Alex Singleton | Journalist and political commentator

There’s a quasi-religious view that Europe’s railways would be better off if they were vertically integrated, with track and train operators combined. But it’s difficult to find any current examples around the world to back up this view.

Only two examples of successful vertically-integrated rail systems seem to be proposed. The first is Amtrak, the American passenger service. Yet Amtrak is deeply unpopular with the American public, running a service with hardly any customers. Its whole business handles only about 60,000 passengers a day, is heavily subsidied (like rail elsewhere), and regularly sends lobbyists to Washington with the begging bowl for more money. In 2002, the company threatened to stop running all long distance rail services unless it was bailed out by the US Federal Government. By comparison, 30,000 passengers pass through the UK’s Edinburgh Waverley station alone every day, and that surely has a fraction of the passengers a London station like Waterloo enjoys. America, it seems to me, does not exactly provide us with an example of a perfect rail system.

The second example is Japan. Japan has a good railway system, but it’s more complicated than vertical integration advocates suggest. For decades, exceedingly large quantities of government money have been thrown at the railways. Some people seem to be under the misconception that vertical integration means that the market alone decides prices. That’s not what happens in Japan. “Fares and regulations are standard for all companies,” says japanrail.com. Government is involved, just as in a vertically-separated system. The difference, of course, is that in a vertically-separated system, as competition from open access operators increases, you can cut the role of regulators in deciding consumer prices.

“The trains run on time,” says the Rail Freight Group about Japan’s railways, and “they are clean if somewhat crowded (despite high fares).” Just as in Europe, there are accidents. In 2005, over 100 people were killed and 458 people were injured when a Japanese train derailed and hit an apartment block.

Japan’s railway is good but this has been a very high cost, both in terms of government spending and fares for passengers. An article by an American working at the Japanese Ministry of Transport two years ago reveals that: “the Japanese government has launched an ambitious effort to expand high-speed rail service over the next 10 years. The cost, close to $30 billion, will be funded by the national government, local governments and revenues generated from existing high-speed lines.” The article claims that: “Japan has consistently poured billions of dollars into its rail infrastructure (even after privatization)… The lesson from Japan is obvious: Intercity rail systems, whether private or public, need stable sources of public investment to be successful.”

I post that last quote not necessarily in agreement but because I think it’s worrying that people have latched onto Japan as some form of free-market nirvana, where railways run without regulation or other government involvement thanks to vertical integration. That isn’t what exists. In fact, in the long run and all other things being equal, regional monopolies will inevitably require greater regulation of timetables and fares than a vertically-separated railway that allows competition.

Finally, the Japanese are less wedded to vertical integration than might be assumed. That $30bn high-speed rail service will see the ownership of the track separate from the running of train services.