Managerialism and Civil Service

I have a pretty concrete institutional theory for why the United States, and to some extent the rest of the Anglosphere, lags in infrastructure. It mostly fits the available evidence, but “mostly” and “available” are the operative words, and I don’t want to expound on it too much before doing more interviews to contrast American infrastructure planning with Continental European and democratic Asian examples, to see if there’s basis to what I’m saying.

But one piece of the theory is worth talking about early: the concept of managerialism. The relevance to infrastructure is roughly the following set of propositions that constitute this theory as applied to public policy:

  • Big outfits should be run by professional managers, who should be trained primarily in management and not in a specific industry; it is acceptable and even desirable for a CEO to bounce between different industries. A successful founder or manager in one field should be presumed capable of quickly acquiring expertise in another field if they move to a new industry.
  • Domain knowledge is suspect, because the people who hold it are self-interested – in public policy this relates to public choice theory. At best, domain knowledge means you get to work for a manager.
  • Managers should set up the right incentives to force underlings with domain knowledge to innovate, and do not need to acquire detailed domain knowledge themselves. For example, they should set up objective metrics to evaluate employees by rather than have close enough relationships with the employees to know intuitively who to promote.
  • The recruitment pipeline for the managers should combine a set of institutions producing a single elite (Oxbridge, Ivy League) with a proof-of-pudding system measuring success by earned wealth.

The upshot is that if you don’t trust any of your workers (public choice theory, again) and do trust the managerial elite to be able to run all industries equally, then you can just do whatever you want and blame the inevitable failure on the workers being too stupid or incompetent.

Note that even though this is often an anti-government theory of how to run public-sector agencies, it is as written politically neutral, and even used by leaders on the left. Politicians of all stripes appoint people with the wrong skillset to run public agencies, preferring political appointees (who in both the US and UK come from the same institutions as the private-sector managerial elite) to career professionals. Career professionals may be too politically independent and have long-term plans that are not compatible with self-aggrandizing schemes to build visible infrastructure that a politician can claim full credit for.

Note also that even though the full set of propositions I associate with managerialism comes from the English-speaking world, segments of it can be found elsewhere. France, for example, has a Grande Ecole-educated elite that views itself as omnicompetent. It differs from the Anglo-American model somewhat in that the institution that produces engineering executives (Polytéchnique) are not the same as the one that produces politicians (ENA), and a a lot in that bouncing between industries is narrower, so that SNCF is run by airline executives without experience in railways rather than by industrialists and financiers without experience in transportation.

I make no claim about whether managerialism works in other spheres, like general business. That said, in the fastest-growing high-end segment of the American economy, tech, the business culture is very different: everyone, including management, is expected to know how to code; managers are recruited from among experienced programmers; the culture regards external managers much less than it does coder-founders like Larry Page, Sergey Brin, or Mark Zuckerberg, to the point that most people in tech and tech media regard Microsoft’s stagnation in the 2000s as the fault of the transition from founder Bill Gates to the more managerial Steve Ballmer.

But in the public sector, at least in infrastructure, managerialism has not succeeded. Any of the following reasons may be relevant to the failure of turnaround experts, political appointees, private-sector CEOs, and other non-industry professionals to improve American public transportation.

  • American business culture assumes that the same methods work regardless of scale. Public transit is scale-dependent, which fries a lot of common private-sector assumptions. Most importantly, starting small is not always possible, especially in trains. Managers who are used to starting small end up deemphasizing the most productive parts of public transportation, like rail operations, in favor of things that can be done incrementally, like bus lanes.
  • American culture is generally closed to foreign knowledge. It is also pragmatic and anti-theoretical, viewing foreign knowledge as a kind of theory that must be tested at very small scale before being applied widely; one American big-city transit manager denigrated international cost comparisons as “Paris or something.” The difference between managers and industry professionals is that some of the latter understand that public transportation works better in Europe and East Asia and try to learn, whereas managers see nothing to learn in countries with living standards that are (on average) comparable to the US’s or (for senior managers) much lower.
  • Public transportation has a lot of moving parts that have to be planned together – timetable, infrastructure, equipment, and more broadly also development. Even within operations, there are different departments that affect one another closely, like dispatching and actual operations. This makes typical responses to bad news, like a hiring freeze, atrocious, because an overstaffed agency may have one understaffed department creating too much work for everyone else; only an experienced transportation professional would know to fix the problem department by hiring more people even in a bad economy in order to increase productivity elsewhere.
  • Infrastructure has very long time horizons. Agency heads have to think on the scale of decades, not quarterly earnings calls with the shareholders.
  • Competition is destructive. The real competition is cars, and not other modes of public transportation. Competitive private businesses generally understand coordination (“synergy” was a much-mocked buzzword in the 1990s and 2000s), but less deeply than researchers with familiarity with the situation of multimodal public transportation.

What this means is that the penchant of so many American politicians to hire outsiders to the field is not part of the solution to the problem of failing transit agencies, but rather part of the problem. Success comes from hiring people who are experienced in the field, and if the agency bureaucracy seems too inflexible, then hiring from other countries. There’s a reason Andy Byford, a career transportation planner with experience in London and Toronto, was such a hit success in New York – and there’s a reason this success involved developing much greater levels of mutual trust between management and the workers. In contrast, a string of people whose background is in a culture that treats everything as an American business to be turned around with tough management does not produce good results – rather, such leaders create problems that justify their own continued existence, blaming their own failures on the people below them.


  1. Henry Miller

    Sounds much like the thesis of James Collins who wrote several business books on the subject. One thing he has found via studies is that great leaders tend to be promoted from within. Other business books I’ve read have similar themes, CEOs who know the business because they started as an engineer at the company and transferred to the management track. The right people are important, but right people are everywhere. They just need to be able to get the job done over the years.

    I think the only place you would disagree is he praises starting small and growing what works.

    I recommend that you check out his books. I don’t know if they have accedemic rigor, but they are influencal in the business world.

  2. fjod

    I’m really not sure you’re on the money with managerialism and political appointment in the UK civil service. If anything, the UK has notably less political appointment than other democracies – see for example this report. Politicians by and large don’t appoint public sector leaders, and most senior civil servants have spent their whole careers in the civil service. The only issue is that there’s bouncing around within the central civil service, so people who started off in one area or department often find themselves in another field by the time they become a manager – but as you say, this happens in France too. Note how I said the central civil service there: this isn’t an issue with government agencies and quangoes like TfL, which usually promote from within (or from equivalent/similar bodies). There’s a small tendency to have one or two ‘political’ appointments in mayoral offices (e.g. Chris Boardman), but British mayors are fairly toothless, at least outside London.

    • RossB

      Yeah, it is really a variation on a theme. What you want — in any organization — is a leader who understands the domain, and values domain expertise in every employee. It is easy to see how this fundamental principle of success can fall apart in various ways. Someone might know their way around the government bureaucracy (which is important) but know nothing about the domain. If the head of public transportation spent twenty years in the health department, there is going to be a learning curve. If they ignore the importance of domain knowledge — and take the same “business is business” approach that is common now in private industry — the organization will suffer. In that case, the government experience is only of marginal value. The four bullet point items that Alon wrote up above apply can be applied to a public institution without actually involving any private industry (although it is highly likely they will hire some private consultants along the way).

      • fjod

        Well, bullet points 2 and 3 (and maybe the first half of 4) are acknowledged criticisms of the UK central civil service’s managerial culture – but that’s the only real aspect of the post that’s applicable to the UK’s situation (and as Alon notes, it has parallels to the situation in France). The first bullet point isn’t the case: most senior civil servants did not start as managers. Overall the UK civil service looks a lot more like the French one (with higher staff turnover) than like the American one. It is also nothing like the situation in the UK’s private sector, which does have strong managerialism and appointees from outside the field in the way that the post describes.

        Furthermore, the four bullets are not really a valid criticism of government agencies like TfL or Network Rail (which are separate from, but often under the broad oversight of, ministerial departments). These bodies mostly promote from within the specific part of public transport they work in, often/usually from within the organisation. And the parts about political appointees are not applicable to the UK, which does less of this than other countries.

        • Alon Levy

          Yeah, the British situation is closer to the American one in the private sector than in the public sector, as I understand it (and this is an impression I get from people in consulting and from looking at the origin stories of politicians). However, political denigration of scientific experts is common in British media, and at least since Thatcher there has been a trend of outsourcing some state functions to PPPs, so the planning is done by private-sector bodies with private-sector ideas of management.

          • fjod

            Yep, outsourcing is at the root of a lot of public-sector failure in the UK as I understand it, and the outsourcing companies routinely mess up even relatively simple tasks. Over-centralised bureaucracy and the lack of continuity between governments probably explain much of the rest.

        • michaelrjames

          I think you’re missing something critical, and which must be a significant difference between the UK and France, even as one grapples to precisely define it. Of course, most institutions like (former) BR, TfL and Network Rail retain(ed) plenty of people with career experience in the relevant specialities. But it is the management and/or political management at the top that causes all the problems. Network Rail is a good example in that the great railway privatisations put both the retail level and network under the mercies of pure managerialists whom the neo-liberal philosophers of the day (’90s, first Conservatives then Blairite Nu-Labour) were convinced would run it so much more efficiently and with less government subsidy. Oops, they were an utter disaster, particularly with the network (the real guts of a rail system, the rails, signalling, maintenance & upgrading) where it got so bad and so dangerous that the government was forced to renationalise it. The rail operating franchises are little better (and are falling back into government ownership by default as their franchise expires) except that, like good managerialists they proved adept at gouging the public, their own workers and at reaping government subsidies that turned out to be higher under private ownership than even under public control!

          Much has been written about the similarities, and culpability, of the UK’s PPE (Philosophy, Politics & Economics degree at Oxford) and France’s ENA (École nationale d’administration). I have commented on this before here. Great numbers of senior civil servants and the political class, including plenty of PMs and Presidents come from that background, including the current president but curiously not Boris (pure philosophy from Balliol, perhaps not so different) nor Maggie or Blair. They both get accused of being an out-of-touch elite, and often “technical elite” which is manifestly true while at the same time being an unrealistic simplification. Most would agree that it makes sense to have technical “elites” (those at the peak of their professions) to be making decisions; or like the maxim goes, do you want the guy blathering at your local bar doing your brain surgery or the elite neurosurgeon (the elite of elite of all medicine)?

          So FWIW, I suspect the real difference is the emphasis on outcomes. At some point, probably beginning with Thatcherism though doubtless long-nurtured, those PPE elites, unlike the Enarques, put almost all the emphasis on financial performance rather than any other practical outcome, even above national interest–ie. prioritising the benefit of the financial elite of the UK. This is easily reinforced by the toxic British class system while the French system is parsed more on meritocracy than mere accident of birth like the Brits. Macron had a perfectly good origin but something the Alexander Boris de Pfeffel Johnson’s would sneer at: provincial doctors. Then reinforced by Eton for which there is no French equivalent. Macron did his last year of high-school (shuffled from the provinces because of his infatuation with his teacher, his future wife) at the even-more illustrious Lycée Henri IV, one of the world’s oldest public schools (founded 506, made public in 1796) and with a rollcall of presidents, prime ministers, writers, philosophers and engineers (including the UK’s greatest, Isambard Kingdom Brunel). Both schools are similar in being prep schools to feed into Oxbridge and the Grands Ecoles, but somehow these French elites, or most of them, don’t lose sight of their primary function: the people and their nation. The elites of the UK put that stuff second after maintenance of their personal position in their class which means maintenance of that class system which, again, you need to realise is only loosely related to merit. Other than sharing Eton (2 of 3) and Oxford (3 of 3) and an Oxford PPE (2 of 3), does anyone really believe the three most recent British PMs are truly the technical elite of their eras; it brings to mind a common insult that has the ring of truth: Oxymoron is a moron from Oxford. Trioxymoron is three Oxford morons in a row as PM.
          [Cameron, May, … Boris Johnson]

          As these elites and their long pedigrees have long disdained true technical elitism (ie. genuine professionalism) they have systematically allowed manufacturing and even basics such as education, health and infrastructure to fall into disrepair, and so come to rely almost entirely upon financialisation to fund the country. It is inherently elitist of the worst kind, ie. not technical nor meritocratic but overwhelmingly dependent on birth-context and pre-existing wealth, and the wealth it creates is inherently grotesquely funneled to a tiny elite at the very apex. It is also ultimately unsustainable, and I think the last two decades is proof. The Americans have taken the same route (financialisation to the sacrifice of everything else, health, education, infrastructure), via the same mechanisms (elite ivy league universities to which access is mostly money- and privilege-based, plus laissez-faire finance industry). Sincerely I don’t believe one can point the finger at the French elites in the same manner–though the Anglosphere (and some of the French too) attempt to smear them in the same way. Most of the insults (neoliberal puppet) aimed at Macron are just silly, and it is obvious that he is motivated by very different things to Boris or Trump (or any politician in the Anglosphere: I give you Australian PMs Tony Abbot and Malcolm Turnbull, both Oxford Rhodes PPEs!). Just look at the different responses to coronavirus of Macron versus Boris or Trump.

          As I wrote here just last week, managerialism is simply the executive tool of neoliberalism. To ensure there is no deviation from the true path, and that only true-believers are in the positions with real power over institutions, and who are appropriately rewarded (which in the UK means a life peerage; just take a look at the top managers of HS2 and CrossRail for a perfect exemplaire; the current guy is pure plebian actual technical elite–the first who is not Lord or Sir–who they eventually turned to as disaster threatened, but come back in a few more years and see if he isn’t ennobled). All my time living and working in France, I can’t say I experienced managerialism (one shouldn’t confuse this with institutional froideur or even incompetence) but by the time I returned to the UK (mid-90s) it was rife even within academia and research (yes, at Oxford!). Decisions are made and then enforced ruthlessly top-down, that make no sense at all, and no mechanism of correction is available which of course is its design intent.

          • Herbert

            No French system since 1789 has lasted longer than 70 years (that’d be the much maligned third republic 1870-1940). And the ends of political systems in France tend to get rather… Messy… For those at the top…

          • michaelrjames

            Et alors?

            Seriously, you could be confirming my position re term limits for everything. Merkel is 2 terms beyond what the country or the EU could or should have had to bear. PMs in the Westminster system should not be granted magical exemption from this rule that is so clearly seen as important in almost every other system. Did you see that the new report on institutional reform in the US has recommended term limits to SCOTUS, like 2 centuries too late. As good as he may be, I think it is ridiculous that Anthony Fauci is still director of NIAID–since he was 13 years old; actually since 33 in 1984 which is almost as shocking (his (only) marriage is younger than his directorship).
            Both PPE and ENA were created to overcome perceived deficiencies and stasis in the administrative class. Perhaps both are due for reform? Certainly you know my position on the British political system which beyond repair and needs not just another superficial renovation (like Parl house seems to get every few decades; I’m sure it had a multi-billion makeover when I lived there but it’s happening all over again) but a total demolition and new-build. Once I had bought into the line that the continuity and peaceful transitions in UK politics was a wonderful sign of superiority and success, but now I believe it is the exact opposite. Anyone who thinks that has already given themselves a Darwin Award because (putting on my geneticists hat on) as the great man said: It is not the strongest of the species that survive, nor the most intelligent, but the ones most responsive to change. We are yet to see if Macron’s changes, eg. to bring 50% gender representation, plus >50% non-political backgrounds to the Assembly, will have long term benefits, but I do think it is inevitable and his demolition of the major old parties might be worthy of being labelled the 6th republic?

          • Alon Levy

            The 50% non-political background in the Assembly is a bad thing and is Macron’s biggest political error. The LREM legislators are society notables who are used to giving rather than taking orders, which means that if something is unpopular but necessary – say, increasing the diesel tax, or reforming retirement age to be in line with the rest of Europe – they get cold feet, meet rioters who yell “Macron en prison,” nitpick the cabinet’s proposals, etc., and then the agenda does not pass. They get to think “if I’d been in charge I could have totally passed the diesel tax and not been the subject of a white supremacist riot” because they’re inexperienced in politics and think their success in business, academia, etc. could paper that over. One of these people ended up running an insurgent campaign for mayor of Paris in opposition to both Hidalgo and LREM’s official candidate.

          • michaelrjames

            Well, yes, I predicted (perhaps on this blog?) there would be some of that. Also, with so many LREM deputies of such diversity and so many novices, ultimately it would not be contained within the one party, though I hedged and continue to hedge my bet as to whether that happens in the first term (probably not). That would not necessarily be a bad thing though what is really required is a change in their electoral system to better cope with such diversity–there is some momentum for that but changing such things is extremely fraught. Macron seems to be heading down the Citizens Assembly route.
            However I certainly don’t think Macron did this novice politician thing as an error as it was a necessary step change in gender, professions, ethnic and age diversity. Of course he is one himself. I think you exaggerate its negative impact, especially in this term in which Macron’s majority is not vulnerable. Some have even suggested it was a dastardly plot because it puts running the country even more in the grip of Enarques (the deep state!).

            You’ve always had a bit of a bee in your bonnet about that diesel tax which is not so important in the scheme of things, not even in matters green. The €0.065 a litre increase was a 4.3% increase on the €1.50 average which compares to the world av. of €1.28; thus with or without the increase the French already pay more than most others. (I don’t think there’s much fat to trim in France on fuel use, ie. without other cost, indeed as we saw politically.) In the 12 months prior to the increased tax the price of fuel had increased 23% (due to world oil prices) so it was a bit insensitive (even if GJ used it as a pretext). There are far more important things to do than fiddle with already high fuel taxes. For example, the new goal of increasing SNCF freight tonnage from 18% (close to EU average). Also I’ve never quite understood why France didn’t take a major initiative toward e-cars given their nuclear power grid (and major “free” excess power overnight).

          • Alon Levy

            The issue with the diesel tax is that European countries still tax diesel less than petrol, which incentivizes its use even though it’s more polluting. Macron’s change was about taxing diesel more than petrol in addition to taxing both more.

            And France does have a major initiative toward electric cars. The white supremacists don’t like them, because they like polluting to own the libs.

          • michaelrjames

            (diesel) it’s more polluting

            For NOx and particulates, but it’s lower carbon because of its higher energy density and more complete burn–and the paradox is that it produces more NOx because of the higher temp + pressure burn (which is why nothing can be done about it).
            The problem is that farmers everywhere (certainly in Oz) get subsidies for it and kick up a big stink if any politician threatens to do anything about it. In Australia it has become a $8bn giveaway, mostly due to Howard using it as an electoral bribe. From farming it spreads to everywhere rural.

            Re e-cars, I’m not talking of the usual incentive schemes. Or even Macron’s new support, via Nissan-Renault, announced just a fortnight ago. I mean something serious over the last two, or at least past, decade. Along the lines of earlier grands projets like nuclear energy, TGV, RER, Concorde, Airbus etc.

          • Alon Levy

            It’s not lower-carbon per unit of useful work – diesel has higher energy density than petrol, so you get more kilometers driven per liter, but ultimately it emits about the same amount of CO2 per km driven.

            And Macron has been planning on a massive scheme of charging stations all over French highways since before the riots.

          • michaelrjames

            And Macron has been planning on a massive scheme of charging stations all over French highways since before the riots.

            Sometimes your response indicates to me a disconnect with what I wrote, but I think some of this is my fault because I perhaps make too many assumptions, because we are several generations apart. In this instance, what I was referring to was the lack of a transformative plan of action by successive French governments pre-Macron–mostly the period of Chirac-Sarkozy-Hollande. One thing I like about the French, and what the Anglosphere often sneers at, is how they love Grands Projets. But the impressive thing is how they don’t piss around once having decided on an action plan, while this political and institutional prevarication and paralysis is exactly what I came to loathe in both the UK and Australia. That list of big things the French have done were not concepts created by them or even necessarily innovative, but the important thing is that they followed through and quickly. As I’ve said many times, the Brits will hold an enquiry that will take longer than the thing itself–often so much time elapses that they are forced to have a second enquiry. This is the origin of the maxim that sometimes even doing the wrong–or less than perfect–thing is better than doing nothing.

            On this topic–weaning transport off fossil fuels–I think Macron is correct, but my main point would be that this particular action didn’t need any innovation, which is to say that it could have been done 20 years ago, certainly a decade ago. One point is that if you have convenient, really reliable and relatively fast charging of EV then you don’t need to have as big a battery (which means even battery tech of a decade or so back would have been adequate, especially for intra-urban travel). And it is something that only central government can do. Likewise, France is one of the very few countries to have an excess of electric grid power and, as I have argued elsewhere, this is the only thing that will allow development of any kind of hydrogen economy. Otherwise it must take that power away from something else, and its inefficiencies remain hugely uneconomic and impractical, even with government subsidy. Here in Oz there is silly talk about the hydrogen future driven by our abundant solar but solar power output is fully accounted for, and would require massive further build until there was enough to power hydrogen creation (without even dealing with the storage and distribution problems). But France has had it for 5 decades, such that it is the only nuclear nation in the world to ramp its nuclear generators down overnight (engineers don’t like to have nuclear generators load-follow but France has way too much excess nuke power at night to just ignore or dump, a consequence of >75% the grid being nuclear).

            I’m sure there is a relationship between the aversion of this kind of thinking and managerialism. The Brits, especially conservative politicians, have a serious disdain for French big project thinking. Not only is it almost entirely a government driven and funded activity (=taxes) but it entails big risk and is the source of modern NIMTOO* government, and equally, outsourcing (along with the risk … they hope).

            *Not In My Term Of Office.

          • Herbert

            I mean Melenchon openly campaigned for a “Sixth Republic”… Generally French Republics are like Star Trek movies – odd numbered ones are better…

            Still, I do not think it is certain that the Fifth Republic will get to celebrate its seventieth birthday…

  3. Eric2

    Are you sure that managerialism is the norm in the US outside of “tech” (aka computer hardware/software)? Looking at DJIA companies that focus on manufacturing (excluding “tech”), it appears that a majority of them have engineers as CEOs.

      • Herbert

        I mean the 737 max disaster was largely because engineers are no longer the people who decide the big questions at Boeing…

        • Eric2

          It’s not that simple. Yes, Boeing was historically excellent because of engineering-led management, and under its first non-engineering CEO (James McNerney) it went downhill. But they realized this mistake and replaced McNerney with Dennis Muilenburg, an engineer, in 2015. The 737 MAX delivery and crashes happened under the leadership of Muilenburg.

          • Herbert

            The decision to build that damn thing was taken by people before Muilenberg. There would’ve been hell to pay to cancel that decision. So he though “If anything goes wrong, I can blame my predecessor”…

          • RossB

            McNerney was also largely responsible for the 787, although Stonecipher had his hands all over it. Stonecipher was a Jack Welsh protege, and adopted all the worst traits. The 787 was a classic looks-good-on-paper-because-I-have-an-MBA failure. To be clear, the company was moving that direction anyway, but to suddenly abandon 75 years of engineering and manufacturing expertise because you think you can save a few cents on a sophisticated aircraft by building it like a plastic toy with non-union, inexperienced labor is foolish. As a result, Boeing isn’t the company it once was. If not for its monopoly U. S. position and government contracts, it would have collapsed like Studebaker.

            This isn’t news to anyone who hangs out with people who have worked at Boeing over the years. They all know these things. Apparently it is common for long term employees to write really long, detailed, biting essays about how the company used to do things right, but now does things wrong, on the day they retire.

    • Alon Levy

      This is what I am told is the situation by people in consulting, at least. But also the auto industry doesn’t seem like it’s led by engineers, certainly not to the same extent as in Germany.

      • Tonami Playman

        The current US automotive CEO landscape is quite interesting. Mary Barra is not only the first woman to lead an Automaker, but also the first Engineer(Electrical Engineering) to lead General Motors in it’s entire history. She came up through the ranks as an assembly line worker. All the prior CEOs had finance backgrounds and the one she replaced came from AT&T. It’s no surprise that GM is doing better both as a brand and in stock price since she took the role in 2014.

        Mike Manley who took the role of CEO at Fiat Chrysler in 2018 after Sergio Marchionne fell ill has an engineering degree, though he had worked in Sales (Dealership) from day one.

        And then you have Jim Hackett at Ford who came from Steelcase, a furniture company where he was CEO for 20 years. He also has a sales background.

        So out of the Big 3, Two have Extensive sales background, while one is the outlier from Manufacturing background. In Germany and Japan, their executives are loaded with people from Manufacturing backgrounds.

        • Herbert

          To be fair, “Dipl. Ing.” Is still seen as the highest thing in life a German can or should aspire to…

      • Olivier

        Even in tech you have lots of founders with little more than a “vision” and a gift for gab that allows them to raise money for it. Not quite managerialism but similar and leading to similar outcomes: when the company fails it is because of those darn coders who couldn’t, wouldn’t implement the boss’ bold vision (usually something like “being the Google of XYZ”).

  4. Rover030

    The Netherlands could be an interesting country to study for this theory. You noted earlier that construction costs are higher than in the rest of continental Europe. I don’t have anything concrete to compare it to, but I get the impression that in terms of management culture, we’re a bit in between the anglosphere and the rest of continental Europe. Maybe that’s not true though, and the cost differences can be explained by expensive design choices like avoiding cut-and-cover and for station boxes, having them include parking garages like in Rokin station in Amsterdam and the tram tunnel in the Hague. And the swampy terrain, like in Shanghai vs the rest of China.

    • fjod

      It would be interesting to compare Dutch cost premiums for overground vs underground construction, because evidently Dutch ground conditions present huge problems for tunnelling. Dutch stuff is also usually overbuilt (and overmaintained!) imo, but I might be biased because I used to live near station Duivendrecht.

      • Herbert

        A country where “skimping on maintenance” (of coast protection) could quite literally mean the end of the country has every right to over-maintain…

  5. AJ

    I think you make great points, but I’d put the emphasis on the 2nd bullet. In my experience, the common problem with many senior managers in America is not that they are specialized in management, but that they lack the time, ability, and/or interest in acquiring the domain knowledge. When I was in General Electric’s executive development program, a primary goal was to drop us into unfamiliar domains so we could grow the skills and confidence to quickly gain the domain knowledge needed to be an effect manager. In turn, the best leaders I worked with always had a deep understanding of the business they were leading, plus knew their limits and when to defer to the true SMEs, while the worst leaders often simply were not interested in taking the time/offer to understand the business. Engineers tended to do best, but leaders of all background can succeed if they are smart, work hard, and truly care.

    I also agree with your point about scale. When I was at Sound Transit, we had oodles of people with excellent domain knowledge and a dearth of people with management expertise. In particular, ST was struggling with making the transition from a modest sized organization (1,000), and we had processes developed for small teams that simply did not scale for a much larger organization. To my frustration, we kept hiring people who had deep transit experience but little skill in running organization. It’s not that we needed generic “management” skills sets – we needed people with very technical skills in the domain of large organizations, particularly around building entirely new processes around decisions making and change management. The existing culture was built around informal consensus building, which works well for a small organisation but breaks down as the team grows and sprawls across multiple buildings. So in this specific case, I felt strongly that we needed more ‘outsiders,’ as we prioritized people who understood transit over people who understood how to build processes & culture, and therefore kept hiring senior management from organizations that were simply of a different scale than what ST was trying to grow into. (Part of the problem was that we were limiting ourselves to the NA transit talent pool, which is another issue you like to expound upon). Obviously, if we hired an exec from Amazon (or wherever) who wasn’t going to take the time to understand transit, it would be a disaster, but we needed people who could bring new skills to the table while also having the capability & personality to learn a new industry.

      • RossB

        Probably because it never occurred to them. (I know that sound pathetic — like a basketball team from Europe never considering an American — but I wouldn’t be surprised if they never looked oversees for talent at any level)

        • AJ

          More charitably, their existing professional networks rarely extend outside the USA. I did work with some who had strong professional networks that spanned the global, but they were less common.

          Without that network, it’s difficult to make that hire. Outside of the top few positions, it’s a hard sell to get someone to move across the globe for a middle management position, let alone find the right talent. They next Andy Byford isn’t just hanging around waiting to be called by some random American agency she’s never heard of.

          • Mikel

            And even if they want to hire a foreign person, the immigration process can make it difficult. See that time that Alon themself (themselves?) was approached by Hyperloop, who finally gave up…

          • Herbert

            I mean it should not be too hard to evaluate hard data like ridership and so on and ask someone in for an interview based on that…

  6. df1982

    With respect to your last point (“competition is destructive”), the prospective bailout of Lufthansa (with a subsidy that is more than the company is presently worth) led me to muse about whether it would be a good idea to merge Lufthana and Deutsche Bahn, and have just one entity involved in intercity transport in Germany (ignoring niche operators like Flixbus).

    Then you could have rail taking over internal travel (using your HSR plan as a basis for the future) and planes handling trips further afield, plus a greater emphasis on smooth plane-train connections. It would require a bit of infrastructure in places like Munich and Hamburg in order to have intercity lines directly linking up with airports, and an incentive system would have to be put in place to encourage modal shift to trains for short-haul travel, but apart from that, would be the pros and cons of having air and intercity rail bundled into the one corporate entity?

    • Herbert

      It would almost certainly violate EU law.

      Plus the proposal was publicly made by the Linkspartei making it politically toxic beyond repair…

  7. RossB

    Yes, it is a big problem. I wouldn’t say it is universal, just as it isn’t universal in business. I’m sure there are plenty of agencies that are run by folks who worked their way up from bus driver or at the very least, planner. I would imagine Kevin Desmond’s path is fairly common ( He has no particular expertise in transit, but rather, public administration. But he has been focused on transportation his whole career, and public transportation for most of it.

    But the lack of value placed on domain knowledge is a big problem in private industry, so it isn’t surprising that it would bleed into public transportation. It is pretty easy to imagine politicians taking the same approach taken by businesses, and hiring a smooth talking, smart, well educated but completely inappropriate person for the job:

  8. Gok (@Gok)

    Byford was a success?!

    What penchant for outside hiring are you talking about, by the way? The overwhelming majority of heads of transit agencies in US cities come from other transit agency jobs. Amtrak would be the exception, which is cycling between airline CEOs, but then so is SNCF. What outsiders have been tried and failed?

    • Nilo

      Reliability went up under Byford, and massive projects to implement new signaling systems both were completed and started. He was immensely popular with workers, riders, and enthusiasts. In fact the only person who seemed to dislike him was Andrew Cuomo.

      And many current transit leaders don’t come from within or don’t have a lot of transit expertise Sarah Feinberg at the MTA, Dorval Carter at the CTA came there as a lawyer. Though you’re right Stephanie Pollack is terrible and should have a background to make her not terrible.

    • michaelrjames

      Byford’s replacement, acting president of MTA is Sarah Feinberg who is definitely in the mould of a generalist manager with “a B.A. in Politics in 1999. She also attended National Defense University in 2008-09, studying Middle East foreign policy”. For some reason she got into higher management (board level, not execution level) of Amtrak then Obama appointed her as Administrator of the FRA (she had worked for Rahm Emanuel in the White House). I guess she must be intellectually and personally impressive but whether she will prove to be what the MTA needs …

    • Alon Levy

      I’m thinking of various turnaround experts foisted by Baker on the MBTA.

      And yes, Byford was unambiguously a success. Saving Precious Seconds replaced the failed slowdowns imposed by Ronnie Hakim (whose background is legal rather than operational, so she thought of running fast as a liability risk and not as a transportation improvement), worker morale improved, and after years of declines ridership started to go back up again. Then Cuomo short-circuited this and replaced Byford with Feinberg, who seems more focused on not running service overnight because of bad ideas about how trains have to be cleaned.

  9. Gok (@Gok)

    Carter is a lawyer, but he started at CTA right out of law school, over 35 years ago. He has literally spent his entire career working in transit, either at CTA or USDOT. What would make someone more of an insider?

      • R. W. Rynerson

        Engineers yes, but not just any engineers.

        My experience as a Service Planner and then as Marketing Officer in Edmonton was that the City went to extreme lengths to put engineers into management, but many times they were from the big branches of engineering: road construction, paving, bridges, etc. and had little understanding of marketing, service planning, operator working conditions, etc. In general, I noticed the engineers who did the best when parachuted into transit management were electrical engineers and water/sewer engineers, possibly because they were trained to be able to visualize systems and customer demands.

        At the top, a change in the Commissioners (top civil servants) brought in some pliable people, so the 1983 transit budget sent for Council approval was based on a percentage of the 1982 expenditures. They chose not to point out that in 1982 we underwent a six-week long strike with no operations, lowering our expenditures. Then they stepped out of the way and left Service Planning to break the news to customers.

        Also creating problems was the clublike nature of Canadian engineering, symbolized by the symbolic ring they wore (made of iron from the Quebec bridge collapse). A Senior Manager with experience in Operations, Human Resources, Labor Relations, Service Planning and Marketing was told flat out by the GM — who pointed to his Mechanical Engineering diploma — that he could never rise higher because he “was not a professional.”) Later, when I showed the latest Acting General Manager — an Aussie paving engineer — the multiple logic fallacies in a study that intended to abort our trolley coach system, his response was “So?” It was prepared by a really well-liked traffic engineer, so there was nothing wrong with it. I started working on my resume. After I left, a traffic engineer was put in charge of marketing. It took about a decade for per capita ridership to recover from this period.

  10. dsz2

    Everyone’s mileage will vary, of course, but I don’t really find your description of American corporate/managerial culture to be in line with my experience. For example, the notion that managers should not form close enough relationships with subordinates to know whom to promote runs counter to oodles of HBR pieces, books, etc. stressing emotional intelligence (“EQ”), personal leadership qualities such as empathy, and the importance of culture. The whole “scientific management” paradigm that presumed you could run a company by spreadsheet is pretty much dead, and it was overblown to begin with.

    There is also far more variety in educational background within the U.S. managerial sphere than in the other Western countries you cited. If we’re just sticking to transit… Steve Poftak, the GM of MBTA, went to Middlebury and got his MBA at Babson. Paul Wiedefeld of WMATA went to Towson for undergrad and his masters in city and regional planning from Rutgers. Phillip A. Washington, the head of LA County Transit, grew up on the South Side of Chicago, served for 24 years as an enlisted man in the Army, got his bachelor’s from Columbia College – not Columbia University, Columbia College in Chicago – and his M.A. from Webster University. The president of CTA in Chicago, Richard Rodriguez, did his undergrad at Loyola University Chicago and has a law degree from the Illinois Institute of Technology. Patrick Foye, the Chairman and CEO of New York MTA, did his undergrad and law school at Fordham. And so on.

    It’s a tempting theory, and I could spend days criticizing various aspects of American managerial culture, corporate and otherwise, but I don’t think this theory quite holds. To me, the answer is much simpler: American politicians do not value transit, largely do not use transit, and do not view transit as an issue that will make or break their careers, because their donors and social stratum does not rely on or much use transit either. To the extent that politicians – and the political appointees whose job is explicitly to implement their appointer’s will – exercise far more direct control and influence in the U.S. than they do in other Western countries, vis-a-vis the civil service, the problem lies less with the executive appointees (who do little hands-on management anyway, their job is mostly politicking of a different sort) than with their political masters. And the people who elect them.

    • Alon Levy

      [Rescued from spamfilter.]

      Yeah, so these people are usually not HBS elites going from company to company, but they’re still people whose background is often not at all transit planning or engineering; in effect, they imitate the HBS elites, just at lower prestige levels, e.g. because what they earn in the public sector is not enough to get a senior manager at McKinsey out of bed in the morning.

  11. jonsalmans

    Your post reminded me of Admiral Rickover’s testimony before congress after the 3 mile island accident: “A concept widely accepted in some circles is that all you need is to get a college degree in management and then, regardless of the technical subject, you can apply your management techniques to run any program; including the presidency, congress, or the Vatican. This has become a tenet of our modern society, but it is as valid as the once widely held precept that the world is flat. Properly running a sophisticated technical program requires a fundamental understanding of and commitment to the technical aspects of the job and a willingness to pay infinite attention to the technical details…If you ignore those details and attempt to rely on management techniques or gimmicks you will surely end up with a system that is unmanageable, and problems will be immensely more difficult to solve. At Naval Reactors, I take individuals who are good engineers and make them into managers. They do not manage by gimmicks but rather by knowledge, logic, common sense, and hard work.”

    See here for the whole testimony:

  12. Mikel

    In addition to internally-promoted technical-oriented people and externally-hired managers, I’d say there’s a third type of person involved in infrastructure: the veteran party apparatchik. You do not want one of them running e.g. TfL or DB or Adif, but they can be useful as transportation ministers or similar government positions, where the hardest part is navigating the complex network of partisan and regional interests without turning it into a pork barrel factory.

    Maybe this figure is more common in PR mainland Europe than in the FPTP anglosphere, I don’t know.

    • Herbert

      The federal transportation ministry of Germany has been held as a CSU fiefdom as if by right since 2005…

      The results… Are pork for Bavaria, crumbs fit the rest

      • Mikel

        Yeah, I presume the situation varies a lot from country to country. In Germany the CSU is the only large regionalist party and in a semi-permanent coalition with the CDU, right?

        In Spain we have like 15 different nationalist and regionalist parties in parliament, so it’s difficult to give one region a preferential infrastructure treatment without the rest moaning about being treated like “second class citizens” and threatening to sink the national budget. Hence the transportation minister’s job of balancing the ribbon-cutting and AVE-promising across the country.

        • Herbert

          The CSU only runs in Bavaria, the CDU only runs in the other 15 states. There were two (semi-) serious attempts to change that, one Franz Josef Strauß’s announcement in the 70s or 80s and another the creation of the “DSU” in East Germany that ran against the “CDU-Ost” in the only free GDR elections, but the CDU made it very clear that they would not tolerate an east German satellite of the CSU and the DSU went on to become an irrelevant splinter faction on the far right. Then there was of course a joke attempt more recently, which nobody took seriously except for some newspapers gung-ho on filling column inches

  13. Henry Miller

    After some thought I’ve concluded that I can argue with examples either side of the manager should have domain experience first debate.

    My opinion is that extensive domain background sets a higher floor to how bad you can get. This might be that you fail to get promoted to higher positions though – I’m not able to evaluate that. In any case the worst managers I’ve seen have universally not had domain experience first. The best managers might or might not have experience in the domain. Either way the bet managers need to focus 10 years ahead and set a direction that gets there. They often need a briefing the day before a product introduction to understand the details because you cannot be a great leader when focused on those details. Great leaders always need enough domain knowledge to not try to do something not possible. (hot air balloon public transits might sound good and anyone reading this can probably convince the average person it is a good idea, but that doesn’t mean it is as we all know)

  14. Herbert

    What do you think of Sigrid Nikutta switching from BVG to the troubled DB Cargo?

      • Herbert

        DB Cargo has been losing market share to both private railroads in the cargo sector and the road sector. One of the big strategical decisions since 1994 was “MORA-C” (“marktorientierte Reduzierung des Angebotes Cargo” or some such) which basically eliminated industrial sidings even if the customer wished to keep them and in general was seen as an effort to “streamline” cargo operations by reducing “overbuilt” and “outdated” infrastructure and switching from single car service to whole train service (whole trains are a lot easier to handle and should in theory be more profitable, but there are few customers who will order stuff by the whole train load). Nikutta as one of her first acts in the new position announced a return to single car service (“Einzelwagenverkehr”) – generally the usual suspects greeted this as a step in the right direction and it certainly seems like something that can eat market share from road and private competition of DB Cargo, but I am not sure whether it is good for the bottom line of DB Cargo…

  15. Coridon Henshaw

    I think the US approach to blame and failure also has a role in American infrastructure underdevelopment. Americans are obsessed with blaming individuals when anything goes wrong (see: e.g. US lawsuit & liability culture) but are also obsessed with insulating senior people (and the companies they operate) from the consequences of their failures.

    The results are that people with domain knowledge–people who are junior enough to be exposed to severe punishments for failure–are highly risk adverse and strongly favor ‘safe’ incrementalism. Any major mistakes by people at this level could cost them their careers and livelihood, so they are understandingly unwilling to take chances.

    In contrast, the managerial class is senior enough that career progression for managerialists is seldom impacted by failure. Managerialists who fail to shepherd their projects to success will continue to be paid handsomely, and in many cases they will fall upwards to by being given the opportunity to ruin ever larger projects or companies. When the only ‘cost’ for causing a catastrophe is a golden parachute and a chance to try again, there’s no incentive to push for success.

    People who are terrified of making mistakes being led by people who don’t care if they succeed is not a recipe for success.

    • Richard Mlynarik

      … junior enough to be exposed to severe punishments for failure …

      I’m genuinely interested to find examples of anybody anywhere at any level in any US “transit” agency being punished for anything — aside from being shunted aside or pushed out if they do not pander to local real estate, union or contractor interests. I’m not being hyperbolic! These goals of these agencies — maximization of public money laundered — is totally unrelated to good-government concepts like “risk aversion” or “liability” or “domain expertise” or the like.

      Failure (or what anybody reading this blog might consider a public policy outcome failure) isn’t just an option — it’s a job requirement. I mean, did any

      Out of control Anglosphere costs aren’t a regrettable side-effect of litigiousness or non-Napoleonic law or poor tunnel bore diameter choice or whatnot — they’re the entire point. Choose a bad project because it’s expensive. Choose bad technology to drive up costs. Choose insane construction techniques to drive up costs. Choose the worst contractors (well actually they choose you, and do make the preceding choices on your behalf) to send costs out of control. Reward the same contractors following “unexpected” cost and schedule blowouts. Lobby for more and more public cash as the blowouts get worse and worse — too big to fail! Choose the worst operating and maintenance practices to keep spreading the cash around, forever.

      The problems aren’t technical or legal. Bad technology and systematic failure to use even use legal means to control project costs aren’t causes — they’re enabling mechanisms.

  16. Herbert

    Ironically, the worst “Bahnchef” since 1994 – Harmut Mehdorn – was a career manager with no prior railway or even transportation experience whose track record is terrible with every single company he’s ever led…

  17. Canadian

    Can I defend managerialism a bit? I am what is called a “subject matter expert” in the public service. I can expect, and have had, a 30 year career in one field where I top out as a mid-low manager — two, maybe three levels from the front line,

    The senior ranks of the public service are made up of “high flyers”. They are recognized as future leaders very early in their careers, given exposure to senior decision makers (as assistants, etc), and promoted quickly all around public service, from fisheries to defense to food safety — 2 to 3 years in a job. They learn how to talk to politicians, how to unite fractious teams, represent the organization in media, and build relationships across government (Guangxi).

    For a subject matter expert like me, these people are seriously annoying. Not only do they know nothing of what I think is important, they don’t even care about it. It’s all technical details to them.

    But they are invaluable. They have connections that will ensure a project makes headway in an slow as molasses government. They don’t give a damn about us “lifers” personal politics and decade old grudges — they can burn bridges to accomplish goals because they are moving to the next job. They are the grease, the action, the doers.

    To be a senior manager in a large organization, you need to start learning the relevant skills at about age 23. The only way to learn is to be exposed to the job. Wasting your time learning technical details when you are young will impair your ability to lead an large organization.

    I think this will be an unpopular opinion here, as it is in my lunchroom (where the senior managers never visit). Perhaps it is a bit extreme. But it’s my lived experience.

    • Alon Levy

      But they are not the doers. That’s the point. They are the ones constantly saying things are impossible that in fact happen all the time. They impose random brainfarts concocted by people with no real expertise in the subject, and come with their own set of political grudges.

      • adirondacker12800

        Someone likes what they do or they would be looking for something else to do.

      • Herbert

        If you’re heading NASA, you better know how a rocket works.

        If you’re heading a railroad, you better know how trains work.

        • Reedman Bassoon

          The head of Amtrak from 2017 to April 2020 was Richard Anderson, from Delta Airlines. The new head of Amtrak is William Flynn, head of Atlas Air Worldwide Holdings (air cargo and aircraft leasing). Is aircraft operations sufficiently similar to train operations?

    • Oreg

      Well said, Canadian. My experience in the high-tech industy is similar. The biggest mistake my employer keeps making is appointing the best engineers to management. Many excellent engineers have no management talent. The best manager I ever worked for is a mediocre engineer at best. One of the critical skills of a manager is to be conscious about the limits of their domain expertise and to have good judgement in who the best SMEs are to trust for advice.

      Managers at all levels must be able identify the critical ingredients for success of their organization. Delivering a great product is always only one aspect of that. Financial sustainability, stakeholder relationships (clients, employees, investors, politicians), communications, political skill all are critical as well and are pretty orthogonal to domain expertise.

      • michaelrjames

        You and Canadian and others are confusing “managing” with “managerialism”. The qualities for good management probably haven’t changed for centuries while managerialism is new since neoliberalism started taking over in the 80s-90s. Or at least it became the dominant ethos in bigger organisations.

        • Oreg

          Michael, I see what you’re saying, but Alon’s critique focuses on only a few aspects of managerialism, in particular whether or not a manager should be a domain expert. That’s where I disagree.

          However, I’m no fan of managerialism in general. For instance, the idea that a public administration should be managed to maximize profits is deeply flawed.

  18. whatarestreetsfor

    Managerialism as a cause of failure for American public transit systems is a great insight. Content expertise is often underrated and lack of content knowledge leads to policy failures. I would add that transit agencies should never hire top managers who have never spent a signficant amount of time riding transit.

    I disagree with one of your ideas, though. American exceptionalism in transit is certainly a problem, but I would alter the analysis a bit. The attitude of “we can’t learn anything from other countries” is not endemic to managerialism, but it is a common attitude among American managers and common in American culture at large.

    If managerialism is fundamentally a pragmatic style, is that not more consistent with examining how other societies manage the same problem? So American exceptionalism might be better understood as contrary to managerialism.

    Managerialism is a cause of managerial failures of public transportation systems. In addition, we refuse to learn from other countries, which we might characterize as American exceptionalism. This is a second cause for managerial failures. Perhaps some aspects of managerialism are positive even if most aspects are not.

    • michaelrjames

      I don’t disagree with what you wrote but would restate my earlier post on this, and which I think helps resolve any differences between perceptions of the meaning or relevance of managerialism. It is that managerialism is not a philosophy but the tool used to implement/enforce compliance to various philosophies that are not rationally justifiable and/or against natural, intrinsic inclinations (‘common sense’ or indeed natural scientific laws). Thus, I would say it is predominantly a tool to implement neo-liberal economic models over the past 3 to 4 decades; a notable example is Thatcher’s proclamation that “there is no such thing as society, there are individual men and women and there are families.” But equally in the American context it has been used to reinforce the exceptionalism concept.
      This is why I compared it to military management where, no matter how irrational an order or strategy may seem, it must be obeyed all down the line, with any contravention or resistant subject to extreme punitive treatment. At least in the context of times of peril or military conflict, there is the justification that one cannot have questioning of the command structure. But it is also why some military actions are some of the craziest of human collective actions. I think we see a convergence of these two things in the increasing deployment of the ‘national security’ blunderbuss to force all kinds of crazy actions, many of which are fundamentally in conflict with our democratic constitutions.

  19. Pingback: Saturday assorted links - Marginal REVOLUTION
  20. Mario

    From the French Wikipedia article (no English available) on Jean Pierre Farandou, Head of the SNCF:

    Ayant fait presque toute sa carrière au sein de la Société nationale des chemins de fer français (SNCF) — où il est entré en 1981 — ou de ses filiales, il est président du transporteur Keolis de 2012 à 2019[1] puis président de la SNCF depuis novembre 2019.

    For the non French speakers, the man has spent basically all his career in the domain, at the SNCF.

    So much for the whole

    (…) so that SNCF is run by airline executives.


    • michaelrjames

      Here’s an English bio from the SNCF site:
      SNCF Chairman and CEO
      Updated on 7 February 2020

      With a degree in engineering from École des Mines de Paris, Jean-Pierre Farandou worked in the Denver, Colorado office of Amax, a US-based mining company, before joining SNCF in 1981. After holding various managerial positions in production and marketing, in 1993 he was named project manager and tasked with launching the Paris-Lille TGV line. He then laid the legal foundation for Thalys International in Brussels, serving as its Managing Director from 1993 to 1998. He held positions as Director of Executive HR (1998-2000) and Deputy Director for Main Lines (2000-2002); served as Regional Director for Rhône Alpes, home to the largest TER network in France; and then became Managing Director of Keolis Lyon, operator of the city’s bus, metro and light rail systems. In October 2006 he was named Director of SNCF’s Proximités division, which included Transilien, TER, Intercités and the Keolis/Effia Group, and in August 2012 he became Chairman of the Keolis Executive Board.
      Jean-Pierre Farandou has served as SNCF Chairman and CEO since 1 November 2019.

      He’s been a Keolis man for 18 years now. My main worry is the increasing incursion of Keolis, used as a training school to make SNCF more corporate, more profit-oriented which is exactly what ruins most public service. And the notion that public transport should be entirely self-funding, which is inappropriate and effectively never achieved anywhere, despite what some claim about Japan or Hong Kong.
      At least he has a deep experience in rail at management level, so we’ll see.

      As to Spinetta and “Spinetta report urges SNCF to prepare for competition”, yeah that kind of thing has worked so well elsewhere. Not. This braindead competition rhetoric re public service natural monopolies has run its course. The only people who continue to believe it are in effect brain dead, refusing to believe the abundant evidence.

      • Nilo

        lol Japanese trains are profitable Michael even when you subtract off the bus service. Why do you enjoy just denying facts so much? Like Cervero covered this comprehensively in English 2 decades ago.

        • michaelrjames

          You can lol as much as you like but as usual you haven’t done your homework or any critical analysis of those easy assumptions. I’ve read Cervero and can’t remember what you reference; however I would still apply critical and sceptical thought to any such statements.
          I assume you agree that the entities from the privatisation of JNR, the JR Group and JR East, JR Central and JR West, dominate rail i Japan, both inter-city and commuter rail? When the privatisation occurred, do you think the Japanese government recovered anything approaching the value of all those assets, and though it was intended for the privatised entities to repay some of the accumulated US$300 billion (¥37 trillion) debt, they never did and the debt remained with the government-owned JNR Settlement Corporation.
          HK-MTRC is similar, except that it remains majority (70%) government owned, but never paid a cent for the assets and while it funds new capital investment thru its land value capture, the government still provides 50% of the capital costs. MTRC makes a long-term recurrent income from property development around its (new) stations, land and rights that were given to it by the government, and it is this that makes it profitable, as well as running an excellent and very busy Metro system. I think that is excellent but only because MTRC remains publicly-owned and everything it does is in the public interest.
          In fact Japan does something similar, for example JR West was gifted development rights (for office & retail) by the government at its Osaka main station, specifically to sweeten its privatisation.

          Much more detail:

          michael.r.james 2015/10/16 – 05:39

          • Nilo

            Michael, as always I have a million better things to do than argue with you, but I’ll give a quick response.

            First the JR group dominates intercity, but not commuter rail. Let us focus on Tokyo, but of note urban rail ridership in Japan is 22% on subway in Toyko, 22% in Greater Osaka and 38% in Nagoya. In Tokyo annual ridership is roughly 15 billion. JR East accounts for 40% of that. Subway are roughly another 25% and the remaining 35% is private operators. I’m not sure how through running is handled in the stats though. So private lines are a huge presence despite for much of their history having to funnel riders to JR East trains.

            Second said private firms make money from running trains. In fact they make substantial sums of money. Here’s two Cervero graphs showing that rail itself is enormously profitable for these entities. Though real estate is often more so.

          • michaelrjames

            First, you have only included JR East’s 40% share of Tokyo commuters. If you include Tokyo Metro and Toei (both owned by Tokyo Metropolitan Government) it is about 60%, a clear majority.

            Second, that table only relates to operating profits which ignores any historic role of government or the public in subsidising or simply handing over the assets. If you give me a billion dollars of hard-working assets (or a trillion dollars in the case of the JR entities) I could make an operating profit too. Especially if debt free (ditto JR entities and the $300 billion finessed by the government to get them privatised and “profitable”, in some cases they also gave them additional land and development rights).

            Third, re this same point about the burden of the cost of building the infrastructure, just last week a commenter here noted that for the first time Toei turned a profit last year. The reason it has always struggled for most of its existence? Historic construction costs which the city, unlike the national government re JNR, didn’t carry for them.

            Fourth, several of those entities earn big profits from their land value capture operations, namely Tobu and Seibu (together about 9.7% of Tokyo transit pax) who own the two eponymous giant department stores above the Ikebukuro station which is mutually beneficial with its 2.7 million daily flow of passengers (about 1 bn per year), the second highest in Tokyo and the world. (It was my ‘local’ big interchange station when I worked at the Cancer Institute down the road in Otsuka.) The station also has 6 JR-East and Tokyo Metro lines (including Yamanote and Marunouchi) compared to the 2 of the private operators, thus in some ways you could say they are freeloaders*. I suppose some of the other private companies have something similar but no need to verify as this point is accepted by all. (eg. Tokyu owns an eponymous chain of upscale department stores too. Keisei owns the Oriental Land Company which owns and manages the Tokyo Disney Resort–but perhaps Cervero separates out these things in his analysis? [edit: he certainly explains this, see further below; I’m not going to retrospectively edit my section here.) Indeed I deploy it in every discussion of mine (here and elsewhere) regarding how to set up public transit bodies to be financially self-supporting (or majorly, as explained in that earlier link, HK-MTRC funds about 50% of its capital costs this way). However I object to it being deployed misleadingly as private companies running profitable city transit.

            The point is that several of those profitable private entities manage because they capture a lot of the value of those billions of pax flowing thru their systems that in the west are captured by real estate developers and speculators etc. I’m arguing that it should be captured by the public transit bodies (who knows, JRE may have been able to repay some of its share of the $300bn debt). Note also that if you add Tobu and Seibu’s share to the public operators, on the ground that they make most of their profit not from the rail side, you get about 70% of Tokyo’s transit. So your argument becomes more and more niche, and with the majority of the network being public then the argument could be whether any of the private operators (even ignoring land value capture) would have the pax load to allow them to turn an operating profit? I’m talking network effects. Here in the world’s biggest transit system it is clearly majority dependent on the public operators. I wonder what else one might discover if diving deeply into the operations and history (very much shaped by government decree in the early post-war years), especially as a lot of these companies are keiretsu/conglomerates.
            Hah, I knew it! I’ve just spent 30 minutes searching for Cervero which I knew I had but it was, of course, misplaced on my bookshelves. The first sentence below that Table 7.2 on p190:

            Today, railway operations account for about 35 percent of the Tokyu Corporation’s revenues and real estate accounts for about 25 percent; however, the company’s real estate operations generate nearly two-thirds of the firm’s net profits.

            He continues on the next page:

            Although rail operations have historically been the main business of railway consortia, they have hardly been the most profitable ventures. From 1980 to 1993, Tokyo’s private railway sector averaged financial rates of return on railway businesses of 1.16 to 1.21 (Table 7.4). Profit margins increased slightly during the 1980s, though these were considered modest returns during this period of rapid economic expansion. Still, every private railway made a profit, something few passenger carriers worldwide can claim. ..The major sideline business of most Japanese railway companies has been real estate. Table 7.5 shows that all companies earned at least a 30 percent return on real estate investments in 1993, though profits have recently fallen somewhat with the crash in Tokyo’s land markets in the early 1990s. Still, in 1993, real estate generated more than half of all profits for the Tokyu, Seibu, and Sagami railway corporations. … All except Keisei and Tobu earned more from real estate transactions than any other business activity … Interestingly, the two companies with the least successful real estate ventures, Keisei and Tobu*, also have among the least intensively used suburban railway services, as reflected in the low annual patronage per track kilometer shown earlier in Table 7.2. This lends support to the proposition that integrated rail and property development are vital to attaining efficient rail passenger services. …. Private railway companies accept losing money operating feeder buses as long as their railway and real estate operations benefit. … These statistics make clear that Tokyo’s railway companies practice a form of internal cross-subsidization–they compensate for the low profitability of their railway and bus enterprises with profits from real estate development. Because rail and bus fares are regulated, property development has become the chief means of increasing profit margins above those possible through rail operations It has also increased the liquidity and creditworthiness of rail companies to the point that loans they need to finance rail expansion are usually available at very favourable terms (and often from within the consortia themselves, if necessary).

            So, it could hardly be much clearer. And this from a book published 22 years ago. I had forgotten that Cervero had explicitly discussed such value capture (a term he uses), though clearly I internalised the case he lays out. It is precisely the argument I have laid out, above and in previous comments on Alon’s blog (+ link, above), and that I explain is the case for HK-MTRC.
            Nilo, you’ve got to be more careful about selectively taking the wrong message from what you read.
            *This reinforces my earlier conclusion that Tobu (and Seibu) are freeloading with those highly-profitable Ikebukuro department stores because the vast majority of the pax thru that complex are using the public-funded lines (JR-East and Tokyo Metro).

        • michaelrjames

          Yes. Single European Railway Directive 2012 (2012/34/EU).
          I think it is flawed in that it is driven by the neoliberal competition mantra even though it is almost impossible to apply to natural monopolies like railways. (But I am not one of those who throw ‘neoliberal’ insults at the EU … much.) The problem will be that private companies (though most are owned by other national governments; which is true for Keolis which operates in many other countries) will simply cherry-pick the most profitable routes which happen to account for the majority of SNCF’s revenue. Of course the same people will say that it merely shows that SNCF should close down (ie. ‘rationalise’ or structurally adjust) its network. That is exactly the thinking that has the US with the developed world’s worst passenger rail network. So far SNCF has played various tricks to evade the directive, eg. by setting up its own competition (Ouigo), pseudo-separation of network from retail operation etc. which I agree with. I worry that Macron may insist on implementing the EU Directive literally (but it doesn’t look like he is doing that) or that with its increasing corporate culture (Keolis, those airline execs Alon talks about) SNCF may do it to itself. Because I don’t want anything remotely ressembling what happened in the UK. Admittedly there can be public benefit from running different style services at different prices, and the network shouldn’t be immune to change, but in general I agree with the sentiments of The Man in Seat 61 (Mark Smith):

          “This [Ouigo] is a train for flyers, not those who enjoy the relaxed nature of ‘regular’ rail travel. I wish they’d stop doing this nonsense which distracts from the task of running one coherent, integrated system.”

          FWIW, I think the likely evolution of European rail is looking good. It has emerging cross-national state-owned entities (SNCF, DB etc) that will run the international routes. In fact this is what the neolib designers of the Directive warned of, but stuff them, the railways need to be run for the people who paid for their construction. The cross-national entities will keep themselves honest while still answering to, and working in the interest of, the public. Not some anonymous hedgefund operating out of a Delaware or Cayman island mailbox.

          • Azel

            Honestly I don’t know what the designers of Directive 2012/34/EU really thought would happen if they warned of big state-owned entities running railways everywhere. I mean, the only European country I can see where the operators going for business overseas are not state-owned entities is the UK and as far as I know the UK private operators are minnows compared to the FS, Transdev and other NS running around.

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