Zombie theory stalks the railways

Justine Greening, Secretary of State for Transport, has announced that the government plans to accept many of the recommendations of Sir Roy McNulty’s report on the railways and that she wants to see efficiency savings of £3.5 billion per annum.   Much of the media coverage has been dominated by the proposed introduction of smart card ticketing and job cuts.  Unions fear that 12,000 jobs may go.

There is clearly a problem.  As McNulty puts it in the forward to the report,

“However, there is widespread recognition that the industry has problems in terms of efficiency and costs.  Unit costs per passenger kilometer have not improved since the mid 1990s.”

Hmmm.  The ‘mid 1990s’ was when the railways were privatised (progressively between 1994 and 1997 in fact).   Yet a business with a high but fixed cost base should see efficiency soar when passenger numbers increase.  And passenger numbers have gone through the roof as long-suffering travellers know - up by about two-thirds over the same period according to the report.  Clearly something has gone badly wrong.

McNulty goes on to list some of the causes,

“The causes of GB rail’s excessively high costs are many and complex.  The Study was asked to examine “barriers to efficiency” and we have identified that among the principal barriers are fragmentation of structures and interfaces, the ways in which the role of Government and industry have evolved , ineffective and misaligned incentives, a franchising system that does not encourage cost reductions sufficiently, management approaches that fall short of best-practice in a number of areas that are key cost drivers, and a railway culture which is not conductive to the partnership and continuous improvement approaches required for effective cost reduction”.

In other words its structure too fragmented and byzantine to work properly.  Someone forgot the KISS rule.

On R4′s Today Sir Roy said that British passengers are paying about 30% more than their counterparts in other countries.  John Humphrys suggested that the ‘big opportunity’ is to reunite the fragmented parts and rail expert Christian Wolmar agreed adding that since privatisation public subsidies have increased from about £1.5 billion to £4 billion in real terms – i.e. over and above inflation.  Elsewhere, Bob Crow of RMT contributed the fascinating factoid that Network rail has 300 solicitors who spend their time suing the Train Operating Companies (TOCs) and the TOCs have another 300 who spend their time responding.  It’s a hell of a way to run a railway.

So, the government’s solution is to ignore the elephant in the room – that the structure of the railways is all wrong – and go for a combination of fare increases (disguised as smart ticketing) and substantial job cuts (even allowing that the unions may be a scaremongering a little).  Why would Ms Greening do that?  She could just blame it all on Labour as usual.

The answer is that too many in government still believe the neoliberal nonsense that markets have god-like powers and magically always deliver optimal solutions despite massive evidence to the contrary and a theoretical base that can’t stand up to scrutiny.  They are locked into a failed paradigm by bad theory and cemented in for good measure by the vested interests that are doing very nicely from the arrangement.  That 30% excess of costs is someone’s income and is quite big enough for some to be spared for a generous contribution to party funds.

As for hopes that a re-structuring of incentives and the like within the existing structure will solve the railway’s problems – forget it.  These are features of the system, not mere bugs.  Like all centrally mandated targets they will always be gamed by the industry players for their own advantage; if the incentives are changed the game will simply continue under the new rules.

 

The Ministry of Justice courts trouble with translations

The military would describe the UK’s current governance as a ‘target-rich environment’ with screw-ups following each other at a positively dizzying rate.   A recent Channel 4 News report on the Court Translation Service was a doozy.  Seeking to save around £18 million per year the Ministry of Justice has given a £300 million contract to provide all translation services for England and Wales to the tiny £7 million company of a failed Dragon’s Den entrepreneur with no apparent evidence that the firm could handle the demand.  And, surprise, surprise, it turns out that they can’t - leaving cases delayed, courts in chaos and costs mounting rapidly.

The way this has traditionally worked is that when a court needs an interpreter they would find one through the National Register of Public Service interpreters which currently has around 2,300 properly qualified interpreters on its list.  And it’s a system that works very well.  As it happens a good friend of ours did regular stints of court work until she moved overseas a couple of years ago and she had told us that middlemen were attempting to move in, sign ‘exclusive’ deals and, in return, help themselves to a juicy cut of the fees for little effort on their part but at the expense of the translators who, naturally enough, are not thrilled.  Most are refusing to work with the new system and ALS, the company involved, is accused of providing unqualified interpreters.

There is nothing to like about the MOJ’s bright idea of creating a supplier monopoly making its money by screwing the talent.  How many would finish up on income support of some sort offsetting any savings?   And do the MoJ really imagine that if a monopoly got established it wouldn’t turn round in a few years and demand higher fees to further fatten its bottom line?

All credit to Gavin Wheeldon, the entrepreneur concerned for being an excellent salesman and, in fairness also to the Dragons who agreed that he would do very well but baulked at the high price he was asking.  He eventually got his price by selling out to Capita.

Which raises the question of what should be done to fix the mess.

Well, Capita is a big company with deep pockets that has got rich by feeding at the outsourcing trough and they should not be allowed to run away with the idea that contracting with government is a one way bet where profits are taken and costs are walked away from.  In other words they should be on the hook for ALL the losses, both the costs of delays and the loss of promised savings.  Does the contract say that is what will happen – and if not why not?  I don’t know but Capita depends for a very large part of its revenues on government.  In such circumstances the customer is ALWAYS right irrespective of whatever the contract might say.

I’m not holding my breath but I live in hope.

 

Cameron’s 2% nuclear deal

The Prime Minister has just been to Paris to sign a deal with France to, as the BBC puts it, “strengthen co-operation in the development of civil nuclear energy” with much happy talk of, “our shared commitment to the future of civil nuclear power, setting out a shared long-term vision of safe, secure, sustainable and affordable energy, that supports growth and helps to deliver our emission reductions targets“.

Translation: we have agreed a deal to buy a number of nuclear reactors from the French nuclear company Areva.

And this is a BIG deal.  According to Radio 4′s Today, the first four reactors will cost a total of £20 billion and will create 1,500 UK jobs.

But enquire a little and it doesn’t start to look too clever.  Interviewed by Evan Davis on Today, the boss of ‘New Build’ for Areva in the UK, was gushing about the potential, “the UK is the most exciting new build opportunity in Europe; it’s one of the most exciting in the world….”   He explained (above link) that, “Rolls-Royce will become our prime manufacturing partner to supply some £100m of key critical components of the reactor for each EPR [next generation nuclear power plant] that’s constructed in the UK“.   Apparently Rolls Royce will build a factory in Rotherham to fill orders flowing from the deal and this will include supplying equipment for orders in other countries.

Uh!

Do the numbers.  Rolls Royce is to get £100 million out of £5 billion per reactor – that’s just 2%.  Other companies will be involved but the Rolls Royce deal alone accounts for 80% of the £500 million identified so far.  And, according to their website, Rolls Royce already supplies “safety-critical instrumentation and control systems to all 58 operating nuclear power facilities in France …”  so it’s not clear how much of this work is actually extra.

And yet we have it straight from Areva’s senior man that this is ”the one of the most exciting [opportunities] in the world“.  With that much buying power 2%, is a truly pathetic result.  The percentage will inevitably rise during the construction phase but much of that will be the modern equivalent of navvies.   The strong implication is that most of the high-tech value-added bits are coming from France.

This looks very much like a replay of the trains affair where a £1.4 billion contract was awarded to Siemens with one crucial difference.   This time as a result of years of dithering and confusion in Whitehall there is no domestic competitor;  we built the world’s first commercial reactor but no longer have a fully capable civil nuclear supply industry because the UK simply doesn’t provide a suitable ‘habitat’ for complex, technology companies headquartered here (Rolls Royce is a very rare exception).

£20 billion (and that’s just for the first phase of a bigger programme) is enough to make a big difference to the economy as any Keynesians would point out – indeed that new energy investment would do just that has been the constant refrain from governments over many years (although they normally prefer to talk more of renewables than nuclear).   The trouble is that the economic boost in this case is going largely to France.

Politicians have been grandstanding about how the latest technology was going to ‘jump start the economy’ since Harold Wilson’s ”white heat of technology” speech (and probably long before that) but we are slowly and steadily going backwards.   It’s a good idea in principle but they just don’t know how to do it.

And yet the how of it is perfectly discoverable; any number of Asian countries, starting with Japan and later South Korea, Taiwan and others have worked out how to do it.   We could too – I don’t even think it’s terribly difficult – but first we would have to start asking the right questions and as far as I can see no political party is yet doing that.  Why not?

 

 

Cameron the car czar

David Cameron is, it seems, to take the lead in tightening the rules for insurance claims - particularly those relating to whiplash which now account for 1,500 claims a day, cost the industry £2 billion per year and the average motorist £90 per year in higher premiums.

That there is a problem is clear – claims are increasing even as accidents are falling – but does this really require the personal intervention of the Prime Minister?  Has he no other more important things to worry about?

This reminds me of a report from Russia last year on how things very often simply didn’t happen unless Putin took a personal interest.  The story focussed on a remote village that was burnt down when severe drought caused forest fires to burn out of control; somehow Putin got involved, kicked butt and made things happen rebuilding-wise.  Which was great for the village concerned and made for great PR for Putin-the-saviour but did nothing for the scores of other communities similarly affected.

That Putin runs Russia in the style of the czars is perhaps understandable (although it’s not going down too well with educated younger Russians).  But Cameron?  Does he really think this managment strategy has a cat-in-hell’s chance of working in a country and economy as complex as Britain’s?  Surely not.  And if he does, we are in even worse trouble than I thought.

£2 billion overall, £90 per motorist is a HUGE amount of money - does a problem really have to be this big before it gets sorted rather than just festering?  As it happens motor insurance provides another instance of a situation that needs intervention; uninsured drivers.  They cost each motorist an average of £30 per year (this figure from memory).  Goodness knows what the extra cost to the taxpayer is for medical bills and the like.  I once sat in (as an observer) on a magistrates court where an 18 year old was charged with driving without insurance.  He had been driving his friend’s father’s car with permission but everyone involved simply forgot that he wasn’t a named driver and for this dastardly act they threw the book at him.

And yet there is a perfectly good solution to this problem.  Some countries require every car on the road to have compulsory third party insurance that covers all drivers (even thieves and drunks).   It is evidenced by an ‘insurance disk’ like the tax disk which comes with every motor insurance policy.  Every policeman and traffic warden can enforce it and not having one is an instant towing offence.  The proportion of uninsured cars on the road?  Approximately 0.001%.

So there are better ways of doing things which we can copy from elsewhere or invent ourselves but it doesn’t seem to be happening – at least not on anything like the required scale – and that is a problem.  Unnecessarily expensive car insurance we could live with if that were the only problem.  But, of course, it isn’t.

Power should be devolved to junior ministers and their civil servants (and where appropriate to local government) and with it should go the expectation that the devolved power will be properly and wisely used – or else!  What we actually have is system where middle level executives (and this now apparently extends to junior ministers) are so snared in a complex web of targets handed down form on high that they can no longer take the initiative unless the boss takes an interest.

Getting out of Labour’s economic mess

New Labour has made a horrible mess of the economy.  We all know that.   But curiously the very scale of the mess they’ve made offers hope for the future and a way out of the financial crisis if we have the courage to think differently, be radical and rectify some long-standing problems at the heart of government.  Let me explain. 

My starting point is Psion, a smallish manufacturer of hand-held computers which has had an eventful two years since a new management team took over in April 2008.   After a year or so studying the problem the new team cut the Company’s cost base by 41% and simplified operating structures to purge bad habits and duplications that had been accumulating since the dot.com bubble era according to the April issue of Accountancy magazine.   Now the business is at last able to start thinking of the future in a positive way and has started investing in the future.

So what?  Smallish companies get into difficulties and then sort themselves out and move forward – or don’t and fail – all the time.  Indeed they do; it’s not that unusual, even in much larger companies than Psion as I know from personal experience.  But if Psion, operating in the private sector and having to earn its living in competitive markets, could fall into bad habits on such a large-scale in less than 10 years how many bad habits has Her Majesty’s Government accumulated?   Public sector employment is currently around 6.1 million (pdf) in an organisation that is vastly more complicated and diverse than Psion and has had far longer to get bad habits - it’s an open question how much real reform there has been since the Northcote-Trevelyan Report of 1854 which led to the formation of the modern Civil Service.  Although there have been some reforms – for instance Thatcher introduced, and New Labour elaborated, a complex network of targets – they have not made the public sector more efficient or more accountable.   Targets do neither as the government ought to by now have worked out. 

A reasonable inference is that inefficiency and waste in the public sector have reached mind-boggling proportions – a conclusion that abundant anecdotal evidence supports and which the public clearly believe based on their contact with the government and its many agencies and outposts.   From a managerial point of view waste and inefficiency amount to a huge national overhead, consuming scare resources but delivering nothing beneficial in return.  No company can long survive carrying a deadweight of fat and neither can a nation, particularly in the modern globalised world.  However, to judge from the political debate of recent weeks no-one in the Westminster Village has much idea what might be done about it.   The continuing default assumption is therefore that cost saving = service cuts even though this is a nonsense.  Thus the debate is conducted in terms of whole departments or particular programmes, e.g. the NHS and Education are to be ‘ring-fenced’ or Trident will go.   There is no case whatsoever for ring-fencing any department although some identifiable programmes could usefully be cut yielding savings of perhaps £15bn depending on which are cut.  But for me that misses the larger point.  Most of the waste is deeply embedded in the working habits of a public sector organisation that has gone too long without a managerial spring-clean and big savings should (and could) come from programmes which no-one proposes cutting – Education included.

Assume by way of thought experiment that much of the waste could be eliminated over a period of years.  How important would that be?  Government spending comes to around £620bn with a forecast deficit of £167bn – hence the oft-quoted statistic that it is having to borrow one pound in every four spent – so, if the savings were, say, 20% (just half those of Psion) then the saving would be £124bn almost closing the gap; if savings reached 30% the deficit would turn into a modest surplus.  Moreover, the same accumulated bad habits that lead to waste make an organisation sluggish, unresponsive to its clients and generally unfit for purpose – which was the description famously applied by John Reid to the Home Office in 2006 but which is equally true of much of the rest of government.  So cutting waste will create an efficiency dividend in addition to cost savings.

Clearly, arguing by analogy with corporate experience is risky but as it turns out we don’t have to.  As long ago as the early 70s Leslie Chapman, then a senior civil servant, demonstrated that it was possible to save a typical 33% (his account of this is documented in his book “Your Disobedient Servant”), yet his reforming ideas were sidelined and never implemented.  More recently Prof John Seddon has shown that it is possible to achieve savings of 20-40% and simultaneously improve service delivery by abandoning the government’s target-driven approach in favour of a systems-based one (as explained in his book “Systems Thinking in the Public Sector”).   The difficulty appears to be that in best – or worst – “Yes Minister” tradition the senior civil service doesn’t want to know.  A perverse reward system has become established whereby inertia and complacency are rewarded and lack of clear accountability is endemic (if anything goes wrong it’s usually found to be a systemic failure with no individual to blame).  Top grades enjoy immense prestige and excellent salaries; on retirement they can look forward to a gong and an index-linked pension.  Why would they want to change a system that is obviously working so well for themselves?  It all reminds me of an oil major I used to work for where everyone paid lip-service to the importance of cost savings but actually achieved higher pay and status by running an ever-larger department, not by doing a good job.  Naturally the firm remained accident-prone and the headcount remained stubbornly resistant to top-down attempts by the Board to trim it until the reward system was changed.

So, I persist in my unfashionable belief that government spending could be pruned right back if there was the will to do so.  There are obvious problems with this approach, but they can be managed. 

First, any significant cost savings will inevitably result in large reductions in staffing; if these were directly in proportion to costs then a 20% saving implies a 1.2 million fall in headcount.  Therefore what is needed is not savage cuts but careful cuts which is a completely different proposition since government is not ultimately just another company.  For one thing it is very big, for another the people leaving would need jobs to go to or the costs would just come back to the government as unemployment benefit but mostly because the human cost would be unacceptable unless alternative jobs were created in parallel.  The implication is that cost savings would have to be done at a limited rate – spread over perhaps five years in the first instance, with as much of the headcount reduction as possible done by natural wastage.   Moreover, there would have to be a far more effective system for retraining those laid-off than currently exists.  (In fact, a better training/retraining system is something we need anyway because economic change is running at an unprecedented rate but that’s another story.)

In fact, I suspect that Labour dare not allow itself to consider the possibilities of cost savings largely because of their inability to see where alternative jobs could be created.  They have been using the public sector to soak up and hide the unemployment resulting from their failed economic strategy.

The second issue arising from cost savings is the macroeconomic one.  For the moment it is probably true that the economy needs government support to prevent a deeper collapse.  I see it as a tug-of-war; several of the team have slipped and gone down and we need the big man at the back to dig in deep and hold the line until they can get back on their feet.    However, it would take a year or so to tee-up any substantial cost savings programme and then because of the human dimension, as outlined above, cuts should be phased over several years so this will not be a constraint.

So my thesis is this: we need to slim down the public sector by an order of magnitude more than any politicians are advocating, this can be done by changing the reward structure for top staff but it should be done gradually over several years and in parallel with a re-engineered approach to training and retraining.   The initial benefits of a coherent and credible plan would start to accrue almost immediately and within about five years we would have a far stronger and more dynamic economy.

No pictures in our school

We spent yesterday with friend and their three primary-age children.   Since we last saw them their school has been rebuilt under a PFI scheme so one of the first questions was about how they like it.

“It’s boring – there are no pictures” said the youngest, age six.

His mother explained that teachers are not allowed to stick anything to the walls which are emulsion on plaster for fear that blu-tack will remove little patches of paint.   All artwork, charts, maps and the like are confined to limited noticeboards.

“But it’s very bright with nice big windows” mother said hopefully.   The children all said that they preferred their old Victorian school.

This is everything that’s wrong with PFI even allowing for the less than perfect information that filtered through to us.   I’m guessing that if there were a good case for a new school that this would have filtered through to the older children in some form.  (E.g. The roof leaks and would be too expensive to repair).   In fact I had earlier heard stories that staff and parents were not convinced of the need for a new school but had been overruled.

Cui bono?

But even granted that a new school was needed, the “no pictures” rule is deeply shocking for what it says about priorities – which evidently don’t include children.  Did the financiers not know that primary schools generate lots of artwork?  Did they fail to provide a suitable wall covering – or will they now attempt to blame the council for not so specifying?   And even given that it’s now a done deal what is so serious about a few divots in the emulsion?

Presumably the lawyers would be only too happy (at vast expense!) to sort something out but if we need their help to get a few pictures up we really have lost the plot.

For me this illustrates a point that is too often forgotten; that there comes a point in any scheme where financial analysis (which I assume this school ‘passed’) cannot help.   Even aside from the GIGO issue there is always a non-financial dimension which is not captured by a financial appraisal and which comes down to judgement.  For instance it might be the case that Plan A beats Plan B in financial terms by £10,000 but is less flexible.  So the question then becomes ’Is retaining flexibility worth £10,000?’   If it is, then Plan B is superior despite costing more.

At the end of the day it is hardly surprising if this and other PFI schemes emit a very bad smell for they depend for their existence on three very dubious factors:

1. The government’s desire to fiddle the books by moving expenditure off its balance sheet as a way of hiding its profligacy – and just look what that did for the banks! 
2. A pathological hostility to local government and democracy and preference for centralised control with Whitehall pulling the strings.
3. A  corporatist agenda – a penchant for keeping close to selected big companies and keeping the revolving door going.

None are exactly Lib Dem themes!  Am I alone in being mystified about why we don’t call time on PFI?

Britain: an Economic Sahel

Gordon Brown used to trumpet his success in banishing the ‘stop-go’ economy though he’s been strangely quiet on this recently.  Could it be that the difference between real fitness and pumping up with credit steroids is now painfully obvious to all?

Actually, even in his glory years there was another story in the real economy, happening largely beneath the media radar and so mainly unseen.

A friend is a robotic engineer.  He used to be part of a world-beating team of decommissioning experts working for British Nuclear (or whatever it was called at that stage).  His particular expertise was in robots that could decommission old nuclear facilities, going where no human could live – expertise that just has to be transferable to marine, space and goodness knows what other sectors.  I thought that he was well positioned career-wise and told him so only to be proven (temporarily) wrong when he was made redundant in one of the govt’s periodic cost-cutting drives.  The team is now split up and he works abroad.

The govt meanwhile is wondering why it is that young people don’t seem to want to go into science and engineering.  Could it be because they have more sense?

My friend’s experience is only one tiny part of what has happened to the entire UK nuclear industry on both the building and decommissioning sides with the inevitable result that the whole lot has slid into foreign hands.  As the BBC puts it:

…both clean-up and new-build will be dominated by large French companies, which are themselves controlled by the French state.

Something similar happened to railway rolling stock manufacturers under the Conservatives.  During all the prevarications, delays and changes of tack during the privatisation process, orders for new rolling stock dried up causing one of our oldest manufacturing industries to close. 

That is why when Virgin wanted new trains it had to go to Italy to buy the Pendolinos.

I could go on but already the pattern is clear.  Whatever is happening to the economy as a whole, individual sectors have all too often experienced unsurvivable swings in demand that are the industrial equivalent of repeated long droughts.  And it is these frequent draughts that make places like the Sahel so chronically impoverished.

My conclusion: govt needs to raise its game dramatically.  It talks the talk but doesn’t actually deliver.  Am I wrong to think that there are lots of votes in this and that people are far better at detecting BS than the politicians give them credit for?

Gordon Brown – Management by Crisis

It’s been like watching a slow-motion car crash; you could see it coming but do nothing to stop it.  The government’s prevarication and indecision on energy policy has condemned many people to a tough winter which today’s announcement of a £910 million package of home insulation grants and subsidies to help people with their energy bills will do little to prevent. 

Leaving aside for the moment the specifics of the package, this tells us something important about the way government in this country works; it is mainly reactive – responding to circumstances after the event rather than planning, anticipating and being strategic.  Between episodes of reacting to events it falls back into a control mode, exercising (or trying to exercise) detailed control from the centre. 

In short, it’s management by crisis.

Government needs to be strategic, to spot issues early leaving plenty of time to devise and execute a plan.  Contrast the German approach outlined here which is cutting greenhouse gas emissions, ramping up renewable electricity production and creating lots of jobs.

It could and should be done in Britain too, but it will require a different approach from government.