken into
account are the year's results, bank balance, credits, assets and working capital. There is
an own-funds condition of at least 3 000 ECU per vehicle or 150 ECU per tonne of maxi¬
mum permissible all-up weight of the vehicles used;
The professional aptitude conditions are fulfilled if the applicant has demonstrated his
knowledge in a written examination, or has at least five years' practical experience in a
responsible position in a transport undertaking, or holds a college diploma attesting to the
relevant knowledge.

Qualitative restrictions on market entry, even if made more stringent, offer only relatively
slight protection against undesirable developments on the market. They ensure certain minimum
preconditions for competition. The competition process and market performance depend on beha¬
viour which can develop independently of the preconditions. Thus the criteria of personal trust¬
worthiness and professional knowledge are no barriers to exaggerated numbers of market entries.
Financial solvency is no guarantee of exit from the market at the appropriate time. The connection
between qualitative entry conditions and stabilising the function of competition depends on the hy¬
pothesis that someone who fulfils the conditions has a better understanding of the market and more
rational expectations. To some extent this may be true. The carriers' associations are to be seen as
acting in the same direction when they recommend transport undertakings to introduce better cost
accounting systems, make their calculations in a more critical spirit and not accept any transport
contract at any price.

Other arguments are less plausible. Thus there is no reason why a newcomer's ability to en¬
sure the service quality of a transport undertaking should be tested. The pressure of competition
will create the quality of transport and logistic services demanded by shippers.

It is no good hoping that possible market instabilities and risks can be avoided through quali¬
tative market entry restrictions at least not the sort of half-hearted measures that appear politi¬
cally feasible in Europe. Quality conditions are a homoeopathic kind of treatment: they do no harm
and little good.

Of course, the requirements could be made more stringent: an example would be a higher
own-funds minimum. These could lead to sub-optimal capacity. Furthermore, it could constitute
an incentive to invest in areas where there is no control of capital (e.g. computer installations), rath¬
er than in trucks. It is also not impossible that a higher own-funds minimum could develop into a
serious economic barrier to market entry21. Significantly higher admission standards lead back to
regulation. This limit must be observed, otherwise the advantages of liberalisation will be surren¬
dered without the effect of market stabilization being achieved in exchange.

2.6.2. Harmonization policy

The need for harmonization policy action is sometimes questioned. The argument runs that
the home country should accept artificially cheap transport supplies from abroad financed by
subsidies virtually as a "gift" from the foreign country. The home country should correspond¬
ingly reduce its own production of transport services, switching its resources to other goods in
which the foreign country has a comparative disadvantage; On balance, there would be a net gain to
the home country.

Such a "policy of surrender" would mean that instead of the most efficient transport undertak¬
ings having the best chance, it would go to the most highly-subsidised carriers. The international

18
allocation of production would be inefficient and the welfare of the European Community as a
whole and of the individual countries would suffer.

Harmonization as an indirect market entry policy measure for frontier-crossing traffic there¬
fore remains an important task. The Commission of the European Communities considers its work
in this field to be a success. The Council of Ministers of the European Communities has taken deci¬
sions on the social and technical regulations22, and the Commission has put forward its proposals
for fiscal harmonization.

The harmonization Directive is the result of political compromise. Both the underlying
theory and the form are disputed23. Two diametrically opposed positions have developed with re¬
gard to this Directive: one group demands some improvements; the other considers that the prob¬
lem of distortions of competition is satisfactorily solved by the existing set of rules:
Perfect harmonization cannot be achieved. National differences will remain in certain

areas (fines, social regulations);

The effect of differences in the social and technical conditions on the cost of transport
undertakings turns out to be relatively slight24. Cost advantages arising from the regula¬
tions can be partly offset by managerial measures (e.g. longer working hours can be com¬
pensated by means of better dispatching and organisation), productivity advantages are
reduced to some extent by cost increases (e.g. larger trucks have higher purchase and run¬
ning costs);

An important task in the future will be to ensure the application of and compliance with
the regulations. The necessary legal and practical instruments exist (including the breach
of contract procedure of the European Court and the exertion of influence by the Com¬
mission of the European Communities);

Considerable problems could arise in the field of state subsidies (e.g. infrastructure costs,
investment aid, covering of losses). The continued existence of differences in subsidies
in order to promote the domestic vehicle industry must be expected.
The German Government is trying to forestall an overshoot of market entries by foreign
transport undertakings because of tax advantages (vehicle tax) by imposing a road use charge for
trucks as from 1st January 1990. The charge will be neutral for German carriers, i.e. their vehicle
tax will be reduced by the amount they have to pay for the road use charge.

The ideal method would, no doubt, be a European harmonization of vehicle taxes at a medium
level while maintaining the nationality principle2^. However, if the other EC member countries are
not prepared to accept this compromise (by increasing their vehicle tax), the German compensation
strategy according to the territoriality principle remains appropriate.
There is still some disagreement, however, about whether the German position was not too
rigid in the first place and wanted to force too high a level of taxes on the other EC countries. Moti¬
vation research studies26 seem to show that by going it alone in this way German transport policy is
trying to avoid the disciplining effects of the nationality principle. This again leads to the suspicion
that in Germany the vehicle tax is retained as a potential tool for interventionist control of the trans¬
port market (relieving the motorways, improving the situation of the railways, environmental pol¬
lution) and could be extended by a new charge.

Fiscal compensation if it is maintained in the longer term and not just used as a harmoniza¬
tion lever must be categorised as opposing integration. The territoriality principle perpetuates
frontiers within the European Communities as tax frontiers. The danger of retortion on the part of
other countries cannot be discounted.

19
 Just how far the German Government alone is responsible for this "transport and European
policy irrationality" is an open question. It is true, however, that compromise offers of tax equalisa¬
tion from other countries did not come until it was realised that the German Government was seri¬

ous. No harm is done for the future if an harmonious solution is found by 1992, the charge can be
withdrawn. The goal is to have the same tax bases and rates for the vehicle tax, so that all undertak¬
ings in the European Community are subject to the same cost burden.

2.6.3. Market observation system

The transition to a free transport market with increasing competition and decreasing market
transparency involves risks that call for market policy precautions. In order to be able to detect
undesirable developments, it is necessary to have suitable market indicators, systematic statistical
monitoring and a correct economic interpretation27.
In 1 979 the EC introduced, on a trial basis, a market observation system for goods traffic be¬
tween member States. Its tasks were to collect, prepare, analyse, interpret, store and provide data
and information.

The present market observation system supplies the following indicators: tonne-kilometres,
short-term economic expectations arid price and cost trends for all transport modes. In a future
market observation system the following gaps and shortcomings must be made good28:
In road haulage, data collection should be extended to third country, transit and cabotage
traffic;

In order to be able to diagnose structural imbalances, data needs to be collected on capaci¬

ties and their utilisation;

For profitability analysis purposes, absolute price and cost data are required in addition to
indices;

In order to analyse the financial situation, accounting results need to be included (by
means of surveys);
Data collection procedures are not uniform throughout the different EC member States.
Not all countries participate in the market observation system. The quality of the data is
in some cases not satisfactory;
In cost surveys, productivity changes are not taken into account;
The surveys sometimes contain actual prices, sometimes only tariff data. The future
price freedom requires actual prices to be recorded;
Because of the danger of "strategic" responses by transport undertakings, subjective sur¬
vey data needs to be checked objectively;
Liberalisation will mean that prices will be formed not just for single transport opera¬
tions, but for full service packages (logistic services). This will make the extraction of
comparable transport prices more difficult.
Work on the market observation system should be continued in a methodical and empirical
fashion. In the analysis of market distortions it is not a matter of finer points of statistical method:
orders of magnitude will suffice. With improved data capture and market forecasting techniques,
we shall be able to get very close to the actual situation.

2.6.4. Crisis mechanism

Undesirable developments on a deregulated transport market are to be brought under control

by a crisis mechanism of the Commission of the European Communities. It is not clear just what

20
rules are envisaged in detail. An umbrella clause is expected29: in the case of fundamental and
lasting market distortion with a serious mismatch between transport supply and demand, any mem¬
ber State may apply to the Commission of the European Communities for crisis measures. The
Commission proposes the necessary measures.
The actual content of the crisis mechanism is still not decided. The following interventionist
economic policy instruments are being considered:
Minimum prices in the form of a compulsory state cartel of transport undertakings: this
deals with the symptoms only and provides a temporary safety net;
Quota regulations for the market shares of countries involved in frontier-crossing traffic,
as a way of restricting supply;
Market entry quotas for transport undertakings. Allocation can proceed according to dif¬
ferent methods (e.g. according to reference quantities in the past);
Buying and selling quotas and auctioning concessions. Since market quotas are allocated
nationally, this arrangement works as a fiscal barrier to market entry. This fiscal alloca¬
tion is intended to ensure that only the most efficient enterprises have a chance. Whoever
no longer needs a concession can sell it to another transport entrepreneur through an ex¬
change. From the economic standpoint this would be the most appropriate system;
Financial incentives for market exit through allowances for scrapping vehicles in the case
of lasting overcapacity. Financing would have to be through contributions from the trans¬
port industry, possibly topped up by state funds. The effectiveness of this measure could
be impaired by the clearing of the market being negated by further market entries.
The policy will probably be decided in favour of treating the symptoms through the ad hoc
introduction of minimum prices, possibly complemented by quota and concession arrangements.
This would, admittedly, be administratively simple, but it would be an economically sub-optimal
solution. It prevents a selection according to economic performance in adjusting supply under the
crisis conditions. There are, however, possibilities for a more efficient crisis mechanism, and these
should be seized by the European Community in its strategic planning.
More serious than the operational questions are the conceptual problems of the crisis
mechanism:

How will the "crisis" be diagnosed? This requires meaningful indicators, and sufficient¬
ly precise measurement and definition of a threshold, the passing of which triggers the
crisis mechanism. It must be ensured that only fundamental imbalances can give rise to a
temporary return to administrative regulation;
What type of crisis justifies a crisis mechanism? If liberalisation were to lead to a lasting
over-supply in the transport sector (structural crisis), a conservation strategy with market
regulation would make no sense. It would only contribute to the long-term reinforce¬
ment of the imbalance. In such a case the market mechanism ought to force the necessary
capacity adjustment. If need be, some protection of competition in the form of a structur¬
al crisis cartel could cushion, order and extend the period of the adjustment process, but it
would have to be ensured that there was a real reduction of capacity.
Crisis management is indicated in the case of a short-term economic crisis. Stabilisation
of the transport market would maintain capacity during a temporary cyclical reduction in
the volume of traffic, to be available when required again as the economy picked up.
However, the transport undertakings should also be required to demonstrate some spon¬
taneous adjustment. Crisis regulations can be considered only when there is exceptional
disruption.

21
 If it should be necessary to adjust capacity under the protection of crisis management,
then as far as possible this should not be done according to the principle of "equal sacri¬
fice" between EC member States, but using economic and price-based control instru¬
ments (e.g. auctions) that lead to the survival of the most efficient;
How can decision, control and sanction problems be solved? Precautions need to be tak¬
en to prevent crisis management decisions (regarding content, timing, dosage) turning
into a European battle over the distribution of incomes. Without fair compromises the
acceptance of regulation is endangered. This requires the taking into account of adjust¬
ment expenditure when reducing capacity, the renunciation of special regulations, the
curbing of attempts to maximise quotas on the part of individual countries. Administra¬
tive allocation systems ("round tables") can scarcely solve these problems.
In addition, it is to be expected that administrative market regulations will give rise to
attempts at evasion and avoidance on the part of transport undertakings (e.g. non-
application of minimum prices, exceeding officially established market shares). If crisis
management is meant seriously, it must prevent such forms of "shadow competition". In
view of the necessary extent of control and the different control capacities and traditions
in the different countries of the European Community, it will be a difficult undertaking.
On the other hand, such underground competition can be regarded as entirely positive
from the standpoint of the economy as a whole. It works against a dirigist loss of flexibil¬
ity on the markets. Tolerating irregular competition is no alternative in the longer term,
however. It would be absurd to introduce regulations on the one hand and at the same time
to allow or promote non-compliance on the other. It therefore follows that in order to
overcome crises the aim should be to try to use free market economy principles rather
than interventionism.

Demand-induced crises in the transport industry are not to be expected in the foreseeable
future because of the growth prospects of the European economies. The economic cycles
in the transport sector do not develop of their own accord, but are determined by the trends
of the economy as a whole. The best precaution to take against a transport crisis is there¬
fore to use the state's economic and growth policies to ensure macroeconomic stability
and, through this, to stabilize economic conditions in the individual sectors of the
economy.

3. COMPETITION

3.1. New programming

On a free goods transport market, competition between transport undertakings and transport
modes has to be prevented from taking an undesirable form. This is the task of the national compe¬
tition authorities (for domestic traffic) or the Commission of the European Communities (for fron¬
tier-crossing traffic). Under the regulation system in force up to now, this task has been assumed
by the regulation authority (as a rule, the minister of transport). The quality of state monitoring of
markets will change under deregulation conditions.
The sole criterion for competition policy is the maintenance and guarantee of competition,
i.e. the prevention of restriction of competition by means of agreements, restraints or market pow-

22
er. The control of competition means abstaining from regulation and leaves no room for guiding
manipulations. Restrictions on competition should not be allowed or prohibited for the purposes of
achieving transport policy goals (e.g. protecting the railways, relieving roads, environmental pro¬
tection, road safety). Any improper re-regulation on the part of the competition authorities is to be
prevented through referral to the cartel court.
On the purely transport markets, a relatively high degree of competition is to be expected.
This is due to the form of the market, the low capacity utilisation, the high price elasticity of de¬
mand and the fact that the contestability criteria are to a large extent satisfied. On the market for
forwarding services, on the other hand, the degree of competition will be less because the market is
only partly contestable. On the transport market, future competition policy will be concerned
mainly with exaggerated competition, possible attempts to form cartels, and the demand power of
the shippers. On the forwarding market, the main problems will be increasing concentration, the
demand power of the forwarders and the abuse of market power30.

3.2. Concentration and market dominance

In the past, the concentration of the transport industry through mergers (purchase of formerly
independent undertakings and subsequent conversion into branches) has increased. Deregulation
will introduce a more mixed trend:

In the transport-only branch there will be deconcentration due to market entries. This can
also be expected because, in the past, regulation has tended to favour concentration. The
economies of scale are not economic, but "regulatory"31 : in Germany, for example, con¬
cessions could be transferred only if the entire transport undertaking was sold. Small and
medium firms were generally not in a position to buy, so takeovers were for the most part
a matter for the big firms. It was possible to get round the regulations, for example by
combining frontier-crossing and domestic transport or logistic and transport services,
i.e. services that are the preserve of the larger firms;
In the forwarding branch, deregulation will encourage concentration. Market entries by
new suppliers will be kept within relatively tight limits (no network of branches, size ad¬
vantages, performance limitations).

The danger of market domination cannot be considered very great on the transport market:
the market tends to be very much split up into regions. Market transparency is limited, which gives
opportunities for competition. Lastly, there is the own-account transport and forwarding of big
shippers, which generates competitive pressure. Therefore, the external growth of the undertak¬
ings in the transport industry should be watched in order to prevent concentrations first developing
unnoticed in the control-free area, which could later provide the opportunity for restricting
competition.

3.3. Cartels

The second possible undesirable development in competition on a free transport market

could be a structural crisis with too many market entries and long time lags before market exits. A
temporary market failure of this kind for small transport undertakings cannot be excluded, but
there is no reason to fear that this will lead to serious, long-term disturbance of the market. If com¬
petition policy wanted to exercise a protective function here, allowing "crisis cartels" could be
considered.

23
 The cartel trend could be promoted on the basis of the existing co-operation cartels. These
cartels of small and medium enterprises demonstrate a relatively strong willingness to co-operate
in the transport industry, e.g. co-operation in the form of joint purchasing groups, transport area
allocation and transshipment facilities. Networks of agreements with foreign transport firms are
also being increasingly built up32.
The aim of these cartels is to protect small and medium enterprises and to remove their disad¬
vantages as against the big firms by promoting the rationalisation of their activities. The competi¬
tion authorities and the Minister of Transport are recommending the smaller transport undertak¬
ings to make greater use of these forms of co-operation. This will make it possible in particular to
better cope with the new spatial dimension of the single European market, meet the demands for
logistic services, participate in combined transport and use the new forms of communication now
available:

There is certainly scope for the rationalisation effect: smaller undertakings relatively
quickly come up against limits as far as rationalisation resources and potential are
concerned;

Restrictions on competition have not been discernible. Co-operation cartels have been
formed virtually exclusively in the field of "new" (i.e. logistic) services, not in the tradi¬
tional transport business. As a result of cartelisation, the number of competitors and
hence the degree of competition has increased on these new markets;
In the longer term, however, there may be some restriction of competition, possibly
through firms' multi-membership of cartels or the participation of big undertakings.
By and large, however, it is scarcely to be expected that "hard" price cartels could spread in
the transport business. The main obstacles to this are the regional fragmentation of the markets, the
demand strength, the strong outside competition and the pressure of the competing railways.

3.4. Abuse of market power

The third major area of activity for competition policy will be the control of any abuse of mar¬
ket power.

3.4.1. Overcharging

Abuse of market power through charging exaggeratedly high prices to customers will prob¬
ably not be much of a problem for competition policy: because of the competition between trans¬
port modes and the possibility of own-account transport, no market domination or abuse is to be
expected. If market dominant positions should arise (for example, in economically weak regions),
the spatial mobility of the supply would remove the possibility of abuse of this power.

3.4.2. Obstruction

Of greater importance will be obstruction, i.e. attempts by transport undertakings with a

strong market position to limit the competitive possibilities of their opposition. There has been
past experience of this type of practice, and there could be attempts to extend it in order to try to
damp down the greater degree of competition.
Among the obstructive practices are selling at below cost price (or, in the broader sense,
"predatory pricing")33. The railways in particular are accused of attacking inland waterway trans¬
port by charging prices far below cost, solely in order to eliminate the waterways from the market.

24
 This kind of selling at below cost price should, under certain circumstances, be prohibited.
As a last resort, the competition authorities should have the possibility of imposing higher prices in
the case of sales at below cost. However, the criteria need to be very precisely defined34: undercut¬
ting can be prohibited when it represents not so much a competitive price for the service offered as
an attempt to drive out or destroy the competition.
In the goods transport sector, the following points will have to be watched:
The railways support the view that even when prices do not cover full costs they can still
reduce the deficit. The opportunity to do this must remain and cannot be prohibited;
It is probably scarcely possible to objectively determine cost prices. This is true in partic¬
ular of the price formation of integrated undertakings with large overheads;
The intention to destroy can probably not be verified. Because of the spatial mobility of
road haulage vehicles and inland waterway craft, predatory prices by the railways over
one route might cause the competition to move to other sub-markets, but they would
come back once the aggressive carrier put prices up again;
For this reason it is hard to see any sense in pricing below cost. There is no justification
for such a pricing policy if there is no guarantee that the driving out of competition is go¬
ing to last, unless the state is going to take over the losses (for example, in order to maxi¬
mise the activity of the railways). Here, there is need to combat the institutionalised dis¬
tortion of competition through state subsidies. It is possible that, on this point, a serious
conflict is looming between competition policy and transport policy.
A second variant of obstructive practice is a market blocking strategy against competitors and
discrimination against customers or competitors:
Business on a reciprocal basis between transport undertakings and shippers, or forms of
exclusive agreement;
Price discrimination in feeder services to and from the inland waterways;
Differentiation in the conditions for participating in combined transport;
Long-term co-operation between shippers and transport undertakings.
The competition law needs to have appropriate sanctions at its disposal. In combating such
discrimination, competition policy runs into the fundamental problem of freedom to conclude con¬
tracts versus guaranteeing competition. Basically, each supplier should have the possibility of for¬
mulating his sales and purchasing policies to suit his own interests. The competition authorities
will have to weigh things up here. The decisive factor is whether the discrimination is unreason¬
able (i.e. brings unreasonable disadvantages) and whether there are objectively justifiable grounds
(e.g. cost differences, capacity bottlenecks) for differential treatment.

3.4.3. A buse of demand power

Abuse of demand power can appear in different variants:

a) The first form is the abuse by the transport undertaking as customer of industrial firms.
On the basis of a large volume of orders, abusive conditions can be imposed (e.g. special
discounts, free services). Above all, the railways' demand power offers considerable po¬
tential, especially where small and medium enterprises are concerned. Of the German
Federal Railways' (DB) annual total orders of DM 12.4 billion, 40 per cent goes to small
and medium enterprises and about 185 000 jobs in these firms depend on the DB35.
b) The second variant is the abuse ofshipper power as the demander of services from trans¬
port undertakings. Such abuse has so far been avoided for the most part through price
setting by tariff commissions.

25
 The argument of the shippers' market power should not be over-estimated. This phe¬
nomenon may certainly exist, for example, in the case of very big shippers, but the vast
majority of shippers are not in a market-dominant position. What is more, in the longer
term the demand side wants as many carriers as possible to be competitive. This self-
interest will prevent shippers from completely exploiting any market power they may
have. Long-term forms of co-operation between shippers and transport undertakings
also forge links that weaken shipper power.

c) A third variant of the abuse of demand power could arise through the future greater divi¬
sion oflabour between forwarders and shippers on a liberalised market. Concentration
will continue in the forwarding branch, while it will tend to diminish among the purely
transport undertakings. Forwarders thus reach a strong market position as customers
calling in transport firms.

Even here though, it is questionable whether the forwarders really have market domi¬
nance over the carriers. Furthermore, the existence of efficient carriers is very much in
the forwarders' interest, otherwise they will themselves be penalised by any shortcom¬
ings in transport services.

3.5. Competition-neutral transport infrastructure policy

On the free transport market of the future, government transport policy will no longer have
the possibility of intervening in market processes through regulating prices and supply. But, as the
desire of the politicians and administrators to have control is likely to remain as strong as ever, there
is a danger that this gap will be filled by a discriminatory transport infrastructure investment policy
on the part of the state. Such a substitution for regulation, with economically unjustified preferen¬
tial treatment or disadvantages for the different transport modes, could possibly have more serious
consequences than the former market regulations. Infrastructure investments determine for a long
period the supply potential and hence the competitiveness of the different transport modes. Once
some undesirable development has been introduced, it is extremely difficult to correct because of
the irreversibility and long lead times of transport infrastructure investments. A short-term
change, as with administrative regulations, is simply not possible. The need therefore arises for a
competition-neutral infrastructure policy on the part of the state.

This requirement comes into conflict, however, with the "mixed good" nature of transport
infrastructures and with the other aims of infrastructure policy resulting from the state's task of
formulating economic and social policy. The harmonization of conditions of competition between
the transport modes is not the main aim of infrastructure policy, which is more concerned with ful¬
filling regional development, environmental and growth policy tasks, among others. There is a
difficult optimisation problem involved in achieving the economic and transport policy goals
while, at the same time, ensuring that infrastructure projects are as competition-neutral as possible.

One way of achieving this would be to introduce charges for the use of transport infrastruc¬
tures, internalising the external costs and benefits in such a way that the charge does not distort com¬
petition36. Independent bodies (e.g. the competition authorities), would have to monitor the pric¬
ing policy of the state as the monopolistic supplier of infrastructure services, in order to avoid
discrimination between the transport modes. Another consequence of the requirement of competi¬
tion neutrality would be a more marked demand-orientation of state investment programmes and
renunciation of the control ambitions of a supply-oriented investment philosophy.

26
3.6. Need to adapt competition policy

The jeopardising of competition on a liberalised goods transport market cannot be ruled out.
The main problems will probably be obstruction strategies, abuse of demand power and the trend
towards concentration. The control of competition will be the responsibility of the competition
authorities, who have to rule on the basis of the competition law.
The competition laws in the different member States of the European Community differ
considerably on some points (cf. Table 2)37. Important variants of competition
restrictions are controlled (prohibited) in some countries, uncontrolled (allowed) in
others. This is true in particular of merger control, monitoring of abuse and prohibition of
obstructive practices. Transport undertakings in countries with the more liberal competi¬
tion rules have advantages on the market. The harmonization task therefore also extends
to the national competition rules;

Table 2. SYNOPSIS OF THE MAIN COMPETITION RULES

IN SELECTED EUROPEAN COUNTRIES

Monitoring of abuse
Country Cartels Mergers
(including obstruction)

France Prohibition under certain Controls :

conditions Meger criteria
Modification
Prohibition

Breaking up

Italy Exists in all countries, Prohibition on horizontal Control for cartels only
but sometimes substan¬ cartels

tial differences (basic

rules or enumerative

procedure), different
criteria and sanction

possibilities

Netherlands Prohibited with Arranged between

exceptions undertakings and unions

United Kingdom Prohibited with Control by means of

permission proviso and merger criteria
recording of complex
monopoly situations

Denmark Reporting obligation

Germany Prohibited with Controls :

exceptions and exempt Merger criteria

areas Prohibition

Permission

Sources: OECD - annual reports on competition policy in OECD Member countries, various years; Commission of the European
Communities: Reports on competition policy, various years.

27
 The competition laws in the EC countries are for historical reasons essentially di¬
rected towards the problems of the industrial sector and not so much to those of service
activities. Because of this, the regulations (above all, when absolute size criteria are taken
into account) do not always cover conditions in the transport industry with its many small
firms. Nevertheless, market dominance and concentration can occur on the relevant mar¬
kets. There is thus need for adjustment of the quantitative intervention criteria;

On frontier-crossing transport markets, the European competition law (Articles 85 and

86 of the EEC Treaty) applies. Two sets of legal rules governing cartels thus exist side by
side with one another in each country. In some countries there is a large degree of harmo¬
ny between the EC law and the national competition legislation, but in certain other mem¬
ber countries there are considerable discrepancies, which seems to indicate that the com¬
petition rules need to be brought closer together. There is a specific need for
co-ordination in the case of European merger controls. The EC draft, as compared with
the rules in certain member countries, reveals that there are considerable differences in
the aims of competition38;
In order to have effective control of competition, the administrative capacity needs to be
stepped up. In the hitherto highly-regulated countries, the competition authorities are far
less well-endowed with staff and resources than the regulation authorities. The success
of competition monitoring will depend on the politicians' willingness to transfer re¬
sources;

The economic justification of competition law is in a considerable state of flux. New

theories (including the Chicago School, transaction cost theory, contestable markets)
have gained ground and to some extent become of practical relevance. What was prohib¬
ited under earlier theories may now be allowed. These currents of the "new" competition
policy have hitherto been used mainly in the industrial sector, but they should also be tak¬
en up in the transport sector both as regards their empirical investigation potential and
their competition policy consequences.

4. ROAD SAFETY

4.1. Road safety an economic problem?

State market regulation in road haulage was expressly justified on the grounds of road safety.
It is therefore feared that liberalisation will bring an increase in road traffic accidents.
Whether there really is a strict causal relationship between deregulation and the occurrence of
accidents is a moot point, and the empirical findings for the United States are by no means clear
cut39. Other factors came to influence the actual and statistically-revealed accident trend at the
same time as liberalisation (including less safety checks, alcohol and drug problems among Ameri¬
can truckers, deterioration of the road network, peculiarities in the obligation to report).
Nevertheless, a potential connection cannot be entirely ruled out. The argument is based on
an interpretation of road safety as an economic "feedback circuit": deregulation alters the econom¬
ic conditions (prices, costs, profits) on the transport market, so that shippers and carriers react with
entrepreneurial .adjustments which, in turn, affect the safety field.
The economic approach to the problem no doubt offers an extension of the perspective of ac¬
cident analysis, but it is necessary at the outset to warn against overdoing this approach: economic

28
factors provide a very incomplete explanation of accidents. The cause of an accident very often lies
in infrastructural, technical and personality parameters40. In Germany, in 90 per cent of all cases
some error on the part of the road user is involved. The second most important cause lies in the
general and road construction factors, with a share of 8 per cent. Technical defects in vehicles is the
least frequent cause, a little over 1 per cent41. There may well be interdependence, in that econom¬
ic factors increase the risk of accident, because they result in defects in infrastructures or the techni¬
cal components of the system. The following analysis attempts to take this cause and effect com¬
plex into account.

4.2. Modal split and safety

4.2.1. Accident rates and traffic volume

Deregulation will change the modal split in goods transport. The hypothesis is that the grow¬
ing share of road haulage will increase the accident figures.
Surveys have shown that the curve of the relationship between accident rate and traffic flow
(vehicles per hour) is in the form of a "U"42: with an initially low volume of traffic the accident rate
is high, then with a growing traffic flow the accident rate falls and remains constant over a certain
interval, and only with a high traffic volume does the accident rate again rise steadily (Figure 1).

Figure 1 . ACCIDENT RATES AS A FUNCTION OF TRAFFIC VOLUME

(Motorway, one-way carriageway)

Accident rate

(accidents per mill v-km)

.
k

7.0

y
6.0

5.0 Actual figures

4.0 y
Model assumption
^
3.0

2.0

1.0

1 1 i 1 w
0
w-

0 500 1000 1500 2000

Traffic flow

(vehicles per hour)

Source: Teichgraber, W.: loc. cit., p. 55.

29
 There are differences in the type and degree of seriousness of accidents at different points on
the curve:

With a low traffic flow, speeds tend to be fairly high. On this part of the curve, accidents
are relatively serious;

A greater volume of traffic brings falling average speeds. The degree of seriousness of
accidents becomes less, but because of the shorter distance between vehicles there is of¬
ten a chain reaction;

With a high traffic volume the speed falls so much that the mainly rear-end collisions are
not very serious.

Table 3. BREAKDOWN OF TRAFFIC FLOW BY LANDER

(FEDERAL MOTORWAYS)

Schleswig- Lower
Traffic flow Hambourg Bremen
Holstein Saxony
(veh./24h)
(km) (%) (km) (%) (km) (%) (km) (%)

0-5 000 11.5 3.0 0.0 0.0 16.3 1.5 0.0 0.0
5 000-20 000 181.8 48.0 15.7 20.3 355.0 33.7 4.4 8.9
20 000-40 000 160.1 42.3 9.3 12.0 621.1 58.9 25.3 51.4
40 000-60 000 25.5 6.7 21.6 28.0 55.5 5.3 17.3 35.2
60 000 and over 0.0 0.0 30.0 39.7 6.1 0.6 2.2 4.5

Total 378.9 100.0 77.3 100.0 1 054.0 100.0 49.2 100.0

North Rhine- Rhineland

Traffic flow Hesse Baden-Wilrtemburg
Westphalia Palatinate
(veh./24h)
(km) (%) (km) (%) (km) (%) (km) (%)

0-5 000 12.2 0.6 33.9 3.7 2.9 0.4 0.0 0.0
5 000-20 000 411.4 22.1 148.7 16.4 228.3 34.9 237.0 25.9
20 000-40 000 673.3 36.1 416.4 45.8 378.7 58.0 171.4 18.7
40 000-60 000 555.6 29.8 203.8 22.5 43.5 6.7 391.9 42.8
60 000 and over 212.5 11.4 105.7 11.6 0.0 0.0 115.3 12.6

Total 1 865.0 100.0 908.5 100.0 653.4 100.0 915.6 100.0

Traffic flow Bavaria Saarland Berlin

(veh./24h)
(km) (%) (km) (%) (km) (%)

0-5 000 92.5 5.1 13.4 6.2 0.0 0.0

5 000-20 000 805.1 44.4 116.0 53.4 0.6 1.6
20 000-40 000 501.9 27.6 80.7 37.1 12.6 33.0
40 000-60 000 374.5 20.6 7.2 3.3 11.0 28.9
60 000 and over 41.0 2.3 0.0 0.0 13.9 36.5

Total 1 815.0 100.0 217.3 100.0 38.1 100.0

Source: Calculated on the basis of: Stralienverkehrszahlung 1985, Annex Statistik I.

30
 Figure 2. ACCIDENT RATE AS A FUNCTION OF THE PERCENTAGE OF TRUCKS

Increase in the

accident rate

per 1000 vehicles

22 24 26

Percentage of trucks

Source: Pfleger, E.: loc. cit., p. 150.

Deregulation will lead to only minor changes in road haulage vehicle-kilometres, whose ef¬
fect on accident rates will be slight. It is true, however, that there is already substantial overloading
of the road infrastructure. The breakdown of average daily vehicle numbers in Germany according
to Land (Table 3) shows strong regional concentration in some cases (e.g. Hesse, Baden-Wurttem-
burg, North Rhine-Westphalia, Hamburg, Berlin). The proportion of motorways in these areas
with over 60 000 vehicles per hour ranges between 11 and 40 per cent. This critical state of over¬
loading will get even worse in future with the expected traffic growth. The main increase will be in
private car traffic, but the further growth of road haulage will certainly result in increased vehicle-
kilometres. Better capacity utilisation will make the increase proportionally less than the increase
in tonne-kilometres, however.

4.2.2. Accident rates and proportion of trucks

Deregulation could have a specific effect on the accident rate if the proportion of trucks in the
traffic flow should be significantly changed.

Empirical studies43 show that an increase in overall traffic volume results in an increase in the
accident rate, which differs according to the percentage of trucks in the total traffic. Here again, the
curve is "U"-shaped (Figure 2). Behind this is the "theory of a necessary minimum of hindrance":
a certain minimum proportion of heavy vehicles has a rather beneficial effect on road safety, but

31
beyond this threshold any further increase in the number of heavy vehicles results in a further in¬
crease in accidents.

Deregulation will not result in the proportion of goods traffic on the roads increasing enough
to be relevant to road safety. Even if the maximum level of a 5 per cent increase is assumed, this
means that the goods traffic share of total traffic will increase from 10 to 10.5 per cent or from 20 to
20.8 per cent or from 30 to 31 per cent44. If there are high accident rates as a result of a high
proportion of heavy vehicles, this will be due to the baseline situation or to overall growth, not to
deregulation.

4.2.3. Substitution of own-account traffic by commercial haulage

Deregulation will cause a substantial switching of traffic from own-account transport to

commercial road haulage. As own-account transport is regarded as being less accident-prone than
commercial haulage, this substitution could have a negative effect on road safety.
The difference in accident involvement becomes less marked, however, when accident fre¬
quency is seen in relation to the respective vehicle-kilometres. Looking at the raw accident fre¬
quency figures, it appears that commercial haulage is 2.4 times less safe than long-distance own-
account transport. If the vehicle-kilometres are taken into account in relation to the accident
frequency, however, the relative disadvantage of commercial haulage falls to 1.2. One of the rea¬
sons for the safety advantages of own-account transport is that there is less non-observance of
speed limits and social regulations. With increasing competitive pressure in commercial haulage,
greater road accident risk must ensue.

4.3. Concentration and road safety

Deregulation will change the road haulage market structure. This may affect road safety in
the following ways:

The trend towards concentration in the forwarding sector is weakening the market posi¬
tion of the carriers. Haulage firms stand to lose business if they cannot guarantee delivery
deadlines, so they put pressure on the drivers. This can lead to an increasing propensity to
breach the regulations;

The deconcentration among haulage firms is affecting the structure of the vehicle stock:
small undertakings with very few vehicles for the most part prefer heavy trucks for capac¬
ity reasons. The accident frequency of large vehicles tends to be greater than that of
smaller. What is more, small market newcomers often have insufficient capital to buy
new vehicles with a relatively high safety standard. Firms with a large fleet of vehicles
tend to have a high-quality servicing and maintenance programme. Smaller firms and
owner-operators are not always in a position to do this;

It is frequently argued that the deregulation of road haulage will worsen working condi¬
tions and thus increase the risk of accidents. Small haulage firms are considered to be
more prone to break the rules than large undertakings. Surveys45 show that owner-
operators are more inclined than employees to break the rules. However, when infringe¬
ments are broken down according to size of firm, the large undertakings tend to breach the
regulations more than the small;

32
 The argument put forward by the unions, that deregulation would threaten jobs in the
haulage industry and thus aggravate the road safety problem, is not very convincing
either. The volume of traffic carried by commercial hauliers will increase substantially.
As there are no size advantages, the smaller firms will still have every chance on the mar¬
ket and will participate in the employment effect;

A major reason for difficult working conditions under pressure to meet deadlines and,
hence, with a greater propensity to take risks is the inadequate operational structure of
many transport undertakings with respect to the demands of modern logistics systems.
This is true in particular of driver dispatching and fleet monitoring. But there are, in fact,
many examples of improvements, and the trend towards more efficient information sys¬
tems in haulage firms will be encouraged by deregulation.

The hypothesis of serious structural disadvantages for small and medium transport enter¬
prises, with greater threats to road safety because of the trend towards concentration, turns out on
the whole to be not very conclusive as an argument against liberalisation.

4.4. Social regulations and speed limits

The aim of the social regulations applicable in the haulage industry is to improve road safety
and protect the health and welfare of the employees. Driving times, rest periods and shift schedules
are legally laid down in the European Agreement on Working Conditions of Road Vehicle Crews
(AETR), in EEC Regulation 3820/85 and in national agreements.
Checks in Germany have shown that there is a considerable amount of non-compliance with
social regulations46. The proportion of violation of the rules ranges from 12 to 76 per cent. It is
striking that offences involving the monitoring devices reach the extremely high level of 70 per
cent, while non-compliance with driving times or rest periods lies between 20 and 30 per cent.
Interference with the monitoring devices is especially serious, as this impedes the detection of ma¬
terial offences.

Some checks have shown that the level of non-compliance is significantly higher in commer¬
cial haulage (51 per cent) than in own-account transport (22 per cent). The seriousness of the of¬
fences is also greater in commercial haulage than in own-account transport.
Excessive or inappropriate speeds are the most frequent causes of road traffic accidents due to
human error.

Speed limits are exceeded almost systematically. In Germany, only 16 per cent of all trucks
are driven at speeds that do not exceed the maximum permitted speed of 80 kmh. Over 60 per cent
are driven at speeds between 80 and 90 kmh, 20 per cent between 90 and 100 kmh and over 2 per
cent at speeds exceeding 100 kmh47.
This is confirmed by analysis of routine monitoring and special checks by the police over the
period 1985-88, where the proportion of trucks exceeding the speed limit ranged between 23 and
83 per cent. However, the proportion exceeding the limit by more than 20 kmh is relatively small
(3 to 8 per cent). This would indicate that driving in excess of the legal speed limit is reckoned as
normal practice, but at the same time the speed is generally kept below that which is punishable.
Probably of even greater importance as a cause of accidents than non-compliance with speed
limits is driving at inappropriate speeds. In over 70 per cent of the accidents in which trucks are
involved, the collision speed is below 50 kmh, and in only 5 per cent of all the accidents analysed
was the collision speed over 80 kmh48.

33
 Non-compliance with regulations is already running at a very high level. In the fiercer com¬
petition on a liberalised market this level may rise even higher.

4.5. Technical defects in vehicles

There are fears reinforced by American experience that the narrowing of profit mar¬
gins resulting from deregulation may cause firms to try to economise on maintenance and repair,
which would have a negative effect on road safety.
In Germany in 1987, a total of 815 000 road haulage vehicles were inspected, with the follow¬
ing results49:
no defects 41.4 per cent
slight defects 42.4 percent
serious defects 16.5 per cent
unroadworthy 0.1 percent
The percentage of vehicles with defects has fallen over time with increasing numbers of ve¬
hicles and increasing vehicle-kilometres. The defects most frequently found are in the chassis,
drive, lighting and brakes.
The technical condition of vehicles depends on expenditure on maintenance and repair and
investment in new vehicles (removal from service of defective vehicles, higher safety standard of
new vehicles). New investment reduces the age of the vehicle stock and thus helps to reduce techni¬
cal defects.

Just a few years ago, some slackening of investment was noted in the haulage industry. The
reason given was uncertainty about the future structure of the transport market and the unfavour¬
able production trend of important items of freight. The present trend belies these fears, however.
Since 1988 the commercial vehicle industry has been producing at a level far beyond the replace¬
ment requirement50. This investment activity can be seen as an expression of growth expectations
for the coming single European market and jockeying for position in the competition stakes. Even
if a certain levelling off can be expected for the next couple of years, competition will in future
continually open up new investment potential and require a considerable willingness to invest.

4.6. Proportion of foreigners and road safety

The foreign carrier share of the German domestic transport market will increase as the result
of deregulation. Since foreign goods vehicles or so the argument runs have an unfavourable
safety profile, a greater accident risk is to be expected.
The breakdown by nationality of trucks involved in accidents shows that about 90 per cent are
German, the remaining 10 per cent being foreign trucks. Relatively strongly represented in acci¬
dent involvement are the Netherlands, Belgium, France, Denmark and Austria51.
German truck drivers are mainly at fault in 89 per cent of injury accidents, foreigners in
11 per cent. The proportion of foreign truck drivers causing accidents (11 per cent) is slightly high¬
er than the proportion involved in accidents (10.4 per cent).
Looking at drivers mainly responsible for accidents as a percentage of those involved in acci¬
dents (Table 4), it can be seen that, on average over the entire road system, foreigners constitute a
higher accident risk than German truck drivers. On motorways, however, they have a lower acci¬
dent-causing rate than Germans.

34
 Table 4. RESPONSIBILITY FOR INJURY ACCIDENTS

Divers mainly responsible for injury accidents as a percentage of all those involved
in such accidents

1984 1985

% %

All roads:

Germans 52.5 53.3

Foreigners 57.2 57.0

All truck drivers 53.0 53.7

Motorways :
Germans 46.0 44.8

Foreigners 45.2 42.6

All truck drivers 45.8 44.3

Source: Author's calculation based on information from the Bundesanstalt fiir Strafienwesen

(Federal Roads Institute).

Table 5. CAUSES OF MOTORWAY ACCIDENTS INVOLVING TRUCKS (1984)

Injury and serious damage accidents

German or Foreigne resident

Cause of Tota
unknown abroad
in Germany

(No.) (%) (No.) (%) (No.) (%) (No.) (%)

Fitness to drive 395 5.4 21 3.5 78 5.1 494 5.3

Road use 127 1.7 15 2.5 34 2.2 176 1.9

Speed 1 873 25.7 132 22.3 435 28.3 2 440 25.9

Distance 1 094 15.0 78 13.2 248 16.1 1 420 15.1

Overtaking 1 032 14.2 78 13.2 186 12.1 1 296 13.8

Passing 48 0.7 7 1.2 ,6 0.4 61 0.6

Driving parallel 259 3.6 32 5.4 43 2.8 334 3.6

Right of way/priority 128 1.8 8 1.4 14 0.9 150 1.6

Turning/forking 73 1.0 12 2.0 21 1.4 106 1.1

Behaviour towards

pedestrians 6 0.1 0 0.0 0 0.0 6 0.1

Stationary traffic 34 0.5 11 1.9 18 1.2 63 0.7

Load/trim 309 4.2 28 4.7 30 2.0 367 3.9

Other driver error 1 485 20.4 103 17.4 330 21.5 1 918 10.4
Technical defect 4 125 5.7 67 11.3 95 6.2 577 6.1

Total 7 278 100.0 592 100.0 1 538 100.0 9 408 100.0

Source: Information from the Bundesanstalt fiir StraBenwesen (Federal Roads Institute), 1989.

If the figures for drivers mainly responsible for injury accidents on motorways are considered
in relation to tonne-kilometres, the foreign drivers come out better than the Germans. The ratio
between the percentage of drivers mainly responsible for injury accidents and the percentage of

35
total tonne-kilometres is 1.11:1 for the Germans and 0.73:1 for the foreigners. Germans are thus
over-proportionally represented in accident responsibility and foreigners under-proportionally.
As compared with German truck drivers, foreigners are more likely to cause accidents
through excessive speed or driving too close to the vehicle in front (Table 5).
Checks52 have confirmed that foreign trucks are often driven faster than German trucks and
exceed the speed limits by a greater extent. The fastest driven trucks are the Italians, followed by
the Austrians, while the slowest are those from the Council of Mutual Economic Assistance
(CMEA) countries.
Foreign truck drivers also have a greater tendency than domestic drivers to offend against the
social regulations. Thus, in checks in Bavaria, there were infringements by 55.5 per cent of foreign
and 51.6 per cent of the domestic trucks53.
As regards the technical condition of vehicles, the foreign trucks are no worse than the Ger¬
man. This is shown by checks in different Lander (Bavaria, North Rhine-Westphalia, Rhineland
Palatinate).
By and large, foreign truck drivers are, admittedly, more inclined to break the rules. As re¬
gards actual involvement in accidents, however, they are no more accident-prone than German
drivers. There is no reason to think that the higher proportion of foreign drivers resulting from de¬
regulation will lead to higher road accident rates.

4.7. Regulatory measures to increase road safety

The deregulation of road haulage in the context of the single European market may possibly
unfavourably affect road safety. The reasons for this lie not so much in the change in the transport
volume and vehicle-kilometres of the haulage industry, for the additional overloading effects to be
expected will probably be fairly slight. In view of the already-existing overloading of substantial
parts of the road infrastructure, however, it must be expected that even more critical peaks will ap¬
pear, thus increasing the risk of accidents. Greater threats to road safety will probably come from
the changed economic conditions of transport undertakings under liberalised market conditions.
Road safety policy covers a broad spectrum of possible measures (including traffic engineer¬
ing, vehicle manufacture, infrastructure construction, driver training, improved information).
Economic starting points lie in market regulation policy.

4.7.1. Back to regulation ?

If some deterioration of road safety must be expected as a result of deregulation, the conse¬
quence should be assuming priority is given to road safety that the extent of liberalisation
would be limited and there would be a return to a regulation regime.

Such a policy would be based on an erroneous causal chain, however. Future competition in
road haulage will not be a completely unrestrained system, but will be exercised within an orderly
framework with specific rules. To this extent, the advantages of competition do not have to be
bought at the price of reduced safety. In fact, competition and safety are compatible, if the mainte¬
nance of safety standards is ensured. Protection from competition as an instrument to increase
safety would be extremely imprecise in its effects. It certainly has to be expected that breaches of
safety may become rife as a result of fiercer competition. But, on the other hand, there is no guaran¬
tee that if there were administrative restrictions on competition the economic rents resulting for
transport undertakings would be used to improve safety standards. In this respect re-regulation
would be mistaken.

36
 4. 7.2. Controls and sanctions

More stringent controls and harsher sanctions are regarded as the most effective methods of
avoiding any reduction of safety resulting from irresponsible behaviour. The need for this follows
from the high frequencies ofbreaches of social regulations and disregard of speed limits. The prob¬
lem can be attacked from a number of angles54:
The confused responsibilities of the different control authorities leads to inefficiencies.
Very often there are procedural delays that provide the opportunity for the destruction of
evidence by transport undertakings;
The control instruments ought to be improved. Many suggestions have been made here,
ranging from simple measures (e.g. double checks through having a log book for each
vehicle and a workbook for each driver) to sophisticated technical solutions (e.g. control
through satellite communications);
Shortcomings in the qualifications of inspectors require the introduction of further train¬
ing and specialisation. Major inspections should be carried out more frequently than
hitherto;

Sanctions should not be applied to the driver alone, but should also extend to those in re¬
sponsible positions (entrepreneur, dispatcher);
The fines imposed. to date are not high enough.
Theoretically, the appropriate sanction would be a fine that, according to probability
theory criteria, cancelled out the economic advantage of the illegal behaviour. However,
this cannot be determined empirically, so that approximate solutions (possibly creaming
off profits) will have to be tried;
Time sanctions are particularly effective. Depending on the seriousness of the offence,
vehicles can be prevented from operating for a certain time. Under certain circumstances
this hits the entrepreneur harder than payment of a fine;
There are problems with the collection of fines from foreign truck drivers. In the case of
EC member States there is, admittedly, a mutual assistance obligation, but this breaks
down because of a lack of enforcement agreements. In Germany, therefore, one-third of
the fine is collected from the driver on the spot, then the foreign firm is informed. An
attempt can then be made, with the help of the customs, to collect the rest of the fine when
there is another entry to Germany. About 30 per cent of the fines imposed on foreigners
are nevertheless still not paid.

4. 7.3. Qualitative market entry conditions

Qualitative market entry restrictions are intended to keep unqualified transport undertakings,
with the attendant risks to road safety, out of the market. The road safety aspect is the most convinc¬
ing argument, though it is true that the effect does not result from more solid personal characteris¬
tics or better technical equipment. Of more importance is the fact that the subjective market entry
conditions contain harsher sanctions than hitherto against breaches of the rules (social regulations,
weights and dimensions, road safety), which go as far as an operating ban. In the case of repeated
offences, as a final step, withdrawal of the licence is indicated. In order to avoid an excessive num¬
ber of sanctions and at the same time to ensure the effectiveness of the regulations, particular atten¬
tion needs to be paid to the setting of a petty offence limit for the malus system and a threshold
above which the licence will be withdrawn.

A precondition, however, is that the more stringent market entry conditions should be uni¬
formly applied throughout the European Community. In view of the prevailing differences in

37
control and sanction practices today, there is in fact some doubt as to whether such a plan could
succeed.

4.7.4. Special licences

The issue of special licences could make it possible to impose specific requirements on carri¬
ers for example, for the transport of dangerous goods e.g. admission of qualified forwarders
only, no subcontracting, control of drivers' working conditions by the works committees. In the
case of repeated breaches of the regulations, the licence could be withdrawn. Making the subjec¬
tive market entry conditions more stringent amounts to ensuring the more systematic respect of the
provisions of transport legislation, while through special licences the content of these provisions
would be more strictly framed.

The requirements of reliability, professional aptitude and economic efficiency basically ap¬
ply to the whole of the road haulage industry: a distinction can hardly be made between "normal"
goods traffic and special consignments. Since, for example, dangerous goods are carried both by
specialist firms and by general hauliers, the obligation to obtain a licence would have to be ex¬
tended to a relatively large number of transport undertakings.

The existing legal provisions are considered adequate for ensuring an appropriate standard of
safety in the carriage of dangerous goods. Unreliable firms can be excluded from such traffic by the
authorisation procedure or after an offence. Special licences would in this respect simply lead to
higher administrative costs without achieving any significant safety effects. What is more impor¬
tant is that the existing legal provisions should be systematically applied.

5. CONCLUSIONS

Deregulation of the goods transport market will carry potential risks concerning market en¬
tries, development of competition and road safety. Such a major step in regulation policy will trig¬
ger reactions and adjustments on the part of both suppliers and users that go beyond the present
bounds of transport policy forecasting. The exceptional nature of the event requires political and
administrative preparation and accompaniment. It will not be enough to establish free competition
and then sit back and wait for its benefits to emerge automatically. Instead, these benefits will have
to be earned and secured through institutional efficiency.

The economic analysis of liberalisation has shown that the probability and extent of market
distortions or undesirable developments is fairly limited. Free competition clearly develops mar¬
ket process "stabilisers" which, after the initial turmoil, work in the longer term towards market
equilibrium. Factors involved here are learning experiences and rational expectations on the part
of suppliers, increases in productivity and flexibility in the transport industry, the Europeanisation
of the transport market, shippers' interest in having an efficient transport sector, growth prospects
of the goods transport market and the selection mechanism of competition.
However, this optimistic interpretation of market-endogenous forces dees not mean that the
state can adopt a laissez-faire position. What is the role of ,the state in a deregulated transport
market? '

The denationalisation of transport markets will continue. The economic action variables will
be handed back to supply and demand. The state's role will move away from that of creator to that

38
of controller. Such regulatory abstinence means that it will have to be accepted that market forces
are more efficient than state allocation. This will require self-knowledge and self-discipline on
the part of governments and their authorities.

The state needs to take institutional and material precautions in order to be able to prevent
short- to medium-term market distortions caused by overshooting reactions. There are "soft regu¬
lation" options open for this (e.g. qualitative market entry requirements, improved information).
Such measures could avoid frictional costs to the economy as a whole and lead to greater accep¬
tance by the opponents of liberalisation.

The state 's task in the longer term is to ensure the proper functioning of the free market econo¬
my principle in goods transport. Competition will thus become a permanent feature of the transport
sector. The need for intervention will be reduced, being replaced by a framework policy establish¬
ing the ground rules.

The future task structure of the state will bring changes in institutional responsibilities and the
role of different authorities. If transport is integrated into the free market economy sector, the im¬
portance of the authorities responsible for general economic policy and for trade and industry (e.g.
competition authorities, technical control organisations, police) will be increased and the market
influence of transport policy will be reduced. This does not mean simply a substitution of authori¬
ties, however, but rather a change in the criteria and yardsticks for state action. It will no longer be
policy guidelines that try to achieve optimal modal split, but instead the basic principle will be un¬
fettered competition.

It is possible that the state will try to compensate its loss of interventionist powers, distorting
the conditions of competition through its use of infrastructure investments and subsidies. The fate
of the railways in particular is always likely to provoke the desire to intervene. State infrastructure
policy in the transport sector is bound up with a complex system of economic and political goals,
including environmental protection, technical progress and regional development. The state must
try to ensure that its investment and funding decisions are as neutral as possible as regards the con¬
ditions of competition between the different transport modes. If it does not succeed in this, there is
the risk of a major conflict, with serious consequences, between competition policy and transport
policy. It is not market failure that is likely to be the real problem with deregulation. Instead, we
have to reckon with the fact that the state may unconsciously or deliberately misinterpret its role: "
the core problem is thus "state failure".

NOTES AND REFERENCES

1. Cf. "Surprises From Deregulation", in: American Economic Review, Vol. 78 (1988), p. 316 ^(several
contributors).

2. Critical analyses are to be found in:

Willeke, R.: Zur Liberalisierung der Marktordnung des Strafienguterverkehrs (On the liberalisation of
the market regulations in road haulage), Kaarst, 1984; Hamm, W.: Deregulierung im Verkehr alspoli-
tischeAufgabe (Transport deregulation as a political task), Marburg, 1988; Seidenfus, H. St. etal: Ord-
nungspolitische Szenarien zur Verwirklichung eines gemeinsamen europaischen Verkehrsmarktes,
Ted A: Szenarien und okonomische Wirkungszusammenhdnge (Regulatory policy scenarios for the

39
 realisation of a common European transport market, Part A: Scenarios and relationships between eco¬
nomic effects), Munster, 1988; Baum, FL: "Possibilities and Limitations of Regulation in Transport
Policy", European Conference of Ministers of Transport, Round Table 62, Paris, 1983.

3. Coalition for Sound General Freight Trucking, "Die StraBenverkehrssicherheit Ein Opfer der Liber-
alisierung des StraBentransportgewerbes" (Road safety A victim of the liberalisation of the road
haulage industry), in: Der Guterverkehr (Goods traffic), No. 9/1987, p. 13 ff.

4. Barnekov, CC: "Die Bundesverkehrskomission und die Deregulierung des Strafienguterverkehrs in

den USA" (The Interstate Commerce Commission and the deregulation of road haulage in the USA),
manuscript, 30th September 1987; Willis, D.K.: "Erfahrungen mit der Verkehrsmarktderegulierung in
den USA" (Experience with transport market deregulation in the USA), in: Verband der Automobilin-
dustrie (Motor Industry Federation) (Ed.): Vollendung des Europaischen Binnenmarktes im Verkehrs-
sektor (Implementation of the single European market in the transport sector), 2nd Symposium,
16th March 1989.

5. Bayliss, B.T.: "Die Deregulierung des Strafienguterverkehrs in GroBbritannien" (The deregulation of

road haulage in the United Kingdom), in: Internationales Verkehrswesen (International Transport Sys¬
tems), Vol. 39 (1987), p. 11 ff, Rickard, J.: "The Contribution of Liberalisation and Harmonisation to
Efficiency Gains in Transport Sectors", in: European Society of Transport Institutes Conference on:
1992 Common Transport Policy. Harmonisation of Competition Conditions, Brussels, 18th19th
May 1989.

6. Hay, D.A. and Morris, D.I.: Industrial Economics. Theory and Evidence, Oxford, 1979, p. 181 ff.

7. Planco Consulting: Ordnungspolitische Szenarien zur Verwirklichung eines gemeinsamen europais¬

chen Verkehrsmarktes, TeilB: Quantitative okonomische Wirkungsanalysen (Regulatory policy scenar¬
ios for the realisation of a common European transport market, Part B: Quantitative economic effect
analyses), Essen, 1988, p. 4-39 Jf.

8. Seidenfus, H.St, et al.: op. cit., p. 5-3 ff.

9. Baum, H., with von Gierse, M. and Mafimann, C: Preiselastizitaten der Nachfrage im Guterverkehr.
Empirische Untersuchung iiber das zu erwartende Verhalten der Verlader (Price elasticities of demand
in goods transport. Empirical investigation of the shipper behaviour to be expected), Essen, 1988.

10. This is based on a study by Prognos AG:

Rommerskirchen, St., Bollinger, P. and Cerwenka, P.: Gemeinschaftsuntersuchung Giiterverkehr-

smarkt Europa (Community study of the European transport market), Basel, 1988. This forecast was
supplemented by the deregulation and integration effect, cf. Baum, H.: "Verkehrsprognose und Anpas-
sungsstrategien" (Essener Diskussionsbeitrage zur Wirtschafts- und Verkehrspolitik, Nr.l) [Traffic
forecasts and adjustment strategies (Essen discussion papers on economic and transport policy, No. 1)],
Essen, 1989.

11. Bundesverband des Deutschen Giiterfernverkehrs (BDF): Jahresbericht 1987-88 (Federal Association
of German Road Hauliers: Annual Report 1987-88), Frankfurt am Main, 1987, p. 18^.

12. Baumol, W. J., Panzar, J. C. and Willig, R. D.: Contestable Markets and the Theory of the Industry
Structure, New York, 1982.

13. McMullen, B.S.: "The Impact of Regulatory Reform on US Motor Carrier Cost: A Preliminary Exami¬
nation", in: Journal of Transport Economics and Policy, Vol. 21 (1987), p. 307 ff.

14. Luhrssen, H.: "Chef aus Not" (Boss out of necessity), in: Die Zeit, No. 19, 5th May 1989, p. 32.

15. Hamm, W.: op. cit., p. 89.

16. This is what is observed in the United States, cf. Aden, K.: Die Deregulierung des Strafienguterverkehrs
der Vereinigten Staaten vonAmerika Eine Analyse ihrerlnhalte undAuswirkungen (The deregulation
of road haulage in the United States of America An analysis of its content and effects), Gottingen,
1987, p. 99 ff.

40
17. Bundesverband des Deutschen Giiterfernverkehrs (BDF): Jahresbericht 1986-87 (FedtraA Association
of German Road Hauliers: Annual Report 1986-87), Frankfurt am Main, 1987, p. 17 ff.

18. Yannopoulos, G.N.: "The Economics of 'Flagging Out'", in: Journal of Transport Economics and
Policy, Vol. 22 (1988), p. 197 ff.

19. Bernadet, M.: "Portee et contenue d'une politique d'harmonisation a l'interieur et entre les modes de
transport", in: European Society of Transport Institutes Conference on: 1992 Common Transport
Policy. Harmonisation of Competition Conditions, Brussels, 18th-19th May 1989, p. 2.

20. Proposal of 12th April 1989 for a Council Directive amending Directive 74/561/EEC on admission to
the occupation of road haulage operator in national and international transport operations.

21. Seidenfus, H.St, etal: op. cit., pp. 6-25 ff.

22. Erdmenger, J.: "Harmonisierung der Wettbewerbsbedingungen in der EG-Verkehrspolitik" (Harmoni¬

zation of the conditions of competition in EC transport policy), in: Zeitschriftfiir Verkehrswissenschaft,
Vol. 59 (1988), p. 188 ff.

23. Aberle, G.: "Harmonisierung und Lenkung Facetten der EG-StraBengiiterverkehrspolitik in den
90er Jahren" (Harmonization and control Aspects of EC road haulage policy), in: Zeitschriftfiir Ver¬
kehrswissenschaft, Vol. 60 (1989), p. mff.

24. Bernadet, M.: loc. cit.

25. Aberle, G.: loc. cit.

26. Deutscher Industrie und Handelstag, Lkw-Besteuerung in der EG (German Industry and Trade Confer¬
ence on Truck Taxes in the EC), 22nd December 1988; Entwurf des Gesetzes iiber StraBenbenutzungs-
gebiihren fiir schwere Lastkraftfahrzeuge (Draft law on road use charges for heavy trucks), 23rd March
1989.

27. Willeke, R., Baum, H., Hcener, W.: Reference Tariffs for Goods Transport. Commission of the European
Communities Studies Collection, Transport Series No. 6, Brussels-Luxembourg, 1981, p. 75 ff;

European Conference of Ministersof Transport, 74: Monitoring Systemsfor Goods Trans¬

port, Paris, 1987. Reynaud, C. and Gouvernal, E. (France); Gort, G. and van der Woude, N.H. (The
Netherlands), p. 5 ff. and p. 5 1 ff.

28. Report from the Commission of the European Communities on the establishment of a system, adapted to
the final arrangements of organisation of the inland transport market, for observing the markets for the
carriage of goods by rail, road and inland waterway between Member States, Brussels, 3rd May 1988.

29. Hinz, Chr.: "Politische Rahmenbedingungen fiir den gemeinsamen Verkehrsmarkt" (Political frame¬
work conditions for the common transport market), in: Verband der Automobilindustrie (Motor Indus¬
try Federation) (Ed.): loc. cit.

30. Cf. Baum, H.: Competition Policy in a Deregulated Transport Market, Essen, 1989.

31. McMullen, B.S.: loc. cit.

32. Cf. Muller, N.: "Das Mittelstandskartell als Kooperationsform und Rationalisierungsinstrument mit-
telstandischer Giiterkraftverkehrs- und Kraftwagenspeditionsunternehmen" (The small and medium
enterprise cartel as a form of co-operation and rationalisation instrument for small- and medium-sized
road haulage and truck forwarding enterprises), in: Zeitschriftfiir Verkehrswissenschaft, Vol. 58 (1987),
p.209#.

33. Cf. McCall, C.W.: "Predatory Pricing: An Economic and Legal Analysis", in: The Antitrust Bulletin,
No. 1(1987), p. Iff.

34. Cf. Bericht des Bundeskartellamtes iiber seine Tdtigkeit in den Jahren 1 985/1986 sowie iiber Lage und
Entwicklung auf seinem Aufgabengebiet (Report of the Federal Cartels Office on its activities in
1 985-86 and the situation and trends in its field of activity), Deutscher Bundestag Drucksache (Ger¬
man Parliament Publication) 11/554 of 25th June 1987, pp. 21-22.

41
 35. Cf. "Die Bundesbahn wird als Partner fiir Mittelstandler immer wichtiger" (The Federal Railways are
becoming increasingly important as a partner for small and medium enterprises), in: Handelsblatt,
2nd May 1988, p. 13, unattributed.

36. Seidenfus, H. St. : "Der Wettbewerb zwischen offentlichen und privaten Unternehmen Die Deutsche
Bundesbahn in einem gemeinsamen europaischen Verkehrsmarkt" (Competition between public and
private undertakings The German Federal Railways in a single European transport market), in:
Zeitschrift fur Verkehrswissenschaft, Vol. 60 (1989), p. 15 #

37. Stockmann, K.: EEC Competition Law and Member State Competition Laws, Fordham Corporate Law
Institute, New York, 1988, p. 265 #

38. Janicki, Th. : "Perspektiven der Fusionskontrolle im gemeinsamen Binnenmarkt" (Prospects for merger
control in the single European market), in: Wirtschaft und Wettbewerb, No.3/89, p. 193^.

39. Cf. Lieb, R.C.: "Deregulierung des amerikanischen Strafienguterverkehrs" (Deregulation of American
road haulage), in: Bundesverband der Deutschen Industrie (Federation of German Industry) (Ed): Lib-
eralisierung der Verkehrsmdrkte Erfahrungen, des Auslandes (Transport market liberalisa¬
tion Foreign experience), Koln, 1988, p. 35.

40. Riediger, G.: Unfalle mit Nutzfahrzeugen (Accidents involving commercial vehicles), Bonn, 25th No¬
vember 1985.

41. Statistisches Bundesamt (Federal Statistical Office), Strafienverkehrsunfdlle (Road accidents), Fach-
serie 8, Reihe 3.3, various years.

42. Teichgraber, W.: "Die Bedeutung der Geschwindigkeit fur die Verkehrssicherheit" (The significance of
speed for road safety), in: Zeitschrift fur Verkehrssicherheit, Vol. 29 (1983), p. 55.

43. Pfleger, E.: "Guterverkehr und Verkehrssicherheit" (Goods traffic and road safety), in: Bauer, H. and
Gehmacher, E. (Ed.): Gesellschaftliche Folgen des Lkw-Verkehrs in Osterreich (Social consequences
of truck traffic in Austria), Vienna, 1980, p. 150 ff.

44. Cf. Heusch, H., Boesefeldt, J.: Ordnungspolitische Szenarien zur Verwirklichung eines gemeinsamen
europaischen Verkehrsmarktes, Teil C, Technische Fragen (Regulatory policy scenarios for the realisa¬
tion of a common European transport market, Part C, Technical issues), Aachen, 1988, pp. 4 ff-

45. Der Hessische Sozialminister (Social Affairs Minister for Hesse) (Ed.): Sozialrecht im Strafienverkehr.
Lkw-Sonderkontrollen der hessischen Gewerbeaufsicht (Social law in road traffic. Special truck con¬
trols by the Hesse Factory Inspectorate), various years.

46. Baum, H. with Schnitzler, W. and Schulz, W.: Arbeits- und Verkehrssicherheit im Strafiengiiterverkehr
(insbesondere im Gefahrguttransport) aufeinem deregulierten Verkehrsmarkt [Safety at work and road
safety in road haulage (in particular in the carriage of dangerous goods) on a deregulated transport mar¬
ket]. Research report commissioned by the Federal Industrial Health and Safety Office, Essen, 1988,

47. Hotop, R.: "Lkw-Geschwindigkeiten auf den Bundesautobahnen" (Truck speeds on the Federal motor¬
ways), in: Strafienverkehrstechnik, No. 5/1985, p. 174 ff.

\ 48. Otte, D.: "SonderauswertungLKW-Unfalle.Medizinische Hochschule Hannover, Unfallchirurgische

Klinik, 1985" (Special analysis of truck accidents, Hanover Medical School, Accident Surgery Unit,
1985), in: Polizei, Verkehr & Technik, No. 6/1986, p. 163.

49. Federal Minister of Transport (Ed.): Verkehr in Zahlen (Transport in figures), 1988, loc. cit., p. 122.

50. European Trucks Forecast Overview: How Solid Is Demand? DRI European Trucks Outlook Confer¬
ence, Frankfurt, 11th May 1989.

51. Cf. Statistisches Bundesamt (Federal Statistical Office): Strafienverkehrsunfdlle (Road accidents),
Fachserie 8, Reihe 3.3, various years.

42
52. Hotop, R. : "Geschwindigkeiten auslandischer Lkw im Vergleich zu deutschen Lkw auf den Bundesau-
tobahnen" (Speeds of foreign trucks as compared with German trucks on the Federal motorways), in:
Strafienverkehrstechnik, Vol. 32 (1988), p. 179 ff.
53. Bayerisches Staatsministerium fiir Arbeit und Sozialordnung (Bavarian State Ministry for Labour and
Social Affairs) (Ed.): Schutz und Sicherheit haben Vorfahrt. Ergebnisberichte der Gewerbeaufsicht
zum Vollzug der Sozialvorschriften im Strafienverkehr (Protection and safety have right of way. Report
of the findings of the factory inspectorate regarding compliance with social regulations in road trans¬
port), 1984 and 1986.

54. Cf. Sozialvorschriften im Guterverkehr speziell beim Gefahrguttransport, TUV-Forum fiir Sicher¬
heit und Umweltschutz (Social regulations in goods transport especially in the transport of dangerous
goods, TUV Forum on Safety and Environmental Protection), Essen, 1989 (various contributions).

43
UK EXPERIENCE WITH FREIGHT

AND PASSENGER REGULATION

Michael BEESLEY

The London Business School

London

United Kingdom

45
 SUMMARY

1. INTRODUCTION 49

2. ROAD FREIGHT TRANSPORT 50

2.1. The regime between 1953 and 1968 50

2.2. The effects of 1968 deregulation 52
2.3. Contractual and organisational change 54

3. BUS DEREGULATION OF LONG-DISTANCE OPERATIONS 58

3.1. The nationalised industry period 59

3.2. The post-privatisation period 61

4. LOCAL (STAGE) BUS SERVICES DEREGULATION 62

4.1. The 1985 Act 62

4.2. Contrasting expectations about deregulation 63

4.3. Reported results 64
4.4. The relevant policy changes 66
4.5. Effects on entry 69
4.6. Subsidy and other entry barriers 70

5. CONCLUSIONS 72

5.1. Anti-trust issues 73

REFERENCES 75

London, August 1989

47
 1. INTRODUCTION

The UK formally deregulated road freight transport in the Act of 1968, long-distance road
passenger transport in the Act of 1981 and short-distance passenger operations, outside London, in
the Act of 1985. The economic connotation of "deregulation" in these Acts was to lift pre-existing
restraints on the quantity of service offered, that is, to drop governmental control on the entry of
new capacity, whether by incumbent operators or newcomers, and on the exit of capacity. Regula¬
tion of the quality of operations, e.g. with respect to obligations concerning safety, were retained
and indeed, in some respects, enhanced. Entry, expansion and contraction were thus to be left to the
market, with some (relatively minor) increase in costs of operation.
The UK has gained the reputation of being a pioneer of deregulation in these industries. It is
natural to pose the basic question is this a model other countries should follow? At base, this is a
policy-oriented cost-benefit (CBA) problem. Have the measures resulted in gains to UK consum¬
ers and producers? How have resource costs changed? This paper dees not set out a formal answer
to these questions; it does, however, attempt to draw conclusions of use to those contemplating sim¬
ilar policy changes.

No-one, indeed, has been able satisfactorily to answer the cost-benefit question so far, for
three principal reasons. First, the problem requires specifying the base case, namely, what would
have happened, without deregulation, over the period needed to parallel the adjustment to the new
conditions. This is difficult in itself but, more importantly, requires the passage of sufficient time
for the expected effects of deregulation to work out. As we shall see, this is particularly relevant for
assessing the 1985 Act's reform of short-distance passenger transport. Second, the anticipated
benefits from freeing market entry and exit via deregulation are importantly those of innovation in
services offered and in ways of reorganising the means of, and inputs to production. This requires
analysis involving redefining both the demand and supply conditions to be associated with deregu¬
lation, always a formidably difficult technical problem to handle. Third, there will in practice be
gainers and losers from the change, requiring quite complicated tracing of effects on particular
groups. Certainly, the UK's policy changes were not the result of economists' calculations. As
elsewhere, they were political moves, in response to beliefs in the inherent superiority of free mar¬
kets.

But the particular difficulties in assessing UK experience are of rather more interest than
economists' problems of CBA measurement. Deregulation was in no case a single policy move. In
freight, the 1 968 Act, passed by a Labour government at that time focusing on efficiency in the UK
economy, had been preceded by policies which greatly affected its impact. In 1 95 3, a Conservative
government had started the process of denationalising its inherited freight interests (we would
today call this "privatisation"). To sell the vehicles, it had to offer them with no effective con¬
straints on how they could be used, that is, with the most liberal form of licence to operate then
available, an A licence. Despite this, by 1956 they were left with 16 000 vehicles from the original
46 000 they hoped to dispose of.

49
 From the point of view of a potential entrant, in the years 1953-56 the formal quantity licens¬
ing system, though in operation, had relatively little significance. His purchase of a government
right (a sustainable permission to operate the licence) was of little independent value when he knew
that thousands of such rights were potentially available to others. After 1956, the government
stopped sales and retained the remaining vehicles in three public sector concerns. These were born
of failing the acid test of the market value of their assets. They were to be weak sellers overhanging
large parts of the total freight market for many years to come. Indeed, not until 1982, when the
Conservative Government sold the remaining freight interests in the form of a management buy¬
out, was this position to be radically altered. Judging the impact of the 1968 Act is, accordingly,
made more difficult.

Passenger transport, as we shall see, illustrates another difficulty in pinning down the inde¬
pendent effect of deregulation. This concerns Sherlock Holmes-like questions about "the dogs
that did not bark in the night". The 1980 Act, while lifting quantity restrictions on long-distance
passenger transport, did not address the question of the entry barriers which might be disclosed
when the formerly binding constraint the quantity control was relaxed. Also, analysis would
normally proceed on the assumption that the firms involved would be concerned to maximise the
gain to the owners. As I argue later, that would have been an inaccurate description of the motiva¬
tion of the dominant firm, the National Bus Company (NBC), which was left at that time intact to
carry on as a public enterprise.
Moreover, in the case of the 1985 Act, three government policies were, in fact, being pursued
simultaneously deregulation, reduction of government subsidy to the industry and privatisation
of NBC, following the perceived success of the National Freight Company's (NFC) privatisation.
In this case also, as we shall see, the question of disclosed constraints on entry is significant. Any
account of UK deregulation must inevitably take on board these collateral events, or omissions in
policy-making.

2. ROAD FREIGHT TRANSPORT

2.1. The regime between 1953 and 1968

The period between 1953 and 1968 is interesting because of the light it throws on the unin¬
tended consequences of licensing, arising from its structure; and the bias to development of an in¬
dustry which can be imparted by a licensing system. As the subsequent history shows, it took a
considerable time for the newly "freed" industry to modify these influences.
In the UK system, operated on a quasi-judicial basis, with calling of evidence before a com¬
missioner and a judgemental appeal mechanism, a great deal turned on where the burden of proof
lay. If a would-be entrant applied for a licence, did he have to prove "need" positively or was it the
incumbents who had to show cause for refusal? The original 1 933 Act, setting up quantity controls,
had not been couched in a way meant to be highly restrictive, but the onus of proof was placed on
the would-be entrant. In practice, the regulation system, focusing on the evidence for need and
working by case law, built up to be a formidable barrier to entry in the period to 1953. The principal
reason given for refusals of applications for licences was their prospective abstraction of traffic
from rail. It was, of course, inherently easier for railways to bring evidence of "abstraction" than
for applicants to argue that they would be innovators in market services. The requirement to show

50
"need" for extra capacity was, however, easier for incumbent road operators to meet than for new¬
comers, imparting a systematic bias in favour of growth of firm size in haulage. One unintended
consequence of this protection for incumbents was a build-up of financially unviable capacity in
the nationalised road freight concern, no doubt aided by the real-politik of public ownership, as
shown by the relative failure to find buyers after 1953.
However, the 1953 Act, in providing for denationalisation of long-distance haulage, also
shifted the burden of proof to the incumbents. The first level regulators, the Area Traffic Commis¬
sioners, accordingly granted many more licences. Though the appellate mechanism reversed over
60 per cent of the cases which were taken up, there is little doubt that capacity substantially in¬
creased, while still biasing the outcomes in favour of larger road haulage incumbents. (I recall that
a cynical view at the time was that reversals on appeal were needed for the regulatory system to
ensure its own survival!) But the more significant effect was the bias imparted to the organisation
of road haulage.

Brian Bayliss' 1971 study, to which all observers of UK freight haulage are indebted, showed
the following changes in licences granted between 1953 and 1968. The meaning of the respective
licence classes in organisational terms is as follows: A licences allowed carriage for hire and re¬
ward, necessary to build an independent multi-customer haulage operation; B licences allowed
unrestricted carriage of one's own goods, plus a highly restricted operation in the hire and reward
mode. The A contract licence applied to stand-alone haulage operators who contracted their ca¬
pacity to a single customer for at least one year. A contract licences were the operationally disinte¬
grated versions of the biggest licence category, C, which allowed haulage of one's own goods ex¬
clusively in one's own vehicles. Table 1 adapts Bayliss' Table 29.
Haulage on own account in one 's own vehicle was always exempt from licensing constraints
(licences were given as of right) and was the principal means to avoid the restrictions imposed on
the professional haulier. C licences included vehicles of all sizes, including vans; hence the dis¬
crepancy between per cent of vehicles and per cent of ton mileage performed in these categories.
B contract, A contract and A licence categories had higher proportions of big vehicles, in that or¬
der, with a marked gap between C, B and the A types [compare columns (iii) and (iv) of Table 1].
Thus the device to evade licensing, the C licence, still increased slightly in the more liberal
post-1953 conditions. Increasing use was also made of the device to put independent hauliers un¬
der contract to carry one's goods, as shown in the rapid growth of A contract licences. Own-
account carriage was presumably made less costly by these means.
A further way to reduce the cost of own-account carriage was to carry for others. This was
also increasing over the period, as indicated by the B licence growth. However, the possible devel¬
opment of this mode of operation to become a specialised haulier for others involved a transition
from B to (unrestricted) A licences. This was blocked by tribunal decisions (compare p. 37 and
Table 31, Bayliss, op. cit.). After 1956, A licences remained hard to get directly, too. Organisa¬
tionally, therefore, the influence of the system was to encourage the adaptation and rationalisation
of haulage of one's own goods in an integrated operation, which could, to a limited extent, take
advantage of licensing loopholes to reduce costs. The carriage of goods for any customers as an
unintegrated operation was markedly inhibited, as the small increase in A licences shows. As one
would expect in these conditions, A licence vehicles commanded a scarcity premium, estimated in
1965 as £300 per ton unladen by the 1965 Geddes Report on "Carriers Licencing"1.
Licensing authorities also showed their propensity to prefer more control to less during this
period. B licences could be granted solely for hire and reward. Granting this type of licence rather
than an Alicence for hire and reward allowed the authorities to impose constraints on operations, in
respect of distance or type of goods carried, for example. In the early years of the regulatory

51
system, no such specialist hire and reward category had been evolved. Its use after 1953 was prob¬
ably a reaction to the shift in the basic burden of proof: regulators felt that change in this industry
should not be too precipitate. Evidence of this was that dealing with B licence appeals also occu¬
pied far more time in the appellate system than did A licences, it appears. Bayliss reports 1049
B cases in the period from 1953 to 1968 as opposed to 622 Alicence cases (cf. pp. 38-39, op. cit.),
far more in proportion to their respective total number.
By the time formal controls on quantity were abolished in 1968, replacing the A, B and C
licences with a single operator 's licence concerning fitness to own vehicles, the industry had taken
many opportunities to evade or adapt to the rules. The principal effects of the quantity control were,
it was thought, to encourage integrated operation involving the carriage of one 's own goods and, on
the public haulier side, an increase in firm size. The former was much encouraged by exogenous
factors also. The sixties had seen the beginning of greater concern with packaging and distribution,
of the notion of a manufacturer's responsibilities reaching to the customer's warehouse or retail
outlet, with appropriate control and high service levels. Specialism of vehicles to fit particular dis¬
tribution needs was growing fast also. A natural reaction was to identify control with the need to
own vehicles.

On the other hand, the specialist haulier's concern was with building a business on his nego¬
tiable property rights, particularly the scarce Alicence. Haulage had developed as a local business,
and the right to carry anywhere in the UK represented an important requisite for extending into
national markets. The first- UK motorway was opened in 1958, followed by the Ml London-
Birmingham Motorway in 1959. The prime question while licensing lasted was to combine the
property rights to best advantage. Increasing firm size was one apparent result, though public haul¬
age retained very large numbers of small operators, no doubt because small A licence-holders re¬
tained the option to operate profitably without yielding ownership.

Table 1. TYPES OF LICENCES HELD BY GOODS VEHICLES, GB

% ton mileage in
1953 1968 % changes num¬
Licence class Numbers held GB performed by
per cent per cent bers
road

M (vi)
H) m (Ui) (M
1968-1953 1968

A 9.3 7.1 104 000 + 16 35.2

B 6.1 6.5 96 000 +63 13.2

A Contract 1.0 2.5 38 000 +300 11.8

C 83.5 83.8 1 236 000 +55 60.2

1 474 000

Source: Brian T. Bayliss. The Small Firm in the Road Haulage Industry, HMSO, London, 1971, pp. 24 and 38.
(Note: Table 29 appears to have an error in total vehicles recorded for 1968.)

2.2. The effects of 1968 deregulation

It was widely expected that the 1968 Act would have considerable impacts on the industry,
and that these would be apparent soon after the Act's provisions came fully into force in March

52
1970. The Act removed quantity control on the previously controlled vehicles of over 3 per cent
tons gross weight, and established an operators' licence, to be held by all who ran vehicles over that
weight, whether operating for hire or reward or on own account. The operators' licence was princi¬
pally directed to backing up the Act's quality control provisions, for example, those concerning
proper maintenance. Operators had to show their competence either by experience or formal quali¬
fications by nominated examining bodies.

Reviewing this positive side of licensing in 1978, the Foster Report on Road Haulage Opera¬
tors' Licensing^found that licensing authorities had interpreted the rules concerning quality in the
following ways: the operator had to be a "fit person", of "good repute". Although intended to be
wide enough to include inquiring into the applicant operator's wider legal standing, in fact only
direct breaches of the 1968 Act's own provisions were taken into account and even this varied by
the regulators. Drivers' hours and records had to be kept: "all that a licensing authority can do here
is to ensure that a suitable system has been devised." But on overloading, the Committee could see
no way in which evidence could then be brought to bear. There were, however, fairly effective
ways in which the authority could ensure that maintenance provisions were adequate, and that there
was a suitable operating centre in which to keep or park vehicles not in use. The Act also included a
mandatory requirement to investigate an applicant's financial standing: the authorities had, how¬
ever, found it "impossible to check this meaningfully". Some authorities did, however, hold inqui¬
sitions about applicants' forecasts of costs, rates, workloads, etc. which, the Committee concluded,
in a few areas "comes close to requiring an applicant to show proof of need (p. 23, op. cit.) rather
as in the old regime". However, the Committee apparently did not regard this as a major surviving
constraint on entry.

Curiously, the Committee did not speculate directly about the impact of the 1968 Act's quali¬
ty provisions on the industry's behaviour. However, from its relatively mild proposals to make
more effective the authorities' knowledge of operators' competences, and its concern that "quality
licensing should (not) become a means of protecting existing operators through the back
door" (p. 93), we can at least infer that the quality dimension had not been adversely affected by the
Act's other changes, and may well have been improved by the positive measures. Thus the Geddes
Committee's original judgement, when recommending the abolition of quantity licensing in 1965,
that there was no causal link between quantity licensing and such parameters of quality as greater
safety, was confirmed; the two types of control could be expected to function adequately side by
side.

Expectations about the impact of abolishing quantity licensing on the economic dimensions
of the industries' performance were much firmer. The Geddes Committee focused on its effect on
raising the price of goods transport and, in particular, on the distinction between hire or reward,
subject to licensing, and own-account operations, which were not. This induced inefficiency, it
argued, because of inhibitions on gathering backloads3 It was widely feared, it noted, that there
would be adverse economic effects from removing quantity licensing, in particular that greater
bankruptcies would contribute, alongside increased entry, to create greater "instability" in the in¬
dustry. Profit would fall; investment would be discouraged. Since, as noted above, licensing had
caused sizes of haulage firms to increase, deregulation would reverse this trend.
In the event, the two principal inquests held after the change basically failed to demonstrate
that there had been any such effects. (These inquests were, respectively, B.T. Bayliss' "The Road
Haulage Industry Since 1968", published in 19734, and the Foster Committee's work already
quoted.) On the principal alleged inefficiency restrictions on own-account operations the
expectation was both that hire and reward operation would be widely substituted for own account,
that is, firms having such operations would either disintegrate their in-house haulage or,

53
alternatively, take on substantially more outside work, using the clearing-house mechanism to get
backloads (clearing houses, which had been a feature of the unregulated industry, had been severe¬
ly curtailed afterwards, partly also because of nationalisation of long-distance road haulage in
1947). It was also expected that the setting of a lower limit to the vehicle size requiring an opera¬
tor's permit for operation would lead to evasion by substituting smaller lorries.
On the basis of careful sampling of public hauliers, former own-account (C licence) holders,
and licence records to establish entry and exit over the period 1968 to 1971, Bayliss concluded that
there was:

A very small increase in tonnage carried for others by mainly own-account operators.
This amounted to less than 2 per cent of the total tonnage carried for others in 1971;
No evidence of a substantial number of exits of professional hauliers from the industry;
No measurable impact of deregulation shown in profit margins, costs and charges and in¬
vestment. If expectations of "instability" were unfounded, so were the other assumed
economic effects of regulation. There was no measurable reduction in firm size, and no
evidence of behaviour to evade the impact of the weight limit operators' licensing.
The later Foster Report did not dissent from these findings. Indeed, it confirmed some of
them. "Though, as in any healthy industry, some failures must occur, the impression we formed
was that the industry was surprisingly stable" (p. 34, op. cit.). Low or negative profits experienced
in the mid-seventies were a function of the "depressed national economy" (p. 36). The report's
Table A 22 had shown that liquidation and bankruptcies had fluctuated between 1969 and 1976,
reaching their lowest point in 1973, just before the first oil crisis. The report confirmed the very
low incidence in own-account operators' total output of work done fo.r others. The Committee's
Table 4.3 records a percentage of turnover derived from hire and reward work which varied with
fleet size, from 4.0 for 2-5 vehicles, to 6.5 for 21-100 vehicles, and 3.7 for fleet of more than
100 vehicles. J.C. Cooper also confirmed Bayliss' earlier tonnage figures for hire and reward
work, in a 1978 study5.
In part, these failures to detect any, or very little measurable impact from deregulation were to
be expected because of the previous history, recounted earlier, of the impact of "privatisation" and
the growth of means of modifying the effect of quantity control. At the aggregate level, effects on
costs, charges and profitability, if any, could not be disentangled from other factors governing the
growth of demand and the supply of factors. But the failure to detect distortions on incentives with¬
in the industry is, at first sight, more puzzling. Specifically, there should have been a reversal of
firm size in professional haulage if the leading incentive had been acquisition of licensed capacity;
and there certainly should have been an observable correction of the perverse incentives to reject
hire and reward in favour of own-account operations.

2.3. Contractual and organisational change

These judgements would, I think, be echoed by most economic commentators. My own inter¬
pretation of this lack of evidence runs along rather different lines, however. First, there is a tenden¬
cy to expect the impacts of any major change such as deregulation to appear quite quickly. In fact, it
is more realistic to expect a considerable period to pass before they do. Freight transport is a
derived demand. Deregulation gives the opportunity to change modes of doing business. This is a
necessary condition for changes, but sufficient conditions are found in changes of profitability as
seen by those who require transport services. For example, whether a large food chain wishes to
disturb its existing freight supply depends on the perceived need to change its warehousing and

54
distribution strategy. This, in turn, depends on retail competition, the development of retail sites,
etc. There is no necessary reason why this kind of opportunity should arise with a particular event,
such as quantity deregulation, in the supplying industry.

Second, expectations about a change are largely based on historical organisational arrange¬
ments. These may not be appropriate to the changed circumstances at the time the actual change
occurs. A good example of this is probably the expectations about clearing houses. In road freight
transport's early days, in the twenties and thirties, clearing houses were important market-makers.
They brought together, often physically, loads which had been consigned for potential carriers.
These carriers were often backloading to their point of departure, not having made arrangements to
get a backload. As explained earlier, clearing houses were expected strongly to revive on deregula¬
tion. Yet the Foster Committee, in 1978, reported that "we have been unable to obtain any quantita¬
tive information about the number and type of clearing houses, or their significance in the market
for transport" (p. 32, op. cit.). This did not prevent "abundant testimony", hostile to clearing
houses, being given to the Committee. But "no clearing house came forward to give evidence" to
the Committee. What, in fact, was being described was a function, not a specialised institution as it
had been in the past. The function by that time was already shared among hauliers' associations,
freight forwarders and indeed own-account operators, among many other parties. "Clearing
houses", I suspect, were then and even more later rather like the yeti, an animal whose foot¬
prints are well known, but who is never reliably sighted. The "footprints" were, of course, the un¬
profitable deals often done in a highly competitive industry, causing the "man" to get a bad
reputation.

Third, if, as I have argued, deregulation makes possible new contractual arrangements, this
dees not mean that other brakes on competition will not appear. Not mentioned by the Foster Com¬
mittee, but undoubtedly important for the time being reviewed (1969-78), was the impact of gov¬
ernmental price control, applied in practice to carriage for hire and reward. (Own-account opera¬
tion, in the sense of owning and manning vehicles, was affected by price control only indirectly by
effects on input prices, especially wage settlements.) Price control was reinstated in 1973, and was
thereafter an important policy instrument until the advent of the Thatcher Government in 1979,
which formally removed it in 1980. The effect of price control was to create an umbrella to modify
competition.

Dr. Bernard Warner describes this period as follows: "Price increases were limited to what
was required to recover increased production (or operating) costs and profits to the average of the
best two years of the last five." This legitimised price increases to customers. It "allows NFC and
other hauliers to cover costs plus a margin"6. "The (Price) Commission would tell us (the NFC)
they had no objection and we would tell our customers the Commission had agreed it." "These
prices were accepted with little or no negotiation, because they in turn could pass it on to their cus¬
tomers. There was no reference in the submission to the scope or the reward for better production
and no incentive to achieve it"7. This was, of course, a time of unprecedented inflation; and it
was also the last period in which road haulage unions could feel able to mount, and win, large-scale
strikes. So this was not a propitious time for firms involved in haulage to take advantage of the
contractual potential opened up by deregulation.

Contractual and organisational changes are difficult to capture in a statistical series. The
longest running relevant UK statistic we have for the whole period since 1968 is the division of the
total market between "Public Haulage" and "Own Account". The development from 1968-1987 is
illustrated in Table 2.

55
 Table 2. SHARES OF "MAINLY FOR PUBLIC HIRE" AND
"MAINLY FOR OWN ACCOUNT" IN TOTAL ROAD FREIGHT
GB 1968-87

1977 1977
1968 1971 1974 1980 1983 1987
old basis new basis

Tonnes lifted

Public Hire % 46 50 54 54 57 50 50 59

Own Account % 54 50 56 46 43 50 50 41

Tonne-kms lifted

Public Hire % 60 59 64 66 68 61 64 71

Own Account % 40 41 36 34 32 39 36 29

Sources: Transport Statistics in Great Britain, 1968-78. Tables 76, 77;

Transport Statistics in Great Britain. 1977-87. Tables 2.31, 2.32.
Note: The computerisaton of records occasioned a change of base for 1977 figures and afterwards.

As the table shows, there was in fact a long-run shift away from own-account operation,
more marked in the measure of total work performed, tonne-kilometres. But this did not become
very prominent until the later eighties. The description "own account" and "public hire" are inade¬
quate descriptions of the more important changes in contractual relationships which were actually
taking place. "Public hire" conventionally included the business of hiring one's vehicles to a single
buyer. This was a form which combined the advantages of control over the carriage of one's own
goods with using the market to supply the haulage. As we saw in Table 1, this form (A contract
hire) was growing rapidly in the 1953-1968 period, but from a very low base. After the final with¬
drawal of government influence on the haulage market around 1980, this form of arrangement
seems to have blossomed.

A striking testimony to this change is found in the remarkable success story of the National
Freight Corporation, from the time of the management buy-out in 1982, to its flotation in 1988. In
a turnover increasing from £493 million in 1983 to £911 million in 1987, over half its turnover in
1987 was accounted for by contract hire, described as a "rapidly growing sector of the UK transport
market", in which NFC had an 8 per cent market share (phasing out of UK capital allowances had
helped this shift). Contract hire covered a variety of contractual relationships, from supplying ve¬
hicles and maintenance only, to supplying drivers, organising licences, insurance, etc. NFC de¬
scribed it as a part of the market in which large operators could gain at the expense of smaller ones
"because of the scale of operation required and the emphasis on high service standards". Large
multiples such as Gateway and the Co-operative Wholesale Society (CWS) used NFC in this way.
Truck rental was another important development. By 1988 NFC had "relatively little contracted
general haulage activities". It had, however, extended rapidly into distribution, offering services
varying from "identifying sites for regional distribution to providing a fully integrated warehous¬
ing and delivery operation"8. D.A. Quarmby also shows the relation between changes in physical
distribution and the growth of contracting in place of own-account operation9.
This development of contract hire into services, allowing a large customer to offload its inte¬
grated distribution system to an independent supplier, was not confined to the UK's largest haulage
firm. It is quite common now for custom-designed systems, which may well include the provision
of new trailer types, to be put out to tender, and the competition for those contracts between the

56
larger haulage-based firms is increasing. The device of using management buy-outs to float off
freight companies has also been used after recent major takeovers e.g. United Parcels, spun off
from Bunzl, and Lowfield Transport, from Imperial Tobacco. The outstanding characteristic of
the industry in the 1980s has been differentiation and specialisation, in which the industry struc¬
ture, superficially little changed over the years has, in fact, developed a large variety of contractual
relationships.

Interest in the trend of firm size in haulage has greatly diminished since the 1970s, and there
are no up-to-date figures from which to draw conclusions, but it is highly probable that the size
structure high proportions of operators concentrated in small fleet sizes persists. In the last
year for which statistics were taken, 1980, the distribution of vehicles subject to operators' licens¬
ing by fleet size was as shown in Table 3.

Table 3. DISTRIBUTION OF OPERATORS BY FLEET SIZE, GB, 1980 AND 1973

1980 1973
Fleet size
000 % 000 %

1 vehicle 67.7 53.6 70.1 53.5

2 vehicles 22.0 22.7

3 vehicles 10.5 10.9

4 vehicles 6.1 33.56 6.3 33.4

5 vehicles 3.8 3.9

6-10 vehicles 8.6 10.2 8.9 10.4

11-20 vehicles 4.3 4.7

21-30 vehicles 1.4 1.5

31-40 vehicles 0.6 0.7

41-50 vehicles 0.4 2.5 0.4 2.7

51-100 vehicles 0.6 0.7

101-200 vehicles 0.2 0.2

Plus de 200 vehicles 0.1 0.1

126.3 131.1

Sources: ( 1 980) Returns for Heavy Goods Vehicles Operators Licences, Department of Transport, 1973; Foster Report, op. cit. ,
September 1980, Table A5.

Subsequent road goods surveys have indicated that this distribution has not substantially
changed since. The smaller the firm's size the more likely it is to be a sub-contractor for other oper¬
ators. Service differentiation, the principal concern of the larger operators, is reflected in the activi¬
ties of smaller operators also. But these are probably the principal suppliers of the spot market for
haulage, whose precise dimensions remain unknown.

I would argue that the full effects of deregulation which, to repeat, is a necessary but not suffi¬
cient condition for contractual change in the industry, did not become fully apparent until after
1980. By that time, other impediments, notably price control, had disappeared. There is little
doubt that a large change in productivity and other economic indicators did occur in the 1980s.
Warner describes the significant changes, compared with the seventies, as follows:

57
 The annual distance driven per vehicle declined slowly between 1973 and 1979, but over
the eighties (from 1981-86) steadily increased, from 60 000 km to 75 000 km (measured
for articulated vehicles of more than 32 tonnes);
Annual tonnes-km carried per vehicle declined from 1973 to 1979, but increased steadily
and rapidly after 1980, due in small part only to the introduction of 38-tonne vehicles in
1983;

Road haulage rates for the heaviest vehicles, for a given mileage, increased by more than
operating costs over 1976-79.
From 1980-86, rates have increased by less than costs10. Warner concludes that after 1979,
productivity of heavy articulated vehicles in the UK rose by an average of 4 per cent a year; less
than a third of this is due to the 38-tonne lorry. Real operating costs decreased by an average of
two and a half per cent per year, followed closely by rates.
One cannot assign productivity changes to separate causes. Other concurrent factors, such as
an expanding motorway network and changes in permitted driving hours, helped the productivity
gains. But the change in direction of productivity measures since 1980, the turning point, is diffi¬
cult to explain without according the abandonment of the last obstacle to free contracting price
control an important part. At all events, the UK road freight industry today epitomises flexibil¬
ity and adaptability to changing demands. The long period of reforms, intended to promote compe¬
tition, which included formal deregulation in 1968, may now be said to be complete.

3. BUS DEREGULATION OF LONG-DISTANCE OPERATIONS

The quantity deregulation of long-distance (more than thirty miles) bus operations in 1980 is
of interest to economists particularly because of its unusual context. The long-distance coaching
trade's major incumbents before 1980 were nationalised industries, the National Bus Company,
covering England and Wales, and the Scottish Bus Company. These offered the only network of
services, based on ownership of key terminal sites in big cities, notably Victoria Station in London.
These sites were typically the only permitted passenger exchange points in those cities. Private
sector independents occupied about 20 per cent of the total market, but few routes were served by
more than one operator. British Rail (BR) was the only effective network competitor.
The unusual element in the 1980 deregulation was that it was a deliberate attempt by the Con¬
servative Government to introduce competition to a nationalised industry. The move belonged to
the relatively short period in the Thatcher Government when attention was focused on making pub¬
lic enterprises more efficient, short of privatising them. (Privatisation was the preferred policy,
pursued for the big public utilities in particular, from 1982 onwards.) The 1980 Act case therefore
presents the only recent UK example of a policy category much advocated by the critics of privati¬
sation. The argument of these critics is that liberalisation, as embodied in deregulation's the key to
substantial consumer gains, not privatisation. The latter has, they think, conceded far too much
market power to the incumbents being privatised11. The period of the NBC's operation in a nation¬
alised industry subjected to competition was short: the 1985 Act not only privatised NBC (but not
the Scottish Bus Company), as noticed earlier, but also added liberalisation to virtually all of their
bus markets by deregulating bus operations of less than thirty miles outside London. But the expe¬
rience during the period 1980-85 or so is generally regarded as indicating the effectiveness of de¬
regulation in producing benefits for the consumer.

58
3.1. The nationalised industry period

The standard account, following Vickers and Yarrow (op. cit., pp. 372-377), which draws
extensively on Davis12, is as follows. Immediately after deregulation, attempted entry by rival net¬
work operators at prices roughly half those of the incumbent, NBC's National Express subsidiary
(NE), was met by NBC. The quality offered sharply improved; there were more direct services
between large towns, at higher speed, though smaller towns suffered some loss of service. Demand
expanded on main routes by as much as 200 per cent. After the withdrawal of the main new entrant
in 1983, prices rose but NBC retained its policy of aggressive price competition, preserving and
enhancing its market share. Rivals tended to develop niche markets such as luxury coaches serving
specific inter-town routes, neglected by NE commuter services to large towns, and summer tour
business. The main rivalry to NE came from British Rail, which targeted off-peak travellers and
offered lower fares whenever their Inter-City trains' spare capacity indicated, at various times of
the day and week. In short, all the classic responses expected from competition were found
lower fares, higher frequencies, concentration on profitable routes and a variety of innovatory
moves.

That National Express should increase its market share was not expected but, with hindsight,
the commentators are clear that it used its incumbent advantages ruthlessly. These were, first, its
head start in national marketing, as a back-up to its national network. This was quickly reinforced
by computerised booking systems. Most important was the use of its control over terminals or hubs
such as Victoria Station, where as many as 24 per cent of arriving passengers interchanged. NBC
pursued an active policy to hinder competition. It not only refused entry to newcomers to those
hubs and terminals but also, when their activity was deemed competitive, ejected independent op¬
erators who had used them before 1980. NBC went so far in at least one case as to exclude an opera¬
tor from a terminal even when its proposed competitive service did not use the terminal con¬
cerned13. This was a clear example of using monopoly power in one location as a lever to harass
competition in another.

So, to the critics, liberalisation had failed to disturb the principal constraint on entry underly¬
ing quantity control. The lesson was partly absorbed by the Government when it drew up the 1985
Bill. Control of Victoria Station was vested in a separate company among NBC's successors and
transferred to London Regional Transport. Provisions to prevent anti-competitive exploitation of
bus stations were included (the words "partly absorbed" are used because, as seen later, further
questions about other properties, important in local bus operations, remained unresolved outside
the 1985 Act). There can be little doubt that, in long-distance operations, the question of access to
bus terminals was indeed an extremely important constraint on entry. But the question remains
why did NBC elect to behave as if it were in perfectly contestable markets, by raising output and
increasing quality while reducing prices, so producing a result very akin to what one would expect
from such markets, namely an incumbent with a very high market share, constrained to act as if it
were in full competition? It did not need to do so, because of its control of key entry conditions.

The evidence does not allow us to give a very good answer to the problem. Vickers and Yar¬
row's comment on NBC's behaviour is as follows. "Given the nature of its incumbent advantages,
it is not surprising that National Express responded aggressively (...) before its rivals could build up
goodwill and customer awareness. The entrants' pockets could not withstand the effects of the in¬
cumbents' sharp price-cutting strategy for very long and National Express had good reason to be¬
lieve that short-run revenue losses would soon be recouped by the return of its market dominance.
National Express' policy bears some sign of a campaign of predatory pricing but, whether or not
this is so, the competition authorities stood by and did nothing"14.

59
 Actually, the "authorities" were in a poor position to do anything at the time: the Competition
Act of 1980, aimed at strengthening the UK's control of individual company market power to cover
predation, amongst other matters, was focused on private industry. Nationalised concerns were
merely to be subject to scrutiny which could not call into question their attempts to meet their fi¬
nancial targets, thus eliminating any serious inquisition of their pricing. Moreover, the bus indus¬
try enjoyed a general immunity from the provision of the UK's principal anti-trust law, the Fair
Trading Act of 1973. This immunity was repealed only in the 1985 Act.
So NBC's ability after 1980 to harass competition (through National Express) was even
greater than the commentators appreciated. In pursuing what would be judged by most anti-trust
standards as "competitive dubious practices", its nationalised status was a help. But, of course,
predatory tactics are only rational if greater profits are made later, which more than compensate for
immediate losses. And even if NBC's tactics were not predatory, their pursuit of an increasing mar¬
ket share via lower prices and increased output should, in principle, have been their best option for
increasing profits. If we are to maintain the notion of NBC as a nationalised concern, seeking opti¬
mum profit strategies, we would seek for evidence that with all their incumbent advantages
there were not other, more profitable, options available. (One might have been to extract the poten¬
tial rents from their key hubs, leaving actual operation of buses to other companies.)
Unfortunately, the record on profit is extremely obscure. Davis does indeed report that Na¬
tional Express "increased its profits ... from £3.1 million to £5.4 million between 1980 and 1982."
NBC's last annual report before privatisation, for the year 1985, records that the year was one of
"consolidation" in the express coach business. Competition had been strong. There had been more
concentration on using network advantages, including computerised booking. There was empha¬
sis on cultivating an improved quality of service, and an investment in 143 high-grade coaches for
the principal inter-city service, Rapide. "Contribution to profit", on a turnover of £71.4 million
increased by 20 per cent on the year, was £7.9 million. One might think an increase from £3.1 to
£7.9 million "profit" a modest achievement for all that frenetic competitive activity!
But the important question is, of course, what "profit" meant in the actual corporate context.
NBC's total turnover was £873 million in 1985. The vast bulk of its business was in local bus ser¬

vices; and its local bus subsidiaries dealt with National Express as carriers for them. How common
costs were allocated among the 72 subsidiaries is not stated. The real test of profitability of Nation¬
al Express was as a stand-alone operation, a question not aired before privatisation. (National Ex¬
press was regarded as a prime part of NBC at privatisation, but the valuations and other deals made
at that time to float it off have not, at least in public, been related back to the accounts of the 1980-85
period.) So whether the £7.9 million reflected truly profitable business or not will probably now
never be revealed.

My own judgement of NBC's policy for National Express in that period is that it is inappro¬
priate to postulate a model of private, profit-maximising behaviour. Instead, a much more plausi¬
ble model is that of a sales-maximiser, subject to a (low) profit constraint, which might in fact have
been negative, to allow some help for National Express from the more profitable sectors of the
business which, I suspect, were the still-regulated, moderately publicly subsidised local bus opera¬
tions. This seems to me a fairer description of the likely motives and actions of nationalised indus¬
tries as I have known them. The extent of the nationalised industry operations, its protection and
enlargement, is a prime consideration for a nationalised Board, sandwiched as it is between politi¬
cal expectations from above and union power from below. (This Board's instinct to preserve terri¬
tory was vividly expressed in the attitudes of nationalised industry chairmen when facing privatisa¬
tion. They have all fought hard to achieve privatisation as one unit. In NBC's case, the proposed
break-up into 72 companies was presided over by a new chairman, brought in for the purpose.) If

60
we accept the alternative hypothesis on aims, the apparent contradiction between incumbent
strength and observed contestable market behaviour disappears. So does the problem of reaping the
benefits from possible "predatory" behaviour. Output had to be kept up and increased if possible;
maximising profit was not the aim.

3.2. The post-privatisation period

The process of privatising National Express continued from the time of the Act to its final sale
in March 1988. Of course, it is early to make an evaluation of the impact on industry performance
of this event but one would expect that with most, at least, of the structural requisites for competi¬
tion in place, what was a spirited defence of a nationalised industry in the face of deregulation
might well be transformed into a text-book case of a contestable market. Entry foreclosure using
station ownership is now inhibited. The industry is subject to normal UK anti-trust rules (and, of
course, EEC's).
There are many signs in National Express' post-March 1988 behaviour that the market is in¬
deed fiercely contested and displaying innovation in services. For example, on pricing, NE intro¬
duced differential time-of-day pricing over much of its network on Tuesdays and Saturdays in Oc¬
tober 1988. It cut off-peak prices in January 1989 for a season until April, at a time when a major
external competitor, BR, raised their 's. On competitive tactics, NBC launched its first TV adver¬
tising campaign for two years in May 1988. At about the same time, many more towns were in¬
cluded in the network, and extra stopping services introduced; later in the year, networks were be¬
ing extended to include smaller towns, and were being speeded up. Quality of service, focused on
the Rapide, was being boosted.
But if the market conditions have indeed eliminated the old incumbent advantages, or modi¬
fied them significantly, one would expect the incumbent to shift to more profitable modes of doing
business. There are, in fact, some strong indications of this. The privatisation deal which launched
NE is reported to have included coach station properties at Birmingham, Leeds and Manchester.
With the inhibitions to deny competitive access on them, these important inherited properties will
doubtless be viewed as means of creating profit by serving operations, not necessarily from operat¬
ing itself. The art will be to maximise passenger throughput, as in the parallel case of airports.
Similarly, NE inherited only a small number of vehicles at privatisation. Most of the
950 coaches in use each day are now provided by other bus companies on contracts. This pushes
much further the movement towards contracting out noticed in the 1985 NBC accounts, when 24
non-NBC operators were used as sub-contractors. In other words, NE is moving towards a form of
franchising operation, as a part of developing its Rapide brand. Further alliances with foreign oper¬
ators, to provide integrated services and to maximise the use of computerised booking, are being
formed. (These arrangements have at least the short-term advantage of freedom from close anti¬
trust surveillance.) Finally, more permanent alliances can be sought, not imposed from above as in
NBC days. Thus, NE bid £6 million for another ex-NBC property, Crosville Wales, in 1988.

In summary, the case of the UK's long-distance bus operations has further lessons for the ana¬
lyst of deregulation. In road freight, we saw that if quantity constraints are not binding, little
change in behaviour can be expected. In long-distance passenger operations, the quantity restric¬
tions were indeed inhibiting the development of the market, but their removal did not lead to a
successful challenge to the incumbent. On my interpretation, the incumbent used other, underlying
impediments to entry to maximise sales, with scarce attention to profit-making. What would have
happened had their removal been combined with a persistence with ownership, instead of

61
privatisation? Very probably, the combination would have led to a rapid shrinkage of the public
sector operations.
As it was, the collateral 1985 policy of privatisation persuaded all players to become more
profit-oriented. NE was deprived of the protection of its much larger parent, itself not a single-
minded pursuer of profit. Entry now being eased, profit-seeking moved to where the above-nor¬
mal profit might now be, upstream and downstream of bus operation itself. The market is now as
close to a fully contestable market as one is likely to encounter in the real world, but the lowering of
barriers is, to profit-seekers, the occasion to find ways in which new ones may be created. This
involves redefining the service and altering the approach both to the consumer and in the organisa¬
tion of production. In both freight and long-distance passenger transport the search for profit has
meant substantial change, after deregulation, in the relation between integrated production and
ownership.

4. LOCAL (STAGE) BUS SERVICES DEREGULATION

4.1. The 1985 Act

Deregulation of local bus services in the 1985 Act was seen by the industry itself, government
and commentators as a far greater upheaval for the industry than the 1981 measure had been. It
reversed a 50-year-old policy of route licensing which had applied both to incumbents wishing to
offer new routes and to entrants. Thenceforward, any operator wishing to provide a public service
was obliged simply to register the route with the Area Traffic Commission. Forty-two days' notice
to commence, to make a significant modification or to withdraw, is required.
The Act's other principal policy innovations were to privatise NBC, the bulk of whose reve¬
nue was derived from local services; to switch public financial support for services from general
payments to operators to support for specific services, to be put out to competitive tender; and to
require that Metropolitan and Public Transport Executive bus fleets, the main suppliers of bus ser¬
vices in the UK conurbation outside London, should be put at arm 's length from local authorities as
newly-formed Passenger Transport Companies (PTCs). These were to be treated, in principle, as
any other transport suppliers with respect to subsidised services and to other policies such as con¬
cessionary fares for old-aged pensioners.

The conditions under which licences for local services were given had, in fact, been changed
as part of the previous 1981 Act. At that time, the burden of proof for a licence was changed, as
nearly thirty years before in the freight industry. Instead of the newcomer having to show that it
would be in the public interest to be allowed a route, an existing operator, normally an incumbent,
had now to show that this would not be in the public interest. An appeal against a traffic commis¬
sioner's decision was allowed, to a (Conservative) Secretary of State for Transport, known to fa¬
vour competition. This shift, however, was not sufficient to persuade significant numbers of new¬
comers to take on the risks of attempted entry. Presumably, the cost of application and the uncertain
outcome were deterrents. Traffic commissions could not be expected to revise their basic opinions
about what was or was not in the public interest simply because the burden of proof had been for¬
mally shifted. The same phenomenon was observed in London after a 1984 Act had, among other
provisions, similarly changed the burden of proof. In effect, under this Act's provisions, London
Transport was obliged progressively to put its own routes out to tender, but the Act retained

62
licensing for new entry, subject to appeal to the Secretary of State. Not until late 1988, when Devon
General applied for and received a licence (unopposed by London Transport) to operate mini¬
buses in East London, including the Docklands, has substantial independent commercial entry
occurred there.

4.2. Contrasting expectations about deregulation

Amongst economists, expectations about the effect of deregulation (to take effect fully from
February 1987) varied widely. These are perhaps best epitomised by the exchange between Gwil¬
liam, Nash and Mackie, on the one hand and Beesley and Glaister on the other, in Transportation
Reviews, on the Government's White Paper of 198415 which preceded the 1985 Act16. The first
authors described the government policy as set out in the White Paper as essentially putting for¬
ward four propositions:
1. Deregulation will produce a competitive market;
2. Competition will substantially reduce costs;
3. A competitive market will improve resource allocation;
The authors rejected all these propositions except number 2, about which they, in any case,
had severe reservations. "If there is any competition at all on bus routes, it will tend to be small-
group rather than large-group. Neither will produce efficient results except under extreme as¬
sumptions concerning contestability of markets, which we reject." "Competition would not pro¬
duce an efficient allocation of resources (...). Entry of new services like mini-buses into dense
urban markets would be unlikely to succeed, except by creaming off the best traffic." This would
be undesirable "because of the resulting dilution of conventional bus frequencies and the conges¬
tion effects". "If improvements in cost efficiency are available, most of them would be captured by
competitive tendering, which should be extended to all routes." "Competition of the market would
avoid many of the costs of on-the-road competition"17.
The reply saw these authors' paper as, in reality, defending the proposition that planning for
buses is good for the industry, bus consumers and society at large. The assumption of fully know¬
ledgeable, all-wise planners was false. The authors had not dealt with the White Paper's central
proposition that deregulation would encourage much-needed innovation. The authors' notion of
competition "for the market" meant that competition "when allied with planning wisdom" is a
good thing after all. But what was to be supplied should be decided by operators' own choice, not
by planners'. Deregulation was in any case a pre-condition of competition and hence of effective
tendering. The authors ' scepticism about cost savings (the White Paper had predicted a 30 per cent
reduction) was misplaced.
The fundamental division between the two sets of authors was clearly about the relative roles
of market forces and planning. It was inherently unlikely, in the nature of things, that what hap¬
pened after deregulation would convince either side of the falsity of its basic view. The Act was
accompanied by a strenuous government effort to set up monitoring procedures; for the first time,
for example, it sought to distinguish clearly what was being provided by operators in local bus op¬
erations (now defined as less than 15-mile trips). Assessments of the impacts of the Act quickly
burgeoned, using the newly available data. However, the data unfortunately left important ele¬
ments unsurveyed, including measurement of trip length (so that total output, passenger miles, was
not directly observed). Nor were the changes in contractual relationships in the industry, which
might be expected to follow deregulation, monitored. Interpretations to confirm one's own preju¬
dices were thus only too easy to make!

63
 But with that warning, one may present a cross-section of the interpretations of the experi¬
ence so far. The first set, from the largest number of commentators, basically represents the views
of the pro-interventionists in markets. The second, opposed interpretation draws heavily on my
own paper delivered at the Thredbo Conference in May 1989, and may perhaps be said to represent
a free market view, probably a minority one among UK transport economists18. The reason that
there is unlikely to be an independent technical test of the rival views is essentially that touched on
earlier. Both sides agree that evaluation of this policy change, like any other, is in principle suscep¬
tible to a CBA treatment, comparing "after" with "before". Unfortunately, in addition to the diffi¬
culties stated earlier, over the two years available for comparison there have been very large
changes in important parameters, which stretch credulity in the applicability of conventional mea¬
surements (e.g. of price elasticity). Moreover, important new services, changes in service levels
and abandonments of routes have occurred, and have been experienced very differently by
different groups.

4.3. Reported results

W.J. Tyson19, having considered the likely effects of changing population and unemploy¬
ment, concluded that over the first year of deregulation "there is little doubt that in total, fewer peo¬
ple are using buses in the Metropolitan areas and in Strathclyde than before deregulation. An upper
limit may be around 10 per cent. There has been a high degree of competition and potential compe¬
tition for both commercial and tendered services." Fares increased substantially in real terms.
There has been a reduction in operating costs, from various sources labour redundancies, lower
pay increases and lower pay for mini-bus operators. Reviewing also the 1988 experience, he re¬
ports that "the high degree of competition has on the whole been sustained. Service levels have
continued to fluctuate. The rapid rate of change of services has not abated and this itself must be
having an adverse effect on passengers"(p. 50, op. cit.).
Professor Peter Hills reports the results of the monitoring programme (to November 1987) in
eight areas of Scotland, ranging from the thinly-populated Highland Region to the densely-popu¬
lated Glasgow area (Strathclyde). He points to the "high rate of change that here prevailed" and
echoes Tyson's concern about "instability". However, "the evidence so far is that many of the ad¬
verse predictions (about deregulation) have not yet come to pass" and "some aims of the Govern¬
ment have been achieved. For example, competition has arisen in places, (and) unit costs of opera¬
tion have fallen"20. In all study areas, bus kilometre operation has increased, especially in urban
areas. On the road, competition has been extensive in the urban study areas. New independent
operators were, however, few. Experience of fare changes was mixed. More buses were carrying
fewer passengers. On the quality of service, favourable impressions were reported in more areas
than not.

Dr. Peter White and Dr. Roy Turner most usefully summarise relevant statistics from the De¬
partment of Transport's first monitoring report of December 1988. From these, the changes in rele¬
vant parameters can be deduced for the period 1985-86, before deregulation, to 1987-88, after it.
Several areas are reported, including London, in which tendering, not deregulation, was progress¬
ing. Table 4 sets out the percentage changes in vehicle-kilometres, in passenger trips, fares and
operating costs per bus-kilometre.
White and Turner derive a pessimistic view of deregulation's impact from arguments based
on, and developing these figures. "Though deregulation had produced some impressive savings in
cost per local bus-kilometre, these have been offset by falling loads to produce only marginal re¬
ductions in operating cost per passenger trip outside London." Many other commentators have

64
remarked on the increase in mini-bus operations associated with deregulation; indeed, it is viewed
as the principal innovatory move so far. White and Turner say: "Where some useful innovations
have appeared during the phase of competition, they may be retained" (p. 19, op. cit.). But they are
principally impressed with "instability" in the network of services, which they think must account
for most of the passenger losses reported. This, in effect, labels the residual, unaccounted-for falls
in passenger trips when exogenous trend factors, fare rises (with an imputed elasticity of -0.3) and
increased service levels (evaluation at a service elasticity of +0.4) have been accounted for. The
main lesson they draw from the London experience is that there would be "no clear benefit in ex¬
tending regulation to the capital if anything, the opposite", but "further scope may exist for re¬
ducing cost for bus-km, and for mini-bus introduction, especially in suburban areas" (p. 19,
op. cit.).

Table 4. CHANGES IN LOCAL BUS SERVICES, 1985-86 TO 1986-87

Percentage changes by area

Metropolitan
English Shires Scotland Wales London
Counties

Passengers Trips -16.2 -3.8 -3.3 -0.6 + 10.2

Bus-km performed +7.5 + 17.8 + 15.4 +8.4 -1.8

Fares +28.6 + 1.4 +9.2 n.d. +3.6

Operating costs -26 -21 -14 -14 -11

Source: P. White and R. Turner, "Overall Impacts of Local Bus Deregulation in Britain", International Conference on Competition
and Ownership of Bus and Coach Services, op. cit.

Professor Gwilliam, at the same Conference, restated his belief that the "market is not per¬
fectly contestable and hence an effective control against predation is required". This would be nec¬
essary, but not sufficient, to control "dimensions of competitive activity, which reduce welfare".
Competition pressure reduced costs, but "competition for the market (as in London) is at least as
effective and immediate in this respect as competition in the market"21.
Clearly, the experience so far has not quelled the doubters' fears. Gomez-Ibanez and Meyer
sum up in this way: "Neither the advocates nor the opponents of reform have been completely vin¬
dicated by subsequent events. However, as to whether or not competition would emerge, which
was central in the prior debate, the advocates appear to have the better of the argument" 22. Perhaps
it would also be fair to say that regulation 's impact on costs has, in effect, been conceded . So has the
positive impact of deregulation on innovations. Yet the fundamental difference of view about mar¬
kets versus planning remains. What, to the free market advocate, is the market learning with diffi¬
culty to slough off fifty years of constraints, is to opponents an unnecessary cost in disturbance and
"instability". The latter will say that the combination of planners deciding what is to be consumed
plus competitive tendering is preferable; their opponents will still distrust planners.
In London, the enthusiasts would point out, the threat of deregulation is implicit in the 1985
Act. Although when the Government was discussing that possibility in 1987, the Act was deemed
to be technically unsound for its purpose of extending deregulation to London and thus would

65
require a further Act, the Government's intention has not been abandoned23. More significantly,
London Regional Transport itself formally embraced a policy of welcoming deregulation in 1987,
undoubtedly with the hearty agreement of the Chairman of London Buses Ltd, who has made clear
its importance in helping his drive towards greater labour productivity and the need to reorganise
London Buses into independent management units24.
But I would argue that the experience of deregulation in freight and long-distance passenger
transport reminds us that the influence of collateral policies is very important, and that deregulation
is merely one step in what might be a series of relevant reforms which have impacts on an industry.
Doubters of, and enthusiasts for deregulation would both agree (and have repeatedly said) that it is
too early yet to judge fully the UK experience. I shall, in effect, argue in the next section that
"doubters" fail to appreciate the implications of the fact that deregulation is at best a necessary, not
sufficient, condition for competition. Further, it is more relevant analytically to inquire how entry
conditions might be changing as the result (in part) of deregulation, and to understand how profits
are generated and protected, than to assume entry conditions and derive prepositions from the as¬
sumptions. The chief problem with the latter approach is one can too easily slip from a demonstra¬
tion that, for example, the conditions for contestability are not fully met, to the prediction that in¬
cumbents are unlikely to be attackable.

4.4. The relevant policy changes

The simultaneous and sweeping changes accompanying the 1985 Act, make it very hazard¬
ous to try to answer the question what does the record show, so far, about the impact of deregula¬
tion? The Act did not say so, but government policy at the time was not only to change subsidy
payment methods, but also to save on subsidy, which had grown alarmingly over the previous de¬
cade. From the point of view of saving public money and preserving bus output, deregulation was
seen as a key move, because it would, it was hoped, both discipline wage rates and encourage pro¬
ductivity bargains. Also, as seen earlier, only one underlying constraint had been identified at the
time the possible anti-competitive potential of bus station ownership. This was dealt with in the
Act, but there was no attempt to define a policy for whatever impediments to entry there might be
once what was assumed to be the binding constraint the licensing system was removed.
Some of us responsible for providing the policy guidance at the time knew this well, but the point
was too subtle and difficult to answer in time to affect the policy process.
The UK Bus and Coach Statistics (B&CS) now tell us much more about local stage bus ser¬
vices than they did. A proper statistical design to use these data would proceed as follows. The
principal policy elements would be nominated. In this case, they are deregulation, subsidy and pri¬
vatisation. We would then try to distinguish geographical areas displaying the required variance
with respect to the policy element. The aims would vary with respect to:
Deregulation/no deregulation;

Areas where subsidy changed much and where it changed little;

Areas which experienced privatisation or did not.
These contrasts would yield 2x2x2 = 8 possible combinations. The area observations would
show these combinations.

But certain combinations in the eight refuse to emerge in practice. The most useful compari¬
sons are possible between operations in English Shire Counties (ES) and English Metropolitan
Counties (EM). ES represented 41 per cent of all local bus service kilometres in Great Britain in
1985-86 and 47 per cent outside London. EM covered 28 per cent and 32 per cent respectively.

66
Limited comparisons are possible also with Scotland, for which the comparative figures are
14 per cent and 16 per cent. We can take 1985-86 as the best available representation of the "be¬
fore the Act" situation, and the latest representation two years later, 1987-88, as have other
commentators.

The areas' common experience of deregulation was tempered by different starting points and
collateral changes. As between ES and EM, there was a very differing level of initial subsidy for
policy attack. On the other hand, ES was the scene of most privatisation; the EM organisational
change here was meant at the time to facilitate change in subsidy methods, and as a possible precur¬
sor only to privatisation later. So, here we have the two policy measures affecting each other differ¬
ently. A comparison between EM and Scotland focuses more on the privatisation issue, though
Scotland had a markedly higher level of initial subsidy.

From B&CS we can build up the following picture of passenger experience and impact on
operator finances over the two years. Table 5 presents changes in numbers of journeys made; a
quality variable, namely, the quantity of services offered in vehicle-km; and average fares. The
figures in Table 5 are drawn from the revised version of the data published in June 1989, so do not
match the figures of Table 4. The revised data omit some important details used in the calculations
which follow Table 5 . I have, therefore, retained the computation based on the preliminary data for
further computations. A close inspection of the sources reveals that it is highly unlikely that the
conclusions would be affected; the reported revisions are very small indeed.

Table 5. PASSENGER EXPERIENCE OVER 1985-86 TO 1987-88

Per cent changes

(ES) (EM) Ecosse

Journeys-' -3.0 -16.2 -3.4

Quality of Service-'" (v-kms supplied) + 19.5 +7.3 + 15.8

Real Fares'' + 1.6 +29.0 +0.3

Source : Bus and Coach Statistics. Department of Transport, UK, June 1989.

Alongside these changes were important shifts in operators' finances. The following ele¬
ments are involved the change in fare box money collected via:

Direct charging;

Changes in costs;

Changes in subsidy received.

B&CS allows estimates to be made as follows: passenger journeys (T2.1) are multiplied by
the real fares index (T3.1). For costs, vehicle-km (Tl.l) are multiplied by relevant costs per km
(T4.1), using the proxies mentioned earlier. Subsidy comprises four elements for ES and Scotland:
Public transport support (T5.5); Concessionary fares (T5.3); Fuel duty rebate (T5. 1) and Rural bus
grant are estimated by the proportion of v-kms operated in Great Britain outside London, the basis

67
for T5.1 (references are to the December 1988 source). Table 6 presents these changes, together
with changes in costs per vehicle-km (T4.1) and the calculated incidence of subsidy per passen¬
ger-journey.

Table 6. CHANGES IN BUS OPERATING COSTS AND FINANCES

1985-86 AND 1987-88

% % %
% Fare box ES EM Scotland
Change Change Change

-2.5 -7.7 -2.9

Subsidy £m real £m real fm real

85/6 87/8 85/6 87/8 85/6 87/8

Public Transport Support 94 67 218 117 29 22

Concessionary Fares 69 68 115 124 40 43

Fuel Duty Rebate 57 58 39 36 19 19

Rural Bus Grant

Totals 220 204 372 277 88 88

-7.3 -25.5 +0
Total Costs -8.4 -19.4 +2.6

Subsidy per vehicle-mile .259 .204 .647 .448 .309 .267

-21.2 -30.7 -13.4

Subsidy per vehicle passenger journey .139 .134 .179 .160 .131 .136
-3.8 -10.7 +3.5

Representative costs per vehicle/km 0.9 0.7 1 .3 0.9 0.9 0.8

-22.2 -30.8 -11.1

Ratio % of total subsidy to total

vehicle costs 28.8 29.1 49.8 49.8 34.3 33.4

A plausible scenario for the EM sector is that the authorities' companies raised fares sharply,
in response to a drastic cut in subsidy, but were much helped by deregulation, whose effect on costs
was drastic. Deregulation, it seems, represented a credible threat to rents enjoyed by labour under
regulation. The appropriate adjustments were quickly achieved. That the bargaining position of
local authority bus operators versus organised labour shifted sharply in the former's favour is well
brought out by Table 7.3 of B&CS, reprinted as Annex 1 A. Here the shift in the types of staff
employed over the two years is tracked among different types of operators. Arguably, the most
formidable strongholds of union power were in maintenance and in the urban areas. Yet, in two
years, the Metropolitan PTCs shed 41 per cent of their maintenance staff, easily the highest among
all the operator categories (National Bus followed with 23 per cent). Presumably, maintenance
was contracted out instead. The shift in platform staff, by contrast, though generally downwards,
had more to do with achieving required output change. In Scotland, where subsidy was hardly
changed, the reduction in overall costs per vehicle mile was much less but, again, it did not experi¬
ence privatisation. As Table 6 shows, costs per vehicle mile fell over 20 per cent in ES. But this
sector was also that most affected by shifts in the operator's vehicle size. Table 6.3 of B&CS
(1988) makes it possible to infer that the seats supplied in smaller (less than 35-seat) vehicles, in-

68
eluding so-called "mini-buses", may have shifted from about 2 per cent to over 10 per cent during
the two years28. No other type of operator was affected nearly so greatly.
Subsidy change also clearly affects the "passenger experience" quoted in Table 5. One could
not expect EM, losing subsidy heavily, to expand service quality as much as did Scotland or ES, and
so it happens. Yet", all did increase service. Scotland's very small change in subsidy, when seen
against all others' experience, permits the generalisation that quality of service was probably posi¬
tively affected by deregulation. As Table 6 figures on the ratio of subsidy to vehicle-costs per km
show, the UK stage bus industry remains a heavily subsidised one.

4.5. Effects on entry

In practice, to predict entry, one does one's best to imagine the underlying barriers, to reason
by analogy from other, freer industries and understand how those placed upstream and downstream
of the activity under scrutiny could themselves profit by organising entry, not necessarily by them¬
selves. As seen earlier, the Act's framers did spot the importance of one potential barrier. But ac¬
cess to bus stations is of much less importance in running local stage services, and little else was
actively anticipated.
Two years of experience of deregulation suggest possible disclosed barriers to entry.
It is generally agreed that actual entry into established incumbents' service areas has been
very patchy so far. TRRL's study of deregulation's first year reports that "400 more private opera¬
tors are running local bus services"29. The total number of private operators in Great Britain is
about five thousand. From a very low base, private operators' stage service provision outside Lon¬
don nearly doubled between 1985-86 and 1987-88 (B&CS, Table 1.4.). Much of this new work
was probably from successful bids for contracted subsidised services. Private operators supplied
29 per cent of these services outside London in 1987-88 (B&CS, Table 1.4). The entrants have
contributed substantially to what most observers would judge to be active competition for the new-
style, specifically subsidised services contracted by local authorities.
One might have expected that the new style of individual route tendering, oriented explicitly
to social purposes, would be the basis for a new kind of specialist enterprise. It would become ex¬
pert both in perceiving and justifying the needs for specific subsidies, and in organising supply to
meet the needs. It would be capable of bidding in several geographical areas simultaneously, rather
in the style already found in subsidised food catering work, where large companies have been
created. Part of the attraction of this postulated new enterprise would be skill in defining bases and
rationalisations for specific subsidies, a much underdeveloped expertise. The ability to use inde¬
pendent local supply, rather than own it, would be crucial. However, there are few signs that chang¬
ing to this new form of subsidy has provided important profit-making opportunities for new styles
of operation. Unfortunately, the kind of scale of this form of subsidy has fallen substantially. As
Table 6 shows, in ES, EM and Scotland, Public Transport Support declined in real terms from
£341 million to £206 million over the two years30. This is hardly conducive to innovatory effort!
Also, there were inhibitions to forms of organisation which would require great flexibility in hiring
factors of production, as seen below.
Private and other operators have, instead, probably regarded the subsidised work as a fringe
activity. A very wide dispersion of bids has been observed and, as Glaister and Beesley have
shown, this has been a repeated pattern over a considerable period31. Bidding is opportunistic, dic¬
tated essentially by the state of a company's work in other areas at the time of bidding, which will
mostly be non-stage work. The search for profit then produces bids ranging from those reflecting
attempts to fund new vehicles and men, to those filling up spare capacity.

69
 Organisational innovation is much dampened by the survival of barriers to entry from
pre-1985 days. Specifically, vertical disintegration of bus ownership and operation appears to be
very difficult because of rules on operators' licences which are, of course, still required to offer a
service. Some of these do not seriously inhibit entry and are desirable on other grounds, for exam¬
ple, the requirement to be of "good repute". But to get a standard licence, "you or your transport
manager must satisfy the requirement of professional competence", meaning either a grandfather
right, or examination by various competent professional bodies32. "Financial fitness" and ade¬
quate maintenance arrangements have also to be shown. The significance of these barriers to verti¬
cal integration is, in particular, underlined by a recent case concerning the question of whether a
licence-holder could franchise drivers without the qualifications to run buses on his behalf. That
is, could drivers, holding only PSV licences entitling them simply to drive buses, be hired as self-
employed persons? The answer was "no". This reinforced the need for drivers to be wage-earners
and blocked off what, for many, might be an attractive way to get independence, with attendant
risks and returns (and tax advantages).

The consequences of this for entry are clearly adverse, and go further than imposing a cost of
entry for any driver-employee who wishes to compete independently. (Until deregulation, the al¬
most universal norm was for bus companies to own, not lease vehicles, as part of a fully-integrated
operation through to the drivers.) Franchising, or more widely, the divorce of ownership of ve¬
hicles from their use by individual drivers, is an important support for the growth of the bus-leasing
business, which at present is slow. In the London taxi trade, where leasing is common and there are
no bounds on disintegrated forms of production, drivers can, and do, surmount substantial personal
entry costs, to create a very elastic labour supply. We can, perhaps, expect disintegrated forms of
production in the stage carriage buses eventually to emerge, after the set-back just described. But
we cannot be certain that there are not other inhibitions to such organisational innovation, yet to be
disclosed.

In the "commercial" operations (defined as those not specifically tendered), which comprise
over 80 per cent of stage carriage work, substantial incumbents have not, so far, apparently had to
yield much market share. As explained earlier, an immediate effect of deregulation was to loosen
the labour market. This was probably a differential bonus to the larger incumbents, especially
those in urban areas, because the labour rents enjoyed before deregulation were higher there. Their
position was strengthened relative to potential competitors, whose initial labour rents were prob¬
ably lower. Again, NBC successor companies, in particular, anticipated innovatory moves by in¬
vesting heavily in mini-buses before deregulation and then running them during the changeover. It
is possible to interpret events so far in a way which would be in line with ideas about contestable
markets, namely, that incumbents have been constrained to act as if in competition. But are incum¬
bents sustained in other ways? Two leading candidates to consider are the impact of subsidy and its
operation; and access to location for operating.

4.6. Subsidy and other entry barriers

We have seen that, largely as a result of falling unit costs, subsidy in total is as important to
finances now as it was before deregulation, and has switched towards concessionary fares. Meth¬
ods of giving concessionary fares vary, and have different consequences for calculations about
entry. Concessionary fares are an important element of receipts in "commercial" routes (i.e. those
not directly subsidised and subject to tender). An entrant who wishes to establish a service of what¬
ever size, must be able to anticipate cash flow from this source. What risk does he face?

70
 Local authorities are formally forbidden to operate schemes which favour the incumbents.
Whatever scheme is devised must be open to all comers. (Most were focused on "elderly persons",
the blind, and those with limited mobility at the time of deregulation33.) From the present view¬
point, the important distinction is between those schemes which generate trips through putting the
cost for a marginal trip, albeit within stated times etc., at zero and those which do not. The principal
form of the latter is the token, entitling a fixed recompense to an operator getting one from a cus¬
tomer. Apart from the transaction costs he faces to do so (and incumbents cannot escape these ei¬
ther), tokens pose no special problem for the entrant in terms of predicting quantity of travel. Token
schemes are far more frequent than we realised in 1985. But they are mostly found outside the big
conurbations which have a disproportionate share of large incumbents, often municipal operators.
The principal problem for a would-be entrant is judging what his revenue will be. In consid¬
ering "commercial" operations, the potential entrant, particularly in urban areas, has a very diffi¬
cult task in computing what his take (the contribution from subsidy) will be. He will be recom¬
pensed when he carries, say, an old-aged pensioner on a half-fare pass, but how many times can he
hope to pick up pensioners and with what certainty? What is known about trip-makers' responses
to half-price or, even more, free-pass travel is of little comfort. The TRRL report on bus trip-gen¬
erating fares concessionary fare schemes in six towns makes the uncertainty very clear34.
Further, there is the problem of the subsidy authority's cost of validating claims. These must be
backed up by enforcement procedures, involving some form of spot checking. This is dispropor¬
tionately costly the smaller the entrant, and it would not be surprising if the subsidy authority oper¬
ates the system in practice so as to discourage the small operator.
An entrant's most simple way of judging demand is by practical trials. This was always the
most effective form of market research in the bus industry. But it is severely discouraged where
there is a substantial quantity of concessionary fare travel. Moreover, an experiment, if he attempts
it, must also be defined, in effect announced, to the incumbents six weeks in advance and be carried
out for six weeks before he can withdraw. In order to reduce the uncertainty of pay-outs from sub¬
sidy, the scale of entry must be raised. (If it was large enough, presumably the entrant's expectation
of pay-out would be the same as the incumbents'.) So, in present conditions, a substantial barrier to
entry arises.
In metropolitan areas with alternative public transport modes, e.g. some form of rail opera¬
tion, the potential entrant's difficulty in assessing pay-out is compounded by the operation of
cross-mode passes. Buses represent an important short trip complement in such cases. The prob¬
lem of getting proper recompense from these here is important for London Buses Ltd. (LBL), even
though LBL is in the same ownership as London Underground; the method of computing the cash
due to LBL from trips made by such pass-holders has been very contentious.
All forms of fare passes, whether offering free trips at the point of use or not, offer user conve¬
nience. Were a specialist form of agent to arise dealing in such passes, a would-be entrant's diffi¬
culty in overcoming incumbents' advantages would be eased. (An incumbent has, for example,
always the right to refuse to recognise another company's pass, and would always do so unless ade¬
quately compensated.) So far as I am aware, there has been little sign of agency activity of this sort.
It is hardly surprising, since would-be agents too must judge the chances of entrants' establishing
worthwhile business. Thus the problems generated by subsidy are compounded.
These arguments strongly suggest that entry into urban core areas is differentially impeded.
The Monopolies and Mergers Commission (MMC) does, on the Badgerline (BL) and City Line
(CL) merger, by implication, add another probable constraint: the ownership of bus depots35. CL
owned four bus depots for maintenance and storage of vehicles, three of these under licence from
Bristol City Council. BL owned one such site in Central Bristol. A major reason for merging

71
indeed, easily the most substantial tangible cash benefit was realising the value of this and other
sites. "Ways of realising this potential are being investigated and may include the merger of BL
Bristol and City Line engineering workshops onto a single site." The property covered stood at
over £3 million in the balance sheet36.

Many incumbents in central urban areas have inherited sites such as these, whose scarcity val¬
ue in bus operations is sustained by town planning rules. Conversion of rival premises for opera¬
tions by existing users probably, at best, involves a protracted planning negotiation. Incumbents
owning these service sites have the option of profiting from their sale, but then have to substitute
premises if they also wish to continue in bus operations. If they can find a suitable partner with
well-placed excess capacity, they can both sell and continue bus operations without incurring the
costs of search, conversion of a new location, etc. (This seems to have been a basis for the BL and
City Line merger. BL had the freehold, City Line the licensed depots from which bus operations
could be sustained by BL.)
A further deterrent to entry has been brought to my attention by Mr. Harry Blundred, whose
company has become a major provider of mini-bus service since 1986 (including entry into East
London, noticed earlier). The market for leasing buses is relatively underdeveloped, he believes,
putting a brake on bus firms' expansion. In principle, this denotes imperfection in the capital mar¬
ket, rather than a barrier in bus operation per se. But it well illuminates the point that appropriate
supply responses will take a considerable time, perhaps some years before the opportunities
opened up by deregulation are converted to profitable operation.
If we put together the suspected entry constraints which have been revealed by the withdraw¬
al of the primary constraint, the pre-1986 restrictions, we have the hypothesis that entry has been
both quantitatively greater and more likely to have been sustained, the less densely populated the
area of operation. The relative incidence of subsidy, its constitution, its administration and the im¬
pact of locations for operations all point in the same direction. Also, negatively, the inhibition on
organisational innovation, which is basically more favourable where labour supplies are plentiful,
has yet to be realised.

5. CONCLUSIONS

Though separated by many years, the UK's experiences of freight and passenger deregulation
display important and common lessons. First, a point implicit in the account given above: deregu¬
lation of quantity licensing is a separable issue from ensuring safe operation, that is, from the issue
of the quality of professional standards to be applied. No critic of quantity deregulation has seri¬
ously sought to maintain that there has been an adverse relationship between these after the fact of
quantity deregulation, though much misgiving was displayed before the event . Second, the eco¬
nomic effects of quantity deregulation are rarely seen in isolation. Collateral policies can make the
intended constraint on entry and expansion of little consequence. At other times and places, the
effect can be considerable. Third, the evaluation of deregulation calls for contrasting modes of eco¬
nomic analysis.

Formally, the question is one of applying a cost-benefit analysis to a policy change. This is an
exercise, in application of well-known neo-classical principles. There are formidable difficulties
in doingithis successfully. But apart from this, the important economic insight about the influence
of deregulation must proceed from a different analytical standpoint, one which emphasizes its

72
impacts on how and why opportunities to make profit are changed. The first proceeds from as¬
sumed entry conditions; the second considers how these conditions may be altered in future, and
views deregulation as a necessary but not sufficient condition for changing the economic relation¬
ships in the industry.
Critics of, and enthusiasts for deregulation have accordingly shaped their expectations and
interpretations. Perhaps the greatest contrast has emerged in the preparation for, and the aftermath
of the 1985 Act. The one side interprets the ambiguous evidence, so far, as throwing the burden of
proof more strongly on measures to deregulate. The other side did not, and does not expect adjust¬
ments to competitive opportunities in a complex industry to be as short as two years and, in any
case, sees any shortcomings in competitive vigour as likely to be caused by the failure to adequately
anticipate what entry barriers lay behind the quantity restriction. I would also add that the history
recounted in this paper tends to show that the issue of public ownership or private ownership das
have an important impact on competition. This was, I believe, true in freight and in long-distance
passenger services, and may also well prove to be so in local bus operation, where the privatisation
of municipally-owned bus companies, now in process, will increase the contestability of the
markets37.

5.1. Anti-trust issues

In buses, there is an additional item of underdeveloped, and certainly not finished, business.
This is the application of UK anti-trust laws in regulating competition. As pointed out earlier, be¬
ing subject to UK anti-trust was an innovation for the industry in 1985. The two arms of UK com¬
petition policy that concerning restrictive trade practices and that concerned with control of mo¬
nopoly and merger are beginning to show their hands. Early in 1989, the Office of Fair Trading
(OFT) declared certain agreements between operators about timetabling and fare arrangements to
appear to contravene the Restrictive Trade Practices Act, 1973. At the time of writing, discussions
with the trade are proceeding to try to eliminate the restrictions implicit in these agreements. This
is a normal way to begin OFT's activity when entering a new field. The crunch will come if and
when OFT decides that remaining agreements are restrictive, and proceeds to their determination
by the Restrictive Trade Practices Court. OFT is known to be investigating many claims about an¬
ti-competitive practices, but has yet to make up its mind publicly as to what is actionable.
The other arm of UK anti-trust, the Monopolies and Mergers Commission, made an impor¬
tant clarification of the permissible scope of merger in its report on Badgerline38. This was one of
several post-1985 Act mergers of companies which had been sold separately after the 1985 Act.
The Commission [in the course of declaring the merger to be expected to operate against the public
interest, and suggesting conditions on the merged company's future conduct in tendering39 clari¬
fied its geographical remit with respect to buses. The two companies, occupying most of the
County of Avon in their confined territories, were deemed to cover a "substantial part" of the
United Kingdom, and were thus within their jurisdiction under the 1973 Act. No doubt there were
exchanges of views between MMC and EEC in arriving at this decision, which means that virtually
all proposed mergers of substantial bus companies will be open to reference to the MMC.
Moreover, the MMC, though it did not require divestment in this case, effectively gave notice
that it would be particularly vigilant about proposed mergers by contiguous bus companies. To
those who accord great weight to bus-company size in predicting competition outcomes, this is a
significant implicit constraint. MMC does not frown on links in separate geographical areas, but
may preserve local independence. To those who emphasize the underlying barriers to entry, and

73
who think in terms of capital markets as the discipline of managements, merger is of consequence
only if it indicates the need for action on those barriers. They will note that in the freely entered
freight industry, large firms can and do exist, but merger is not a particularly interesting commer¬
cial strategy. It is also true that OFT has (in public at least) never had a serious problem of possible
breaches of the 1973 Act with respect to freight.

ANNEX. CHANGES IN STAFF

Reports in Bus and Coach Statistics - December 1988 (Table 7.3)

By type of employment and operator
Thousands

Platform staff Maintenance staff Other staff All staff

London Buses Ltd 1985/86 17.9 3.7 4.2 25.7

1986/87 16.1 3.5 3.8 23.4

1987/88 (p) 13.4 3.2 3.1 19.8

Metropolitan PTCs 1985/86 19.2 10.3 6.5 36.0

1986/87 17.1 8.0 5.4 30.4

1987/88 (p) 16.0 6.1 4.4 26.5

Municipal PTCs 1985/86 9.6 3.9 2.6 16.1

1986/87 9.0 3.3 2.3 14.7

1987/88 (p) 9.4 3.2 2.2 14.7

Scottish Bus Group 1985/86 5.6 2.1 1.5 9.2

1986/87 5.8 2.0 1.6 9.4

1987/88 (p) 5.6 1.9 1.5 8.9

National Bus Company 1985/86 28.0 10.3 8.8 47.0

(and ex-NBC) 1986/87 29.0 9.4 8.5 46.9

1987/88 (p) 28.5 7.9 7.2 43.5

Other private companies 1985/86 25.1 6.9 8.1 40.1

1986/87 26.7 6.8 8.2 41.7

1987/88 (p) 30.4 7.5 7.5 45.4

All operators 1985/86 105.4 37.3 31.6 174.3

1986/87 103.7 32.9 29.9 166.5

1987/88 (p) 103.3 29.7 25.8 158.8

The final item on the "unfinished" agenda is the significance of 1992 for the UK freight and
bus industries. Looked at in comparative terms with respect to other UK industries, the judgement
must be that, as they are remarkably competitive, thanks in part to deregulation, they must prosper,
probably at the expense of the European counterparts. But this would be perhaps too much of a
concession to the method of analysis not preferred in this paper. The question should be what
will 1 992 open up in the way of suitable opportunities to get more profit that is, for a time at least
to escape competitive rigours? Perhaps this is a good point at which to leave the analysis to experts
on EEC freight and bus regulation and, equally important, on industry structure and prospects out¬
side the UK.

74
 But I can add a semi-serious closing remark. There is at least one important potential barrier
to "efficient" UK road transport industries gaining substantial market shares in Europe. This is the
UK's comparative disadvantage in speaking foreign languages. These are service industries, and
service means the intensive use of language skills at low levels in an organisation. One can imag¬
ine, therefore, that the extreme flexibility in contractual arrangements, which I have argued are
characteristic of the UK industries, may offer the "best" opportunities to enterprising, English-
speaking EEC firms, who will be able to apply the UK lessons on liberalisation in their own
countries!

REFERENCES

1. Carriers Licencing, The Report of the Geddes Committee, 1965.

2. Report of Independent Committee of Inquiry, November 1968, HMSO, 1979. Cmnd.

3. Cf. Geddes Report, Carriers Licencing, 1965, Chapter 8.

4. B.T. Bayliss, The Road Haulage Identity Since 1968, Department of the Environment, HMSO, London,
1973.

5. J.C. Cooper, Carryingfor Others: TheRoleoftheOwnAccountOperator, Polyt.chmcofC_nt.a\Lon-

don, Transport Studies Group Paper No. 7, 1978.

6. NFC was the National Freight Corporation, inheritor of the 1953 Act's unsold vehicles and subsequently
the largest UK operator.

7. The Response of Road Haulage; "Marketing Rail Freight in a Deregulated Market; the Challenge of
1992", UIC Freight Symposium, 17th 18th May 1988.

8. National Freight Corporation/UBS/Phillips and Drew Research Group Study, 1988.

9. "The Retail Market and Freight Distribution", Journal of Transport Economics and Policy, XXIII,
No. 7, January 1989.

10. Op. cit., pp. 3 4.

11. This is, I think, a fair summary of perhaps most economic comment since 1983. A good example is
found in J. Vickers and G. Yarrow, Privatisation and Economic Analysis, MIT Press, 1988, passim.
12. Evan Davis, "Express Coaching Since 1980; Liberalisation in Practice", Journal of Fiscal Studies,
Vol. 5.1, 1984.

13. Davis, op. cit., p. 154,

14. Op. cit., p. 374.

15. Buses, Cmnd., 9300, 1984.

16. "Deregulating the Bus Industry in Great Britain: (B) The Case Against", by K. Gwilliam, CA. Nash,
and P.J. Mackie, Transportation Reviews 1985, Vol. 5, No. 2, pp. 105 132; and (C) "A Response", by
M.E. Beesley and S. Glaister, pp. 133

17. Op. cit., p. 132.

18. M. Beesley, "Bus Deregulation: Lesson from UK", International Conference on Competition and Own¬
ership of Bus and Coach Services, Thredbo, NSW, 1st 4th May 1989.
19. TBM Deregulation in the UK, UTIP Review, May-June 1989, Vol. 38

75
20. "Early Consequences of the Deregulation of Bus Services in Scotland", P. Hills, International Confer¬
ence on Competition and Ownership of Bus and Coach Services, Thredbo Conference, May 1989, p. 3.
21. K. Gwilliam, "Contestability, Competition Practice and Control", Thredbo Conference, May 1989, op.
cit.

22. "Privatising and Deregulating Local Bus Services, Lessons from Britain's Buses", J.A. Gomez-Ibanez
and J.R. Meyer, Transportation Research Board Annual Meeting, Washington DC, January 1989.
23. The technicality concerned the implicit contradictions with the 1984 Act as giving London Regional
Transport a duty to be responsible for and to co-ordinate passenger transport services in London.

24. Compare London Regional Transport Statement of Strategy, 1988.

25. Calculated from B&CS.

26. Calculated from B&CS.

27. Calculated from B&CS, using the RPI deflator presented.

28. Attributing 14 seats to the up-to-16-seats category, 25 seats to the 17-35, 10 seats to the 36-plus cate¬
gory and 70 to double-deckers.
29. R.J. Balcomb, J.M. Hopkins and K.E. Penet, "Bus Deregulation in Great Britain: A Review of the First
Year", TRRL Research Report 161, p. 23.

30. Public Transport Support was the expenditure which the Government wished to see converted to specific
route tendering. This was duly done. Most of the contracts put up for tender are for the costs of opera¬
tion; revenues collected are taken by the tendering authority. A second kind of subsidy was for various
kinds of concessionary fares, e.g. for old-age pensioners, which could be collected by any operator with
due validation. So non-tendered, commercial routes often include substantial elements of subsidy.
31. S. Glaister and M. Beesley, "Bidding for Tendered Bus Routes in London", Thredbo Conference, op. cit.
32. PSV Operator Licensing, HMSO, November 1986, para. 8 and Appendix 5.

33. Compare Table 1, "Concessionary Fare Schemes in Great Britain" by D.M. O'Reilly, TRRL Report 165,
1988.

34. P.B. Goodison, J.M. Hopkins and R.P. McKenzie, TRRL Report No. 127.

35. "Badger Line Holdings and Midland West Holdings", Report of the Monopolies and Mergers Commis¬
sion, March 1989.

36. MMC Report, page 18, op. cit. We are not told what the market valuation was or if different from the
book value.

37. Legislation to privatise the Scottish Bus Group in eleven units is currently proceeding through Parlia¬
ment. Several ITA and municipally-owned companies have now (1989) been sold and others are up for
sale. Ministers are considering how far the very large ITA-owned companies should be split up for sale.
These points were made in June 1989 by A.J. Goldman of the Department of Transport, at a Leeds semi¬
nar on the bus industry: "The Bus Industry: Where Now? A Government View".

38. Op. cit., passim.

39. Action on these, by OFT, is pending.

76
REGULATORY REFORM IN THE TRANSPORT SECTOR:
EXPERIENCE AND IMPLICATIONS

The Japanese Delegation to the OECD

John NOULTON

Department of Transport
London

Michel VIOLLAND

ECMT
Paris
France

77
 NOTE TO READER

This report was written within the ECMT work programme, as a discussion paper for the
Council of Ministers session, which took place in Edinburgh in May 1989, on the topic Regulatory
Reform in the Transport Sector.

It was not produced specifically for Round Table 83 "The Role of Government in a Dereg¬
ulated Transport Market" but as the Round Table deals with a similar theme, it was thought in¬
teresting to propose it as an introductory report for the Round Table discussions.
It comprises two parts:

An analysis of different countries' experiences (United Kingdom, United States

and Japan), and conclusions drawn regarding the role of government with a view to de¬
regulation;
Factual information on reforms in progress in ECMT countries.

79
 SUMMARY

INTRODUCTION 83

FRAMEWORK FOR AND IMPACT OF DEREGULATION IN THE TRANSPORT

SECTOR 84

Part I

DEREGULATION-PRIVATISATION: CASE STUDIES 87

1. BUS DEREGULATION IN THE UNITED KINGDOM 87

1.1. Long-distance services 87

1.2. The 1985 Act 87

1.3. The effects of deregulation 88

1.4. Fares 88

1.5. Patronage 88
1.6. Subsidy 89
1.7. Services 89

1.8. Passenger attitudes 90

1.9. Operators and competition 92
1.10. Safety and operation 92
1.11. Initial effects 92

2. DEVELOPMENTS AS REGARDS COMPETITION IN THE AIR TRANSPORT

SECTOR IN THE UNITED STATES 93

2.1. Main effects of deregulation 93

2.2. Concentration and competition in air transport 94
2.3. Computerised seat reservation and competition 96

3. PRIVATISATION OF THE JAPANESE RAILWAYS 97

3.1. The purpose of the JNR restructuring 98

3.2. JNR's management crisis 98
3.3. Restructuring efforts in JNR 98
3.4. The Restructuring Administration Committee's opinion 99
3.5. The restructuring plan 99
3.6. The transition to a new order 100
3.7. Performance evaluation of the JR companies 101
3.8. Settlement of long-term liabilities 101
3.9. Job placement for displaced personnel 102
3.10. Continuing efforts for National Railways' restructuring promotion 102

81
 Part II

REGULATORY REFORM: REVIEW BY COUNTRY 105

1. GERMANY 105
2. AUSTRALIA 105
3. BELGIUM 107
4. CANADA 108
5. DENMARK 110
6. SPAIN Ill
7. UNITED STATES 112
8. FINLAND 112

9. FRANCE 114
10. GREECE 114
11. JAPAN 115

12. NORWAY 115

13. NETHERLANDS 116
14. UNITED KINGDOM 118

15. SWEDEN 119

16. SWITZERLAND 120

CONCLUSIONS 121

NOTES AND REFERENCES 123

Paris, April 1989

82
 INTRODUCTION

A growing number of Member states have taken steps to reduce the burden of central govern¬
ment regulations on their domestic transport undertakings. The purpose of this deregulation has
been to make the industries concerned more flexible and more responsive to economic and social
changes. Against the background of international competition, these national deregulatory mea¬
sures also have wider implications for transport policy throughout the ECMT area as a whole.
The fundamental aim of regulatory reform is to achieve greater economic efficiency in the
transport sector. Most countries have elected to do this by abolishing or reducing quantitative, or
economic, regulation. As a result, deregulation has tended to be perceived essentially as an act of
political will. But as the information collected from ECMT Member states has shown, the policies
are in reality backed by sound analytical arguments based on empirical evidence. The objective of
the first chapter of the report is to present all these arguments and, at the same time, to clarify the
philosophy of deregulation.

A 1987 report ("Regulatory reform in the transport sector") asked many of the above ques¬
tions about the freight transport market, and examples were given (Norway, United Kingdom,
United States) which tend to show that a permanently liberalised freight transport market can work
and that there is no pattern of concentration. This report therefore does not take the question of
freight transport any further, though other studies are under way in ECMT on the related issues of
harmonization of the terms of competition.
The previous report did, however, leave unresolved a number of questions about the effec¬
tiveness of deregulation in surface and air passenger transport. Does the co-existence of a com¬
mercial system in which there is competition with a subsidised system serve to reduce the
overall level of subsidies? Does it allow a comprehensive pattern of services to develop? Dees it
provide adequate services for less developed regions?
Unlike the freight transport sector, passenger transport is offered by a small number of opera¬
tors. It is therefore possible to examine the forms of competition and the market risks in this sector
in considerable detail.

The first part of this report examines these questions by means of case studies. For deregula¬
tion, the case studies cover urban transport in the United Kingdom (Section 1) and air transport in
the United States (Section 2). As an example of privatisation, Section 3 looks at the recent restruc¬
turing of the Japanese railways. Though these case studies can give only the initial results of the
policy changes, and are not therefore conclusive, they do show some of the issues that arise and the
obstacles in the way of a free market approach.
Ministers said in Madrid that they wished to continue the exchange of information on regula¬
tory developments in Member and associate countries. Accordingly, the second part of this report
summarises the responses to a questionnaire intended to update the information on policies prac¬
tised in ECMT countries. Since it was impracticable to give the replies in full, only the main points
of the responses are included.

83
 FRAMEWORK FOR AND IMPACT OF DEREGULATION
IN THE TRANSPORT SECTOR

Deregulation can be defined as the removal of restrictions on what operators supply. Typical
restrictions include a quota system for licences, or compulsory tariff structures. Regulatory reform
dees not normally involve repeal of technical regulations, especially those involving safety, or the
removal of other qualitative requirements.

The qualitative requirements which, typically, are maintained after deregulation include cri¬
teria governing access to markets. These are designed to ensure that potential operators have the
necessary capability (competence, technical and regulatory knowledge and financial standing).

a) The impact of deregulation on markets

One of the results of deregulation is that it becomes easier to set up new undertakings or to
adapt existing ones in response to market opportunities. For example, in a liberated market under¬
takings are much more likely to meet demand effectively because they have the incentive to use
new technologies, improve their organisation or offer differentiated products.

The arrival of new products on a market makes competition keener. This in turn leads to low¬
er prices and a better range ofchoice for consumers. In the United States, for example, deregulation
of air transport resulted in substantially reduced fares and encouraged whole new sectors of the
public to use air transport. The deregulation of motor coach services in the United Kingdom had a
similar result.

The evidence suggests that deregulation gives rise to both job creation and job losses. Again,
the example of aviation in the United States shows that regulatory reforms have enabled services to
become more attractive, have increased patronage, and have led to the creation of additional jobs.
In this connection, job losses may be linked to rationalisation in the firms. On the whole, there has
been a net increase in employment in the aviation sector.

A liberated market encourages carriers to rationalise their operations and innovate continu¬
ously. Those undertakings which are the least profitable or do not perform well enough for certain
market segments tend to be eliminated and are replaced by more efficient competitors. The com¬
munity therefore benefits by the release of latent efficiency and higher productivity (organisation,
technology, innovation) which is inherent in the undertakings.

Detailed economic regulation of the markets causes production costs to be maintained at an

artificially high level and restricts the creation of services by shielding undertakings from competi¬
tion. That explains why new operators are attracted into the market when deregulation occurs. If
new operators do not enter the market, this is because it was already in equilibrium. Deregulation is
therefore a neutral process, although it brings pressure to bear on those operators who know they
are threatened by the ever present possibility of new competitors arriving on the market. In other
words, deregulation creates a "contestable" market.

Gains obtained in the transport market have positive consequences for the competitivity of
the whole economy. In the medium term, this process can help job creation in other sectors of the
economy.

84
b) The impact of deregulation on "social" services

Not all transport services are profitable. In particular, many are subject to so-called public
service obligations. It might be thought that such services would be at risk in a deregulated market
since operators would inevitably concentrate on profitable activities and discontinue the practice
of cross-subsidisation of social services. What, then, has happened to such services in deregulated
markets?

First, the evidence suggests that the range of profitable services may in fact prove to be flex¬
ible. Techniques better suited to the size of the actual market can be introduced. For example, a
different type of aircraft might be introduced on a particular route.
The payment of subsidy is not inconsistent with the deregulated market. The subsidising au¬
thorities can issue invitations to tender so as to generate competition among interested operators.
This mechanism, which was introduced in the United Kingdom for motor coach transport, has now
also been used following the deregulation of urban transport. It has the advantage of making
choices clearer: the public authorities concerned can decide on the level of services they wish to
provide in the full knowledge of their cost. As a result there is transparency of choice. Main deci¬
sions are taken by the market, not by centralised authorities.
A study by the United Kingdom's Transport and Road Research Laboratory shows that it is
highly likely that subsidies granted to public transport undertakings lead to higher costs and less
output per employee. The introduction of competitive mechanisms into the subsidy allocation pro¬
cess helps to keep wage increases at market levels and encourages productivity gains.
The macro-economic benefits of a reduction in public transport subsidies are self-evident.
Less wealth is diverted from more productive areas; interest rates tend to fall; and there is a lower¬
ing of the general level of debt.

c) The impact of deregulation on the functions of undertakings

Deregulation is not the only way of freeing undertakings to respond to market forces. Privati¬
sation is another means of ensuring that an undertaking is free to take its own decisions. Examples
of privatisation in member States show a common pattern. The privatised undertaking is, typically,
a large enterprise which has shortcomings, especially in its management. Organisations in the pub¬
lic sector are subject to the ultra-cautious control of public authorities. They may lack dynamism
and become used to the supply of subsidy : they have no incentive to meet the needs of their custom¬
ers or to keep down their costs. They lack any clearly defined objectives and often need to be bro¬
ken down into smaller units. One method of remedying these defects is privatisation. Naturally,
any public service obligation borne by the undertaking has to be compensated for after privatisa¬
tion, as well as before.

d) Requirements for a deregulated market

In the case where firms are freed from administrative constraints, market mechanisms allo¬
cate resources efficiently. If a deregulated (or privatised) transport service is to operate effectively
several preconditions must be met.
First, the terms of competition must be fair. All operators in a sector must be subject to the
same norms and undergo the same degree of supervision. Where different modes are competing,

85
such as rail and road, each mode must bear its full track costs or an equal part by default. The share
of the market gained by each mode is then determined by market forces, not by any policy
preference.
It follows that there must be no collusion between operators in an anti-competitive way. Sim¬
ilarly, no undertaking should be allowed to establish a dominant position. Unfortunately, it is not
always easy to identify anti-competitive tendencies, particularly in specialist markets.
A large undertaking is not necessarily against the interests of the consumer. It may well be
more efficient than a number of smaller competing units and the consumer may be able to benefit
substantially from economies of scale. The evidence from Member states is inconclusive on this
point. No clear criteria have been established for the purpose of detecting and preventing anti¬
competitive arrangements. Nor is there any general rule about the advisability of erecting barriers
to mergers, acquisitions and agreements.

To survive in a deregulated market an undertaking must be able to respond to reductions in

market share by adjusting its manning levels. This flexibility can have social consequences, for
example, on the level of local employment or on the downward adjustment of wages to market de¬
termined levels.

Decisions are also needed on external diseconomies in a deregulated market. It may be possi¬
ble to internalise some external costs for example pollution but it is difficult to determine
precisely the longer-term cost of damage to the environment caused by the concentration of activ¬
ity at a particular location. To the extent that deregulation leaves decisions on the allocation of re¬
sources to markets which are not fully informed, such problems can be aggravated.
Finally, there are particular questions relating to deregulation in the field of passenger trans¬
port. What should be done, for example, about urban transport networks, which tend to be regarded
as an indivisible whole, with a complementary pattern of services based on attractive fares, inter¬
connections and information?

The aim of the present report is to answer those questions; this is done first on the basis of the
experience of the United Kingdom with bus deregulation.

86
 Parti

DEREGULATION-PRIVATISATION: CASE STUDIES

1. BUS DEREGULATION IN THE UNITED KINGDOM

Bus services in Great Britain, except in London, have been fully deregulated since 1986.

By 1980 the bus industry had been in decline for many years. It was eating up more and more
public subsidy yet bus usage was decreasing. The Government concluded that the comprehensive
system of administrative controls on the bus industry would have to go. The diagnosis was that the
regulations designed to protect the industry were restricting competition, stifling initiative and en¬
couraging diseconomies.

1.1. Long-distance services

The first step, in 1980, was the removal of the system of quantity controls, but not the quality
licensing system, from long-distance express coaches. The result was an increase in services, at
least along the main routes, an improvement in quality, a reduction in fares and an increase in pas¬
sengers. These favourable results encouraged the Government to tackle the more difficult area of
local bus services.

1.2. The 1985 Act

The key element of local bus deregulation, in 1986, was the complete removal of quantity
controls. Operators no longer needed to ask the Traffic Commissioner for a licence to run a particu¬
lar route. They simply registered their intention to do so. The quality control system remained. It
was still necessary to have an operator's licence but licensed operators were free to compete.
There was no change in the principle that local authorities could pay subsidies for socially
necessary services which the market could not provide. The difference was that, previously, subsi¬
dy had been paid to a few large operators for a whole network of services, profitable and unprofit¬
able combined. Under the new system, commercially profitable services were separately identi¬
fied.

Local authorities had to specify which additional services they wanted to pay for. They were
then required to put these services out to competitive tender, giving the contract to whichever oper¬
ator provided the best value for money.

87
1.3. The effects of deregulation

In the initial stages following deregulation about 85 per cent of the pre-existing bus services
were registered by operators as commercial (non-subsidised) services. Local authorities generally
decided to subsidise loss-making services so as to reproduce broadly the pattern of services that
existed before deregulation.

In most areas, the previous levels of service were maintained, in many cases with substantial
savings in subsidy. The total number of vehicle miles is estimated to have been about 4 per cent
higher immediately after deregulation than before.
Not all of the previous services survived. Some were found to be so poorly patronised they
were discontinued. For reasons discussed later in this report, some metropolitan areas experienced
considerable changes, and some reductions, in their previous bus services.
It is also clear that the process of change did not end with deregulation. Services are constant¬
ly being adjusted to match demand. Some services are being terminated; new services are being
introduced; and operators are both joining and leaving the market.

1.4. Fares

The effect of deregulation on fares is difficult to calculate in isolation. Operators tend to re¬
vise their fares periodically and it is not possible to determine whether a particular change was in¬
fluenced by deregulation or not. The picture is further complicated by developments in metropoli¬
tan areas where the authorities were obliged to raise fares, for reasons unconnected with
deregulation, just at the time when quantitative restrictions were being removed. In April 1986
fares rose in Greater Manchester and Merseyside by 15 per cent, in Tyne and Wear by 20 per cent
and in South Yorkshire by 250 per cent. These increases were much more to do with government
financial controls than with the subsequent deregulation.
In non-metropolitan areas deregulation appears to have led to very little real alteration in
fares, though it is noticeable that fares increased more slowly on routes where competition is
strong. In large areas of the country fares have risen in line with inflation. Where there have been
substantial service changes, however, fares appear to have increased significantly. Increased costs,
for example investment in mini-buses, have led to fare increases between 2 per cent and 5 per cent
above inflation.

1.5. Patronage

The best indicator of the value of bus services is the number of people using them. Table 1
below suggests at first sight that the effect of deregulation was to turn away passengers, but the
picture is not quite so straightforward.
The table shows that the only area where bus usage increased was London, the one area where
buses are still not deregulated. Ignoring London, there was a decrease of 7 per cent in the total num¬
ber of passenger journeys.
A more detailed analysis of the statistics shows that the decline in journeys between 1985-86
and the post-deregulation part of 1986-87 (November to March) was even greater, at 19 per cent.
There is no doubt that a large proportion of the decline in usage in metropolitan areas can be
blamed on the fare increases, but passengers were also discouraged, at least initially, by unfamiliar

88
patterns of service and, in part, by reduced service levels. In non-metropolitan areas where there
were fewer service changes and lower fare increases the decline was much smaller. Recent passen¬
ger attitude surveys suggest that this initial dissatisfaction was short-lived.

Table 1. BUS PASSENGER JOURNEYS

Millions

1985-86 1986-87 % change

London 1 152 1 168 +1

Metropolitan counties 2 069 1 811 -12

Rest of Great Britain 2 421 2 348 -3

Great Britain total 5 642 5 328 -6

1.6. Subsidy

In English non-metropolitan areas, local authorities spent £86 million on bus revenue sup¬
port in 1985-86. In 1987-88 the figure was £67 million. In the same periods the same local autho¬
rities increased their expenditure on concessionary fares to school children and others from
£64 million to £68 million, a slight fall in real terms.

In the cities outside London, the fall in bus revenue support was dramatic: from £201 million
to £117 million in two years, but these figures were again influenced mainly by the Government's
financial controls on local authorities. Expenditure on concessionary fares rose from £106 million
to £124 million, an increase in real terms.

1.7. Services

Table 2 attempts to provide information about the effect of deregulation on service levels.
Following an initial period during which there was a loss of bus mileage, particularly in metropoli¬
tan areas, service levels generally have increased. One or two places, however, were still experi¬
encing service deficiencies one year after deregulation.

More recent information, though incomplete, supports the conclusion that the broad pattern
of bus services has been maintained and that there has been no real loss of services, for instance in
rural areas. Overall there has been a 16 per cent increase in local bus miles spread across the coun¬
try and at most times of the day.

Deregulation has encouraged a diversification of services which are now better tailored to
meet demand. About five thousand mini-buses (a new development) are in operation through four
hundred destinations. These have been used extensively to provide services to housing estates
which could not otherwise be served.

89
 Table 2. BUS SERVICES IN SELECTED AREAS

Registered vehicle kilometres expressed as a percentage of pre-deregulation values

All Services
Initial Commercial Services
1 Nov. 1986 1 Nov. 1987

Medway 112 127 117

Nottingham 95 100 104

Clwyd 52 101 130

Powys 19 89 93

W. Glamorgan 83 111 114

Lothian 111 114 122

Strathclyde 105 113 119

G. Manchester 67 81 130

Merseyside 80 100 100

S. Yorkshire 64 84 92

Tyne & Wear 70 97 104

W. Midlands 81 97 101
W. Yorkshire 71 102 106

1.8. Passenger attitudes

Passenger surveys were carried out in the metropolitan areas and in the Strathclyde region in
Scotland shortly after deregulation, to assess passenger reactions. The overall results show that
nearly half of the respondents thought their bus services were generally good, while less than a
quarter thought they were bad (Figure 1).

Figure 1 . ATTITUDE SURVEY: OVERALL VIEW OF BUS SERVICE

Good

' 35%

90
 Responses to the question, "what do you think of the service since the changes?" show that,
while 38 per cent of the bus users think services are about the same, 46 per cent think they are worse
or much worse and 16 per cent think that services have improved (Figure 2).

Figure 2. ATTITUDE SURVEY: VIEW OF SERVICES SINCE THE CHANGES

M Worse

12%

Figure 3. ATTITUDE SURVEY: BUS USE SINCE AUTUMN CHANGES

91
 It may be significant that by far the most hostile responses were in Manchester and Mersey¬
side, where about 70 per cent thought that the services had deteriorated.
The survey also asked questions about bus use. The results suggest that the effect of deregula¬
tion on 72 per cent of passengers was neutral; that is to say, they used the buses the same amount as
before, or did not notice, or were unaffected by the changes. A small proportion (5 per cent) uses
the buses more and 23 per cent use them less (Figure 3).
A more recent survey of bus users in the non-metropolitan areas (February/March 1988) re¬
vealed that 41 per cent of people thought their bus services good or very good, against only 17 per
cent who thought them bad; 21 per cent thought the choice of places that could be reached by bus
better, whilst 10 per cent thought it worse; and 13 percent thought the availability of return tickets
was improved against 4 per cent who found it worse. In most country areas, the changes most often
reported were that there were more buses running more frequently.

1.9. Operators and competition

In 1985-86 there were 118 bus operators in the public sector whose main business was the
provision of local bus services and who operated 92 per cent of total local service vehicle miles.
The private sector consisted of some 5 600 operators, of whom the majority were very small. Lo¬
cal bus services accounted for only 15 per cent of private operators' mileage.

In the months immediately after deregulation, the number of private operators running local
services showed a net increase of 350. The following six months saw a further 110 existing private
operators commence to run local services. Fifty new operators joined the market, while 125 with¬
drew. There was thus a net increase of 385 in the number of private operators running local services
during the year following deregulation. By May 1988 there had been a net increase of 465 opera¬
tors of local services (30 per cent).

1.10. Safety and operation

There has been no relaxation in the standard of safety required by bus operators and no dis¬
cernible change in accident rates. Road accident rates, in any case, are subject to considerable fluc¬
tuations, which make comparisons over short periods unreliable. The number of road accidents
overall in the United Kingdom has fallen in recent years.

Random spot checks are being carried out to ensure that vehicles are maintained to a satisfac¬
tory standard. It is not yet possible to say whether there has been any change in maintenance stan¬
dards since deregulation.

1.11. Initial effects

Although it is too early to record final conclusions, the initial effects of deregulation appear to
include:

92
 1. Some increase in bus miles;

2. About 85 per cent of vehicle-miles being operated commercially;

3. Fares largely unaffected by deregulation per se;
4. Some loss of services (later mainly restored);
5. Initial reduction in patronage;
6. A reduction in subsidies;

7. A substantial increase in the number of operators;

8. Greater competition between operators;
9. Innovations, such as mini-buses;

10. No change in safety standards.

Source : TRLL, research Report 161 - Bus deregulation in Great Britain: A review of the first year, (R.J. Balcombe,
J.M. Hopkin, K.E. Perrett)

2. DEVELOPMENTS AS REGARDS COMPETITION

IN THE AIR TRANSPORT SECTOR IN THE UNITED STATES

The Airline Deregulation Act (1978) deregulated almost all domestic air transport. The regu¬
lations now in force concern operating requirements, procedures for airline mergers and acquisi¬
tions, consumer protection and computerised seat reservation systems. As matters now stand,
when a carrier has been found competent to operate, he is free to do so on any routes and at fares that
he decides upon himself.
The analyses set out in this report are based on the United States' reply to the ECMT ques¬
tionnaire and on recent research concerning the effects of deregulation1.

2.1. Main effects of deregulation

A wider range of fares was offered to passengers and the proportion travelling at reduced rates
increased considerably; indeed, in 1986 some 85 per cent of passengers were travelling with re¬
ductions of about 50 per cent, whereas only 30 per cent had fares reduced by 25 per cent prior to
deregulation. However, while average fares have been cut on long-haul routes, they have in¬
creased over short distances. Since most flights are long hauls between major cities, passengers
have by and large benefited from a fall in prices. The narrower margin between costs and fares has
meant that the losers as a result of deregulation are passengers travelling between small towns
where there is little opportunity for economies of scale.
On average, there was an increase in service when evaluated in terms of flight frequency.
There were more flights available (+ 28 per cent between 1978 and 1986), a greater choice of flight
times and more direct flights.
For poorly served areas, i.e. some 550 points throughout the territory, an Essential Air Ser¬
vice Program was set up to provide a minimum level of service. In 1986, 140 of these points re¬
ceived $35 million in subsidies. This programme was recently extended.

93
 The sector has been restructured on a large scale and the airlines have introduced "hub-
and-spoke" systems whereby passengers are taken towards the hubs and are then provided with
connections to other destinations. Economies of scale have been achieved, together with benefits
for users. The connections are better organised, including those for medium-sized towns, and
there has been very little increase in the percentage of passengers needing to interchange.
Where service quality is concerned, the general view at present is that there has been an over¬
all decline and many studies point especially to waiting times and delays at airports. On this point,
deregulation must be held indirectly responsible since its success has contributed to the increase in
services and it has been found that airport infrastructures are not geared to the higher demand.
However, the root of the problem lies in the concentration of flights at particular times. Competing
airlines focus on the same market slots and are in no way inclined to stagger the services over time:
they are simply catering for demand. This problem can probably be overcome to some extent by
introducing a scale of charges for use of the infrastructure.

Employment in the sector has increased by 27 per cent since 1978 and part-time jobs have
more than doubled. The airlines entering the market have called on non-union labour which is low¬
er paid and has more flexible working conditions. In response, the other airlines have fallen into
line and their new employees are paid less than the established staff. There has therefore been some
social unrest, since wages have in fact increased by only 26 per cent in the air transport sector
since 1980 as compared with 37 per cent for industry as a whole.

The safety record has improved in air transport since deregulation, with fatalities decreasing
by 46 per cent between 1979 and 1987, an improvement that is all the more remarkable in that it
occurred at the same time as a very substantial increase in the number of flights. In sum, over the
seven years preceding deregulation, there were 5.4 accidents per million flight hours, and this rate
was cut in half in the years following deregulation. In this context, it should be remembered that
safety regulations were strengthened as part of the deregulation programme. Finally, it is notice¬
able that, despite the favourable results, fears on safety are being publicly expressed due to the very
heavy traffic at airports and the consequent increased risk of collisions.

It is difficult to draw conclusions about the profitability of the airlines since deregulation.
Profits diminished between 1976 and 1983, which might be explained by the higher price of fuel
and the 1982 recession, while deregulation was at the same time prompting the full play of compe¬
tition between carriers. It has, moreover, been the long-haul carriers whose profits have dimin¬
ished, while the results of regional carriers have been fairly even. If the stock exchange value of the
airlines is taken as a yardstick of profitability, it is the two main airlines (United and American),
together with the regional carriers, which have benefited from deregulation. Profits in the sector
reached peak levels as from 1984 at a time when the price wars were becoming less intense. The
best equipped carriers now use sophisticated systems of maximising fares for each segment of pas¬
senger demand. It is also often argued that the computerised systems of seat reservation, brought in
by the major airlines, lead Jo distortions of competition. Accordingly, the main questions that now
arise in connection with deregulation concern the potential concentration that impairs competition.

2.2. Concentration and competition in air transport

One notable aspect of deregulation was the emergence of new airlines and the extension of the
networks of those already existing. The vast majority of the new airlines have since ceased to oper¬
ate, however, and the major airlines have made more than twenty acquisitions since the end of

94
1985, so it is now recognised that the sector is experiencing a process of concentration. According¬
ly, while the share of revenues in the sector going to the eight largest airlines fell from 82 per cent to
71 per cent between 1977 and 1985, it totalled 91 per cent in 1987. As a means of evaluating con¬
centration, however, a yardstick as general as revenues is of limited use for analysis and dees not in
fact enable us to determine the effects. For example, in 1987 there were 612 fewer routes than
in 1979 on which a carrier had a monopoly, so the number of competitive situations has increased.
There is no doubt that economies of scale can be achieved in air transport, and the airlines
adopted the hub-and-spoke system of services for that purpose, since passengers can be carried in
large-capacity aircraft for which the unit costs are low. In addition, airline mergers provide for
better co-ordination of flights and reduce the cost of airport facilities. Passengers might accord¬
ingly benefit from these cost reductions and the process of concentration would be positive.
At present, over 50 per cent of the interest in fifteen of the main airports is in the hands of a
single carrier and over 70 per cent is in the hands of two carriers. The question to be answered
therefore is as follows: will mergers chat significantly increase concentration on some markets lead
to higher fares and fewer services to the advantage of the airlines, or to positive effects for consum¬
ers because the markets are contestable2?

A study of three airports (St. Louis, Minneapolis, Detroit) where there have been major
mergers, shows that the cities that had services prior to the merger have lost one flight per day on
average from these airports. On the other hand, ten cities had new services from Minneapolis,
seven from Detroit and eight from St. Louis. It may be concluded that the main services have been
rationalised and that the resources have been used for new services.

The trend in prices at St. Louis Airport showed an average rise of 21 per cent over the year
following the merger whereas the increase in the country as a whole was only about 4 per cent, so it
is clear that consumers have not benefited from the merger in this case other than by the increased
number of cities served from the airport.

Again with reference to St. Louis, fares have increased more in the case of journeys to that
hub (+ 45 per cent) than those using it in transit for other destinations (+ 19 per cent). In the latter
case there is competition between different routes, thus qualifying to some extent the obstacle to
competition created by the merger of TWA and OZARK.
Overall, moreover, it would seem that the complaints of passengers lend weight to the argu¬
ment of deterioration in the standard of service.

What conclusions can be drawn from these examples even if they cannot be taken to be the
general rule? The mergers have provided passengers with better connections and an appreciably
broader range of services. On the other hand, fares are not subject to a competitive process, more
particularly where services to the airports affected by the mergers are concerned.
Likewise, in connection with the mergers it should be noted that other studies show that ser¬
vices were subsequently discontinued3. Operating costs were then reduced but the volume of traf¬
fic also diminished and, in the last analysis, profits tended to be smaller than those of airlines that
had not merged, a situation that may reflect the difficulties associated with a merger, such as prob¬
lems of manning, equipment, management, marketing strategies and networks, which all build up
during the initial phase. The merger process therefore produces uncertain results and the airlines
concerned have tended to lose market shares. The fact is, however, that mergers, even if they do not
always show immediate profits for the airlines, reduce competition on the markets in question.
The foregoing illustrates the limitations of the principle of contestable markets whereby the
threat of having to meet competitors has an effect similar to that of competition itself. In fact, if new
entrants are to offer attractive services they must have airport facilities, provide connections, invest

95
in advertising and make use of the reservation systems (see Section 2.3), all of which is extremely
costly. It is conceivable, however, that an airline will be interested in serving markets where there
are some built-in advantages. The question of markets being contestable would tend to be a long-
term matter confined to those which are particularly profitable. Even in this case it should be noted
that the hub system may cause a further restriction: when an airline has almost all the
market slots at an airport, it is not possible for a new airline to set itself up to operate on a compara¬
ble basis.

In the last analysis, it is conceivable that deregulation in the United States will lead to a market
shared among the major airlines which have set up networks and specialised units for particular
segments of the market, a pattern that dees not preclude the continuation of competition for links on
which a number of different routes can be used, a form of competition that may entail partial, but
transitional, agreements.

Fares are now increasing at a faster pace. It is claimed that carriers who had already managed
to differentiate passengers by segments and get some to pay a high fare are discontinuing their re¬
duced fares4, although it was the general introduction of these fares that had highlighted the bene¬
fits of deregulation. A number of different reasons might be given for the fare increases: fares
might have been reduced to a level at which the airline could not show a profit in the longer term, or
demand for transport remains high and warrants "creaming off by higher fares or a fare structure
related to the cost of expanding services. The fare increases might be to prepare for higher stan¬
dards of services. It may also well be that the mergers allowed market-dominating positions to be
established at key points.
The foregoing shows just how important the enquiries into restrictive business practices are.
The role played by computerised seat reservation systems provides an example of such practices
and at the same time lends weight to the view that market dominating positions do exist.

2.3. Computerised seat reservation and competition 5

The problems in connection with computerised seat reservation systems in the air transport
sector quickly became of importance quite unexpectedly because of the way they affected the
mechanisms of competition between airlines.
In order to clarify this situation it must be pointed out that, prior to deregulation, the airlines
depended on travel agencies for only 45 per cent of their sales. After deregulation, the airlines div¬
ersified the geographic distribution of their services, which meant that their sales networks were
ill-adapted. At the same time, interconnections between the systems of the airlines and the travel
agency terminals became technically feasible. There was an increase in the range of services
supplied, such as hotel reservations, car hire, national and international fares. The multi-purpose
nature of the agencies' terminals developed, providing facilities for reservations and consultation
of allied services while taking care of the internal administrative requirements of the agencies
themselves.

As deregulation has led to an increase in different types of fare and to changes in fare struc¬
tures, passengers have been making greater use of the services of travel agencies, which now ac¬
count for more than 70 per cent of all air ticket sales.
A number of American carriers have invested substantial amounts in their computerised res¬
ervation systems, and the revenues from these systems are now of the utmost importance, a fact that
is quite understandable when one learns that in 1987 the Sabre (United) and Apollo (American)
systems were linked up with more than 65 per cent of the terminals installed in travel agencies.

96
 The control of information can clearly lead to market domination. With a view to combating
this risk and preventing discriminatory practices, the Civil Aeronautics Board adopted a regulation
in 1984 requiring that the first information displayed by computerised reservation systems should
not concern the identity of the carrier but should correspond to quality of service criteria which are
applied systematically. The carriers, who are simply participants in the system, may know the cri¬
teria used to classify the flights displayed and the importance attached to each of them.
It does not, in fact, seem that these measures suffice to ensure real competition, as various ex¬
amples of evasive methods show: secondary displays can be biased in favour of the carrier who set
up the reservation system; national timetables indicate shorter journeys and so the display is dis¬
torted. In November 1984, ten airlines instituted proceedings against United Airlines and Ameri¬
can Airlines. After members of Congress had intervened in 1985, infringements of the spirit of the
regulation stopped. In 1986, Delta Airlines instituted proceedings against American Airlines. It
may be concluded that the regulation has not succeeded in eliminating distortions to the satisfac¬
tion of those airlines which do not have the resources to develop their own computerised reserva¬
tion system.
The limited number of computerised reservation systems installed has also given rise to the
question of levels of charges for access to the systems for carriers who did not set them up. The
systems are probably extremely profitable in view of the scale of these charges. The United States
Secretary for Transportation is currently investigating this matter, which is of particular impor¬
tance to the smaller carriers. The high charges and methods of displaying information finally
prompted the smaller carriers to conclude agreements with the major airlines and this probably
contributed to the former being bought out by the latter.
It is unlikely that any new reservation systems will be introduced and increase competition.
The high cost is an obstacle to small and medium-sized carriers. United and American are to spend
$1 billion and $3 billion respectively to modernise their systems. The time it takes to install a new
system and the lack of skilled personnel are further obstacles. Moreover, the contracts so far signed
between travel agencies and promoters of the computerised reservation systems cover a long
period and make provision for heavy financial compensation for breach of contract.
The detriment to airlines which do not have their own systems is compounded by that suffered
by consumers who are not sure of being assigned the best route and lowest fare if the travel agencies
have an interest in selling the services of a particular airline.

3. PRIVATISATION OF THE JAPANESE RAILWAYS

On 1st April 1987, the more than century-old saga of Japanese National Railways (JNR)
drew to a close. As a first step towards extensive restructuration, JNR was privatised and divided
into six regional passenger railway companies (Hokkaido Railway Company, East Japan Railway
Company, Central Japan Railway Company, West Japan Railway Company, Shikoku Railway
Company, Kyushu Railway Company), and one nation-wide freight railway company (Japan
Freight Railway Company).
Under the new legal framework set forth in the "Law for Railway Business Enterprise", these
newly independent railway companies appear to have successfully started their business by effi¬
ciently managing and operating their respective lines in a manner best suited to each particular re¬
gion . Taking over where JNR left off, these companies are expected to prosper in a healthy compet¬
itive setting.

97
3.1. The purpose of the JNR restructuring

The main aims of the restructuring were to halt the deficit-registering operations of JNR and
to revitalise JNR's railway business as a whole in order to enable it to play a central role in the pres¬
ent and future transport system of Japan.

3.2. JNR's management crisis

In the final years before restructuring, changes in Japan's industrial structure and growth of
alternative transportation systems caused a severe reduction in JNR demand. The results of this
sharp decline in JNR's share of national transportation are indicated in Table 3

Table 3. JNR'S SHARE OF NATIONAL TRANSPORTATION

FY 1965 - FY 1975 FY 1986

Passenger transport

Billion passenger-km 1 740 2 153 1 981

Per cent 45 30 23

Cargo transport
Billion tonne-km 56.4 46.6 21.6

Per cent 30 13 5

In the face of this declining demand, JNR was unable to increase its income, while at the same
time it failed to cut operating costs. Losses continued to mount each year, and by FY 1971, JNR
started to report a pre-depreciation negative return. On two occasions, debts had to be partially
shelved in order to keep JNR solvent. As interest on long-term liabilities continued to increase,
and employee retirement and compensation funds expanded, it became clear that such attempts to
save JNR would be futile. During the last few years of its existence, JNR lost over one trillion yen
annually.
As of 1985, JNR registered a deficit of 1 847.8 billion yen. With the addition of this enor¬
mous shortfall, JNR'S accumulated losses amounted to 14 121.2 billion yen at the end of 1985,
while long-term debts amounted to 23 561 billion yen, a figure which corresponded to approxi¬
mately half of Japan's annual national budget.

3.3. Restructuring efforts in JNR

In December 1980, the Government entered the scene with the enactment of the "JNR Recon¬
struction Promotion Special Measures Law". In May 1981, in accordance with this legislation,
JNR announced its Five-Year Management Reform Plan. Four years later, in 1984, the plan was
revised to include the cutback of the total number of JNR employees to 320 000. By FY 1985, the
final year of this five-year scheme, JNR was able to report a profit of 3 1 8.9 billion yen in its "Gen¬
eral Operating Balance" (operating balance excluding the necessary costs for retirement and

98
pension funds, designated as "special labour costs"), and a 340.6 billion yen profit from its trunk
line operations. Although JNR succeeded in presenting an acceptably balanced account in its
"General Operating Balance", in light of its total operating costs, no real improvement was discern¬
ible. Major losses from local railway lines and rural bus services, as well as from the increased
"special labor costs", only pointed to the fact that fundamental restructuring of JNR was still re¬
quired and included the management structure itself.

3.4. The Restructuring Administration Committee's opinion

In May 1983, the "JNR Reconstruction Measures Law" (the "Emergency Revitalisation
Measures Law") was enacted in order to fundamentally revitalise JNR operations. Legislated in
response to the third report of the Ad Hoc Commission on Administrative Reform, the law called
for the establishment of a JNR Restructuring Commission in order to provide guidance for funda¬
mental JNR operation restructuring. In July 1985, the Commission presented the Prime Minister
with the report "Opinions Regarding JNR Restructuring".
The Commission's basic opinion centered around the need to completely reorganise JNR'S
current management structure by regionally dividing and privatising the JNR. Furthermore, some
effective solution had to be devised to eliminate JNR's enormous debts, and to appropriately solve
overstaffing. The way should be paved to enable new privatised railways to start out under the best
possible economic conditions. The date suggested for this division and privatisation was set for
1st April 1987.

3.5. The restructuring plan

The Government immediately set out on a course of action that closely followed the views
expressed in the "Opinions Regarding JNR Restructuring". Concrete government policies regard¬
ing JNR restructuring were unveiled in October 1 985, in the Cabinet meeting decision "Basic Poli¬
cies for the JNR Restructuring". According to this decision, JNR restructuring was to involve the
division and the privatisation of the national railway system, effective as of 1st April 1987. In No¬
vember 1985 the Ministry of Transport revealed its plans to establish a new Freight Railway Com¬
pany. JNR's cargo transport operations were to be separated from the passenger transport opera¬
tions and made into an independent company whose basic operating priorities were to be maximum
efficiency and low cost.

One of the greatest difficulties in undertaking JNR restructuring was the reduction of the
number of personnel. The problem was identified in a December 1985 Cabinet meeting which de¬
cided on the "Basic Policies Regarding Surplus JNR Personnel". A September 1 986 Cabinet meet¬
ing also decided on the "Job Placement Plan for Displaced JNR Personnel" and outlined concrete
plans for re-employment. In accordance with this Plan, 30 000 workers were to be re-employed
by the government sector, 10 000 were to be absorbed by the private sector industries and another
21 000 were to obtain new employment with JNR-related companies. The objective was to rede¬
ploy a total of 61 000 personnel.
The accumulation of long-term debts posed another serious problem in the JNR restructur¬
ing. The Government outlined the basic plans for eliminating the enormous debts in a Janu¬
ary 1986 Cabinet meeting on "Policies on Countermeasures on Reimbursement of Long-term
Liabilities". The new companies were to take on as large a burden as possible without seriously
hampering their business conditions. The remainder was to be reimbursed by the JNR Settlement

99
Corporation, the offspring of JNR. Funds were to come from the sale of JNR-owned land and other
properties. Whatever debts remained after these arrangements were implemented would come un¬
der the responsibility of the Government.

3.6. The transition to a new order

In preparation for the division and privatisation of JNR, the Government and Ministry of
Transport prepared eight JNR restructuring legislations for passage by the National Diet. Concur¬
rent with this work, the Ministry also prepared the "Law for Emergent Measures for JNR Manage¬
ment Improvement in FY 1986", to support interim restructuring measures to be applied during
1986. This Law was enacted in May 1986 and was immediately put into force. The eight other JNR
restructuring laws were finally enacted in November 1986, after which time the Government took
the following measures.

i) Reallocation ofJNR property by the Council

Following the Cabinet resolution, "Plans for the Settlement of JNR Liabilities", in Janu¬
ary 1986, the surplus portion of the JNR'S vast real estate holdings were to be sold to help finance,
as far as possible, the settlement of outstanding long-term liabilities left by the JNR. Based on the
Cabinet resolution of 4th December 1986, the Minister of Transport summoned the Council for the
utilisation of JNR property to provide independent, third-party counsel to the Minister on the
scope of land and assets to be transferred from JNR to the JNR Settlement Corporation.
On 4th March 1987, the Advisory Council submitted to the Minister a report which sug¬
gested, among other things, that the maximum possible amount of land should be allocated to the
JNR Settlement Corporation in order to facilitate the financing of the debt allocated to the corpora¬
tion. On the other hand, the amount of land and property transferred to each successor compa¬
ny (JR company) should be limited to the minimal amount needed for the smooth operation of each
company.

ii) Basic transition plans

On 16th December 1986, the Cabinet issued its "Basic Transition Plans for the Succession of
JNR Operations, Rights and Obligations" based on the JNR Restructuring Laws. These plans de¬
fined the fundamental aspects concerning:
a) The type and extent of JNR operations to be transferred to the successor companies;
b) JNR assets and liabilities, as well as JNR rights and obligations to be transferred;

c) The number of JNR employees to be appointed to positions in each of the successor com¬
panies; the number of successor companies;
d) Means for smooth and appropriate transfer.
Responding to this Cabinet initiative, the Minister of Transport instructed JNR to draft de¬
tailed plans for the actual transition and, on 13th March 1987, approved JNR's "Transfer Execu¬
tion Plans" submitted to the Minister of Transport in response to its instructions.
Accordingly, out of the total 37.2 trillion yen in JNR liabilities, responsibility for 5.9 trillion
yen was to be divided among various JR companies, 8.5 trillion yen was to go to the Shinkansen
Holding Corporation and the remaining 22.7 trillion yen was to be assumed by the JNR Settlement
Corporation.

100
 iii) Appointment of incorporation officers

At the time when the JNR Restructuring Laws went into effect on 6th December 1986, the
Minister of Transport appointed incorporating officers for each of the JR companies and for the
Shinkansen Holding Corporation. The appointed incorporating officer of each company was re¬
sponsible for:
a) Drafting the articles of incorporation, appointing board members and carrying out other
tasks required of a company's founding officer;
b) Defining the terms and conditions for employment and other personnel matters;
c) Defining the company's organisation structure, and other tasks required to ensure the
smooth commencement of company operations.
As of 1st April 1987, the JR companies and the Shinkansen Holding Corporation were simul¬
taneously established and the legal entity of JNR became the JNR Settlement Corporation.

3.7. Performance evaluation of the JR companies

In general, the newly-formed JR companies have started out smoothly, recording a steady
growth in passenger transport volume. On average, passenger transport in FY 1987 was up 3.2 per
cent from the previous year. Notably in Hokkaido, Shikoku and Kyushu, where transport volumes
were on the decline during the final JNR years, the trend has been reversed, showing volume in¬
creases of 0.8 per cent, 3.8 per cent and 4.7 per cent respectively.
Although cargo transport volume by special commodity trains declined somewhat during
FY 1987, mainly due to schedule streamlining in November 1986, container transport volume,
which is expected to play a major role in the future, increased considerably. As a result, in terms of
total cargo ton-kilometres handled in FY 1987, there has been no significant volume loss from the
preceding year. This is a major achievement considering that cargo transport had been declining
steadily at an average yearly rate of 9.7 per cent from FY 1982 through FY 1986.
Clearly, the transport volume figures indicate a satisfactory first year start for the restructured
railway system. Amid wide public support for the reform ideals, and aided by the improved general
economic situation during the latter half of FY 1987, each of the JR companies has experienced
noticeable improvement in personnel morale, services, management and overall operations.
Indications of a successful first year start can also be seen in the FY 1987 financial state¬
ments. In total, the seven JR companies recorded ordinary profits of 151.5 billion yen, for 50 bil¬
lion yen in net profits after taxes and expenses.
Employees in each company have worked energetically to satisfy the wide range of user de¬
mands, improving the schedules, continuing the modernisation and amelioration of JR trains and
facilities and, more basically, providing enhanced and more attractive services and products.
Brisk business has been continuing for JR companies beyond FY 1987 with passenger trans¬
port accounts for the first half of FY 1988 increasing 9. 1 per cent from the previous year, and cargo
transport up by 6.5 per cent.

3.8. Settlement of long-term liabilities

From among the total long-term liabilities left by JNR, debts amounting to 25.6 trillion yen
were assigned to the JNR Settlement Corporation. The JNR Settlement Corporation was to settle

101
as many of the debts as possible with whatever assets it could earn from the sale of ex-JNR surplus
land property as well as the trade of JR stocks assigned to it. Since any remaining debts will eventu¬
ally have to be settled by the Government, the JNR Settlement Corporation must do its best to mini¬
mise the burden that might otherwise have to be incurred by the taxpayers.
New financial resources needed for the complete settlement of the liabilities are to be deter¬
mined as part of the overall review of the governmental income and expenditures, when the sale of
all allocated land surpluses and the redeployment of all displaced personnel are almost in sight. In
the meantime, the Government will provide necessary subsidies and help the JNR Settlement Cor¬
poration raise needed money.
In accordance with the above-mentioned basic settlement plans, the JNR Settlement Corpo¬
ration initially estimated total land sales of 300 billion yen for FY 1987. However, prudent re¬
straint was called for in order to avoid further stimulating the abnormally high rate of real estate
price appreciation, especially near major urban areas. Thus, much of the land sold during the year
was limited to that sold to regional governments for public-use developments. As a result, in the
course of FY 1987, total income from land sales amounted to only 132.9 billion yen, less than half
of that originally planned, and at the beginning of FY 1988, liabilities remained near their previous
level, at 26.2 trillion yen.

3.9. Job placement for displaced personnel

Providing jobs for displaced JNR personnel has been one of the most important priorities in
restructuring the JNR. In accordance with the "Law on special measures concerning the promotion
of the re-employment of volunteers for JNR retirement and the surplus personnel of the JNR
Settlement Corporation", the Government has enlisted the help of both the public and private sec¬
tors in absorbing displaced former JNR employees. Such efforts have been much more successful
than were initially expected. At the time of restructuring, 7 628 individuals remained without em¬
ployment, primarily in limited job market areas such as Hokkaido and Kyushu, and were tempo¬
rarily absorbed by the JNR Settlement Corporation.

3.10. Continuing efforts for National Railways' restructuring promotion

Although the new, restructured railway system is off to a good start, as can be seen from trans¬
port volumes and from the account balance figures, continuing efforts are needed to ensure perma¬
nent success.

The JNR companies must, first of all, diligently maintain their current efforts in providing
quality, user-oriented services, and thereby establish strong public support within their respective
service regions. At the same time, it is essential that the JR companies establish and maintain their
competence as steadily profitable private enterprises, through efficient management and opera¬
tion. The economic viability and self-reliance of the JR companies are obviously essential in
achieving the goals of the restructuring. This includes the wise use of income derived from the
trade of JR stocks in helping finance the settlement of long-term liabilities.
As for the JNR Settlement Corporation, much more is demanded of it as it faces the enormous
task of settling the bulk of the liabilities inherited from the JNR era. Debts will continue to accumu¬
late each year, with the total sum increasing from 25.6 trillion yen to 26.2 trillion yen in FY 1986.
The simple solution is to promptly settle as many of the debts as possible, through the effective
sales of surplus real estate. However, as previously mentioned, the soaring of land prices in recent

102
years has become a major social problem, and the JNR Settlement Corporation must rapidly con¬
sider such measures to be taken on land property which will not further exacerbate the land price
situation.

The JNR Settlement Corporation must also find re-employment for some 3 700 former JNR
employees who have not found new employment, providing job training and individual placement
assistance. As the majority of the remaining personnel are concentrated in the relatively job
Kyushu and Hokkaido regions, hereafter the job search will continue on a nation-wide scale.
The Government and the Ministry of Transport will continue to support the efforts of the JNR
Settlement Corporation and the new JR companies in the common goal of restructuring and re¬
forming the nation's railway system.

103
 Part II

REGULATORY REFORM: REVIEW BY COUNTRY

1. GERMANY

Relaxation of the regulatory framework in Germany is progressing only slowly. So far as the
national transport market is concerned, there has been little real change in the past two years.
Within the economic context, it is clear that the requirements of the industrial and commercial
sectors are increasing and transport undertakings must cater for a demand for high-quality services
incorporating ancillary services which call for substantial capital outlays. In many cases this type
of demand cannot be met by a single firm since it calls for services throughout a network covering
the whole of Germany, so mergers and various forms of co-operation among firms are to be found.
The Federal Government has set up an independent committee of experts to investigate possi¬
bilities of doing away with existing market regulations, including those in the transport sector, and
this committee is expected to submit its conclusions by the end of 1989. The Federal Government
is currently drafting a bill that may well mean that the transport sector will be more closely covered
by cartel law than was previously the case. Here, too, no legislative action is to be expected
before 1989.

2. AUSTRALIA

As from 1987, the Commonwealth initiated a number of reforms to improve economic effi¬
ciency in the various sectors. In the transport sector, greater competition was introduced and, given
the dominance of the large Government Business Enterprises (GBEs), measures were taken to en¬
sure that these enterprises are efficient and adapt flexibly to the markets. The reforms related, inter
alia, to Quantas, Australian Airlines, Australian National and Australian National Line. The man¬
agement of these enterprises was to be made comparable with that of their competitors in the pri¬
vate sector, since the responsibilities of managers were increased by the removal of some Com¬
monwealth controls and supervision of management decisions. The Commonwealth intervention
will take the form of defining financial targets and will not concern the operation of the airlines.
More specifically as regards civil aviation, the Commonwealth Government gave notice to
the two major domestic carriers, ANSETT and Australian Airlines, that the limitation of competi¬
tion on trunk routes to these two carriers would be terminated with effect from 31st October 1990,

105
the aim being to encourage the airlines to cater to a greater extent for demand by providing a wider
range of fares and types of service. Restructuring has already begun and, with a view to the im¬
pending deregulation, ANSETT and Australian Airlines have taken steps to improve their position
by shedding loss-making services. Potential operators are ascertaining the requirements for mar¬
ket access. With a view to encouraging competition before 1990, the Commonwealth has lifted
policy restrictions on the operation of domestic charter flights and restored interlining rights to
Quantas on 1st July 1988.

Where international flights are concerned, guidelines for the operation of international pas¬
senger and freight charters have been significantly relaxed, but this has not resulted in a very sub¬
stantial increase in applications for passenger charters. There has, however, been a very sharp in¬
crease in freight charters.

As from 1st July 1988, responsibility for aviation safety was transferred from the Department
of Transport and Communications to the Civil Aviation Authority (CAA), the latter being respon¬
sible for air traffic control, navigation and surveillance systems, and rescue and fire-fighting ser¬
vices at airports. The CAA also sets safety standards and issues air operator certificates. A study is
in hand concerning ways of simplifying and rationalising the legislative framework for safety
regulation.

Lastly, the Federal Airports Corporation (FAC) was established on 1st January 1988 to oper¬
ate most of Australia's major airports and one of its functions is to ensure that all operators have
reasonable access to airport facilities.

As regards the railways, changes have been made in the operating conditions for Australian
National, which is run by the Commonwealth and provides services in South Australia, Tasmania
and the Northern Territory. The aim was to give Australian National greater commercial flexibil¬
ity, i.e. the freedom needed to improve productivity and financial performance.

Efforts have been made in recent years to co-ordinate the various government railway sys¬
tems to achieve greater operating efficiency. The Railway Industry Council (RIC) was established
in December 1986 and brings together governments, rail authorities and unions to develop a viable
strategy for the restructuring and revitalisation of Australian Railways.

With respect to road transport, a package of reforms has been introduced, namely:
Introduction of a Federal Interstate Registration Scheme, which relates to road wear for
vehicles engaged solely in interstate trade;

An increase in the speed limit;

Introduction of graduated truck driver licensing;

Commitment to ensure equal terms of competition between road and rail.

Owing to the existence of a number of differences between States as regards regulations (axle
loads, vehicle mass and dimension limits, permits and driver licensing arrangements), the Minis¬
ters concerned agreed to a package of reforms designed to improve operating conditions in road
haulage and make them more uniform. Greater uniformity of the regulations applied in the sector
would be an important source of savings. It is at present difficult to arrive at a consensus among the
territorial governments and jurisdictions responsible for introducing reforms.

As from 1st January 1989, a new road funding programme has been introduced with a view to
reducing Commonwealth involvement in the administration of programmes and making the States
more accountable and responsible for programme implementation.

Measures are also planned to make maritime transport more efficient and competitive.

106
 3. BELGIUM

The measures relating to the deregulation of road freight haulage entered into force on
1st November 1987 and concern:

An increase from 25 to 75 kms in the range of operations covered by a transport permit;

Abolition of the categories for a general domestic transport permit based on vehicle
payloads;
Greater flexibility in the requirements for general domestic transport permits.
The aims in this connection were as follows:

To eliminate gradually the artificial system of protecting existing carriers;

To take gradual steps towards bringing Belgian legislation into line with the requirements
of the large European market of 1993 and to encourage carriers to organise their opera¬
tions so as to be ready for that date;

To replace quantitative criteria by a system of qualitative criteria.

The road hauliers' associations have shown some reluctance to take the necessary steps al¬
though they see the trends in question as inevitable.
During 1986 a number of criteria governing access to the market (number of years in opera¬
tion and trading results of undertakings, age of vehicles, etc.) for occasional road passenger ser¬
vices by coach or bus, were replaced by new ones (guarantees and comfort standards for vehicles)
which are less inflexible and protectionist.
The aim of the new regulations is to ensure that operators have sound credit standing and use
reliable equipment.

The Office Regulateur de la Navigation Interieure (ORNI) has made a number of changes in
the regulations on freight shipments and, subject to certain requirements, some individual opera¬
tions can be carried out outside the roster system, namely the carriage of containers and other ship¬
ments of units that cannot be broken down.

Most charter shipments arranged by ORNI are now based on agreements established by joint
commissions of carriers and shippers, whereas beforehand it was necessary to have ministerial ap¬
proval of any agreement between the parties concerned for the shipment of goods.
These steps to make the regulations more flexible have been found entirely satisfactory and
have led to the introduction of machinery for negotiating freight contracts and greater flexibility in
the establishment of transport rates, which are now effectively negotiated, and the elimination of
administrative obstacles to the procedures.
Such steps in connection with the transport of goods by road and inland waterway are simply
intermediate stages prior to a more thorough deregulation paving the way towards direct negoti¬
ation of freight charter contracts between the parties concerned.
Any further strengthening of the regulations governing road freight haulage is not planned at
present since the regulations concerning access to the profession had already been tightened up
when new measures were introduced by:
The requirement to provide a guarantee for each general transport permit held by an oper¬
ator (in practice, for each traction unit, trailer or semi-trailer);
The establishment of systematic inspections of the actual management of transport un¬
dertakings by a person holding the necessary professional qualifications.

107
 It is not a question of an intermediate stage in the case of passenger transport by road, but
amendments to the new regulations in the light of changes in the situation are not precluded.
It should be noted that, as from 1989, a number of responsibilities in the transport sector as
regards both administration and infrastructure are to be transferred to the regional authorities.
Where inland waterways are concerned, regulations governing entry to the profession of car¬
rier will have to be established in the light of Community regulations.
With respect to both freight and passenger transport by road, it is too soon after the introduc¬
tion of the new regulations to be able to ascertain any major effects and assess developments in
these two sectors.

4. CANADA

The aim of transportation policy is to create an environment in which transportation costs are
reduced to a minimum. As matters now stand, it would seem that transportation costs tend to be 1 to
2 percentage points higher than those of competing countries.

The system of economic regulation had not kept pace with changing circumstances in the
economy and in the transport sector itself (growth of air and road transport, multi-modal approach,
etc.). The basic thrust in reforming the economic regulation of transportation was to encourage
competition, primarily within modes, to improve the range and price of transportation services and
to support the growth of key economic sectors in Canadian society. Several new pieces of legisla¬
tion have established a new approach to the economic regulation of transportation, including the
National Transportation Act 1987, and the Motor Vehicle Transport Act 1987, which came into
force on 1st January 1988.

It was not easy to incorporate the policies pursued in specific legislation and affected parties
were consulted on a number of occasions (shippers, carriers, trade unions, provincial and munici¬
pal governments). This has resulted in provisions unique to the Canadian approach to regulatory
reform, notably continued (partial) regulation for northern and remote air services, protection for
captive rail shippers, dispute resolution provisions, recognition of the role of transportation in re¬
gional economic development, and a phasing-in of the extra-provincial trucking reforms.
Economic regulation of the industry has been reduced or, in the case of railway transporta¬
tion, modified to promote competition. One of the benefits of this policy has been a process of
innovation.

Preliminary data suggest that rail traffic is at present increasing while the return per tonne-
kilometre is falling; this reflects reduced rates.

So far, indications are that service levels remain adequate in all modes and that markets are
mature and strong enough to benefit from increased competition.

Safety is of prime importance for all modes of transport and is now a key policy objective in
the new NTA. Furthermore, a host of legislative, regulatory and programme initiatives have been
undertaken to maintain and improve safety in all modes.

The beneficial effects of the regulatory reforms in the transport sector will be reinforced by
the consequences of the free trade agreement between Canada and the United States since there is
expected to be an increase in trade in both goods and passenger transport between the two

108
countries. Adjustments are likely to be necessary in order to make the most of the regulatory re¬
forms. Those working in the transport sector, for example, are concerned about the effects of the
new regulations on labour. It is estimated, however, that any jobs lost in the transport sector will be
offset by jobs created in other sectors as a result of greater competitiveness.
The revised National Transportation Policy, outlined in the National Transportation Act
1987, states that:

Safety of the transportation system is the top priority;

The transportation system exists to serve the needs of shippers and travellers;
Competition and market forces are the prime agents in providing economic, efficient and
adequate transportation services at the lowest total cost;
Economic regulation will be kept to a minimum in order to encourage competition;
Carriers should, so far as practicable, bear a fair share of the costs of facilities provided at
public expense and be compensated for public service obligations they are required to
fulfil;

Transportation is recognised as a key to regional economic development;

Carriers should not create undue obstacles to mobility, especially for disabled persons.
The National Transportation Agency has been set up as the regulatory authority for transport
and is bound by directives that may be issued by the Governor in Council. In the event of a private
dispute between shippers and carriers, the Agency may provide mediation services at the request of
the parties concerned. All information remains confidential. Final-offer arbitration is also avail¬
able and is binding on the parties for up to one year. Upon complaint, the Agency is also empow¬
ered to make enquiries where the public interest may be prejudiced. The Agency may only review
its decisions if new information is available. The Governor in Council may vary or rescind Agency
decisions and regulations and an appeal is laid to the Federal Court of Appeal on questions of law or
jurisdiction.
Airlines wanting to offer a domestic air service in Southern Canada need only meet the "fit,
willing and able" test which focuses on the safety of carrier operations and adequate liability insur¬
ance. Fares can be established without regulatory approval although an appeal can be lodged with
the Agency in the case of fare increases on "monopoly routes".
Overall, competition is in full swing. New carriers have entered both national and regional
markets, new routes and innovative pricing practices have been introduced, while aircraft that are
better suited to passenger demand on shorter routes and at small communities have been added.
The demand for air transportation has been greater than expected and problems of airport capacity
have developed.
In northern and remote areas, the basic changes to the economic regulation of air transport
that apply elsewhere in Canada also apply, unless intervenors objecting to an application can estab¬
lish that the new service will lead to a significant decrease or instability in the level of service. Li¬
cence conditions continue to limit aspects of the activities, such as the type of aircraft to be used,
points to be served and the type of service to be provided. Basic fare levels and increases on routes
to Northern Canada are appealable to the Agency. Services are expanding under this regime.
The provision which guarantees the continuation of essential air services in existence when
the new NTA came into effect on 1st January 1988, has not been used, since no communities have
been faced with the threat of an absolute loss of service.

Where rail freight is concerned, shippers can now negotiate confidential contracts and this is
proving to be a very popular provision.

109
 The Agency can make recommendations to the Minister concerning procedures for the subsi¬
dy, sale or closure of railway lines within a strict time period. In the public interest, the Government
can decide to keep in operation a line that serves a large area of Canada, or where shippers have no
effective alternative.

The Railway Safety Act, which came into force on 1st January 1989, modernised the ap¬
proach to rail safety. More stress is now laid on the supervision of operations and maintenance than
on standards relating to construction and engineering works.
With respect to extra-provincial truck transport, the lack of uniformity in provincial and terri¬
torial systems had handicapped operators. Thus, a uniform, nation-wide "fitness" licence test,
based primarily on safety and insurance requirements, has been introduced. During a five-year
transition period, licence applications will also continue to be subject to a "public interest" test with
the onus on the complainant to prove that public harm would be caused by the new entrant. While it
is still easier to obtain licences in some provinces than in others, this will cease when the reverse
onus entry test expires on 31st December 1992, and "fitness" becomes the sole entry test for extra-
provincial trucking in all jurisdictions. To date, the relaxed entry provisions have resulted in in¬
creased competition within the mode.

The Agency must be advised of the proposed acquisition of an interest of 1 0 per cent or more
of the voting shares (or of all or substantially all of the assets of a transport undertaking that has
assets or sales in Canada of C$10 million or more). The Agency must give public notice of the
proposed acquisition and, if an objection is received, conduct a review of the matter. The Agency
may disallow the acquisition if it is found to be against the public interest. Foreign firms proposing
to acquire Canadian transportation concerns are also subject to the provisions of the Investment
Canada Act.

In October 1988, the Government reduced its holding in Air Canada the largest Canadian
airline from 100 per cent to 55 per cent by selling shares. The airline will use the proceeds from
this sale to equip its fleet.

5. DENMARK

A new law on road transport entered into force on 1 st January 1989. The purpose of the law is
deregulation of the road haulage sector. Furthermore, it provides an incentive for the hauliers to
reorganise their enterprises adequately ahead of entering the European Single Market in 1993.
The repealed law on road haulage provided for quantity- as well as quality-regulating crite¬
ria of the haulage sector. In the current legislation the former criterion has been abolished as it
proved impossible to confine the number of hauliers by objective standards.
Previously, an authorisation was needed to carry out regular road haulage services. This
mode of transport is no longer subject to any special regulation.
Being the only regulatory element in the new law, the provisions on access to the profession
set the conditions as to professional qualifications, solvability and reliability.
An authorisation is required for each truck carrying out road haulage. Freight tariffs are not
subject to regulation in the new legislation.

The Government has introduced a Bill on public bus transport in the Greater Copenhagen
area. The key element in this is a more dynamic and economically independent management and a

110
new system by which the public bus company has to make contracts with private bus enterprises to
fulfil its transportation obligations.

By 1st April 1992, at least 30 per cent of the total public bus transport in the Greater Copen¬
hagen area is assumed to be carried out by private bus enterprises.
The Government is planning a revision of the legislation on transportation by taxi. A bill will
be introduced by the end of 1989.

6. SPAIN

A new law on transport was adopted in July 1987 and a process of reforming the road haulage
sector was begun. The law is, in fact, flexible since it allows for a more liberal transport policy or
for intervention by the authorities.

The reforms in hand are being carried out with a view to 1 992, when Spain will be in a similar
situation to that of the other European countries.

Obstacles to the deregulation of road haulage are created by the sector itself which has a pro¬
tected status.

As regards air transport, authorisation has been given to set up Spanish companies for charter
traffic, some with foreign participation. Regulations are currently being drawn up concerning the
grant of licences for scheduled airlines, which should enable new companies to enter the market in
the near future.

The aim in air transport is to gear supply to trends in requirements, while at the same time
recognising its character as a public service. Within this framework a gradual process has been
adopted so as to avoid undesirable effects if the economic situation should change suddenly. At
present it is simply planned to strengthen the regulations relating to safety and user rights.
There have been bankruptcies among non-scheduled airlines, and a number of scheduled do¬
mestic services have been discontinued in regions which have a low level of demand and are served
by other modes. Such changes have not, however, been very important.
In the case of quality of service, where regional airlines have been set up for island or short-
distance services, there is a tendency to send certain types of aircraft to particular areas. In princi¬
ple, provision has been made for the peninsula to guarantee that the island regions have a certain
level of passenger and freight service and also special rates. Where international transport is con¬
cerned, there is some standardization of scheduled and charter flights for the same periods and des¬
tinations. The quality and frequency have been improved appreciably on the major routes.
The airlines have invested in advertising campaigns, while at the same time they use forms of
fare discrimination by type and length of journey which have led to an increase in the average
amount paid per passenger. There has been a marked improvement in the financial situation of al¬
most all the airlines, with the exception of the bankruptcy of a charter line. The sector as a whole
has made more progress than the competing modes.
No move towards concentration has been observed and, in the case of charter companies,
there has instead been considerable diversification. As regards scheduled air services, which are
mainly state-owned, a process of restructuring is under way in order to set up a holding company of
specialised undertakings (national, international, freight and parcels).

Ill
 The establishment of new airlines has given rise to such a substantial demand for manpower
that there is no unemployment among flying personnel and very little on the technical side. Wages
and working conditions have been improved.
Owing to the increase in services, information is now of fundamental importance. There had
been only a low level of information dissemination when scheduled services were introduced in
airports used for tourists. At present, one of the carriers in which the State has a majority hold¬
ing controls the computerised seat-reservation system used by the airlines and travel agencies.
In the context of deregulation, given the way such systems influence market transparency, it is
essential that they should have a neutral approach to the services offered by air carriers, be equally
accessible to all travel agencies and be compatible from the standpoint of telecommunications.

7. UNITED STATES

A number of States are planning to deregulate road freight haulage (California, Ohio, Ore¬
gon), while Indiana in fact deregulated this activity in 1987. The efforts made to reintroduce regu¬
lation for some aspects of rail or air transport met with no success but further endeavours will cer¬
tainly be made in 1989, the aim being to support shippers who are rail captives and ensure better
quality air services.
There were no intermediate stages in the reforms undertaken so far and the obstacles to a
greater degree of deregulation are of a political nature. Safety regulations and the relevant enforce¬
ment measures have been strengthened.
By and large, freight rates (road and rail) are lower than they were before deregulation. Many
new road haulage undertakings, mainly quite small, have entered the sector and the bankruptcy rate
is about 3 per cent. The financial situation of the undertakings is not very good on average, but they
differ widely and some firms are in a very good position.
Small firms now use intermediaries to promote their services while others link up with the
logistical systems of industrial and commercial enterprises. On the whole, the quality of service
continues to improve and there is only a slight increase in the degree of concentration. Wages have
increased by only 18 per cent since 1980 as compared with 37 per cent in the manufacturing indus¬
tries. However, employment in the sector has increased by 25 per cent since 1979. Lastly, as re¬
gards safety, fatal accidents in 1987 were 30 per cent down from the 1978 level.
The trend in the quality of rail freight transport is positive. The profitability of operations has
tended to improve but it should be noted that manning has been cut by 40 per cent since 1979.
However, wages have increased at a faster pace than the average for the economy as a whole. Safe¬
ty has also improved, with accidents in 1987 64 per cent down from 1979. Deregulation has, in
fact, helped the railways to ensure better maintenance of their equipment and track.
To conclude, motor coach travel has been affected by the substantial fall in air fares. Trail-
ways, for example, the second largest undertaking, was bankrupt when purchased in 1 988 by Grey¬
hound, which itself has had to restructure its network.

8. FINLAND

Restrictions on the performance of road freight operations, based on the type of product and
client, were lifted as from the beginning of 1988. Similarly, the rights in respect of the operating

112
area were extended. In the case of passenger transport, the size of the areas served by buses or
coaches was increased.

The aims of these provisions were to simplify licensing procedures, improve the rate of use of
the vehicle fleet, promote competition and curb price increases. The reforms have been carried out
gradually, thus making it easier for the parties concerned to accept them. There are no plans to
strengthen regulations.
The gradual implementation of the deregulation of freight transport curbed the increase in
rates charged. There has been a slight increase in concentration, but this is not very significant in
view of the small size ofundertakings and the competition between types of service. The relaxation
of regulations has not brought about any major changes in the quality of transport services. Carriers
have formed a number of nation-wide freight centre chains and their services are moving towards
logistics systems. The market share of road hauliers has been increasing in recent years.
Some bus lines have been reducing services owing to loss of patronage.
There seems to be no evidence that deregulation has had any significant effect on safety.
The essential role of information technologies is clearly seen in the operation of markets. The
public authorities are taking steps to promote the compatibility of systems. Lastly, greater consid¬
eration is being given to problems of environmental protection and transport services for sparsely
populated areas.
Where air transport is concerned, the aim is liberalisation. Accordingly, Finland has ratified
the 1987 European Civil Aviation Conference (ECAC) agreements on tariffs and capacity sharing.
Reforms are being undertaken in line with similar developments in Western Europe. Licences
were recently granted to several new foreign charter airlines. Turkish Airlines began scheduled
operations between Finland and Turkey in early September 1988. A number of airlines have been
operating scheduled services between Finland and Sweden since 1987, and one of these left the
market in Summer 1988.

There has been a slight downtrend in fares, especially for international package tours. Pro¬
motional fares have become more common but there has been no evidence of predatory pricing.
New scheduled services have been introduced and others are about to be for Northern Finland

and Lapland. By and large, the quality and frequency of services has remained the same. There
have been no direct effects on safety but it would seem that foreign airlines have had difficulty in
meeting the requirements laid down by the National Board of Aviation. As with the majority of
airports, there have been difficulties owing to congestion and such problems can be a barrier to the
entry of new airlines. For example, Finnair has experienced difficulties in getting information
about services available on the United States market. Information technology plays a vital role in
market transparency. Computerised reservation systems have to be consistent with the code of
conduct adopted by the ECAC.
As regards rail transport, VR is focusing its efforts on improving the quality of service, and
surveys have been carried out to ascertain the standards in station buildings, coaches and restau¬
rants. Staff training programmes were undertaken in Spring 1988. The first IC trains were intro¬
duced in 1988 between Imatra, Vaasa and Helsinki. There have been major changes in terms of
marketing, emphasis being laid on profitability and on the relatively independent operation of the
five main passenger traffic routes. Job descriptions have been redefined and the decision-making
authority has been decentralised. Special importance has been attached to the advertising unit
which is incorporated in the passenger services department. Here, too, training programmes have
been carried out to improve sales performance and the organisation of activities. At the same time,
costs have been cut substantially, resulting in the elimination of unprofitable services which have

113
been replaced by motor coaches. Manning levels have been cut and some services where they are
little used (luggage).

Where freight is concerned, VR offers warehousing services and, more generally, a compre¬
hensive service including loading/unloading, transport, storage and final delivery at the request of
the consignee. A new terminal is to come into service in Helsinki in December 1988, thus provid¬
ing better quality service. Accordingly, stress has been laid on training personnel in marketing
techniques.

These developments are seen in the context of the year 1990 when the railways will become a
public commercial enterprise.
The general attitude seems to be in favour of gradual deregulation.

9. FRANCE

The following reforms have recently been carried out in the road freight sector:
The issue of freight haulage licences for the long-distance zone continued in 1988;

The compulsory rates for freight are to be abolished on 31st December 1988 and replaced
by reference rates;
As from 1st July 1988, the examination programme for entry to the profession has been
remodelled, and greater importance is now attached to the commercial and financial
management test.

The process of relaxing the constraints on road transport has been carried out cautiously so as
to avoid disturbing or destabilizing the markets in any way.

Recent trends include a fall in rates in 1987 which, in view of the planned discontinuance of
compulsory rates, reflects the relaxation of the relevant controls.

The issue of new licences had the effect of pushing down prices for the purchase of, or right to
run (location-gerance) a business which has a long-distance zone permit, thus giving rise to prob¬
lems for elderly carriers who earn their living from these permits.

For passenger transport, no problems arose in connection with the adoption of the free pricing
system, in force since 1st January 1987, for all inter-urban passenger services, including school
transport. However, urban passenger transport affairs are still controlled.

10. GREECE

Greece is in the process of amending various laws and regulations in the transport sector in
order to comply with Community directives.

The country has to cope with the problem of disadvantaged regions owing to its physical ge¬
ography and, since it is essential to reduce the disparities between these regions, new services have
been introduced.

114
 In addition, all sectors are encouraged to use marketing methods and improvements in service
quality have been observed, primarily owing to better infrastructure and easier operating
processes.

A whole range of measures have been taken to protect the environment (technical inspection
programmes, emission standards, etc.) and develop integrated regional planning (new master plans
for urban centres, decentralisation policies, infrastructure development).

11. JAPAN

The railways have been privatised, as described in the first part of the report, and the policy in
civil aviation is to promote competition.
Japan Air Lines was formerly a semi-public corporation before being privatised so as to put it
on an equal footing with the other Japanese carriers, the aim being to offer the public a broader
range of services through competition and to promote the sound growth of the industry. Safety re¬
mains the fundamental guiding principle of the policy.
In accordance with the recommendations of the Council for Transport Policy, all the airlines
have inaugurated scheduled international services, and double or triple tracking has been promoted
on domestic routes. It is not certain, however, that complete liberalisation, comparable with that in
the United States, is desirable in order to maximise customer benefits.

Logically, competition is expected to rationalise operations, dampen the rise in prices and
promote the introduction of more special fares. Services should be further diversified and more in
line with customer requirements.
As matters now stand, all airlines are also operating a number of unprofitable flights. Steps
have been taken to reduce landing fees and airport charges for remote island routes.
Measures to protect the environment around airports are to be introduced, in order to cope
with problems arising owing to the increase in number of flights.

12. NORWAY

Steps were taken to deregulate road transport as from 1st January 1982. Road freight licens¬
ing was abolished and a system of transport permits, not limited in number, that are issued on the
basis of qualitative criteria, was introduced. The system of licences for route transport by lorries
was abolished on 1st January 1987, together with that for parcels services or goods forwarding.
In Autumn 1987, the representatives of carriers, users and local authorities were consulted
about the effects of deregulation. It was found that the number of carriers had increased, especially
in central areas. It has not been established that deregulation has led to the discontinuance of ser¬
vices in remote areas. In the case of the main market areas, services are now more differentiated.
There would seem to be no reason to revert to the earlier system.
There has been an increasing demand for long-distance bus services across county bound¬
aries, between remote areas and major cities. Such licences are given with due consideration to

115
existing railway connections, and local short-distance bus services. The policy is to avoid a de¬
creased profitability in existing subsidised transport services.
The introduction of parallel services on trunk routes has led to an increase in a number of pas¬
sengers travelling at reduced rates. Daily frequencies have increased and the hours are more conve¬
nient for the public. This system has also led to a situation of surplus capacity on the routes con¬
cerned, a surplus that might not be solely a consequence of competition but also of a fall in the
number of passengers carried. A much smaller percentage of passengers are travelling at full fare
as far more are benefiting from discount and deep discount fares, a situation that is obviously a mat¬
ter of considerable concern.

Some of the carriers operating on secondary routes have had to cease their activity, while oth¬
ers have had to restrict it, and certain airports served by the secondary system no longer have sched¬
uled services. The financial situation of these carriers would seem to be uncertain. The cost of

maintaining the subsidised services is escalating, partly because demand is falling off.
On the trunk routes to the North there is a tendency to reduce the frequency of services and to
use smaller aircraft.

The analysis of the situation shows that, where secondary itineraries are concerned, there of¬
ten exists competition from other modes of public transport and furthermore the investment costs
for infrastructure and security do lead to extremely high tariffs and are therefore dissuasive. There
is a very definite need to examine the air transport network taking into account the requests from
local authorities to determine an optimal service.
With regard to international civil aviation, an agreement to continue co-operation among the
Scandinavian countries has been signed and involves a certain liberalisation of Scandinavian avi¬
ation in general, and a deregulation of air freight charter services. The previous licensing system
has been abolished, and it is now sufficient to notify the Civil Aviation Administration that charter
freight services have been introduced.

13. NETHERLANDS

On 1st May 1988, a number of important amendments to the Road Haulage Act and the Road
Haulage Implementation Act entered into force. With these amendments the national capacity sys¬
tem has become much more flexible. They are a first step towards replacing the present system,
which is based on quantitative criteria for operating in the market, by a system of qualitative
criteria.

The principal amendments were:

The tonnage system (licences based on vehicle payloads) has been replaced by a unit
system;

^ Licences are to remain valid indefinitely;

It is no longer possible to transfer licences;

The financial and economic assessment of domestic haulage operations has been greatly
simplified.
Future road transport policy will be further aimed at improving the social and economic
structure of the sector. The three main policy lines are:

116
 1. The requirements governing establishment are designed to raise standards in the sector;

2. Endeavours are made to promote improvements in the social and economic structures of
the profession;

3. Within the framework of structured co-operation among operators, the free play of com¬
petition is ensured and the public authorities combat any measures that distort
competition.

The conditions governing access to the profession relate to professional qualifications, solv¬
ability and reliability. On the basis of these conditions, each operator will receive a single licence
issued for both national and international transport.

In order to promote the development of the sector, endeavours are to be made to improve re¬
search, education/training and information. Stress will be laid on the collection of information on
the transport market and the relevant national and international developments, so the policy fol¬
lowed will have a forward-looking dimension. Management can be improved by setting up train¬
ing schemes in logistics, marketing, information technology, etc. In addition to eliminating point¬
less administrative obstacles, the image of the Netherlands as a supplier of services will be boosted.
At the same time, it is recognised that a well-defined social policy is important.

A body to promote co-operation, set up by the employers' and employees' associations in the
road freight sector, will give cohesion to the activities of the various agents and serve as an interme¬
diary between the public authorities and users. This body will act in the above-mentioned fields
and its chairman will have an independent role as a specialist in organising changes.

In another context, infringements of legislation relevant to driving time, road traffic and col¬
lective bargaining agreements will be regarded as distorting competition, so penalties will be made
more severe. Judgments will be handed down by a specialised independent judge.

Important aspects of the new Act on Passenger Transport (which came into force on 1st Janu¬
ary 1989) are decentralisation and deregulation. The main decentralisation aspect is the transfer of
financial responsibility for local public transport to the local government. By means of a grant
based on the volume of transport, greater freedom for local government policy in this area is pur¬
sued. The grant can be spent without further interference by the central government.

For reasons of efficiency, ministerial control over non-local public transport in greater urban
districts can also be transferred to local government, with a corresponding grant. Deregulation
mainly applies to private bus transport. It has been made easier to set up and operate private bus
services. Before 1988, it was hardly possible to enter the market. Now access is mainly based on
professional qualifications, solvability and reliability. The distinction in various categories of pri¬
vate bus services (with a corresponding system of permits) has been abolished and has been re¬
placed by one single general licence. Lastly, the size of the areas in which taxi services can operate
has been increased.

Also in 1988, the Ministry of Transport and the Dutch Railways (NS) signed an agreement on
rail transport of goods in which the specific responsibilities of both parties have been fixed. The
agreement states that the transport of goods by rail is a commercial activity for which the NS has the
sole responsibility. The NS will receive from the Ministry a yearly financial compensation for the
disadvantages in infrastructure costs (compared to the other modes) and a yearly financial contri¬
bution for the construction of new infrastructure projects and the further development of piggy¬
back transport. v .

117
 14. UNITED KINGDOM

Since the United Kingdom's experience was described in the previous report7 and is covered
in Part I of this present report, only a few further items of information are set out below.
As matters now stand, the deregulation of local bus services outside London has been com¬
pleted and all 72 operating subsidiaries of the National Bus Company have been privatised as indi¬
vidual units. Privatisation of the Scottish Bus Group, in eleven separate units, is also now in hand.
Bus services in London will be deregulated in due course: meanwhile, London Regional Transport
is continuing the process of competitive tendering for bus routes which will cover 25 per cent of
their bus network by March 1989.
When London buses are deregulated there will be no quantitative restrictions in the
United Kingdom on road haulage, road passenger transport and sea transport.
Legislation to extend bus deregulation to London already exists but consideration is being
given to the question as to Whether further legislation might be required to facilitate a smooth tran¬
sition. There was considerable political opposition at national and local level to the privatisation of
the National Bus Company, as well as resistance from the industry itself. The Scottish Bus Group
argued strongly against being sold off in separate units.
As regards future trends in regulations, minor changes have been introduced in the system of
registering bus services: it is easier to register new services or changes in existing services.
The United Kingdom Government has taken a number of initiatives to build up competition
between British airlines. The Civil Aviation Act 1980 was a major step. The interests of users are
now given equal weight to those of the airlines when services are licensed. This change to the legis¬
lation led directly to the opening of the domestic market. Internationally, air services between the
United Kingdom and Canada were liberalised in 1987. British Airways pic and the British Air¬
ports Authority were privatised in 1987.
The Civil Aviation Authority still has the power via the licensing system to regulate
market entry, which it uses in support of its policy of encouraging competition. Domestic air fares
were effectively deregulated in 1985. From that point on, carriers were free to set their own fares
provided that they did not engage in predatory, or anti-, pricing. The Authority has reserved pow¬
ers to regulate fares if such abuses occur.
Liberalisation has led to growing competition on domestic routes with significantly lower
fares aimed particularly at the leisure market. The London to Edinburgh excursion and stand-by
fares are now one-third less in real terms than before liberalisation. Frequencies have increased in
response to the requirements of the business market. The quality of service has improved consider¬
ably as a result of competition. Meals or snacks are now served on all flights free of charge and a
variety of marketing inducements are offered to passengers.
Growth on the London to Edinburgh route (measured by the number of seats offered)
achieved almost 60 per cent between 1980 and 1986. The most substantial annual increase (28 per
cent during 1983) followed the competitive entry of British Midland Airways onto the route.
There are about fifty United Kingdom airlines. Apart from the disappearance of British Cale¬
donian, which was merged with British Airways, entry to and exit from the market has tended to
occur at the level of regional/computer airlines. Overall, the total number of United Kingdom air¬
lines has remained fairly static since liberalisation.
Under the provisions of the Highlands and Islands Air Services (Scotland) Act 1980, a subsi¬
dy is made available to meet deficits incurred on socially necessary, though uneconomic, air

118
services in Scotland. The main objective of the grant is to ensure that the isolated island communi¬
ties continue to have air links with the mainland. Without subsidy, air services to these islands
would be withdrawn. These are the only air services operated within the United Kingdom other
than on a wholly commercial basis.

Excluding part-timers, the number of United Kingdom airline personnel employed in Great
Britain increased by 5.2 per cent between December 1985 and December 1987. It is not possible to
divide these personnel between domestic and international services, but the implication is that
there was no reduction in staff levels following liberalisation.

15. SWEDEN

The process of deregulating inland freight transport has been carried out by stages since the
1960s. For example, road transport rates were liberalised in 1972.
Where public transport is concerned, the policy in the 1970s and 1980s has been to arrange
mergers of operators in the same county. The county transport reform approved by Parliament
in 1978 has had a number of positive effects. More people travel by public transport today than
ever before and the standard has improved. Average production costs have not risen in fixed prices.
The current policy is still to combine competition among transport undertakings and systems with
greater co-ordination between different modes of transport and types of traffic. In this context,
priority is assigned to the counties.
Parliament recently approved a government Bill on a comprehensive transport policy for the
1990s. Protection of the environment is a central matter of importance. At the same time, the Bill
introduces some measures of deregulation of public transport:
As from 1st July 1989, transport authorities are permitted to operate short-distance
transport services across county boundaries without restriction;

As from 1st July 1989, regional public passenger transport authorities will be empow¬
ered to organise all local and regional regular services under their legal responsibility,
free of any regular service licences from a state authority. This type of licence will be
abolished, and an operator will need only to have a charter service licence. A long transi¬
tional period has been provided (four years) so that operators holding regular service li¬
cences can get their assets converted into cash by means of a special legal procedure;

Tourist and charter bus services will be deregulated. Better development opportunities
will be provided for long-distance express bus services on condition that this is not detri¬
mental to the railways or services organised by regional authorities;

Taxi services are also to be deregulated. The aim of the existing restrictions was to ensure
an adequate level of service at off-peak times and in disadvantaged areas. These mea¬
sures in fact prevented an efficient use of resources.

The arrangements adopted for regional passenger transport services have enabled the region¬
al authorities to cut costs by leaving a free choice of carrier. Costs have tended to rise, however, and
budgetary restrictions have led to cuts in unremunerative services and also to fare increases.

With regard to civil aviation, an agreement to continue co-operation among the Scandinavian
countries has been signed and involves a certain liberalisation of Scandinavian aviation and

119
deregulation of air freight charter services. The previous licensing system has been abolished, and
it is now sufficient to notify the Civil Aviation Administration that charter freight services have
been introduced.

In the interests of users and to ensure fair competition and safety of operations, more stringent
aptitude requirements have been introduced. It will also be important for undertakings to be moni¬
tored periodically to check capacity; Specific tasks have been assigned to a competition authority
which has to check whether competition is obstructed by any official regulations or existing barri¬
ers to entry, with a view to eliminating inappropriate restrictions. The competition authority may
also take action to prevent mergers or acquisitions that would place an undertaking in a dominant
position.
As matters now stand, the results of deregulation are positive and no negative effects have
been observed. Operators see deregulation as a challenge. At the same time, public administra¬
tions and associations of public transport operators are working towards strengthening the role of
public passenger transport.

16. SWITZERLAND

A recent development in the regulatory framework was the partial privatisation on 1st Janu¬
ary 1988 of the Radio Suisse SA by the transfer of air traffic control responsibilities to a new mix¬
ed-economy company "Swiss Control" in which the Confederation has a majority holding. Tele¬
communications activities have been taken out of the hands of the postal authorities and sold to
private companies.
The plan to broaden the freedom of management of licensed transport undertakings is under
consideration by the federal authorities and in the consultation phase with the cantons.
It should be borne in mind that Swiss transport policy seeks to maintain a balance between the
criteria of profitability, satisfaction of transport requirements and optimisation of external effects
or considerations of general interest. Given the fact that deregulation of road transport in the Com¬
munity context will lead to further growth in road traffic, it is necessary to work in collaboration
with neighbouring countries to develop an alternative to road transport which will serve to protect
the environment more effectively.

Decentralisation of responsibilities exists in the public transport sector: while long-distance

traffic comes under the Confederation, the cantonal and communal authorities are primarily re¬
sponsible for regional and local transport. This policy of decentralisation has made it possible, to a
large extent, to benefit from the same positive effects as result from deregulation, since local popu¬
lations are in a better position to determine the level and type of service needed, which also leads to
an optimum use of resources.

Progress has been made in marketing and urban public transport undertakings are establish¬
ing fares that are better targeted on market segments. Some undertakings have also offered reduced
fares on the strength of subsidies from local authorities. These measures have resulted in more pa¬
tronage and have shown an economic return in most cases.

More generally speaking, it should be borne in mind that, given the definition of Swiss trans¬
port policy, it is not possible to support developments that would primarily be in favour of one cate¬
gory of agents or mode of transport, especially due to the fact that external effects are inadequately

120
taken into account. It would seem that experiments with deregulation are along these lines and con¬
centrate public transport services on a few commercially profitable routes or else switch traffic
flows towards road freight transport. However, Switzerland's transport system is largely liberal¬
ised and endeavours are made to achieve considerable market transparency. Any system devel¬
oped with a view to improving this transparency is to be encouraged.

CONCLUSIONS

A two-pronged approach has been adopted in this report: first, the experience of deregulation
in three countries has been carefully analysed and, secondly, the reforms in hand in most countries
have been described.

The first section focused primarily on passenger transport, since deregulating here is of par¬
ticular interest to the public authorities coping with operation deficits in their transport systems and
congestion in urban centres, while at the same time adhering to the concept of public service. In
addition, it has to be borne in mind that there are problems specific to interurban passenger trans¬
port: the layout and funding of a rail network, partly consisting of high-speed lines, and to the orga¬
nisation of domestic and international air transport.
What are deregulation and privatisation policies contributing in this context?
While the United Kingdom's experience with urban transport is, of course, quite short, les¬
sons can nonetheless be drawn at this stage. Public transport users have proved to be very sensitive
to major changes or variations in services. The level of services has tended to increase, but bus
patronage in urban areas diminished appreciably over the first year by 12 per cent. It is true that
fares were raised at the same time, although one cannot say to what extent this was to offset the cut
in subsidies. What is most noteworthy, therefore, is the dissuasive effect of the many changes on
the user (timetables, networks, fares) and the lack of information about new public transport ser¬
vices, an observation that argues in favour of a long-term assessment of what deregulation has to
contribute once the "teething problems" have been eliminated, although the fact remains that, if
leaving the initiative to operators entails continuous changes, the attractiveness of public transport
might be affected. As matters now stand, operators are trying to streamline their services to cater
more effectively for demand which shows an economic return. This approach, part and parcel of
the concept of enterprise, can only be regarded as positive: it fully illustrates the contribution of
deregulation, namely to introduce innovations mini-buses are a very good example, but men¬
tion may also be made of information technology for marketing and it might be argued that this
dynamism has become essential.
It is, however, more difficult to analyse the situation as regards operations that do not show an
economic return, since local subsidies have been cut and services would seem to have been re¬
stricted, even though total bus-kilometres have increased an increase that may in fact be attrib¬
utable to more frequent services on the busiest routes. Accordingly, since no further information is
available on the United Kingdom's experiment, only two observations of a general nature will be
made: first, the withdrawal of government subsidies to public transport may mean that disadvan¬
taged regions have to finance their own services, which would run counter to the conceptof region¬
al redistribution of wealth; secondly, would it not be better in any case to provide direct assistance
to the individuals concerned or to activities other than public transport rather than maintain costly
and little-used services?

121
 Finally, as far as the efficiency of public transport is concerned, it should be noted that the
policy of decentralisation also gives rise to tangible results.
The analysis of the United States' experience with air transport attempted to answer the ques¬
tions how arising in this connection as regards the possible abuse of market dominating positions
and a fall in the standard of services. It showed that competitive situations are fragile when airlines
of very different sizes are involved and that the synergistic effects of size are found (network effect
and access to this network by means of information). Airline mergers have not, in fact, been wholly
positive for the airlines concerned, so their scope has been limited. However, where concentration
has occurred, it is unlikely that captive customers have found it to their advantage. In this connec¬
tion, Alfred E. Kahn6 has pointed out that it proved to be a total failure to invoke the anti-trust
legislation with respect to these mergers.
Without going as far as that, it would be a pity if the advantages of deregulation the demo¬
cratisation of air transport as a result of many competitive innovations should be obscured or
obstructed in the long term by mergers and acquisitions that could be avoided. An overall process
of concentration in the sector was probably inevitable in view of the initial situation in which the
major airlines already had large shares of the market, without this being in any way prejudicial to
the mechanisms of competition. On the contrary, airline consolidation and acquisitions have cur¬
tailed consumer gains from deregulation at certain points in the air transport network, and such
trends confirm the need for an ongoing assessment of a deregulated sector which, incidentally, nec¬
essarily calls for expenditure for the collection and interpretation of information. It is, in fact, es¬
sential that the public authorities should take steps to put an end to distortions of.the economic phi¬
losophy of deregulation, as has been amply illustrated by computerised systems.
Deregulation as such is not called into question by congestion at airports and in air space
since, if market mechanisms had been operating from the start, the capacity of airports and air traf¬
fic control would have been progressively geared to demand. Regulations slowed down the adjust¬
ments by rigidifying the sector. There are now a great many obstacles to overcome and they are
attributable to the blocking of appropriations, objections for environmental reasons, etc. In the last
analysis, would it not have been better to make gradual adjustments to the regulations so as to have
fully completed the various aspects of the policy adopted? In any event, while in agreement with
the aims, a number of countries have decided to advance step by step, examples from the various
country submissions being Australia, Canada and Spain.
The conclusions that can at present be drawn from Japan 's experience of privatisation of the
railways essentially have policy implications, since the question arises as to whether, by falling
behind in gearing the railways to demand, is there not a risk of finally having to adopt a drastic solu¬
tion, as was precisely the case in Japan? The fact that the railways were overmanned and greatly in
debt evidence of various kinds of errors which sometimes even involved the public authorities
called for a credible solution, i.e. one differing radically from the earlier practices.
The aim of privatisation and the splitting up of the network is to insist on a commercial ap¬
proach an option that is also found in most countries an example of a step-by-step approach
in a very different context being Finland's policy of responding to marketing requirements by
training railway personnel.
The summary of submissions by countries shows the scope of the reforms in hand and how
close they are to deregulation in the economic sense as defined in the introduction to this report. It
is freight transport activities that are mainly involved, but public transport policies are also being
reshaped in many cases, as in Sweden, for example, where there is at one and the same time a gradu¬
al process of deregulation and regional co-ordination of modes of transport. Switzerland's position
is also that of being highly sensitive to the concept of public service by ensuring that users in

122
different areas are treated on an equal footing. In both cases, the dynamic effect of competition is
not ignored but there is some apprehension that regional disparities are thereby increased. It is
pointless to return to the problem of the redistributive effects of public transport subsidies or to the
scope for central government action to produce better results than market forces. On the other
hand, the analysis by Switzerland and by Sweden and indirectly by other countries may be
used as a basis for addressing a remark to advocates of deregulation, namely: if public transport
users are asked to cover their costs and provide an economic return, then road users should also
cover their costs and in particular their external costs. This is the direction of the policy being fol¬
lowed in the United Kingdom. Those in favour of deregulation will add that, in any event, the cost
of adhering to the public service concept has become prohibitive in many cases. To sum up, it is
quite clear that a rational approach had to be found and that deregulation which may perhaps be
only one aspect of a general transport policy has the advantage of stimulating the creativity of
undertakings, thus providing a way out of what is recognised to be a crisis by all concerned.
Freight transport was dealt with in a previous report7, so it did not seem advisable to take the
subject up again. However, among the reforms described by the various countries, that in the Neth¬
erlands is particularly noteworthy. What might be regarded as a new form of government interven¬
tion is found in a liberalised context: the strengthening of the enforcement of the social regulations,
the promotion of business information for undertakings, and an image of the sector for the foreign
market. This approach to transport policy has a particular character insofar as it not only recognises
market forces but seeks to place undertakings in their context by means of multi-purpose action.
Can it not be concluded from these developments in the Netherlands that, there too, deregulation
will not suffice entirely on its own?

NOTES AND REFERENCES

1. Deregulation and Airline Competition, OECD, Paris, 1988.

J.H. Huston and R.V. Botler: "The Effects of Fortress Hubs on Airline Fares and Service: the Early
Returns", Logistics and Transportation Review, Vol. 24, No. 3.
A.E. Kahn: "Surprises from Deregulation", American Economic Review, Vol. 78, No. 2,
May 1988.

Morrison and Winston: The Effects of Airline Deregulation, The Brookings Institution, 1986.
William A. Jordan: "Problems Stemming from Airline Mergers and Acquisitions", Transporta¬
tion Journal, Summer 1988.

ITA Magazine No. 52, November-December 1988.

2. A market is said to be contestable when the threat of entry by potential new competitors has the same
effect as competition itself.

3. William A. Jordan: "Problems Stemming from Airline Mergers and Acquisitions", Transportation
Journal, Summer 1988.

4. ITA Magazine No. 52, November-December 1988.

5. Deregulation and Airline Competition, OECD, Paris, 1988.
6. Former Director of the Civil Aeronautics Board and an advocate of deregulation.

7. Regulatory Reform in the Transport Sector, ECMT, Paris, 1987.

123
SUMMARY OF DISCUSSIONS

125
 SUMMARY

INTRODUCTION 129

1. EFFECTS EXPECTED FROM DEREGULATION 129

2. REGULATION BY MEANS OF MARKET MECHANISMS 131

2.1. Main effects > 131

2.2. Monitoring of markets 133

3. PUBLIC PASSENGER TRANSPORT 134

CONCLUSIONS 136

127
 INTRODUCTION

A number of countries have adopted a new approach to transport policy, essentially in the
form of deregulation. It can, in fact, be seen that systems of regulating the economic aspects of the
transport sector designed with a view to protecting the railways have in many cases contin¬
ued to be applied over a long period even though the context has changed considerably:
As living standards have risen, car ownership rates have increased and this mode of trans¬
port has created considerable mobility and geographic dispersion of activities;
Improved methods of organisation and the increasing volume of international trade have
focused attention on logistical costs in goods distribution. The high quality of service
called for in the freight transport sector is assuming the utmost importance and necessi¬
tates an adjustment of the regulations.
In these circumstances, the relevance of government intervention has been called into ques¬
tion in a number of countries, particularly in the United Kingdom and the United States, but this is
also the case in the European context with the prospect of liberalised markets.
The reasons for this new approach to transport policy instruments are as follows:

The deficits of public transport systems are reaching unacceptably high levels and are
calling for resources that could be put to other uses;
Freight transport does not perhaps have such specific characteristics that it cannot be regu¬
lated by means of market mechanisms like other sectors of economic activity.
Accordingly, it is hardly surprising that a number of countries have taken steps to dispense
with some of the regulations so as to promote more effective competition among operators, and
such steps clearly give rise to the question of the role that government must continue to play. It
would seem that there is likely to be less government intervention in all the many aspects of trans¬
port but more in specific spheres such as protection of the environment, infrastructure, safety, anti¬
trust laws, etc. The existence of national railways also calls for the government to ensure that the
terms of competition are harmonized.

1. EFFECTS EXPECTED FROM DEREGULATION

Irrespective of the country, the grounds given for the regulatory reforms are quite similar: the
systems of price controls and capacity quotas in the road transport sector have not achieved their
objective of protecting the railways. Indeed, in the ECMT countries as a whole, tonne-kilometres
recorded for rail transport fell between 1970 and 1988 whereas lorry traffic doubled. In 1988 the

129
yearly growth rate for road haulage was 7 per cent whereas the figure for the railways was only
3 per cent.

If the initial aim of regulation was to curb the growth of road haulage in order to shift traffic to
rail as a mode of greater benefit to the community the failure is evident. Moreover, the quota
systems and compulsory prices have perverse effects since it is found that:

Different transport operations, which therefore cost different amounts to carry out, may
have the same rate, so the resources are being used inefficiently;

The development specific to each undertaking cannot be taken into account when setting
compulsory rates. If an undertaking has higher productivity, customers cannot benefit
from it and the economic advantage is not enjoyed by the economy as a whole. Account is
not necessarily taken of advances in technology and in the organisation of undertakings
when compulsory rates are set. In any event, the incentive provided by competition is
likely to be reduced or even disappear entirely owing to market inflexibility;

Quotas encourage the use of own-account transport, which does not make the most effi¬
cient use of resources since empty return runs are quite common;

A quota system dees not enable operators to match capacities to requirements, so some
transport operations cannot be carried out as the volume of freight and categories of trans¬
port licence cannot be geared to requirements all the time. Lastly, quotas have an impact
that is unfair within the profession since they protect operators who have licences to the
detriment of those who do not.

On the other hand, it may be feared that deregulation will lead to a flood of services being
offered and therefore overcapacity, small profits and no innovation owing to shortage of funds.
These fears are only partly confirmed by the examples available in freight transport. In the
United Kingdom, prices fell and the quality of services improved in 1969, and this was also the case
in Norway in 1983. The outcome of deregulation is, in fact, very largely determined by the eco¬
nomic context and initial situation.

If the economy as a whole is expanding, the resulting specialisation and diversification of

transport needs provides room for new services on the market. This would not be the case in an
economy in recession, when it is to be feared that a flood of services on offer would only lead to
overcapacity and help to push prices down. Accordingly, the economic context is the key to the
type of effects to be obtained by deregulation of freight transport.

At the time deregulation takes place, the market situation and contestability are of great im¬
portance. If large undertakings already exist on the market, it is to be expected that their economic
weight will increase as was the case with deregulation of civil aviation in the United States
unless the markets are highly contestable. That is, in fact, the case in the road haulage sector where
very little initial capital is required to enter the market. Furthermore, the wide range of require¬
ments to be catered for enable a broad range of operators to find a service which matches their
capabilities.

Deregulation effectively obliges undertakings to reduce their costs owing to the dynamic im¬
pact of competition and also to innovate in order to bring their services more into line with custom¬
er demand. There may therefore be a reduction in own-account transport which limits the effects
of surplus supply and leaves markets for new entrants. This may then lead to a better use of the
sector 's resources and technological capability. In the absence of any effective or potential compe¬
tition, operators do not feel the need to improve the services offered and reduce their production
costs.

130
 2. REGULATION BY MEANS OF MARKET MECHANISMS

The aim of deregulation is to establish a system of regulation by means of market mecha¬

nisms, i.e. the market establishes a price on the basis of which a balance is struck between supply
and demand. Contestability would be involved for services where prices and profits are high and,
by attracting new operators, will push down prices and profits, the latter levelling off at the mean
profit for the economy as a whole. In seeking to reduce the cost of production, operators will bring
in technological innovations and thus help to modernise the economy as a whole. This pattern of
development has been confirmed on many occasions, although usually outside the transport sector
which was subject to stringent regulation.

2.1. Main effects

Deregulation gives rise to a substantial increase in the number of small operators who had
previously been excluded as a result of the licence quota system. If more undertakings cease to
operate, this is also a normal process insofar as these undertakings may have been artificially pro¬
tected by the regulation of the market. Other specialists pointed out that competition on markets
should not be focused too much on price levels, thus proving detrimental to vehicle maintenance
and resulting in non-compliance with safety norms such as those relating to overloading, social
regulations and collective bargaining agreements. The same applies as regards disamenities and
safety where it may be feared that the greater competitiveness of road haulage will strengthen its
position on the market to the detriment of competing modes which are, however, safer and cause
less pollution.
It can therefore be seen that deregulation should result in a free market, but within a frame¬
work of specific conditions geared to the transport sector, since it is not the aim of deregulation to
abolish any order in competition. The State, in fact, takes up its position in a more specific field and
then leaves the actors in the sector completely free. Deregulation will not suffice to ensure the op¬
eration of the markets, but the deregulation of market variables (capacity, price) provides a point of
departure. It must be backed up by controls and action by higher authorities in connection with the
factors governing the general interest.
Regulations with respect to safety in the transport sector must be complied with, thus calling
for a great many controls. In their turn, however, the regulations must evolve to take account of
technological changes or changes in the use of equipment. For example, if the working life of air¬
craft is tending to increase as is now the case inspections have to be stepped up to monitor the
ageing of the aircraft.
There are considerable disparities with respect to compliance with driving times set for road
hauliers, both domestically and at international level. Here, too, all operators should be subject to
the same probability of control and penalties should be sufficiently dissuasive1.

In a study prepared in 1985 and presented at the ECMT's 11th Symposium, F. Van Ouwerkerk came to the conclusion
that: "Drivers still have very long working hours with very short rest periods. They frequently violate regulations(...)
a closer look at the fringes shows that there are still problems." Also, the survey shows that the regulation is enforced
in different ways by different countries.

131
 In addition to the safety risk, there is the problem of the domestic and international harmoni¬
zation of the terms of competition on which driving time has an influence. Where the safety of air
transport is concerned, there are many causes of accidents and the economic aspect is only one of
the possible causes. The specialists consider that the situation as regards the safety of inland trans¬
port can be improved by more stringent requirements for vehicle equipment and by imposing fines
after stepping up enforcement measures.
Another aspect of specific intervention by the State in a deregulated market is both domestic
and international harmonization of the terms ofcompetition. Ifwe are to rely on the self-regulating
market forces to resolve imbalances between supply and demand, transport undertakings must be
treated on an equal footing, especially as regards coverage of infrastructure costs, otherwise the
market will work to the advantage of those undertakings with a low rate of cost coverage to the
detriment of the others, in which case the allocation of resources is not optimal. In practice,
however, it must be recognised that it is difficult to establish a pricing system for infrastructure use
since, aside from covering the cost of infrastructure itself, there is the question of the effects on the
environment as a result of the use of infrastructure. These effects differ in kind and it is no easy
matter to price them:
The impact on the environment consists of noise, vibration, air pollution and pollution of
surface and groundwater, etc.;
The natural and cultural heritage is also affected in many ways such as visual intrusion,
the spoiling of beauty spots, and deterioration of archaeological or historic sites;
The impact on the socio-economic environment in the form of greater accessibility, for
example, which can be to the advantage of the regional economy.
In order to include these various factors in the decision-making process with respect to infra¬
structure use, they have to be priced in terms of costs to the community. It is very difficult to place a
monetary value on some environmental effects, particularly where the sequence of events is com¬
plex, an example being the effects on health. These endeavours to harmonize the intermodal terms
of competition domestically have to be extended to the international level where the burden and
form of taxation have to be comparable in the various countries. Taking these problems as a whole,
governments should establish uniform objectives on the basis of which the market can become
efficient.

It is also to be feared that the international competitiveness of undertakings will be deter¬

mined by differences in levels of training, insofar as those which have acquired logistical tech¬
niques will have an advantage over the others whose role will be confined to that of simply provid¬
ing traction unit services. The problem of empty return runs cannot be satisfactorily resolved if
undertakings cannot adopt a sound commercial approach because they cannot deal with their cus¬
tomers abroad in the language of the country concerned. Governments must keep an eye on the
steps taken by operators to acquire training in logistical techniques. There is at present a need for
training in:
The analysis of logistical requirements and methods;
The study of transport chains, their costs and operating conditions;
The use of information technologies for data acquisition and transmission.
Transport undertakings will, in fact, have to cater for a diversified and specialised demand,
which calls for a training effort by many of those still run on an owner-operator basis.
Another aspect of State intervention on a deregulated market is that of antitrust laws, since it
is to be feared that dominant positions will be established and lead to abuse. This problem has aris¬
en in particular with respect to passenger transport especially following the deregulation of air

132
transport in the United States but may also be found in freight transport where, however, there is
still considerable contestability of markets, essentially because little initial capital is called for to
set up as a carrier. For a long time this facility of access to the activity was seen as a source of insta¬
bility. In fact, small operators are linked up with forwarding agents who have regular customers.
Small and medium-sized transport undertakings can also perform certain tasks that are of no inter¬
est to larger ones and can adapt to cater for customer requirements. In addition, the road haulage
market is growing rapidly so there is room for new services to develop. Where freight transport is
concerned, there is no fear of any excessive concentration of markets in the hands of a few large
operators/forwarding agents. The increased competition leads to lower prices or to innovations
that can, in turn, give rise to fresh demand. Some specialists consider, however, that there may
be surplus capacity in the longer term, particularly in the event of a downturn in the economic
situation.

2.2. Monitoring of markets

The specialists at the Round Table discussed the need to monitor markets and to intervene in
the event of a crisis. Is it necessary to provide for special measures in order to eliminate risks?
Some consider that the government should leave open the possibility of stepping in to restructure or
dismantle capacity in the event of a recession, while at the same time ensuring the necessary capac¬
ity over the longer term. It is, however, difficult to show that the transport sector has specific char¬
acteristics that warrant intervention. In contrast with what has occurred in textiles and steelmak-

ing, for example, the transport sector dees not import products from third countries or involve
technological changes that could give rise to an on-going crisis.
Nevertheless, some specialists think that deregulation creates unease among carriers and that
a monitoring system would provide better knowledge about markets. If the government is to carry
out its functions, statistics must be improved. Given the increase in traffic, infrastructure conges¬
tion and environmental problems, data on the transport market are an aid to decision-making. Ac¬
cordingly, a process of deregulation cannot be accepted without a system of monitoring markets
which will ensure that they are transparent.

In many cases, however, the information available is too general to be used by carriers, so it is
to be feared that the establishment of a system of managing a possible crisis may have perverse
effects: undertakings would invest too much on the assumption that they would be helped out by
the government in the event of a crisis. The result here would therefore be the opposite of that
sought. Irrespective of the information supplied, the decisions remain the responsibility of the un¬
dertakings and the government cannot take their place simply by providing an information system.
Any operator who invests in equipment expects an economic return on it over the longer term.
In many cases the information provided by monitoring systems is too general and such information
cannot be used by the small carrier. Information on costs, prices and profits cannot be used if they
are too global and are not representative of the different categories of transport undertaking. Such
information can therefore produce results that are far from what was expected: the reactions of the
undertakings will not be uniform. It is found, moreover, that when prices are regulated the prices
actually obtaining are already below the minimum reference rate. It is therefore difficult to ensure
that State intervention is effective. Accordingly, what is to be feared is that a lessening of the risk to
the undertaking will lead to overcapacity owing to inadequate information.
By and large, the monitoring of competition would seem to be a difficult matter. It calls for
data on transport capacities of undertakings, on the use made of them and on costs and prices. Data

133
on the structure of the sector in the form of typological analyses are required in order to classify
undertakings and the specific characteristics of markets. Even if all these data were to be compiled,
it would be difficult to determine trends that curb competition or abuses of dominant positions,
since a large undertaking may well achieve economies of scale which have positive results for cus¬
tomers, while the grouping or merging of undertakings may have desirable consequences. There
are, in fact, no unimpeachable criteria whereby mergers, acquisitions or agreements can be pre¬
vented. It would be risky for the State to withdraw entirely. In the last analysis* what is required is a
more sophisticated approach by government, and the experience gained in other sectors of eco¬
nomic life may be turned to advantage for this purpose.
A problem also arises in connection with infrastructure insofar as the lack of investment in
recent years may lead to saturation of the trunk routes of European importance. But government
policy must remain neutral as regards infrastructure and should tend to cater for mobility where
demand is high, which tends to be in the road transport sector. This situation results from the fact
that the cost of using roads is covered only in part. The non-integration of external effects entails
costs for the economy as a whole which are not taken into account in individual economic deci¬
sions. It is therefore necessary to take account of the external benefits of the different modes when
selecting investment projects. The same criteria may be used to allocate subsidies. A whole range
of criteria do, in fact, have to be taken into account to be seen in the overall context, but this is not
done automatically by the market. Infrastructures contribute to regional development, for exam¬
ple, and it is one of the functions of government to ensure that disparities in regional development
are reduced, even if the supply of capital is not directed towards this type of investment.

3. PUBLIC PASSENGER TRANSPORT

Where passenger transport is concerned, the main issue is whether decentralised decision¬
making is more efficient than co-ordination for the purpose of organising a coherent transport net¬
work which has appropriate connections, an integrated fares system and passenger information
services.

Current practices in the various countries may be compared. For example, the policy in Swit¬
zerland and Germany is to take the following as the point of departure: over the longer term, the
drift of the rural population towards urban centres generates social and economic costs bound up
with urban congestion and unemployment in rural areas. A transport system with many feeder ser¬
vices maintains intra- and extra-regional accessibility for various social and economic activities.
With a deregulated system it is to be feared that operators will focus on the most profitable services,
i.e. the main routes, to the detriment of cross-subsidisation to promote services that do not show an
economic return.

In 1980, the deregulation of long-distance express services in the United Kingdom resulted
in a substantial and lasting reduction in fares, sometimes by as much as 40 per cent. Luxury motor
coaches were introduced under the pressure of competition, services were differentiated and a
broader range of options were offered to users. It would seem that safety standards were not af¬
fected by deregulation, and safety controls even tended to be stepped up.
In some cases it was also found that some of the new motor coach users had switched from

British Rail, while at the same time new types of journey were being generated. British rail has
changed its fares structure and has extended these changes to almost all the major lines. Much of

134
the competition has been seen on the links with London. It is also noted that National Express, one
of the major undertakings on the market, has managed to increase its patronage essentially by
means of competing with British Rail without any sign of abuse of a dominant position. On the
other hand, where secondary routes or intermediate stops are concerned, the restructuring of ser¬
vices has reduced the number of areas with good access to inter-city transport. For these areas,
however, the local authorities are entitled to subsidise the introduction or maintenance of services
considered to be indispensable. In this respect, deregulation and decentralisation are quite similar
since, in the latter case, the relations between transport operators and public authorities are of a
contractual type with specific objectives. The responsibilities of each can be specified within the
contractual framework in the form of an initial invitation to tender which will be reviewed when the

contract expires.
As regards local bus transport in the United Kingdom, which was deregulated under the 1985
Transport Act, local authorities have a role to play by means of the provision of subsidies for ser¬
vices which are not offered by operators on a commercial basis. It may be noted that transport sub¬
sidies have diminished and that the number of services has not been reduced in rural areas in partic¬
ular. The fall in subsidies in urban areas was followed by a reduction in services. Competition
operated on an uneven basis, being keen in some cases but not uniformly so in all regions. Services
were initially found to be irregular or did not keep to the timetables issued. The tendency to change
services is continuing so there is a problem of standard of service and user information. There was a
very sharp fall in patronage owing to this instability of services and, accordingly, the lack of infor¬
mation on services offered. The local authorities themselves have difficulty in administering the
supply of transport services: the distinction between commercial services and those that must be
subsidised is not always clearcut. Parts of a route might be profitable, if not the services on it as a
whole. It is then difficult to harmonize the whole, accurately determining the services to be pro¬
vided and ensuring that services are complementary. Moreover, the cost of administering the mon¬
itoring of services is higher than had initially been thought.
As regards the contestability of services, it has been established that the incumbent operators
had an advantage owing to their size and the availability of infrastructure for receiving passengers
and vehicles. Competition from new entrants is not therefore systematically effective and pro¬
duces different results from one region to another. It has become more difficult for local authorities
to pursue a specific public transport policy since most of the decisions are determined by the mar¬
ket. For example, a special fares policy providing a single structure for all services often seems
difficult if not impossible to establish since the choices are made freely by the transport un¬
dertakings.

The specialists at the Round Table wondered whether the most realistic solution might not be
to decentralise decision-making in the form of contracts between regional authorities and transport
operators, which would oblige the operators to improve their services to comply with the terms of
the contract but without involving any risk of fragmentation of services, as sometimes occurs with
deregulation of local services. Contractual arrangements may also be used to avoid any abuse re¬
sulting from a dominant position on the market, a product of the concentration that may occur in a
deregulated sector. Thus, the pertinence of deregulating local services is at present open to ques¬
tion, in contrast with the deregulation of inter-regional services.

135
 CONCLUSIONS

The public authorities deregulate with a view to having services regulated by market mecha¬
nisms and expect to derive a number of benefits: lower prices, the dynamics of innovation in the
competitive context, and a reduction in production costs and subsidies to public transport.
These benefits notwithstanding, it is necessary to take steps to prevent unwanted develop¬
ments: failure to take account of effects on the environment, a biased infrastructure policy, concen¬
tration in the branch, impact on safety.
It is pointless to worry about the risks of concentration if the markets are contestable, as is the
case in freight and long-distance passenger transport. Access to the international market poses
another problem: harmonization of the terms of intra- and inter-modal competition must be
achieved to ensure that the market is neutral and that the decisions of the economic agents are taken
on the basis of real costs.

It is, in fact, necessary to create global transport markets by pricing the use of infrastructure in
such a way as to take account of the external effects and indicate the need for infrastructure where
this need is real. The role of government is, however, to anticipate the needs by proposing an alter¬
native solution to the use, for example, of the private car, as has occurred in France in the form of the
TGV. Safety considerations and the control of disamenities are taken into account when choices
are presented in this way.

The choice of infrastructure cannot be left solely to market forces, i.e. the demand arising on
the market. Infrastructures contribute to regional development, which is a matter for government
policy since a number of factors are involved and must be evaluated and placed in their context.
This the market cannot do. The government must accordingly ensure that the action taken is co¬
herent, but it must also avoid the pitfall of giving a political character to the decisions. The trans¬
port undertakings must be left free to decide on their manning levels, means of production and
products to be offered.
The government should create the framework conditions, as it were, in which market mecha¬
nisms can operate. Some specialists consider that a transitional period should be provided for com¬
ing to terms with competition in which the undertakings can find out whether to invest or not, re¬
main in a specialised market segment, etc.

Those opposed to deregulation have not managed to demonstrate the relevance of their argu¬
ments with respect to the failure of competition. It is, in fact, difficult to prove that the transport
sector has specific characteristics which warrant intervention. In the known examples of deregula¬
tion of freight transport there has been no disruption as a result. The markets would, in fact, seem to
be contestable. The situation is more delicate in the case of passenger transport. As regards deregu¬
lation of inter-city services, no mention is made of negative trends, whereas the outcome with
respect to local services would seem to be instability and loss of patronage.
Lastly, as regards management of the sector in the event of a general economic crisis, it is by
no means sure that measures planned and announced in advance will prove effective. They may, in
fact, blunt the perception of risk during a period of prosperity and therefore be conducive to wrong
decisions on the part of transport undertakings.
Deregulation programmes are always accompanied by more stringent regulations with
respect to safety. Similarly, efforts should be made to incorporate external effects in the costs of
transport undertakings so as to establish transport markets which no longer focus essentially on
direct costs.

136
 LIST OF PARTICIPANTS

Professor Dr. Rainer WILLEKE Chairman

Institut fiir Verkehrswissenschaft an der
Universitat zu Koln

Universitatsstrasse, 22
D-5000 KOLN 41

Professor Dr. Herbert BAUM Rapporteur

Department of Economics
Fachbereich 5
Universitat Gesamthochschule Essen
Postfach 103 764
D-4300 ESSEN 1

Dr. Michel VIOLLAND Rapporteur

Administrator

Economic Research & Documentation Division

ECMT

19, rue de Franqueville

F-75775 PARIS CEDEX 16

Professor Bjorn ANDERSEN

More og Romsdal College
P.O. Box 308
N-6401 MOLDE

Dr. Sean BARRETT

Economics Department
Trinity College
IRL-DUBLIN 2

Professor Brian T. BAYLISS

Director

Centre for European Industrial Studies (CEIS)

University of Bath
Claverton Down

GB-BATH BA2 7AY

137
M. Gaston BESSAY

Vice-President du Conseil National

des Transports
Observatoire Economique et Statistique
des Transports
55-57, rue Brillat-Savarin
F-75013 PARIS

Professor A. Yucel CANDEMIR

Professor of Economics
Istanbul Teknik Universitesi
Isletme Faktiltesi

Magka
TR-80680 ISTANBUL

Mr. John DODGSON

Senior Lecturer

Department of Economics and

Accounting
University of Liverpool
P.O. Box 147

GB-LIVERPOOL L69 3BX

M. Driss LASFAR Observer

Chef de la Division des Etudes

et Programmes
Direction des Etudes, de la Planification
et de la Coordination des Transports
Ministere des Transports
B.P. 759

MA-RABAT-Agdal

Mr. Torkil ERIKSEN

Chief of Section

Ministry of Transport
Frederiksholms Kanal 27
DK-1220 COPENHAGEN K

Dr. Bernard GERARDIN

Directeur des Programmes

Institut National de Recherche sur les

Transports et leur Securite (INRETS)

2, avenue du General Malleret-Joinville
B.P. 34

F-94114 ARCUEIL CEDEX

138
Professor Dr. Walter HAMM

Universitat Marburg
Universitatsstrasse 24
D-3550 MARBURG

Mr. Frits C. HOENDERMIS

Head of Road Transport Division

Ministry of Transport and Public Works
Directorate General of Transport
Postbus 20901

NL-2500 EX s'GRAVENHAGE (Pays-Bas)

Mr. George JOANNIDIS

Chief Transportation Planner
Organisation for Planning and
Environmental Protection in Thessaloniki

4, Agelaki Str.
1GR-54636 THESSALONIKI

Dr. Helmut LEHMACHER Observer

Economic Affairs Officer

Transport Division
United Nations Economic Commission

for Europe
Palais des Nations

CH-1211 GENEVE 10

M. Marcel MAGDALEIJNS
Directeur General au
Ministere des Communications

Services Generaux

104, rue d'Arlon

B-1040 BRUXELLES

Mr. Jose MIRA

Economiste

Avenida Bruselas, 76
E-28028 MADRID

M. le Professeur Fernand ROGIERS

Rijksuniversiteit-Gent
Seminarie voor Economische

en Sociale Leerstelsels

Hoveniersberg, 4
B-9000 GENT

139
M. Jacques ROGISSART
Assistant du Directeur General

pour les Affaires Internationales

Services Generaux de la SNCB

85, rue de France

B-1070 BRUXELLES

Professor Dr. Alexander VAN DER BELLEN

Institut fur Wirtschaftswissenschaften
der Universitat Wien

Liechtensteinstrasse, 13
A-1090 WIEN

Mrs. Elisabeth LACEY Observer

Administrator

Directorate for Financial and Fiscal Affairs

OECD

2, rue Andr6 Pascal

F-75775 PARIS CEDEX 16

ECMT Secretariat

Dr. Jan C. TERLOUW Secretary-General

Dr. Gerhard AURBACH Deputy Secretary-General

Economic Research & Documentation Division

Dr. Arthur DE WAELE Head of Division

Mrs. Julie PAILLIEZ Assistant

140
 ECMT

ECONOMIC RESEARCH CENTRE

FORTHCOMING PUBLICATIONS

Round Table 84: Deregulation of freight transport: scope and impacts on modes

Round Table 85: Transport and spatial distribution of activities (The case of new infra¬
structures: the Channel Tunnel and its links to high speed lines)

Round Table 86: Methodology for the evaluation and the choice of investment in trans¬
port infrastructure

International Seminar on:

Development Prospects for European Transport between East and West

141
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(7S90091)1SBN92-«21-1151-2-No.45325 1991
 A number of countries have been deregulating transport
services, both freight and passengers, their aim being to
improve the economic efficiency of the sector. The grounds
for this are sound and supported by empirical data: analysis
and opinion are converging in support of the philosophy of
deregulation. Nonetheless, government has a role to play in a
deregulated market, since the deregulation process will never
be all encompassing. Round Table 83 seeks to define this role
in a number of fields safety, anti-trust legislation, market
access conditions and takes stock of the experiences
acquired in some countries.

(75 90 09 1) ISBN 92-821-1151-2 FF 135