is no consensus about how it should be organized distinguishing two types of ...... You could say, we can use it early in the morning, 1 or 2 trains are going fast for people ...... In Bavaria, region offer contract to run traffic on some normal commercial ways. ...... The claim is not a one and one only Railbus based on the model.
IEDC - Bled School of Management Postgraduate Studies
Doctoral Dissertation INTEGRATION CHALLENGES OF THE EUROPEAN UNION: THE CASE OF FORMATION OF A SINGLE EUROPEAN RAIL AREA TOMAŽ SCHARA
Bled, January 2017
With my signature, I declare that my Doctoral Dissertation is the result of my own work and I am aware of the consequences.
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IEDC - Bled School of Management Postgraduate Studies
Doctoral Dissertation INTEGRATION CHALLENGES OF THE EUROPEAN UNION: THE CASE OF FORMATION OF A SINGLE EUROPEAN RAIL AREA TOMAŽ SCHARA
Mentor: Professor Richard Common Co-mentor: Professor Ian Sutherland Bled, January 2017 2
Table of Content 1.
ABSTRACT ....................................................................................................................... 5
2.
INTRODUCTION .............................................................................................................. 6
2.1.
Research problem and questions ..................................................................................... 6
2.2.
The use of Grounded Theory and contribution ............................................................. 10
2.3.
Personal ontology.......................................................................................................... 12
2.4.
Thesis structure ............................................................................................................. 13
3.
INFORMING LITERATURE .......................................................................................... 14
3.1.
Leadership ..................................................................................................................... 14
3.2.
Multi-Level Governance ............................................................................................... 16
3.3.
European integration ..................................................................................................... 22
4.
METHODOLOGY ........................................................................................................... 26
4.1.
Theoretical approach ..................................................................................................... 26
4.2.
Constructivist-grounded theory approach to the elite interviews ................................. 27
4.3.
Secondary data .............................................................................................................. 32
5.
CONTEXT........................................................................................................................ 34
5.1.
Historical perspective of European Union .................................................................... 34
5.2.
Historical perspective of the rail industry ..................................................................... 37
6.
REFLECTIONS AND FINDINGS .................................................................................. 41
6.1.
Reflections on the enablers of change .......................................................................... 41
6.1.1.
Leadership ................................................................................................................. 41
6.1.2.
Finance ...................................................................................................................... 45
6.1.3.
Policy......................................................................................................................... 60
6.1.4.
Structure .................................................................................................................... 79
6.2.
Reflections on the drivers of change ........................................................................... 105
6.2.1.
Market ..................................................................................................................... 105
6.2.2.
Technology .............................................................................................................. 110
6.2.3.
Ecology.................................................................................................................... 120
6.3. 7.
Summary of raised topics and key findings ................................................................ 120 DISCUSION AND CONCLUSIONS ............................................................................ 125
7.1.
Implications for theory................................................................................................ 128
7.2.
Implications for policy and practice ........................................................................... 131 3
7.3.
Implications for professional education ...................................................................... 134
7.4.
Further research opportunities .................................................................................... 135
7.5.
Final remarks and observations .................................................................................. 136
8.
REFERENCES ............................................................................................................... 138
9.
APENDIX ....................................................................................................................... 146
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1. ABSTRACT Raziskava opisuje izzive vodenja v postopkih povezovanja Europske Unije kot jih vidijo in pripovedujejo aktivni udeleženci v razvoju enotnega železniškega omrežja v Evropski Uniji, oziroma kot ga imenujejo v dokumentih Evropske Komisije the Single European Rail Area. Omenjeni povezovalni postopki zahtevajo voditeljstvo v okolju večnivojskega upravljanja v Evropski Uniji pri predhodu državnih monopolov v družbe zasebnega prava, ki opravljajo javne in zasebne stroritve na povezanem trgu Evropske Unije. To področje je vir teoretično in praktično pomembnih raziskovalnih vprašanj, ki jih raziskava naslavlja z metodologijo elitnih intervijujev in induktivnih ozemljenih raziskovalnih metod. Dognanja presegajo splošno sprejete in sprejemljive izjave o omenjeni fenomenologiji. Delo je umeščeno v socialno konstruktivistično ontologijo omogočeno s strogo metodologijo konstruktivistično ozemljenenih elitnih razgovorov z namenom razumevanja izzivov politike in industrije za zagotavljanje učinkovitega razvoja v bodočnosti. Rezultati raziskave umeščajo pojme voditeljsva in dolga oziroma denarja v povezavo, ki omogoča temeljno razumevanje socialnih odnosov in prispeva k rasti teorije in prakse. Omenjeni rezultati omogočajo tudi refleksijo na metodološki pristop. Demokratični, avtokratični in plutokratični principi vodenja demokratičnega političnega sistema so omenjeni.
This research is about the leadership challenges of the European Union integration as seen and told by the involved actors in the case of the formation of the Single European Rail Area. This integration process requires leadership in the multi-level governance context of the European Union and in the transition from state monopolies to private businesses providing public and private services in the integrated market. This provides a potential source of theoretically and practically relevant research questions explored trough elite interviews and rigorous grounded research methodologies that bring insights that transcend the currently accepted formal and public statements about these phenomena. The work is situated within social constructivist ontology, enacted through a rigorous constructivist-grounded theory in elite interviews methodology to understand the current challenges of politics and the industry and seeking more effective developments for the future. The findings place the concepts of leadership and credit or money into a relationship that could offer profound understanding of certain social relations and contribute to the growth of theory and practice. These findings are also elaborated as reflections on the methodological process. Democratic, autocratic and plutocratic aspects of leadership of running a democratic political system are mentioned.
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2. INTRODUCTION
2.1. Research problem and questions The European integration process has achieved remarkable results in the past decades to assure peace and prosperity to its citizens. It is a balancing act of building common political and monetary structures of the European Union while preserving much of the sovereignty of its member states. The post-nationalism and post-statism expectations of European Union integration did not materialize (Nettesheim, 2006). The member states as Westphalian regimes remain the addressee in the last resort to resolve economic, political and social problems (Jessop, 2010) given its fiscal and monetary powers for redistributive politics in rearranging the balance of forces and securing new social compromises. Those member states of European Union that are in the Eurozone monetary union have ceded some of this capacity which the Eurozone has not adequately taken over as I will try to show with this research. The dangers of this stage of development of this new regime of European Union governmentality is that the citizens of Europe perceive it as de-politicizing, with blurred accountability in decision making increasingly remote and obtuse (Shore, 2011). Ehin in (Ehin, 2008) criticized the inadequacy of intra-governmental models to set policies for the development of the European Union governance regime pointing to the need for holding the European Union to the same liberal and democratic standards of legitimacy applied to political authority in the nation-state. Ross in (Ross, 2008) warns of a pervasive sense of pessimism by people who deeply invested their lives in the European Union through careers committed to professionally ‘build Europe’, the conviction that the European Union is entering a new and very different era. An era where the European Union as an emerging regime of multi-level governance in which national governments are losing influence in favor of supranational and sub-national actors, raising important normative questions about the future of democracy within the European Union (Pollack, 2005). The European Union took unprecedented steps towards a deeper economic and political union raising a host of questions regarding European economic consolidation and the political will that go beyond what is written in the Lisbon Treaty (Schmidt, 2010). Studying the phenomenon of the European Union integration during my research for this thesis is an intensively developing environment to look at. Many things that I considered being granted when I started this research came under question during my preparation period for the interviews and even more so during the analysis period. Just to mention the most obvious developments: the EUR crisis that has culminated in Greece almost leaving or being expelled from the Eurozone; the referendums in Scotland and Catalonia; preparations for the Brexit referendum; the refugee developments from Africa and Middle East war-torn areas; the VW if not the car industry developments related to ecology and its sincerity about it; Ukraine related developments on the east borders of European Union; terrorism; and the relations with the other two players in the world political and economic developments, the United States and China. Public thinking has become more and more intertwined with my private thoughts, which I derived from studying a case of European Union problems in integration; integrating the European Union rail system. The good thing about it is that this has stimulated and extended my thoughts further as I explain in the methodology chapter. To overcome the paradox that literature on the European Union and European integration seldom focuses on organizations 6
and the processes of organizing, although organizations and organizing lie at the heart of the European integration process (Morth & all, 2004) I do so by focusing on the formation of the Single European Rail Area (European Union Commission, 2012). Transport of people and goods serves as fundamental infrastructure, a public good. Politicians and business leaders admit that there is still a long way to go to lower the ecological burden of transport. Too much cargo in European Union is shipped by road and too many people still fly short distances are the generally accepted assumptions. They agree that improvements of rail infrastructure and services across Europe would be part of the solution to lower the ecological burden on our environment and consequentially on ourselves. They also agree that these improvements are taking much longer to implement than envisioned and planned for (Giorgi & Schmidt, 2001). Transport of people and goods serves as fundamental societal infrastructure. In elite interviews politicians and business leaders (Aberbach & Rockman, 2002) talk about their thoughts, opinions and frustrations, and about the hurdles that prevent them to achieve what they all agreed upon in principle. What could be the difficulties that block such a noble cause as providing efficient transport services that are sensitive to the environment? Seeking parallels to other, but similar, well researched, understood and functioning performance regimes (Talbot, 2010) raised my common understanding of not only what to change but also how to change policy to achieve positive and meaningful changes in the European Union rail infrastructure. For the needed changes to happen in a regime like the European Union I considered leadership theories and multi-level governance theories. I had to expand my thinking about these issues also in terms of organizational and financial theories. Research results provide an additional perspective that could be useful to policymakers and business leaders to overcome these obstacles. A third-party view offers an additional viewpoint which can reduce tension in the current governance structure. Questions of integration resonate strongly with me on a personal level as I have a sincere interest on how polities like European Union, United States of America, former Yugoslavia in the context of globalization impact the lives of businesses and individuals. The integration process in rail industry requires leadership in the multi-level governance context of the European Union in the transition from state monopolies to businesses providing services on the integrated market. The CEOs of rail enterprises are using lowered barriers to business enabled by the European Union legislative to improve cross-border services for passenger and cargo transport. This provides a mechanism for member-states to increase the living standard of their citizens. Best practices in rail system development exist in member states however sharing this knowledge to improve Pan-European cross-border infrastructure and services is a challenge. The long financial crisis lasting since 2008 is affecting the European Union, the Eurozone monetary union and especially in its periphery, additionally slowing down investments into cross border infrastructure. Rail so far has failed to integrate itself amongst the various European Union member states to the extent needed, such as with other important industries like telecoms (Sandholtz, 1998) or banking (Cabral, 2002). The rail service integration in European Union is lagging developments in rail services in such jurisdictions as China in passenger traffic and the United States of America in cargo traffic. “During the 1950s the share of freight carried by railroads was similar (over 50%) and declining in both the United States and Europe. By 2000 the railroads’ share of freight (measured in ton-kilometers) had reached 38 percent in the United
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States while falling to 8 percent in Europe.” (Vassallo & Fagan, 2005, 2). Understanding this gap is part of the research problem I am addressing with this work. CEOs in the rail industry in European Union operate in a national and supranational legislative and regulatory environment that is constantly changing in the process of European Union integration. Rail industry leaders struggle to secure adequate financing of new cross-border corridor infrastructure and the setup of related services to support such important projects. Their hands-on experiences and opinions help political leaders to support them in pursuing business strategies of the companies they lead. That would improve cross-border infrastructure and services which are critical for further development of the Single European Rail Area. What are the political, financial, organizational, technological and other problems that emerge from the narratives of CEOs of rail enterprises, the leaders of their business associations and the European Union Commission as actors in the integration efforts of a Single European Rail Area? How does theoretical work and literature provide insight to the background reasons for these problems and does it provide ideas for their solutions? These are the main research questions and the answers will shed light on the Single European Rail Area development as well as on the European Union integration issues. It is important to note the political and economic environment of European Union directives in the form of packages of legislative measures named The First Railway Package, which was adopted by the European Commission in 2001, followed by the Second in 2004 and the Third in 2007 to promote market opening, product innovation and service quality, improved performance, interoperability between national networks and safety of a sustainable, well integrated and efficient rail system for passenger and freight transport (European Union Commission, 2011). Some cases of policy implementation have been published (Barea et al., 2007) where comments are made about leaving investment opportunities and responsibilities in the hands of the private sector. A newly published Transport White Paper (2011) by the European Commission is setting out the European Union transport policy for the next ten years including perspectives up to the year 2050 as a vision of a competitive and resource-efficient transport system with targets for the reduction of carbon emissions of the transport industry and the establishment of a Single European Transport Area. “We now call upon European decision makers to not only endorse these goals but to also introduce the right measures and policy instruments.; The publication of the Fourth Railway Package, the TEN-T guidelines and the Connecting European Facility, and carry on drawing attention to the rail industry's crucial situation in Central and Eastern Europe.” (CER, 2011: 1). Qualitative methods were my decision as the choice for data gathering and analysis. The general data collection mechanisms are open ended elite interviews (Rockman & Aberbach, 2002). The analysis approach is Grounded theory (Eisenhardt, 1989). This allows capturing insight into the issues in a Multi-level governance context that were not yet addressed within scholarly literature. The ontological assumptions are on one side based on my subjective realist understanding of the phenomenon developed while working in the industry and using abduction methods to research the current observations. On the other side, I will base further observations on constructionist ontology using inductive methods of theory building. Focus on my lived experience can be a valid source of scholarly questions. As a former CEO in the rail
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industry I was dwelling in the phenomena of leadership issues of the formation of the Single European Rail Area. By staying in a problem, I was using my senses to live the problem holistically and embody my reactions (Ladkin, 2008) to resolve questions in a constant dialog of myself as a researcher with the interviewees, the context and the informing theories. This helps me to gain new views and insights into the phenomenon and seek more effective developments for the future. Ontologically I am considering a social construction of the Single European Transport Area for insights and means of contribution to its further construction. I do not own the role of doing it but the role inhabits me (Gosling & Case, 2013) as a former executive in rail industry and as a researcher if this industry now. Looking at the constrains in the development and integration of the European Union rail industry from the perspectives of a CEOs of rail enterprises operating in this industry in their relations with the government of the respective member state as representative of the owner, the state; the government as a regulator of an open market; and the influence of the supranational legislative and regulatory bodies of the European Parliament and the European Commission with its Department for Mobility and Transport (MOVE) and the regulatory body in the rail industry, the European Railway Agency (ERA).The wealth of materials obtained in the interviews shares not only facts from their respective public statements but also values that drive the aim for major change of an industry, part of the definition used for leadership by Rost (Rost, 1993). I place this research in a wider context of leadership and performance theories that expresses it while considering also the political and economic environment in which these changes are taking place. The external coalition (Krackhardt & Mintzberg, 1985) of rail enterprises are researched and not the internal ones. I also do not directly address any technological developments in the industry. Internal coalitions are left out of this research because I do not consider them relevant for the integration issues. Technological developments in the industry are not researched because most of these developments are done outside of rail organizations. It is high tech production companies where technology is developed. They are not directly relevant to the integration aspects which I am studying though they might have their respective integration issues. Technology companies and their products only consequentially influence types, levels and security of services provided by rail organizations once implemented. The selected units of analysis are experienced CEOs and ex-CEOs of rail organizations and European Union level officials in their relation within the external coalition (Krackhardt & Mintzberg, 1985) around rail organizations including European Union legislative and regulation, member states legislative and member state ownership of rail organizations, public opinion and the history of rail from being a part of ministries of transport of respective states, later transformed into state owned enterprises within the same respective member states and taking part in the gradual deregulation of such an established market through EU rail Packages towards the EU Single Transport Area. The only distinction from the point of view of ownership between a public service run by a state-owned enterprise and a publicly traded enterprise running the same service is that the owners of the former are citizens of a state, whereas the owners of the latter are private individuals or investment and pension funds because they have voluntarily chosen to be that as shareholders (Dewenter & Malatesta, 1997). However, this already implies many differences in influencing and leading (MacCarthaigh, 2011). Also, marketing strategies seem to differ between private and state-owned enterprises since they react to various noneconomic pressures, like ecology or certain social services, and set objectives accordingly (Capon, 1981).
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Turning to my ontological and epistemological assumptions, the informing theories and my former role of a European Union rail executive. Rigorous grounded research methodologies bring insight that transcends the accepted formal and public statements about the phenomena. This provides a source of theoretically and practically relevant research questions. The work is situated within social constructivist ontology, enacted through a rigorous constructivistgrounded theory in elite interviews to understand the current challenges of the industry as part of European Union integration developments. In my ontology leadership is not necessarily embodied in a person or persons but can also be a purposeful social interaction. European Union polity is a perfect case to study whether such disembodied leadership (Sutherland, 2014) works in decisive moments of crisis or disruptive change. Or, in such cases, would more embodied leadership suit the purpose better? European Union integration processes are requiring changes that are taking place in a political environment that has added a further structural construct, the supranational paradigm. At the early stages of integration this paradigm was primarily focused on its regulatory functions of optimizing the policies of the common market, avoiding the distributive or redistributive objectives. Whether the European Union is primarily an intergovernmental regime or primarily a supranational regime (or a new development between the two or beyond them) is discussed from governance and legal perspectives (Joerges, 2006). This unanswered dilemma is creating tensions among peoples and citizens of the European Union striving to steer its future more towards one or the other who articulate this through their agents, the member state governments. Leadership and multi-level governance theories cover these topics so they were the informing theories on issues in the three-tier regime of corporate boards, national states and the supranational state (Talbot, 2010). The actors of power influencing or trying to influence the state-owned enterprise as a business organization beyond its formal leaders and managers through applying policy analysis of external coalitions are also analyzed (Krackhardt & Mintzberg, 1985). Performance regimes theory (Talbot, 2008) places a state-owned enterprise into the wider context of organizations providing public services. The transitions from publicly to privately delivered services confront different cultural aspects of public management where acceptability to managerialism in some administrative cultures is much lower than in others (Gheorghe & Common, 2011). The actual place where strategic decisions are made is identified as a space of defining common values and how these evolve into a formal written strategy as means of agreeing and communicating common goals (Mintzberg, 1987). These research communities and theories were explored in relation to this conflicting three-tier regime and identifying further research opportunities.
2.2. The use of Grounded Theory and contribution Whether European Union rail integration case study research will build a theory in a new topic area will be subject to the evaluation of its frame-breaking insights, the tests of good theory and convincing grounding in the evidence (Eisenhardt, 1989). Using grounded theory research in several cases involving CEOs of rail organizations and other supranational actors of in their relations with each other as a guiding context should not be seen as a generalization through empirical replication of studying cases, but as an attempt to add a case of grounded theory 10
research informed by critical realism to understanding and explaining a contextualized leadership as a scientific goal (Kempster & Parry, 2011). Besides the academic and theoretical contribution, from my perspective as a practitioner who has put theories to work and then to reflect critically on those experiences (Rost, 1993), I envision my research as contributing to the professional education and development for senior public managers in state-owned enterprises. Following experiential learning (Kolb, 1976) in development of learning styles for practitioners, which is used widely in management education, I apply the specifics and backgrounds of my research subject, and additionally and even more importantly gain the insight into how complex organizations like national rail companies transact and adapt to their environments through their learning processes. Following this framework of analysis, I expect that my thesis may act as a platform for professional development activity that links my real-world experience of a practitioner to active experimentation (or putting theory to use in a variety of organizational settings), which are not limited to state-owned enterprises or particular industries only. Thus, it may interest a wide variety of practitioners in European Union state-owned or privately held commercial organizations that partner with one another and are regulated by government. My research is policy informing for consultants and think tanks to governments about further policy development and implementation, for institutions like the European Commission – Directorate General for Mobility and Transport and Community of European Railway and Infrastructure Companies, transport ministries of member states and rail organizations. My research culminates in this PhD dissertation. An article that was submitted on the methodology that I named constructivist-grounded theory in elite interviews used in this research was accepted without revisions to be published in International Journal of Public Leadership. I was invited to present the methodology and first findings with further research opportunities as conference presentations on several conferences and business schools; like the ISLC 2014 conference at the Business School in Copenhagen, Denmark; CEGBI at the University of York, UK in 2015; the ILA annual 2015 conference held in Barcelona, Spain and the 2015 Academic conference at IEDC, Slovenia. The aim of my research is to provide insight into how complex organizations like rail companies should transact and adapt to the multilevel governance regimes they work in. Complexity comes from coordination of capital intensive cross-border investments into infrastructure and bettering cross-border services in an environment regulated by many layers. These gained insights can assist to inform other organizations and systems that operate in similar organizational structures. It is my belief that my research thesis will interest a wide variety of practitioners and politicians steering public services and businesses in such regimes, and those responsible for policy changes in such regimes. As implications for theory my research provides further insight and support to critical leadership theories. The outcomes show that leadership cannot be sought in one person or even a defined group of leaders and followers since the relationship is based on influence which is multidirectional, coercive; the relationship is inherently unequal because of the influence patterns; not all the leaders and followers intend real change, that are purposeful, substantive and transforming; The intent is in the present and the need for changes and not in the distant future because of strategic business reasons, like existing and aggressive competition in the market; “Leaders and followers develop mutual purposes in a non-coercive influence 11
relationship, they develop purposes not goals, the intended changes reflect, not realize, their purposes; the mutual purposes become common purposes” (Rost, 1993, 102-103). Results show a slow pace of policy changes due to the disembodiment of leadership in the Multi-level governance regime of European Union. Findings regarding the analysis of gathered data place the concepts of leadership and creditbased financing into a relationship that could offer profound understanding of certain social relations and contribute to the growth of theory and practice. A contribution to theory and practice supports the relevance and rigor of ‘constructivist-grounded theory in elite interviews’ as a methodological approach I explain in the Methodology chapter. It supports qualitative research in complex political environments, such as the multi-level governance structures of the European Union, to help explain policy outcomes such as the problems associated with European Union rail integration. A clearer understanding of leadership within such dynamic contexts can contribute to better policy-making in the European Union and better outcomes for its citizens.
2.3. Personal ontology Living through the breakup of Yugoslavia and then the integration of Slovenia into the European Union gave me a 'hands on' experience on the impact of disintegration and integration turmoil on the lives of individuals and businesses. Leading Slovenian Railways as the CEO for two years in the mid late-2000s was an experience where I gained personal understanding of the rail industry and the issues of its integration. Regular meetings with CEOs of other rail organizations, meetings of industry associations and those with the representatives of the European Union Commission broadened my understanding of the context and the experience that can enrich the ability to analyze and a network which allows me to get interviews that others would find difficult to get. However, these personal experiences also burdened me assumptions that I needed to uncover, identify, understand, question and disclose in the methodological approach. With my entering the world of research as a PhD candidate gives me a chance to reflect upon and challenge assumptions about organizations, business and leadership developed during my professional executive career. In addition, there is opportunity for reflection on the ‘worldview’ and understanding the foundations of business, politics, finance and their interplay. Executives operate primarily from the positivist perspective, but social construction is equally important. Even mathematical theories are social constructs themselves, derived from and based on humanly selected axioms, an understanding that derives from my graduate studies of Mathematics. Understanding the researcher’s worldview is essential. Firstly, it allows identification and then suspension of assumptions about the phenomena being studied. Secondly, it drove the selection of the research methodology and its influence on the data gathering, analysis and outcome synthesis. With a constructivist-grounded theory approach to elite interviews the interviewer, researcher, is one of the actors involved in the dialog with interviewees and the informing literature constructing new insights into the phenomenon and its context. Some defining moments in my life that are relevant to shaping my worldview in brief. One was the decision to study Mathematics instead of Philosophy, the argument at that 12
time being to have more philosophical freedom, as Marxism was then the prevailing theme at the University. After completing the studies, the next decision was not to continue my life working in research like my father did but to go into entrepreneurial waters, more like my grandfather. After ten years of growing a business in software industry started with friends and a finished MBA I was not emotionally attached to it enough anymore and curiosity drove me into new companies and industries with various ownership and leadership structures taking on various roles of CEO, CFO, chairman, board member and consultant the path led me back to study philosophy, with the aim to understand more fundamentally the what and why is leadership as opposed to the how. Further references to the importance of this disclosure are in the Methodology chapter.
2.4. Thesis structure The structure of this thesis is wedded to the research approach and reflects the continuous dialogue between the researcher and the interviewees, the informing literature and the context. There are four cornerstones to this process: the researcher, the interviewees, the informing theories and new developments of the context. The informing theories studied prior to the interviews and that were related to during the interviews are mentioned in the chapter entitled “Informing literature.” My involvement in the phenomenon and my ‘worldview’ impacts the research methodology during the interview process. It is elaborated upon in the chapter entitle “Methodology” together with the Constructivist-grounded theory in elite interviews method, which provides the methodological base for the approach to study this phenomenon, the reasons for choosing it, experiences and issues with using it, and a discussion of the roles of the interviewees and the researcher in theory building. The chapter entitled “Context” will discuss the phenomenon of the formation of a Single European Rail Area in its wider context, the creation, integration and developments in the European Union. The “Reflections and Findings” chapter elaborates on the inductive theory-building process. “Discussion and Conclusions” includes an incremental literature review of informing theories studied during the time the interviews were in progress intertwined with the former literature review and findings into a discussion and conclusions.
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3. INFORMING LITERATURE Engagement with the literature assisted me to go beyond the prior ‘hands on’ experience with the phenomenon (Corbin & Strauss, 1990). At the beginning, I expected Leadership, Multilevel Governance, Performance Regimes and Coalitions theories were those to be related to actively during the research. The interviews themselves revealed more and more that Economics and Political sciences need to be added into the literature review. I explain the reasoning for this in the Methodology and Findings chapters. These theories illustrate the various approaches to the studies on the leadership phenomena, like Philosophy, Humanities, Arts and Social sciences. The disclosure of informing theories is deemed essential to understanding the methodological approach further described in the next chapter. The mentioned theories are not categorized or ordered per their relevance to the phenomenon since they were initially not studied in any such order. Roughly they could be divided though in those that deal with the contextual aspects of the phenomenon; the phenomenon itself; the leadership and change within the phenomenon and its context and those that focuses on the role of the researcher in the research process. Their relevance is assessed only during the interviews and grounded theory buildup.
3.1. Leadership The informing Leadership theories are based on a postindustrial definition of leadership. “Leadership is an influence relationship among leaders and followers who intend changes that reflect their mutual purposes” (Rost, 1993, 102). From this definition, there are four essential elements that must be present if leadership exists or is occurring. That is that the relationship is based on influence that tries to be as much as possible multidirectional and non-coercive, even though the relationship is inherently unequal because of the influence patterns of those who intend change; that are purposeful; substantive and transforming (Rost, 1993). Rosts’ definition is clearly worded and provides specific criteria to differentiate leadership occurring in the observed phenomenon from other social interactions. Looked at in the European Union context they are usable for scholars as well as practitioners and they provide a foundation from which to analyze the data about the phenomenon gathered from open-ended interviews. It also serves as a comparison benchmark to compare outcomes directly with the definition and theories based thereon. Leadership, in its postindustrial view as defined by Rost (Rost, 1993), is not equivalent to performance regimes and or external coalitions in a multi-level governance context. Not all that goes on in the external coalition or performance regime is leadership. There are other social interactions taking place, like the need to preserve continuity (Gosling, IEDC PhD seminar 2015). Leadership gives all those interactions a certain mutuality of purpose that aims at change. The roles of leaders and followers are performed by CEOs and politicians, at the national and the supranational level. Not all of them have both roles all the time and especially not at the same time, but rather these two roles bounce back and forth from time to time. Leading a market-driven enterprise is researched (Hafsi & Koenig, 1988) from leader-centered perspectives on leadership, transformational and stakeholder theories especially because “There is growing evidence that situational constraints may be much more important in 14
restricting the transformational leader’s room for maneuver than is generally appreciated” (Jackson & Parry, 2011:34). Critical leadership theories (Jackson & Parry, 2011) inform the research question with findings on multilevel governance environment of a state-owned enterprise in case of a supranational environment like European Union where further research will be needed on such themes as lack of embodied leadership, and conflicts of national and supranational provoking coercive control. Leader centered theories are too narrow an approach to research the complex phenomena of organization development that have historically developed to today’s governance structures that go beyond hierarchical organization of national states and / or business organizations (Hatch, 1996). Ladkin (Ladkin, 2010) roots the discussions on Leadership in Philosophy, since leadership is its concern since millennia. Notice here Plato’s The Republic and the enduring challenges facing democratic societies (Williamson, 2008), personal versus public interests, “good life” pursuit of justice and knowledge of leaders’ philosophers versus consumerism, and compare this for a second with contemporary political leaders. Philosophy provides questions and critique. It focuses on a lived experience as a valid source of knowledge. Normative approaches of deontology and utilitarianism are not enough; it is dwelling in the phenomena of Leadership that helps it to resolve ethical questions. By staying in a problem, we use our senses to live the problem holistically and embody our reactions. It also considers our reactions to others and to phenomena around us. Through aesthetics it connects with beauty (Ladkin, 2008) and consequentially with the arts. From these discussions follows a strong argument for the embodiment of leadership (Sutherland, 2014) which would challenge the seemingly disembodied leadership of the European Union. Management academics and practitioners are increasingly interested in the complexity-based continuous transformation models of change, in studying non-linear and self-organizing models used in natural sciences, to gain further insight into change (Burnes, 2005). At least they should be able to serve as a metaphor to think beyond traditional hierarchical models. It is argued that most efforts at change fail because they seek to impose top-down, transformational change instead of adopting the self-organizing approach necessary to keep complex systems operating at the edge of chaos to seek equilibrium vs. non-equilibrium. These systems even in natural sciences are difficult to measure and predict because boundary conditions have significant effects on the model itself. What is so different about complexity theories? Why is complexity better suited to understanding and changing organizations than previous attempts to apply science to organizations? Proponents’ claim that mathematics, which has, arguably, revealed the workings of the natural world, have also given us the key to understanding the complexities of the social world (Burnes, 2005). Research on state-owned enterprises was popular in periods of deregulation in the 1980-1990 in United States of America and European Union and recently this research topic has been actively pursued in China (Liu, 2009), considering the imminent conflict between the state as an owner and the state as a regulator (Davis & Keiding, 2005). Research has been published on public organizations in multilevel government environments (Talbot, 1996) and efforts to shed light on an increasingly opaque and complex regulatory system in European Union (Pollitt & Talbot, 2003), (Muñoz & Petit, 2005a), but virtually no research exists on leading a stateowned enterprise in the context of a supranational regulatory and legislative body like the European Union.
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Performance regime theory (Talbot, 2010) considers the institutional context of performance steering and the nature of actual performance interventions by various actors. A performance regime considers multi-centric accountabilities towards national governments and European Union legislative bodies and their regulators, auditors and inspectors, and others with statutory rights such as the rail industry with traditionally strong labor unions. Policy analysis allows analyzing actors of power influencing or trying to influence the state-owned enterprise as a business organization beyond its formal leaders (Mintzberg & Waters, 1985). Performance regimes theory (Talbot, 2010) that positions the organization into a context of influence and strategy theory of action (Hafsi & Thomas, 2005) that explains the role of strategy as a force that integrates are the informing theories in developing a model of productive cooperation between the CEO and the national government within European Union.
3.2. Multi-Level Governance Multi-level governance is considered a rather new research discipline, and it is still disputed whether it is a theory or an amalgam of existing theoretical fields of intergovernmental and supranational research, or just describing European Union integration (Hooghe & Marks, 2001). It was adopted into the discourse of researchers and practitioners studying the complexities of European Union government and governance from the 1990s onwards (Marks 1993). With its flexibility in addressing various levels and actors it is used as a normative and especially as an analytical tool. It shows that in the decision-making process more non-state actors take part. What it does not claim is a diminishing role of a national state but one that is more dynamic in all directions, upward, downward and sideways. This research places rail industry and companies as non-state actors in the multi-level governance context. “Multi-level governance is likely to be more prominent in areas that state actors deem less important to their interests” (Bache & Flinders, 2004, 199). The interplay of roles of the government, industry and other stakeholders in delivering public and private sector services is analyzed through governance models that try to structure this interplay into four quadrants: 1) State Regulation and Enforcement; 2) State Delegation & Business/NGO Direction; 3) State Delegation & Business/NGO Engagement and 4) Business/NGO Innovation & State Endorsement (Mirvis & Googins, 2013). Multi-level governance is adding another dimension to these quadrants, so the quadrants expand into parts of a cube. Still the complexities of governance with such models allow for a structured approach in research and thinking about organization development. It shows that strategic policy transfers in the process of administrative reform in the new European Union member states as they join is anything but a straightforward process. It depends heavily on the past cultural aspects and notions of the role of civil service in the society. Also, the political elites appear to seek European Union support and advice to expedite the European Union accession to comply with European Union requirements nominally by accepting the required legislation. However, this assumption masks alternative agendas of the elites to accept change in a manner and extent that preserves the existing power structures, and evidence suggests that administrative reform is deeply problematic on itself (Gheorghe & Common, 2011) and that more powerful means of change and integration than legislation and administration, are to be looked for in the leadership domain as is presented in the outcomes of this research. 16
As this research is focused on the European Union integration issues on the case of the formation of a Single European Rail Area I skip the centuries of city states and their formation into distributed entities based on personal and economic interests (Spain, Holland etc.) then further to territorially compact national states way into the 20th century. After two bloody world wars that started in Europe among the national states, the founding fathers of today’s European Union started its integration process and stated the aim of this process to avoid anything comparable in the future. It is informing to read what scholars have observed while thinking and analyzing this process considering insight, explanations and prediction powers of this writing in comparison to the latest developments in European Union like populism, Grexit, Brexit, twisting laws and regulation with dilemmas, EUR common currency troubles, asylum seekers or car manufacturers to name only a few. Let me thus continue with some illustrative examples of multi-level governance theories in their search for what is governance as opposed to plain old government. Each proposes a new important mode or model of governance, very like the various modes of leadership, which calls for a critical evaluation and revamp of the research field as much as the phenomenon itself. It is not the “modes of governance” that are the issue but the ultimate aims achievable only through solidarity of Europeans (Habermas, 2015). The study of the European Union has emerged in three distinct theoretical approaches. The first approach which seeks to explain the process of European integration, has largely abandoned the long-standing neo-functionalist – inter-governmentalist debate in favor of a rationalist-constructivist debate reflecting broader developments in international relations' theory. A second approach, however, has rejected the application of international relations' theory in favor of comparative politics approaches which analyze the European Union using off-the-shelf models of legislative, executive, and judicial politics in domestic politics. A third and final approach sees the European Union as an emerging system of multi-level governance in which national governments are losing influence in favor of supranational and sub-national actors, raising important normative questions about the future of democracy within the European Union (Pollack, 2005). European Union is a discourse-based multi-level governance structure (Neyer, 2003) where hardly anybody would dispute the fact that the European Union is less than a state but more than a regime (Wallace, 1983). However, what is it? What are the most important structural characteristics of the European Union which justify the claim that its description necessitates a third category? Integration theory beyond anarchy and hierarchy among them is the concept of ‘multi-level governance’. The word ‘governance’ has become a policy motif in the European Union and since its meanings are ambiguous and often poorly understood focusing on the European Commission’s claim to have developed a new, more open and progressive model in the Green paper on The Future of Parliamentary Democracy and the Open Method of Coordination. Using critical social theory, Shore (Shore, 2011) shows that the Commission’s neoliberal governmentality is undermining democratic government and promoting a politics of exclusion which profoundly depoliticizes decision making and making it increasingly remote to the citizens of Europe. The official and academic discourse on European governance is increasingly schizophrenic (Zielonka, 2007). On the one hand, European Union is seen as a prototype of post-modern, multi-level, poly centric governance that is decentralized, flexible, deliberative, informal, inclusive and non-territorial. The old centralized top-down model of governance, with its rational performance standards and tight command-and-control mechanisms, is slowly giving way to a process-oriented model of governance, made operational in horizontally structured networks’ (Rifkin, 2004, 224–25). On the other hand, European Union governance is still 17
largely about securing compliance with European Union laws and regulations, formal and structured decision-making, greater convergence and standardization, suppression of diversity and consolidation of the external boundary. ‘Ever closer union’ is still the official aim of European integration and there is ongoing pressure for ‘institutional fusion’ (Wessels, 1998). European Union regulation is still highly detailed, prescriptive and coercive. ‘The precision of European Union law is backed by a coercive approach to enforcement’ (Kelemen, 2006, 108). The conflict between the market competition and social Europe policies fosters the need for ongoing evidence-based research in evaluating the effectiveness and legitimacy of governance regimes (Maher, 2009). The European Commission’s White Paper on Governance is another example of this schizophrenia (Commission, 2001). It advocates the progressive adoption of new forms of governance, such as self-regulation, co-regulation, the open method of coordination and independent regulatory agencies. However, it also wants to enhance the old and rather rigid ‘Community Method’ which envisages a strong central authority managed by the Commission itself. The modes debate about governance and the relationship between governance and government as most have focused upon markets, hierarchies and networks as principal modes of governance, (Bell et al., 2010) adds persuasion to constitute an additional mode of governance that interpenetrates other modes of governance. All this in the effort to gain insight into what differentiates governance from government, if this difference really exist, is at least possible or is it only wished for to justify the existing or aimed for European Union polity. The dilemma of European social model and its spatial manifestation suggests that a new mode of governing called the Open Method of Coordination (OMC) first mentioned in the Lisbon Summit of March 2000 as a way of implementing European Employment Strategy as a departure from total reliance on Community Method and its heavy-handed, regulatory approach to governing (Davoudi, 2005). The OMC is seen as a ‘softer’ mode of governing which is based on policy learning through information exchange, benchmarking, target-setting, peer review, deliberation, voluntary cooperation, and naming and shaming of those who lag. OMC can be seen as an example of multi-level governance (Hooghe & Marks, 2001) and a way of reconciling the logic of integration and the logic of diversity in the European Union. It is seen as another mode of governance that should be a more open and democratic which seeks to engage a wider range of stakeholders in the European Union policy development against claims the European Union suffers from a crisis of governance (Eberlein & Kerwer, 2004). New modes of governance based on voluntary performance standards, benchmarking, bestpractice standards can lead to more effective rules and more opportunities for political participation, while one of the main problems is how a voluntary mode of governance can coexist with compulsory regulation. Comitology mode of decision-making can be interpreted as a response to the non-unitary and non-hierarchical (‘heterarchical’) nature of the European Union as response to the regulatory needs of the multilevel governance of European Union (Joerges, 2006). ‘Deliberative supranationalism’ and the understanding of European law as a new conflict of laws allows us to safely assume that Europe will not transform into a unitary state or some kind of federation. It is instead likely to remain a multi-level system which needs to manage its affairs without a hierarchical order of political authority. The complexity of comitology and the committee system is a response to the need to institutionalize co-operation. ‘Deliberative supranationalism’ rests upon contingent conditions and comitology is a normatively imperfect institutionalization of co-operative problem-solving. ‘Comitology’ is competing with less formalized ‘new modes of governance’, on the one hand, and rigidly neo18
liberal integration strategies, on the other. European Union, being neither a parliamentary democracy nor a separation-of-powers system, the two systems of rule found among today's democratic nation states, must be a sui generis polity (Majone, 2002). During the three centuries preceding the rise of monarchical absolutism in Europe, the prevalent constitutional arrangement was mixed government - a system characterized by the presence in the legislature of the territorial rulers and of the estates representing the main social and political interests in the polity. The argument is that this model is applicable to the European Union and basic principles: institutional balance, institutional autonomy and loyal cooperation among European institutions and Member States. Separation-of-powers has not prevented the United States of America Congress from delegating extensive rule-making powers to independent commissions and agencies. The European Union Commission to become the sole European Union executive, as in a parliamentary system, needs to separate the regulatory function from general executive power. There are a number of books and articles on whether the European Union presents a "Democratic Deficit" and if so whether and how this may be overcome postulate the normative validity and applicability of a certain model of democracy that then serves as the standard against which the democratic character of the European Union regarding its institutional structure, constitutional ideals or the social and psychological conditions prevalent among Europeans is measured (Nettesheim, 2006). Based on such an approach, it is easy to conclude that the European Union has a "deficit in democracy" and lead to the conclusion, if not the demand, that the European Union ought to acquire the attributes and characteristics of a nation-state democracy. Transforming the decision-making system into a parliamentary democracy, creating a "European people," and a "European identity" are the difficulties the European Union faces in implementing these suggestions and proposals. Drawn on Foucault’s notion of governmentality, the emerging and innovative horizontal and networked arrangements of governance-beyond-the-state challenge traditional state-centered forms of policy-making are decidedly Janus-faced (Swyngedouw, 2005). While enabling new forms of participation in a state–civil society democratizing relationships ways, they also redefine and reposition the meaning of political citizenship and the nature of democracy itself leading to a substantial democratic deficit increasingly eroded by the market forces using performance and agency as a means of disciplining forms of individuation. Models state- and regulation-theoretical approaches to the European Union as an emerging political system and its role in promoting economic growth is developed (Jessop, 2006). It argues that: “(a) the emerging EUR polity is a crucial political site in an evolving system of multi-scalar meta-governance, organized in the shadow of post-national statehood, of the contradictory and conflictual processes of Europeanization in a still emerging world society; (b) the EUR polity is a key element in an ongoing transition from different forms of Keynesian welfare national state to different forms of Schumpeterian workfare post-national regime, with the European Union having a major role in promoting the knowledge-based economy and the modernization of social policy through new forms of economic and political organization and (c) an important element in this new role for the EUR polity is the open method of coordination, which can nonetheless be seen as flawed, for reasons that in part affect most forms of governance in capitalist societies and in part are specific to the open method of coordination in a European context” (Jessop, 2006, 141). This requires increasing attention to activities above, below and beyond national borders. Secondly, continuing divergences in economic and social 19
policy regimes, reflecting the path-dependent legacies of different models of capitalism, state traditions, balances of forces, accumulation strategies and hegemonic projects are to be expected and are also seen in actual developments of the European Union integration and disintegration processes. Less convincing is that these divergences will develop as global divisions of labor between United States of America and European Union. Third, in pursuing national interests it is misleading to regard the European Union as a supranational state or a mere site of competing intergovernmental and corporate interests. European Union cannot act and does not act, because it has not agreed to do so, like a national sovereign state. Fourth, one rather symptomatic proposal has been made to include the United States as a formal partner in deliberations over the future of Europe (Bergsten, 2003). It is illustrative that the European Union Council meeting “when the EUR was saved” was partially presided by the United States of America president (FT, 2014). Using data from the Eurobarometer for assessing the legitimacy of the European Union between rival perspectives (Ehin, 2008) the findings strengthen the case for holding the European Union to the same liberal-democratic standard of legitimacy that is applied to political authority in the member states. The legitimation by results advocated by the technocratic and intergovernmental models is not sufficient. Democracy, shared identity of a European demos and effective performance constitute irreducible requirements that political authority in liberal-democratic societies must meet to be considered legitimate (Lord & Beetham, 2001). European Union to project its model on to the rest of the world through narratives of the idea of Europe as a civilian power is not the European Union as is, but a EUtopia (Nicolaïdis & Howse, 2002). Institutionalist or legalistic thinking about the challenges of governance beyond the state have shown that gradualism of European Union is perceived to work well in times of growth and prosperity and completely failed at the first economic and political crisis by which European Union was not even fundamentally affected in the first place. The developments show that this is even more so in the Eurozone as the monetary union part of European Union, thus the part of European Union that has moved further on from intra-govern mentalism towards a supranational structure, but did not yet reach a normal polity and structure as we know them for a functioning state. Gradualism in good times has not prepared European Union and its citizens for the recession, European Union citizens’ living standard have not improved compared to competing economies and in European Union gradualism proved to be completely in adept to any reasonable response to recession. The term Europeanization covers five separate phenomena: Changes in external boundaries; Developing institutions at the European level providing some degree of coordination and coherence through formal-legal institutions of governance and a normative order to enforce binding decisions and to sanction non-compliance; Penetration into national systems of governance through division of responsibilities and powers between different levels of governance, European Union, member states and regional; Exporting forms of political organization beyond the European territory focusing on relations with non-European actors and institutions while maintaining a positive export/import balance as non- European countries import more from Europe than vice versa (Olsen, 2002) is a very strong statement about how one cannot play a role model or influence the world without first setting things up properly at home like a political constitution of people and peoples accepted as such by them. A political monetary union which means democratically in the parliament agreed upon transfers, a defined territory and a coherent external politics. As recent crisis as Brexit, Grexit, asylum seekers and relations with other world powers have shown recently.
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Coexistence of multilevel governance structures comprising overlapping authorities and competing competencies, moving beyond the conventional hierarchy/anarchy dichotomy to distinguish domestic versus international and consequentially is a radical transformation of the familiar Westphalian system that undermines state sovereignty. Sovereignty by member states is prolonged in the case of European Union (Aalberts, 2004). Weberian, conception of sovereignty as a monopoly on the legitimate use of force, national state politics and international politics distinction is submerged into a collective supranational decision-making process and structures that have caused shift of authority in various directions. In the case of the European Union this shift is not identified to lead to a new level state structure but a beyond state structure. Inter-govern mentalism argues that integration is merely an institutionalization of close co-operation between member states, who consciously give and take bits and pieces of their sovereignty (in areas of ‘low politics’) to improve the promotion of their national interests, including the protection of their sovereignty, in areas of ‘high politics’. Aalberts, in (Aalberts, 2004) argues that social constructivism can explain the paradox, by considering sovereign statehood as a process-dependent institutional fact, and by showing that multilevel governance can feed into this process. Multi-level governance supposedly overcomes the intergovernmentalism neo-functionalism/supranationalism debate by presenting a new ‘in between”. What clearly distinguishes multilevel governance from supranational approaches, however, is that it does not regard the European Union as developing into a state which would mean a reconstitution of the state with all its constituents on a higher institutional level, but rather of governance beyond the state. The problem with this thinking is that it sticks to the Westphalian definition of sovereignty over a territory with its legalistic and processual constrains without considering other aspects of sovereignty like culture, language, economy and monetary/fiscal elements. Since it does not take into account the later it cannot distinguish between the issues of European Union and Eurozone separately. Thus, as much as the conclusions might be interesting for the relations among the constituents of the European Union that have their own respective currencies it cannot provide an insight into the dynamics of the Eurozone where the constituents have progressed a step further by establishing a monetary union of a kind. Institutions, procedures and rules associated with parliamentary democracy in each of the member states with quantitative analysis discovers that the core features of the democratic polity across Europe have proved strikingly resilient in the face of the transformational effects of integration (Anderson, 2002). European Union has increasingly focused on economic rights while political and social rights remained tied for the most part to the member states. (Bauer, 2002) examines the example of the implementation of the European Union structural policy in Germany, through ‘societal participation’ and ‘policy evaluation’ as two important sub-fields of ‘partnership’ regarding its transforming potential of supranational and subnational actors circumventing the member state authority that has not materialized. The same could be said also for businesses or industries as subnational actors like the rail industry, calling into question whether it is an appropriate and sustainable inter-administrative co-ordination device when viewed from the perspective of multilevel governance. The European Union Commission has a double role as ‘partner’ and by controlling European Union institutions. Program implementation phase could be left to member state and regional administrations. This would not be re-nationalizing of European Union structural policy but would help the European Union Commission to re-focus on general regional development strategies. The size of structural funds is not considered. As the European Union budget is hardly 1% of European Union GDP 21
most of the money for the regions is budgeted for in the member states and not in the European Union Commission. Though there is no need to involve the European Union Commission on actual implementation of the projects instead of delegating this to the member state government since regions or companies are not formally a constituent in European Union the provided monies do not guarantee adequate influence in the process to the European Union Commission. The European Union Parliament is abler to exercise influence in the regulatory than the distributive policy (Burns, 2005), but the status and nature of the cost-payers and beneficiaries are key determinants of influence, the net contributors have the perception that the 1% European Union Commission budget is their direct support of the net receivers. “Conflict is a constitutive and animating feature of market societies. The core argument is that where conflict manifests in networks, the exercise of authority often becomes necessary to sustain them. However, the exercise of authority can undermine trust and reciprocity, further undermining networking. These findings suggest that where conflict manifests itself, hierarchical intervention, which may simultaneously be necessary for networking, but undermine it. Conflict therefore places proponents of governance as networking in a dialectical bind, when the center does not wish to intervene but has to, and such intervention undermines local networks, in turn prompting the further exercise of state authority (Davies, 2005, 311). This is an extremely lucid statement about the balance between central and distributed thus being a core challenge of governing almost any system. It misses the point that money is the mechanism. Not ideal, not just, but still a mean to resolve conflicts in business and in the society as a whole.
3.3. European integration Legitimacy and democracy have become central to European integration as the claim that the European Union is insufficiently democratic and suffers from a legitimacy deficit (Ehin, 2008). The governance of the European Union seems to defy classification and achieved a level of integration far beyond other regional groupings like Mercosur, NAFTA and ASEAN, but never quite having settled the political status. Most problematically, the European Union still lacks legitimacy in the eyes of many of its citizens, despite the democratic accountability built into its decision-making system at many levels (Grabbe, 2002). Mechanisms of conflict management in European Union regulatory policy-making building on a distinction between aggregation and transformation as two strategic options to deal with inconsistent preferences or identities as a cause of social conflict are explored (Eberlein & Radaelli, 2010) and describe five strategies: issue-based aggregation; arena-based aggregation (arena-shifting and arenacreation); socialization; re-framing and proceduralization. These leads towards constructivism of political goals that regulatory choices are cast in the language of efficiency rather than redistribution and that regulatory legitimacy is more procedural than substantial. This allows delaying conflicts over distributive implications to the implementation phase and has lock-in effects for losers as distributive effects became apparent. The need for redistribution and that it does not exist is one of the findings of this research on the formation of the Single European Rail Area. Efficiency criteria for the allocation of prerogatives to different levels of government are greatly needed (Jamet, 2011) in the search for an optimal institutional design in the European Union through economic convergence of efficient centralization of policies where 22
(Jessop, 2010) shows that the national state remains the last resort to resolve economic, political and social problems of territorial integration, social cohesion and social exclusion given its redistributive politics in rearranging the balance of forces and securing new social compromises. In relationship between supranational regulatory policy and national administrative change the potential for change and cross-national convergence varies with the particular governance pattern used (Knill & Lenschow, 2005) and (Knill et al., 2009): coercion, competition and communication they conclude, that governance in the European Union can hardly be understood as network governance (Kohler-Koch, 1999) or the ‘regulatory state’ (Majone, 2002) and rather claim that governance in the European Union is through legal coercion and promotion of competition between national institutions or the stimulation of communication and information exchange in transnational networks that have different effects on the process and outcome of national institutional change that is persistence-driven, outcomes-driven and legitimacy-driven. Few expected results from the European Union’s Cohesion policy (Leonardi, 2006). The peripheral and less-developed regions and countries have not fallen behind the developed countries of the core, but also they have grown at faster rates than the core areas helping reduce the socio-economic disparities between core and peripheral areas. The Cohesion policy represents more than a policy of the full access to the Single Market aimed at the spurring of economic development. Its political policy aimed at creating a more cohesive Union and a commitment to mutual solidarity between Europe’s wealthier and poorer regions. In contrast to the expectations as the policy evolved into it’s the fourth cycle (2007–13), it has not become its most important achievement along with introducing multi-level governance as a new method for the formulation and implementation of policies at the European Union level as a neglect of the impacts of a monetary union and its impacts in on the Eurozone members in an economic downturn. It has not materialized since the mechanisms and especially the committed for funds were far too small for the task in the economic downturn. Other much more powerful sovereign structures are needed as sovereign states coping with this economic downturn show. They are also missing in the European Union and especially the Eurozone, the monetary union part. The debate on the constitutionalization of the European Union has focused on whether the European Union needs a constitution and, if so, what kind of constitution. Should it be based on processes like micro-regionalization, Europeanization and globalization? (Longo, 2003). This dilemma did not contribute to the immediate economic issues but would be essential to political discussions of a political, not just a monetary union, thus forming a fully-fledged polity in Europe and avoiding most of its current turmoil. L'art pour l'artisme like statements by (Hooghe & Marks, 2003) that governance has become and should be multi-level through reallocation of authority upwards, downwards, and sideways from central states and that there is no consensus about how it should be organized distinguishing two types of multi-level governance: one of dispersion of authority to general-purpose, non-intersecting, and durable jurisdictions; a second type of governance conceives of task-specific, intersecting, and flexible jurisdictions would become unnecessary. As current developments in European Union show a much more fundamental, pragmatic and based on historical experiences, thoughts and observations an approach to theorizing and practice should be sought for. After all, most national states that are today member states of European Union have evolved with a political, Westphalian integration of what were previously city states. Supra-nationalism sees European integration as an ongoing process which has progressed beyond the control of the member states, leading to a loss of sovereignty through development of a supra-state structure into a 23
new state (Marks, 1993). As multilevel governance supposedly is located in between these approaches, what kind of (sovereign?) state do Hooghe and Marks conceive as being compatible with the transformation of interstate anarchy through the development of hierarchical structures beyond the state? Can sovereignty be something in between the two? Rather than focusing on monopoly of force or formal authority, Hooghe and Marks pinpoint political control as a core-defining element of sovereignty. This control is considered sovereign when it exists independently of an external power or body. Traditional conceptions of law seek a unitary source of ultimate legal authority opposed to governance dispersal and fragmentation of power sharing while distinguishing law making and law application and implementation. Whereas governance is bound to flexibility and pragmatism in solving problems as they occur (Scott & Trubek, 2002). European Union took unprecedented steps toward a deeper economic and political union; actions that went far beyond what European Union member states had ever done in the past, as well as beyond, and possibly against, including the recent Lisbon Treaty, the Treaty on the Functioning of the European Union (Schmidt, 2010). In the preamble of the treaty one clearly sees that it is not initiated by the democratic parliamentary decisions but the autocratic dimension, the presidents and queens and kings of member states. Which is not necessarily problematic in the sense of a balance of autocratic, plutocratic and democratic dimensions to govern well a society as it was already understood by philosophers in ancient Greece and Rome (Lane, 2014). It explains the rather reserved connotations given to this process by the predominantly democratic, social European polity, peoples and people. Overcoming the disputes of the first half of the 20th century needed this limited level of autocracy and plutocracy that is even more extremely limited in the writing of the Lisbon Treaty. These actions raise a host of questions regarding European economic consolidation, monetary policy, and political will of European member state leaders and their citizens. Without affirmative answers the prospects for the EUR may be very grim indeed as well as consequentially the political future of European Union. What the European Union needs, in sum, are forward-looking European leaders seeking to build more growth-oriented European Union economic governance while articulating national legitimating discourses that convince their citizens and the markets of its benefits. The European Union has been in crises at least since the 2005 referendums (Ross, 2008) while presenting different explanations for crisis held by high-level European Union insiders, people whose lives have been deeply invested in the European Union through careers committed to observing and building Europe professionally, where their causal stories explain the situation and the pessimistic conviction that the European Union is entering a new and very different era as further developments after 2008 have confirmed. European Union integration is instead of intergovernmental or supranational perspectives best researched through public policy, the course of action that the authorities decide to take or not to take, both on the European Union level and the member state level as this does not require to uncover shifts of loyalties, finding the best policies to implement while conceptualizing multitude of actors on various levels, the what and why of their policies, that go beyond the zero sum power games of state sovereignty (Zahariadis, 2002). The theories mentioned in this chapter deal with the contextual aspects of the phenomenon: the phenomenon itself; the leadership and change within the phenomenon and its context and the 24
role of the researcher in the research process. As a researcher, I use the theories mentioned in this chapter to gain further insight of European Union integration issues on the case of formation of the Single European Rail Area during the interviews and grounded theory buildup.
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4. METHODOLOGY The main methodology in my research is constructivist-grounded theory in elite interviews that allows pursuit of the following objectives: to capture research data from the narrative of individuals that are or were actively and personally involved as the actors the researched phenomena; to obtain data that would be richer than the officially published documents on integration issues by European Union bodies and rail organization and to get beyond formal public statements; to relate these to the informing literature and my constructivist ontology in an inductive manner in addressing the research topic and question.
4.1. Theoretical approach This research appraises constructivist-grounded theory in elite interviews arising from concerns with research quality (Morrow, 2005) and sharing experiences on the issues of the validity and reliability of open-ended elite interviewing (Berry & Browne, 2002). The emphasis of the research is on socially constructed organizational realities and the importance of multiple perspectives (Kezar, 2003), where the goal of triangulation is to provide a parallax view upon events (Davies, 2001). Constructivist-grounded theory is used (Charmaz, 2008) taking fundamentals from (Corbin & Strauss, 1990), and guided by the characteristics of critical realism (Kempster & Parry, 2011). The argument is that the two approaches, elite interviews and constructivist-grounded theory, cannot be divorced from each other in the context of actual research thus prompting the joint approach to be named ‘constructivist-grounded theory in elite interviews’. A key question in academic research is: to whom is the research relevant? Such a question goes to the heart of grounded theory – that theory is grounded in experience (Glaser & Strauss, 1967). This supports the proposal that grounded theory can bridge the relevance-rigor gap (Kempster & Parry, 2011) by placing emphasis on the contextual understanding of the social processes of Leadership and Leadership development. The research does not claim to report the generality and objectivity of the methodology and outcomes. Rather, it contextualizes the researcher in the social context of the phenomenon of research that is the cause of relativity and reasons for reflexivity which is consistent with the selected methodology for the research (Charmaz, 2008). Practical accomplishments of Leadership in a given context and social order is an inherently contextual performance when observing the practice of Leadership to in the context that is the center stage of this performance (Iszatt-White, 2011). With consciously subjecting personal beliefs about reality to an ontological interrogation the research design needs to be robust (Mills et al., 2008) in the realm of constructivist-grounded theory, beliefs are inevitably going to be part of the outcome. Regarding the distinction between critical and ethnographical perspectives of elite interview usage (Kezar, 2003) the latter view is taken, since the interviewees could be regarded as actors or agents playing roles that represent interests of different social groups in the industry. On the topic of reciprocity in elite interviews as observed by feminist and narrative researchers (Kezar, 2003), a) commitment and engagement, mutual trust, mutuality, egalitarianism, 26
empathy and b) reflexivity and transformation, are separate a) part elaborated; commitment and engagement, mutual trust, mutuality, egalitarianism, empathy all came naturally and easily; possibly because of former working experience as a top executive in the field researched and as an informed, trained researcher. In this phase of research, gathering data in elite interviews, practitioner experience can add value along with having all the mentioned characteristics, though not necessarily bringing them actively to the fore in the actual interviews. The interviewee and interviewer may have all the mentioned characteristics, but their relationship need not, is not and should not be symmetrical, since that would lead to their relationship being equivalent. b) part, elaborated; reflexivity and transformation characteristics should be moved from the data-gathering phase to the analysis phase of constructivist-grounded theory development and further into conclusions. In the analysis phase, the roles of interviewee and interviewer are physically detached. The outcomes of the analysis and the research are also not made available to the interviewee. However, the dialogue per se is depersonalized, is happening between the fields of practice and the field of research, and not between the interviewee and the interviewer as individuals. So, the imminent conflict of change is moved from the space between the interviewee and interviewer into the space between practice and research. The study of leadership in such a change process is thus disembodied and can be observed and analyzed in the noble tradition of separation of various fields of humanities. Egalitarianism was of conscious concern to the researcher; that deliberate acts to always put the equal foot forward; not even by chance to provoke a possible feeling of the position of a researcher to be superior; however to hold the space for the interviewees to express their thoughts to an independent, though informed observer, who will treat all the phases of the research process with full concern of their individual confidentiality and use the proceeds of the interview in a scholarly manner (Kezar, 2003). That is what attracted the interviewees to enter this relationship of confidence and openness. Who we are, how we got here and where we might be going as our choice of how we read theoretical ‘progress’ and how we tell stories about disciplinary evolution is not a neutral one. This is ontologically and methodologically important since research of the European Union as is versus European Union as is could be or should be should not be primarily driven by personal affinities of the researcher at least not without a clear understanding of one’s own positions and its disclosure (Bauböck, 2000). To put my baggage on the table to help understand my bias I would like to say that this research was performed by me without any hard feelings in terms of the fact that I have taken part in the issues of rail integration in EU as a former executive in the industry. As the saying says “the power is in unity, but the solution is in the escape”. But I should admit that an eventual bias of mine during this research that remained active in my mind is that I feel myself being a citizen of Europe with a fundamental belief that EU should further develop towards something that would better suit our visions and needs and that I would like to intellectually contribute to this. Hopefully this research is a small contribution of mine to this cause.
4.2. Constructivist-grounded theory approach to the elite interviews
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Having discussed above the key informing theoretical and conceptual conversations informing the research work, I proceed with a focus on the constructivist-grounded theory approach to the elite interviews format that stresses the interviewee’s definition of a situation. This is exactly what was wanted as a source of data from interviewees who have personally participated in efforts and discussions on integration and thus possess special knowledge of it. Through personal participation in the phenomenon, and study of publicly available sources the necessary information was reviewed to arrive at a provisional analysis that was used to generate the opening statements at the start of the interviews. The results of the interviews are the interviewee’s definitions, relevancy, subjective perceptions, and reactions in retrospect as they emerged during the actual interview. In addressing the methodological issues of validity and reliability in elite interviewing the following approach was used: “For projects where depth, context, or the historical record is at the heart of data collection, elite interviewing using broad, open-ended questioning might be the best choice” (Berry, 2002, 682). Each interview started with the same opening statement that derives from commonly accepted social constructs taken from scholarly, political and business literature thus this statement was not to be perceived by the interviewees as my statement, divided into two parts, a) and b), below: a) Statement: Comparing European Union vs. United States of America rail systems both had a modal share of 50% in the 50ties of the last century which dropped to about 8% against the road transport. It climbed back again to about 50% in United States of America while the European Union modal share is still only about 15% in cargo transport and 6% in passenger transport. b) Statement: On distances less than 500 km between bigger cities, passenger transport on rail can compete with air, while on distances of more than 500 km rail can compete with road in cargo transport. In both scenarios in the European Union rail most likely crosses member state borders and leads to the need of the formation of the Single European Rail Area. With only rare and brief interventions in moments when the interviewees rounded a thought and paused was a possible new theme mentioned. This was done only as a possibility, so that if interviewees followed a particular direction there would be no further intervention, or did not offer a response if the proposed theme did not resonate with the main theme of the interview. Berry (2002), named the phenomenon “corralling”; in this case, it was about following their line of thought while showing attentiveness and confirming understanding to what they are saying to avoid corralling. Personal interpretations and deviations from common knowledge of the phenomenon are especially valuable to increase the richness of data and consequentially allow a deeper insight in the analysis phase (Kezar, 2003). Therefore, the elite interviews that were conducted are extremely open-ended as elites’ dislike being put in a straitjacket of closed-ended questions as well as locations of the interviews (Aberbach & Rockman, 2002).
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The interviews were conducted in the interviewee’s offices, corporate restaurants over lunch or in even public cafes if they were traveling. Only the opening statement was used, not even a question, to provoke their narrative about the phenomenon. Later in the interview, only body language, short words and nods revealed active participation, an understanding or a wish for further clarification. Such interventions were scarce and non-judgmental. Their sole purpose was to stimulate the flow of their narrative. Specifically, generalizations and any individual statements that could come from previously performed interviews with other interviewees or from public statements were avoided. This would probably only recreate the tensions and conflicts that are present and confronted in their actual daily work and would also possibly lead their narrative into a more formal, detached, even protective mode, as used in that environment. This approach was used systematically in all the interviews to assure reliability of data and the potential for generalization. In creating the sample, the focus was on getting interviews with individuals that could speak across the multilevel governance environment of the industry. As such the sample involves: a) members of the European Union Parliament leading parliamentarian commissions relevant to transport; b) the European Union Commissioner responsible for transport and infrastructure forming the European Union Single European Rail Area; c) Former and current CEOs of rail organizations irrespective of their organization’s ownership structure or its focus in operations or infrastructure management; and d) lobbyists of the industry. For all of them their declared interest is to provide a better transport service to the citizens and businesses of European Union. Out of the invitation letters sent and follow-up calls made I could get interviews with ten out of 20 invitations and the whole process took about a year. They were from all groups mentioned apart from the European Union parliamentarians group. I tried with the MEP before and after the European Union Parliament elections that took place at the time of preparing and then performing the interviews, with no success though. The narratives from 10 elite interviews were transcribed, and I have extracted 250 key statements out of this data. After assigning 112 codes in the coding process I further gathered them into 7 concepts/categories which I separated into the Enablers of change: Leadership, Finance, Policy, Structure; and Drivers of change: Market, Technology and Ecology. I reflect on these in chapter 6. After reading the narrative from the transcripts for a dozen times in the sequence of the performed interviews I sorted the interviewee statements according to the assigned codes and concepts. Such sorted statements were now aligned to the underlying theme of the statements rather the interviewee flow of thought to be reread for another dozen times. Additional new views were coming out. The first reads of the sorted statements were confusing for me because it was now more difficult for me to relate to the actual flow of the interviews as I remembered them. However, the picture was now more and more structured. The next step was to add my impressions, thoughts and questions and write them down just after each statement was read through which I document in the Analysis chapter. It is to be understood that this was done at a very late stage of my research. Going from the elite interviews to reflections on and interpretations of them, I now proceed with the social constructivist-grounded theory and the reason for the selection of this methodological approach. Following are the key arguments for this selection. Grounded theory is a method for understanding an interviewee’s social construction. It is also a method that researchers construct throughout their data gathering and analyzing, the what, 29
how and why they do it, emerges through interacting with their research setting, data, colleagues and themselves (Charmaz, 2008). Social constructivist approach encourages innovation; new understandings and novel theoretical interpretations of studied life; strategies for creating and interpreting our data, not routes to knowing the multiple, processual, and constructed reality (Charmaz, 2008). Researchers are part of the research situation, and their positions, privileges, perspectives, and interactions affect it (Charmaz, 2000, 2006; Clarke, 2005, 2006). In this approach, research always reflects value positions, which need to be identified and their effects weighed on the research practice. Thus, prior knowledge and theoretical preconceptions need rigorous scrutiny (Charmaz, 2008) as reflected upon in previous sections. Constructivists assume that researchers construct an interpretive understanding of the studied phenomenon that accounts for context (Charmaz, 2008). “Thus grounded theorists who adhere to this position: a) Treat the research process itself as a social construction; b) Scrutinize research decisions and directions; c) Improvise methodological and analytic strategies throughout the research process; d) Collect sufficient data to discern and document how research participants construct their lives and worlds” (Charmaz, 2008, 403). Constant comparison of data to data, of analysis to field, and to current developments in the environment grounds the analysis and helps to theorize the interviewees’ data and the context (Mills, Bonner, Francis, 2006). The relationships among categories are constantly revised during the research through further interviews and verified against new evidence of: the phenomenon and its context, the broader structural conditions that surface during research through public sources such as scholarly and journalistic articles, public policy and strategy announcements as well as actual developments in the field (Corbin & Strauss, 1998). Bringing this to the level of this research, viewing leadership as a social phenomenon that is social, contextual, processual and relational (Kempster & Parry, 2011), difficult to observe and define (Rost, 1993), its manifestations though visible are thus difficult to understand in the intrinsic relations, context and causality. Constructivist-grounded theory in elite interviews stands for the process of listening to and observing various manifestations of leadership, or lack of it, as they are observed, felt and expressed by the interviewees. In addition, in using constructivist-grounded theory in elite interviews there is a strong development of the interviewer’s view through time. Therefore, I thus name the methodology that of elite interviews and constructivist-grounded theory used together in form, content and time, as constructivist-grounded theory in elite interviews. The starting point of the research is marked by the certain development stage of the personality and worldview of the researcher which will have a defining impact on the whole research process. The following activity that affects the research significantly is the level and quality of preparation for the context and content of the interviews. In this case, it was a broad process in the sense of understanding the factual descriptions of the phenomenon. The literature review of informing theories is oriented towards the broader context, but not pointed at any presumed understanding of the phenomenon. Secondly, when the actual interviewing process unfolds, the intensity of the researchers’ involvement grows. There is plenty of time between interviews so the researcher can reflect on the earlier interviews and how they resonated with him and the informing theories. In parallel new facts about the phenomenon and its ongoing development emerge constantly and are an additional source of reflection. Revisiting informing theories from the preparation period 30
becomes more and more pointed, some of them are dropped, and additional ones are brought into consideration. The next interview repeats the cycle of reflections. In the middle of the cycle is the phenomenon. One could envision the research methodology as a spiral around a pyramid that might gradually lead to the core category at the top, something more than the sum of parts, something relevant and revealing. Using constructivist-grounded theory in elite interviews allowed pursuit of the following objectives: to capture research data from the narrative of individuals that are or were actively and personally involved as the actors of the target sample of the researched phenomena; to obtain data that would be richer than the officially published documents on integration issues by European Union bodies and rail organization and to get beyond formal public statements. Although what is derived from the interviewees is what interviewees say and how they say it, but not necessarily what they think about the topic and what they meant or would like to say. However, there is no research mechanism providing the measurement of relevance, reliability or trustworthiness of what has been said. The collected narratives are not only a function of the former or present position of the interviewee in relation to the phenomenon, but also a function of the whole milieu of time, place and perpetually developing circumstances into which the interview is positioned in relation to the phenomenon. The dialogue/narrative is not of a nature that it could be repeated or otherwise recreated even with any same interviewee. Reliability of the data is not derived from repeated interviews or different methodological approaches to the same respondent about the same phenomenon. It is rooted in trust of the quality of these sole conversations and safeguarded by in depth listening and understanding of what correspondents say independently of one another about a phenomenon that binds them together in the point in time of the interviews performed and the political context in which the interviews took place. So the narratives say more about today than they say about the time when any of them was actively involved in the phenomenon. This allows a holistic insight into the phenomenon as seen and talked about by the few in a certain snapshot in time. The value of data collected in elite interviews is thus not in an individual interview, nor it is in a big n number of them. There are practical findings about the usage of the constructivist-grounded theory in elite interviews. It is extremely difficult to organize interviews when interviewees do not belong to one hierarchy. I addressed the interviewees by a letter disclosing the researcher and the school, the focus and aim of the research and promised scholarly confidentiality. They were not informed who else was invited. They were not told that any formal authority is behind this research since it is not. The research is driven by sheer intellectual curiosity, estimated relevance and scholarly rigor. The theme could have been considered by many invited potential interviewees as one upon which they do not want to elaborate or even talk about since it involves so many sensitive contextual aspects. This fact possibly explains the effort needed to get through to the invited interviewee and seek the confirmation of the interview. About half of the invited agreed to perform the interview. After getting the confirmation, organizing the logistics of the meeting is also a lengthy and tedious process measured in weeks or even months, any cultural
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particularities set aside. This is also probably a key differentiator between elite and non-elite interviews, at least from the logistics point of view. It is safe to say, consequentially, the arranged interviews were with interviewees that made individual and conscious decisions to participate. Methodologically this is an important point to mention since the narratives of those who did not, for whatever reasons, decide to participate in the research might have been different from the ones performed. Almost all participants agreed for the interview to be taped and the transcripts sent to them for their review. I explained that the transcripts will serve as raw data for the analysis and that syntheses will be anonymized. All the interviews lasted for about an hour and a half, without further questions and prompting from my side. I expected them to last about that much since this is a normal frame of time in business meetings of executives when content is discussed thoroughly but details are left out for follow-up meetings. Given the similar initial conditions and opening statements, the interviewees, in 8 out 10 cases, started off with statements that were rather formal but then later on contradicted themselves. As the interview unfolded, they became more personal, very open, critical and emotional even in their narrative. Given they are all experienced professionals; the expectation was that they would retain that professional loyalty. The positive rapport experienced has much to do with presented interview skills and techniques, but even more with the general context in which the interviews were proposed, agreed upon and organized. Namely, the theme proposed to the potential interviewees was highly relevant to them, and the scholarly rigor was promised credibly enough. I did not observe any relevant difference between the narratives and/or the willingness s to share them with me between acting and former leaders in terms of the reflection on their current or previous roles. The results of the research were by methodological design not offered as personal feedback as this would contradict ontological disagreement with radical reflexivity and transformation of elite interviews (Kezar, 2003). Accordingly, two rounds of interviews were ruled out. In case any of the interviewees had asked for personal feedback, I would have explained that this was not anticipated by the methodological design. Any symmetry of involvement, any further engagement, any further support were themes not initiated by the interviewees, as well as by the interviewer. The overall experience with performing elite interviews is that these are intellectually and emotionally very intense and requiring a high level of professional and scholarly ethics from both the interviewee and the researcher.
4.3. Secondary data Main secondary data were the key European Union documents like the Lisbon treaty from 2007, where the idea of a European Constitution was abandoned and the 27 European Union Heads of State or Government signed the new amending treaty, The Treaty of Lisbon, enforced in 2009 after having been ratified by all European Union countries, published as the Consolidated versions of the Treaty on European Union and the Treaty on the Functioning of the European Union. In the financial sector the key document is the bylaws of The European 32
System of Central Banks (ESCB) and the European Central Bank. Historical facts of Europe and European Union integration in the 20th century were also sourced from The Office of the Historian, United States of America Department of State. In the rail transport sector the main documents are European Union directives in the form of packages of legislative measures named The First Railway Package, which was adopted by the European Commission in 2001, followed by the Second in 2004 and the Third in 2007 to promote market opening, product innovation and service quality, improved performance, interoperability between national networks and safety of a sustainable, well integrated and efficient rail system for passenger and freight transport (European Union Commission, 2011). The TEN-T program has been in place for more than 25 years with little if no contribution to the development of the trans-European network. In 2015 with the new commission it was re-launched as the vehicle for improving infrastructure and services for the benefit of the European Union’s citizens. The estimated required investments are 500 billion EUR for TEN-T compared to the overall 1.5 trillion EUR needed for all the projected transport infrastructure within all the various modes of transportation: air, road, rail and waterways. The developments of the European Union context were sourced from key media like The Economist, Financial Times, Frankfurter Allgemeine Zeitung, Der Spiegel and many other internet media channels and blogs. Constructivist-grounded theory in elite interviews is thus the methodology that binds elite interviews and constructivist-grounded theory together in form, content and time. In the following chapter I explain how this methodology relates to the phenomenology of the phenomenon of a Single European Rail Area in the context from which it arises. In fact, its very appearance is totally dependent upon that context.
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5. CONTEXT This chapter describes the wider context of the formation of a Single European Rail Area within the formation and development of the European Union in the 20th century. The first half of this chapter is about the history of Europe in the 20th century. The two world wars stated in Europe in the first half of the century have led to the gradual formation of European Union in the second half of the century to avoid future conflicts in Europe. The establishment and gradual development of the European Union is the context in which of the formation of a Single European Rail Area is taking place. This is the context that has formed the base of my thinking of the phenomenon during my research and analysis. The first half of the chapter is a personal interpretation of the history of European Union integration. Some recent critical scholarly theories are referred as they were pointing to problems and prospects that were announcing the integration crisis even before its actual outbreak in 2008. The second half of the chapter focuses on describing the formation of a Single European Rail Area, the one on which I have focused my methodological approach in the actual research, to gain data and insights in my inductive theory building. It is to be noticed that terms like money, debt, gold and currency exchange rates are constantly present in these narratives of the 20th century history of Europe.
5.1. Historical perspective of European Union The first half of the 20th century saw two World Wars that started in Europe and have caused unprecedented loss of lives and material damage in the history of mankind. To prevent such developments in the future a process of integration of European people and peoples was started after the Second World War that has evolved into what we today known as the European Union. This was not the first such effort as stated in the Milestones of the 20th Century in Europe by the Office of the Historian (US Department of State, 2015). The Kellogg-Briand Pact, an agreement to outlaw war signed in 1928, was an international effort to prevent another World War, but it had little effect in preventing the Second World War. Studies of monetary regimes, currency pegs and the gold standard of dealing with international cooperation and trade (Hein, Priewe & Truger eds., 2007) points to the troubles of the economies of those times related to their ruins from the First World War. The early return to the gold standard and fixed exchange rates could not have been overcome by and noble legal agreements around any structural international regimes of cooperation. In the United States this has led to the Great Depression of the 1930s and it influenced United States foreign policy to become even more isolationist in parallel to an economic downturn in Germany, France, Japan and Great Britain caused a global financial crisis as the lack of international coordination between governments and financial institutions caused them to turn inwards. The Depression continued through the decade lost and various countries tried to resolve this with military expansion that ultimately led to the outburst of the Second World War.
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In the Atlantic Charter released by United States of America President Franklin D. Roosevelt and British Prime Minister Winston Churchill in 1941 they provided a broad statement of United States of America and British war aims and an outline of a postwar international system drafted in eight “common principles” that the United States and Great Britain would be committed to supporting in the postwar world; both countries agreed not to seek territorial expansion; to seek the liberalization of international trade; to establish freedom of the seas, and international labor, economic, and welfare standards, the restoration of self-governments for all countries that had been occupied during the war and allowing all peoples to choose their own form of government. Bretton Woods-GATT, 1941–1947 established the rules for the postwar international economy, the creation of the International Monetary Fund (IMF) and the International Bank for Reconstruction and Development (IBRD), commonly known as the World Bank at the 1944 Bretton Woods Conference and the General Agreement on Tariffs and Trade at an international conference in Geneva in October 1947. After the war the European economies were still well below their pre-war levels with few signs of growth. Agricultural production was 83% of prewar levels, industrial production was 88%, and exports only 59%. United States of America Secretary of State George Marshall offered American aid to promote European recovery and reconstruction convinced that economic stability would provide political stability in Europe. The 12 billion United States of USD was in 1947 approximately 10% United States of America GDP which would be in 2015 1.5 trillion USD. By 1952, as the Marshall Plan funding ended, the economy of every participant state had surpassed pre-war levels In the currency exchange rate crises 1971 Richard M. Nixon suspended the dollar’s convertibility into gold, and in 1973 the floating exchange rates became the norm. The Official website of the European Union (http://europa.eu/) states Konrad Adenauer, Joseph Bech, Johan Willem Beyen, Winston Churchill, Alcide De Gasperi, Walter Hallstein, Sicco Mansholt, Jean Monnet, Robert Schuman, Paul-Henri Spaak, Altiero Spinelli as the founding fathers as the visionary leaders that inspired the creation of the European Union we live in today. The 1948 Hague Congress created European Movement International and of the College of Europe where Europe's future leaders would live and study together. In 1952 the European Coal and Steel Community was created, which was declared to be “a first step in the federation of Europe” at the time and declared solidarity the key goal of future developments. In 1957, Belgium, France, Italy, Luxembourg, the Netherlands and West Germany signed the Treaty of Rome, which created the European Economic Community (EEC) and established a customs union. They also signed another pact creating the European Atomic Energy Community (EURATOM) for co-operation in developing nuclear energy. The 1965 the Merger Treaty agreement was reached in 1967 the created a single set of institutions for the three communities, which were collectively referred to as the European Communities. In 1973, the Communities enlarged to include Denmark (including Greenland, which later left the Community in 1985, Ireland, and the United Kingdom. Norway had negotiated to join at the same time, but Norwegian voters rejected membership in a referendum. In 1979, the first direct, democratic elections to the European Parliament were held. Greece joined in 1981; Portugal and Spain in 1986. In 1985, the Schengen Agreement created an area of open borders without passport controls between most member states and some non-member states. In 1986, the European flag began to be used by the Community and the Single European Act was signed. In 1990 the former East Germany became part of the Community as part of a reunified Germany. With 35
further enlargement planned to include the former communist states, as well as Cyprus and Malta, the Copenhagen criteria for candidate members to join the European Union were agreed upon in June 1993. The Maastricht Treaty formally established the European Union; main architects were Helmut Kohl and François Mitterrand, in 1993. In 1995, Austria, Finland, and Sweden joined the European Union. In 2004 Cyprus, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, Slovakia and Slovenia joined the Union. On 1 January 2007, Romania and Bulgaria became European Union members. In the same year, Slovenia adopted the euro, followed in 2008 by Cyprus and Malta, by Slovakia in 2009, by Estonia in 2011, by Latvia in 2014 and by Lithuania in 2015. In June 2009, the European Parliament elections were held, leading to the second Barroso Commission, and by July, Iceland formally applied for European Union membership, but have since suspended negotiations. On 1 December 2009, the Lisbon Treaty entered into force and reformed many aspects of the European Union. The preamble of the treaty in the name of Presidents, Queens and Kings of the European Union member states is an informing reading about the ultimate values and goals of the treaty which was signed by their plenipotentiaries. In 2014 in the European Union wide elections for the European parliament the political parties of European Union member states formed alliances on the European Union level and named their preferred candidate for the European Union Commission President in case they would win the needed votes alone or in a coalition. The European Union Council respected the votes of the voters, though not without further turmoil among its members, and proposed the wining European People's Party Group candidate Jean-Claude Juncker to the European Parliament to be given a mandate to form the European Union Commission. Today European Union is the biggest economy in the world in absolute terms or in purchasing power parity at a population of more than half a billion people living in it at the time of this writing consisting of 28 sovereign member states with further countries, peoples and individuals aspiring to join it. As later developments show in analysis (McCombie & Gonzales, eds., 2007) the actual implementation of the treaties and especially the actual development of the economy and the political culture of what we today see as European Union is that the economic base of the society is important in assuring its prosperity but that the focus solely on it as the assurance for a non-ideological mean of progress if far from enough (Habermas, 2015). Steering development of societies is a much more complex phenomenon than economy itself. The European Central Bank is the central bank and administers monetary policy of the Eurozone, which consists of 19 European Union member states and is one of the largest currency areas in the world. It is one of the world's most important central banks and is one of the seven institutions of the European Union. The Treaty of Amsterdam established the bank in 1998, and it is headquartered in Frankfurt, Germany. When reading the bylaws of European Central Bank and the Lisbon treaty of European Union, one notices that European Central Bank has no government to lend to nor do the European Union Commission and the Eurozone member states governments have a central bank (at least not in the contemporary sense that sovereign states also have monetary and fiscal sovereignty as pillars of their political sovereignty). Helmut Kohl and François Mitterrand in 1993 judged that under those political circumstances they could not pursue a political union and they left consciously such a decision to be made by future political leaders of European Union. The two anticipated that it will be only possible to do so once European Union will be challenged by a political or economic crisis in the future. 36
The term federal was used extensively in the early stages of the European Union integration, Churchill even talked of the United States of Europe, and was avoided more and more in the discourse latter on. Countries, regions and peoples of Europe were not brought directly into the integration process from the very start so there is a strong feeling among the citizens as well as the scholars of the phenomena of European Union integration that there is a very strong democratic deficit identified by Nettesheim in tens of articles and books (Nettesheim, 2006). However, it is hard to argue that that is the case when comparing it to other federal structures in the world. What is different though is first, the composition and the role of the upper chamber of the parliament, the European Union Council that is structurally a collective presidency of European Union and second, a very small federal budget of 1% European Union GDP. The European Union Council members are not elected to run the European Union; they are elected by the electorate of the respective member states to run their respective member states on a daily basis in their role presidents or prime ministers. Their role on the European Union level as the European Union Council is never the les formally the uppermost decision maker in European Union. It is rather small and thus the closest to embodied leadership where the hearts and minds of followers look at in times of unexpected crisis and change (Grexit, Brexit, Catalonia, Ukraine, flood of asylum seekers and economic migrants, terrorism). The European Council members are thus potentially in conflicts of interest as leaders of member states in case of further pursuing the goals proclaimed by the founding fathers of an ever-deeper integration of European Union to gain the attributes of modern sovereign states: territory, peoples, outer borders, political union with governance structure covering democratic, plutocratic and autocratic elements, a monetary/fiscal thus a politically stirred financial system. In short a sovereign Westphalian regime.
5.2. Historical perspective of the rail industry As the case of rail system integration issues is used as the case study in this research it is to begin with essential to understand the broad parameters of European Union rail organizations through a brief overview of the industry. The European Union rail industry is an infrastructure heavy industry which has so far failed to integrate to an extent needed and comparable to other industries like telecoms (Sandholtz, 1998) or banking (Cabral, 2002). The research is focused on the issues in the multilevel governance; the three-tier structure in which the European Union rail industry is situated, i.e. that of company boards, national states and the supranational legislative and regulatory bodies. The word rail is used with a system view in mind, that is the infrastructure and all the activities on it like building, maintaining, operating, financing, standards, security and many more. These are all activities that involve not only rail organizations, but users of the services and political decision making as well.
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Figure 4.1 TEN-T network Source: (http://ec.europa.eu/transport/themes/infrastructure/news/2015-05-28-coordinator-work-plans_en.htm)
Rail organizations are in the midst of a transition from public services to state-owned enterprises and sometimes even to privately held corporations while the rail infrastructure remains strictly in the domain of European Union member states (CER, 2011). The phenomenon of research is the rail industry in the European Union which is underdeveloped and un-integrated in providing competitive services to passenger and cargo transport within and especially across member state borders (European Commission, 2011). In this political and economic context and despite all the environmental efforts in European Union, the rail industry is lagging developments when compared to other jurisdictions such as China and the United States of America. “During the 1950s the share of freight carried by railroads was similar (over 50%) and declining in both the United States and Europe. By 2000 the railroads’ share of freight (measured in tonkilometers) had reached 38 percent in the United States while falling to 8 percent in Europe.” (Vassallo & Fagan, 2005:2). Not much has changed over the last decade. Rail organizations began in the UK during the 19th century and have gradually spread to the European continent and then to the rest of the world (Tanel, 2007). Initially these were entrepreneurial private enterprises. Because of the immense costs of a denser infrastructure they were later nationalized and run as public services in most of the world organized as parts of transport or infrastructure ministries. Gradually they reorganized into state-owned enterprises in more and more countries, including in the European Union member states. Some rail organizations were privatized (Cumbers & Farrington, 2000; Ishida & East, 2007) and lately there are examples of new private startups. Many of these are publicly traded on stock 38
exchanges in the United States of America, some of which are operationally and financially successful (Posner, 2008). In the European Union, only a few rail companies are publicly traded on European Union stock exchanges with some that worked hard on becoming publicly traded but failed to do so (Stielike, 2009). The only distinction from the point of view of ownership between a public service run by a state-owned enterprise and a publicly traded enterprise running the same service is that the owners of the first are private individuals because they are citizens of a state, whereas the owners of the second are private individuals or funds because they have voluntarily chosen to be that as shareholders (Dewenter & Malatesta, 1997). This aspect already implies many differences in influencing and leading (MacCarthaigh, 2011). The response to the integration issues of the formation of a Single European Rail Area were European Union directives in the form of packages of legislative measures. Named The First Railway Package, which was adopted by the European Commission in 2001, followed by the Second in 2004 and the Third in 2007 were adopted to promote market opening, product innovation and service quality, improved performance, interoperability between national networks, and safety of a sustainable, well integrated and efficient rail system for passenger and freight transport. Some cases of policy implementation have been published (Barea et al., 2007). The Transport White Paper in 2011 by the European Commission sets out the European Union transport policy for the next ten years including perspectives up to 2050 as a vision of a competitive and resource-efficient transport system with particular targets for the decarbonisation of the transport industry and the establishment of a single European transport area published by the European Union Commission in 2012 and the response of Community of European Railway and Infrastructure Companies (CER): “We now call upon European decision makers to not only endorse these goals but to also introduce the right measures and policy instruments.; The publication of the Fourth Railway Package, the TEN-T guidelines and the Connecting European Facility, and carry on drawing attention to the rail industry's crucial situation in Central and Eastern Europe.” (CER, 2011: 1). As this quote indicates, there is a desire and an outright call for an integration of the rail system, yet the industry struggles to meet this challenge. Moreover, the call is directed at leadership within the system: “We now call upon European decision makers…” This has focused the research towards looking at the constraints within the industry for those in leadership roles to be able to meet the calls for integration. It is a look into how leadership navigates this complex, multilevel governance industry in the context of the current political and economic environment in the European Union. It provides the leadership moment (Ladkin, 2010, 178) “explained by phenomenology as the kind of entity which cannot be separated from the context from which it arises. In fact, its very appearance is totally dependent upon that context.” CEOs and their perspectives embody Leadership at this difficult intersection on the market between policy and state-owned enterprises service. Leaders need to interact with other principal actors operating in the industry, the governments of the respective member states as representative of the owners and the regulators of an open market and the supranational legislative and regulatory body of European Union. Leadership in this context reinforces the view that in complex environments of Multilevel Governance, leadership is about mobilizing stakeholders and solving interconnected problems (Broussine, 2009). Research outcomes thus should help to better understand the industry and allow the actors in this industry to meet the challenges of European Union rail integration. 39
Moreover, this research provides theoretical insights into the nature of leadership in complex, multilevel governance structures. This is particularly relevant today as the research approach is focused on allowing the socially situated actors, those holding leadership positions within the European Union politics and rail industry, to speak to their own experience, environments and contexts. These views are disclosed in the next chapter as well as my understanding of theirs statements and my inductive reasoning that was stimulated. From this material, a multiperspective view is created on the constraints of leadership within the European Union rail industry establishing the Single European Rail Area within the integration of the European Union as an ongoing process.
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6. REFLECTIONS AND FINDINGS This chapter is a discourse between the structured raw data from transcripts of narratives gathered at the interviews with business and political leaders and myself as a researcher reading these statements. My comments to key statements of the interviewees from the interviews are based on my internalized understanding of the interviewee’s narrative. The context was changing from interview to interview and the informing theories, the scope of which was expanding while performing the elite interviews. In my analysis I am using principles from Grounded theory (Charmaz, 2008) and (Eisenhardt, 1989), (Eisenhardt, 1991) elaborated in the Methodology chapter. My comments presented were written down at the very end of the analysis process, after the interviews, after rereading the transcripts many times, after extracting the core statements, coding them and categorizing then, after sorting them according to these categories and after completely anonymizing them. This chapter reveals an insight into my inductive thinking process within my subjective constructivist ontology that has led me to the emerging understanding of the relation between Leadership and Debt/Money in a society further discussed in the Discussion chapter. The chapter is divided in two subchapters, Enablers and Drivers in relation to formation of the Single European Rail Area. The Enablers subchapter, comprises of interviewee statements and my reflections and findings on leadership, finance, policy and structure that enable the sought for change. The Drivers subchapter comprises of interviewee statements and my reflections and findings on marketing, technology and ecology that drive the required change. The division of statements between predominantly Enablers and predominantly Drivers is my subjective division and serves only to understand better my reading and thinking, admitting my practitioners background abduction element in this, about the interviewee statements while giving some structure to these thoughts. All my findings in this process are embedded in my reflections to the interviewee statements while the key findings are restated at the end of this chapter. Relating the analysis of the data from the interviews and my findings to the theories from the scholarly literature is further elaborated in the Discussion chapter. The inclusion of findings into the analysis part of the thesis and the separation from the discussion is based on the suggestions of Morrow (Morrow, 2000).
6.1. Reflections on the enablers of change 6.1.1. Leadership “Yes, but why I mentioned GSM? Because, GSM was in the 1980's. In the 1980's we had European Union Commission which showed initiative.” Mobile phone standardization in European Union in the 80ties allowed for cross border roaming, mobility, more competition and better services. At that time, European Union was ahead of United States of America in mobile technology but still then the United States of America companies took the market that was provided by the standardization in European Union. The message seems to be that standardization opens the market to innovation, but
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innovative product and services on itself are not a consequence of standardization but of innovation. “I don't think people are really deeply convinced that we need a Europe. Funny enough, only the countries who are not in wanted to be in. But countries which are in, they say shit.” Is European Union really not needed, so then why was it promoted and introduced in the first place? If it is needed why then the leaders cannot explain it to the citizens about the needs and benefits. Is it possible that the member state politicians do not want to cede powers while the European Union politicians do not understand that they should take more of it into their hands? “And you lose national pride like Greece. And they told everybody that they are not just anybody, but Greece. The question is, is Europe mental wise ready to be Europe? They don't have to ask tax, Europe had just to say OK, we take all the armies in full under one command. It would save so much money that Europe had more money than ever. Today Germany has one, the French has one, the Irish has one, the Dutch has one. The length of the shoelace is as long in Germany as it is in Holland. They even don't agree how long it should be to fit in all the boots. They do it on purpose. Because the French say we have to make another way that in our boots only French shoelace can go in. And as long they don't optimize the cost, if you would have one army in Europe, you don't need three different types and three different systems of spare part. We need one ready. We need one airplane ready, you need one truck ready. Italy agrees; OK let's have one but afterwards who is making the one, if you never make one decision in the next 25 years. As long we end like this, it makes no sense in Europe.” This is a vivid description of distributed leadership in European Union in the case of military service. If there is one service that is centralized in any state of the world than this is military. Furthermore, if you cannot make it in military, how can it be done in rail and transport? “EASD, the First European Company. It was rocking in airplanes for one reason, because to develop an Airbus you need 10-12 billion Euros, and today we compete even with Boeing who was the only one in the world, and the Chinese are coming, the Russians have their own planes, but are not on the global market, but they will come. They had some other priorities. Russians have put some money in defense and weapon, but this is another issue. In Europe, Russia is a big country, United States of America is a big country, China is a big country, and Europe could be a big country. But not France, not Germany, not Italy. The size of investment to develop one airplane is too big for one country. It's why we do it as European project. But each country did development for local. Everybody can do it. Truck is the same.” “Leadership is important for the company, one needs a 10 years’ vision and values which will touch the emotions of people and rail has a lot to offer here. Employer to get the right people to work in the industry, to relate to legislation and regulation of
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member states and European Union. Transactional vs. transformational culture changes for the generation Y who are not like the baby boomers.” Rail industry in development of its infrastructure and rolling stock is capital intensive like developing airplanes where the efforts and success of EASD serve as an example of a joint EU project. Rail operations is a service intensive industry that could benefit from a more entrepreneurial approach to providing public service of rail transport irrespective from whether the operations companies are organized as a part of a ministry, state owned or private. Tradition, stability and mobility need to be exposed to innovation and constant change to follow the requirements and expectations of the market. “It has to do with the monetary aspects in Europe and it has to do with the will to integrate in Europe. Whom do you go and talk to if you want to inspire people? You cannot talk, you cannot talk. I was a little bit more than 10 years a head of the company. I had around me each two years, sometimes earlier, a new colleague." The statement connects the will to integrate Europe with the monetary aspects of this integration. At first sight it did not seem obvious to me that such a statement would occur in the context of this research and at the time the interviews were performed. The second statement connects that further to the lack of leaders that would inspire others around them. And would have the tenure to participate in doing so. “I personally believe that what it takes political courage at the European level, if one would say, OK we move to different security systems. This will take some time. Everybody will invest in them. They will be based on the Galileo satellite navigation system. OK, we can do it. We don't need to construct new tracks if we change the system. There are so very few trains running. But today in Europe, there is no political courage to do this." Political courage is needed to stir changes at the European level. Courage to do things responsibly is based on certain foundations, personal traits like experience, knowledge, and others that connect further thinking and studies to the field of psychology on the individual level and leadership studies more generally. “We also have an example, something we said before, to go from Munich to Berlin in 3,5 hours. We can do it. But all those small stops we are supplying and supporting a network - from outside point of view. All kinds of feeder lines that go into the small train station the IC going to Berlin, I think 14 or 15 stops. Each stop is 10 minutes 7 minutes’ approach, 2 minutes stop, and another 7 to 10 minutes to speed up, times 14. You could say, we can use it early in the morning, 1 or 2 trains are going fast for people who need to be in Berlin at the reasonable price, and even in bad weather in good time 3,5 hours. So, when they leave at 5 o'clock they going to be there at 8:30. This would allow them maybe to make out of 14 stops 4, 5 or 6 at the most. So, the rest of the day until you go in the low utility phase, 9 o'clock, 10 o'clock, 11 o'clock, you could run the fast trains again. You don't have so much regional system. They are solutions to it, but when you get into, and then the local politician is under pressure by his voters because the train is not stopping in "Google housing". It's not his fault, it's the people who don't 43
want it, but they don't want it because they don't understand the problem involved and why. It's also, Germans love their trains, especially it's a system you can talk about it, build yourself a public image.” How to make politically difficult decisions? Why to make them at all by politicians only? Difficult political decisions are made with the interplay of democracy, the voice of all, the plutocracy, the voice of the wise, and autocracy, the voice of the urgent. The balance of these three principles is essential in each and every leadership situation differently. “You said yourself that you see the drop of the rail freight market share in the comparison with the road and this is given as we can observe by the several factors. And this is also acknowledged by at least by the European Union commission and there is a need to change this dramatic drop and in the context of the future availability of the fossil fuels and energy resources you simply need to go more towards the environment friendly transport modes. But one thing is to state it and the other thing is to act in the direction that helps you to achieve the target.” One thing is to state it and the other thing is to act in the direction that helps you to achieve the target. What are the underlying mechanisms of being able to act on something that one understands that is needed to be done? The question is relevant for the action of individuals as well as societies. “Modal shift in Switzerland, people referendum to tax road so high to fund the Gothard tunnel to be finished 2017.” Money, monetary and fiscal policies, are means to negotiate and agree on allocation of resources in a society. “My interpretation is because of the internal papers of the European Union Commission. The idea why they want to separate the infrastructure from the operations, they want get more influence on infrastructure in order to European Union Commission can get stronger influence on the development of cross border infrastructure in Europe. They are aware as long as integrated companies are there it is extremely difficult or even impossible to get that. It seems to be the key interest for European Union Commission to split the infrastructure." Noble goals but might be with wrong means. The statement points to power struggles with the aim to achieve a certain goal of the European Union Commission which is focused on legislative and regulatory regimes. Monetary and fiscal policies are not mentioned this time. “Coming to leadership, yes I think right now the railway undertakings and the European Union Commission are working a little bit against each other. European Union Commission has some ideas and the undertakings try to make the European Union Commission stop. Both sides maybe have lost the dialog of bringing the system more forward. I am not saying that there is no dialog. Of course there is a dialog and is a dialog also on many, many good issues - no question about that, but in field that on the medium level, the approach is a little bit different. We have reflected that last week in a meeting on the CEA board. There was one good expression from the new 44
CEO of Belgium. He was saying, we are always discussing what we don't want the European Union Commission to do; we should give a vision how we think railways should be in a future. And then he was saying the individual transport is working on driverless transport and trucks are going close to each other on highway and we go to the tracks and we have a train every 10 minutes and people are telling us that the system is full. This can't be. He said I am coming from telecommunication, so I have nothing to do with railway so far, I am here for 6 months and I can tell you that cannot be the case." What drives change in this industry? Technology, innovativeness in better service provision. Demand for better service in cargo and passenger transport when one can get such from the road at the expense of the environment that will be left to the future generations.
6.1.2. Finance “The same in Germany with Stuttgart 21, the same problem as for the airport. The original estimation was 2 billion, and now we are talking about 6, 8 billion. For making the distance between Stuttgart and Munich half an hour faster. When you have at the same time so many little bottlenecks in the whole system, if you would take that money and put it into repairing the bottlenecks, you could increase the capacity of the freight system by 50%, as somebody calculated." This statement points to the dilemma of investments into gradual improvement of the existing infrastructure vs. building new, eventually also dedicated lines. Apart from the amount of money needed, the first has technological issues of improving existent tracks and signaling which are under operation. The latter has the issues of the public rejection of placing new infrastructure into their backyard. “I believe that it's also a complicated system, I am sure of that, but it's also different in the way because the speed of the trains is different. We have such a big mix from ICE to cargo. This mix makes it complicated and I think one of the goals in our system is either everybody goes the same speed, or you have own tracks for the slow transport cargo, or maybe cargo and the original trains, so the high-speed trains can have their own tracks. This is also something you can see when you go high speed from Cologne to Frankfurt. Unless there is a technical problem, they are in time. These things, at the end, must be done with the money. Investment into the rail system in Germany compared to other countries is much lower. This can have consequences in the end and this you cannot first denied and second you cannot have changed it by saying we put more competition in it whatever, I mean once you don't have a track there is nothing to do. “ More investments are needed to improve the existing infrastructure or build new one. In both cases the dilemma of separation of passenger and cargo remains open. This dilemma should first be investigated and resolved on the main cargo corridors across European Union. 45
“Is the money for the infrastructure which kind of makes sense, or is it basically burned for salaries this is exactly the problem what we have always been struggling for the last 20 years, is to get a clear separation between infrastructure and the operation. And within operation between public services and freight, so that we know for which purposes the money is used, which is the only chance to reduce costs. But they don't want that." State owned incumbents with their cost structure use creative accounting to cross subsidize between passenger and cargo operations and infrastructure management and investments. Could the ministries use special investment vehicles like project companies for mayor upgrades of existing infrastructure or new infrastructure? “German government, when the railway reform was decided in 1993, was the only government in Europe ready to take over 100% of the debts. This is in European scale very generous." What would have been the alternative? The infrastructure is anyway owned by the state. In addition, the state-owned incumbent had to be restructured before being put on the market. “Because if you start with zero debts, there is a lot you can finance before you can come back to the normal debt ratio. The management realized modernization process in terms of reducing personnel, increasing productivity within only 6 or 7 years. Bringing the company to a level of certain profitability. That could show in the balance sheets, profits and not losses. Psychologically very important for the people working in the company to see we are not always the losers, we are not always depending that the state is taken over loses. We are really a normal company; we are producing profits.” Operating rail as a business brings in possibilities to benchmark its activities with competitors and other industries. Management and employees become exposed to common business practices and incentives. “In Germany after reunification we had two rail state administrations. Productivity was low, costs of labor was higher than revenues. In 1994 DB AG was established by the German state to be run as an AG. All debts were taken over by the state. We opened the tracks to competition even before European Union required it. Now we have about 360 rail organizations. The objective is to cost less for taxpayers, increase passenger and freight. ~100 Billion EUR investment was higher than all investment in the previous 40 years.” “Second point was the financial point. To take away from the railways all the historical debts. At that time DB had debt accumulated over last 30 years of about 35 billion Euros. The government decided to take over the debts and take them away from the railways to allow them to start DB debt zero. This is of course very important step. If you have no debts, you can start with a lot of investments before you come back to a normal debt level.”
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“They were countries, Swiss for example, who mastered this system very fast. They introduced the invested money in the trains of bordering nations. Because they have this incentive to disallow truck traffic to cross the country." “Let us jump from here to the year 2020. So, knowing the direction we want to go into, knowing the direction we have to go to overcome the transportation bottleneck, which we are facing. All this means the use of alternative energy, usage of environmentally friendly means of transportation, using less and less no regenerative fuels and energies, and so on. Now, today 2014, we have to know where we stand in 2020. We know what the problems are, we know in which direction we are going, we want to keep the average temperature down. It is a big discussion right now, but it's always a big discussion. In the end the environmentalists and researchers nowadays are quite sure that we are heating 2, 5 - 3 ºC worldwide increase in temperature until 2100. That's what we want to make sure. This means also it's another number by the year 2050, we have to cut CO2 production by 80%. This figure is not discussable, 80%. 2020 is our starting hole and the direction has to be set and we have to know in which direction we are running. Between now and then transportation has to be restructured or at least plans have to be worked on. Electro car is a toy, it's not a solution. It is just for the last mile, it's for exculpation. Everybody makes everybody feel good; I did something to go into this direction. It's not a solution." “Brussels is good at legislation/regulation which does not cost much, and does not go to the technology of it, because of the lack of the level playing field. Competitive costs that cannot be passed on the customer a) like RTMS which is an investment already today, but will bring efficiency in 5 to 10 years, b) lower emission of noise, c) energy, d) road tolls for trucks is not existent in some countries." These four statements, from four individual interviewees, all claim that European Union as a regulator with its 4 railway packages is focused to regulate or better deregulate rail industry through facilitating internal competition within the industry. What it does not address is the competition between various transport modes. And they mention the importance of handling the debt by a sovereign state. “This you cannot do with the railways. You have to adapt, now I am not saying that this is not possible, it is perfectly possible, but it means of course that governments which control the investment budget of the railways, have to consider this is a priority. If you would say tomorrow OK, we define a new satellite based navigation system for the railways, and we say OK, by 2017 every country has to start a priority program that in the next 3 years every train will run on this system, it would take a very strong decision by the governments everywhere because this could mean that if this takes priority a number of other investments will not be made.” “Do I think that, if there was more money on the European Union level dedicated to European Union rail infrastructure that this would help? No, no, no. The money is not a problem. A problem of resistance, national positions. This is our infrastructure, we want to decide who goes through this infrastructure, and we have our passenger trains. 47
As you can see with Stuttgart 21, money is not a problem. If they can spend 6, 8 billion for putting a train station under the ground. The money is not the problem in this sector. It is about how to use it; this is a problem. We have 46 billion European Union for railway sector. 23 billion for infrastructure and 23 billion for public services." If money is not a problem as stated by European Union Commission the question remains who allocates these monies, for what purpose and priorities. Are the mentioned sums realistic? With them you can only build around 2.000 km rather simple one lane tracks. “Can you draw parallels between German federal government reforms versus Ländern? Is there a parallel when you talk about European Union and member states? No, there is no parallel. Because members (Ländern, regions) in Germany never develop the ambition they want to have the direct influence on the railway company. They want to have an influence on regional traffic in the sense that the authorities’ tender regional contracts for regional traffic. They could define in the tender process the requirements and want kind of traffic and how much of traffic they want to have. They offer fix details. But that was not in conflict with the interest of federal government. Federal government provided money. The deal was never challenged by anybody.” It is difficult to understand why the model praised for the successful split of investment priorities and allocation of funding could work in the interplay between the Laender and the federal government in Germany, and could not work in a comparable structure of member states and European Union. In the case of the federal government versus the Ländern, it was an agreement because regional interests were preserved, federal money was assured. Whereas in the European case member state interests might or might not be preserved, yet at the European Union level there appears to be no money to support their ambition. The structural differences are negligible, but the allocation of money is different because of the limits imposed on the European Central Bank in the Lisbon treaty on the monetary side and the 1% European Union tax only as agreed upon. “That fourth point is more financial one. Before 1994 the financing of regional services was done by the federal government. In Germany, the regions are very powerful - we call it Ländern - and the Ländern said OK, we only agree if in the future the money to finance regional traffic is going from the federal government to the regional government. We want to be the body organizing region traffic and financing region traffic. Organizing and public tendering and whatever is necessary. These further 4 elements change dramatically whole situation. This was adopted in German parliament by more than 2/3 majority. That means not only the government a peoples of government crucial democrat and liberals but also social democrats in opposition were integrated in this preparation. They prepare the reform and the government needed 2/3 majority, and both chambers of parliament Bundestag and the second chamber where the representatives of the regions are having their voice. The constitution had to be changed. And to change the constitution you need a 2/3 majority in Germany in both chambers. The opposition was successfully integrated. In December 1993 changes were
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confirmed by both chambers with 2/3 of majority and then the railway reform could become effective on January 1, 1994.” “At that time Mr. Duhr he was CEO. He started restructuring the whole company. I forgot one additional element. It was one part of Railway Company in East and the other part of railway in West side of Germany. One purpose was to merge the two companies. In the challenge was now to reform this company with the objective to become mega competitive. Not only to reduce loses, but to develop business in a sense this company could become profitable. And this started with too many people on board of the railways at that time. There was internal informal agreement between trade unions that number of employees would have to be reduced every year by between 10.000 and 15.000 people. To reach this goal it took 7-8 years. A normal level of activity, a normal business level was a major challenge for the managers to persuade the trade unions. But they supported this process to involve this people in the preparation of this reform. Trade unions understood this is the only way forward for the railways to become attracting company again. Trade unions in principle were cooperative and we manage within 7 years to reduce the number of people working in DB by 100.000 people." Moving the organization from the ministry to the market enabled the company to benchmark itself against competition on the market as well as companies in other industries. This is a very powerful argument in favor of privatizing, even if the company remained state owned, a public service. That is not to say that keeping public services organizationally within direct government control does not have its merits. What the statement does not address is that in privatizing a public service there are two aspects to it, the service part and the infrastructure part. European Union rail legislative efforts went into the direction of separating the two, which is keeping the infrastructure within the public domain while privatizing the service aspect. Germany decided to keep infrastructure and service in one company because of the intertwined technological aspects and consequentially privatizing both, into a SOE, state owned enterprise. As developments have shown the privatization process that would lead DB to become a publicly traded shareholding company were stopped by the government because it could not agree to float the infrastructure part of DB. “Infrastructure financing is THE KEY issue in Europe (Brussels-London, ParisStrasburg, Spain, Milano-Rome).” Thus, the interviewee states the problem very clearly but is unable to offer a solution. The possible reasons for this are: 1) infrastructure is owned by the member states so they should invest into it; 2) European Union owns none infrastructure so it will not invest into. Cross border infrastructure is thus difficult. As the stated example from Germany show the opposite approach works. The member states define their needs and get the monies from the European Union. At least for the cross-border corridors this would make a lot of sense. At the time the interviews were performed there was 26 billion EUR allocated till 2020 (http://ec.europa.eu/transport/themes/infrastructure/ten-t-guidelines/corridors/index_en.htm). The European Commission has published nine studies on the state of the infrastructure and the development needs of the TEN-T core network corridors. The latest studies have identified 49
infrastructure development needs which represent approximately 700 billion EUR of financial investment until 2030. They highlight the importance of optimizing the use of infrastructure along the corridors, notably through intelligent transport systems, efficient management and the promotion of future-oriented clean transport solutions. This is the first time that tens of thousands of kilometers of rail, road, inland waterway connections, ports, airports and other transport terminals have been studied in such a comprehensive way and with a common methodology. The provided materials do not tell how the European Union Commission is planning to finance proposed project. This was not clear in the past 25years since TEN-T was established and might turn out to be the main issue this time as well. Not only that the financing might not be provided but already the lack of clear commitment that it will be and the lack of a clear statement how signals the lack of clear leadership of the European Union Commission. “TENT projects had no internal logic, so change to putting money into bottlenecks of the existing network, 26 bio EUR out of the estimated 500 bio EUR.” What does internal logic mean: 1) internal logic to the incumbents; 2) internal logic to the member state; 3) internal logic to logistics needs of the market that would ultimately pay for the service provided on top of this infrastructure? “Of course it is also given by, I mean, a little bit by the historical context because the entire infrastructure in the countries were usually underdeveloped. So, there is a need to improve the infrastructure in the first place and infrastructure of road to enable the mobility of the citizens. I fully accept it, but on the other hand we really have to do more for railways if we wish to shape the railways also for the future. And that's why when we start talking about how to integrate better the role of railways within transport policy we always start with the infrastructure." It does not matter whether the operators and infrastructure managers are separated or not as required by the European Union Commission. The infrastructure must be improved or newly build to allow incumbent operators and their newly established competitors to have something to run their business on. “Because we will never be able to deliver, as the rail system or to perform better if he does not have the high quality and high capacity infrastructure. And again, it applies both, on the level of European Union or the commission on one side and the member states on the other side. Wherever we have a good quality of infrastructure, there we have the higher market share in a both, the passenger and freight services. We have a clear evidence of that. There is a strong interlink between both aspects. That's why we can see relatively high demand for rail freight in Germany, in Switzerland and in Austria because the infrastructure offers that opportunities, we see the demand for the high-speed services in the countries where obviously, we have high- speed lines, so that’s natural connection and we need to do the same consideration also on the level of the member states in an east and central European edge, because otherwise we will not be able to do so.”
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This statement is an evidence of the perception how fundamental is the infrastructure as a prerequisite to create demand. “There is no one single problem that would save the railway. I have to insist on two topics. First is the availability of the infrastructure. You can't offer the service if you don't have the rails. The second is the principle of user charging. If this is not balanced between the rail and the road, still you have to pay for each kilometer and road is not enjoying the same situation, then we have a problem of the competitiveness especially in the field what we called a single Balkan load. We have the direct competitors for the transportation of the small volumes from door to door.” The European Union Commission is striving to bring in competition between rail organizations. By leveling the playing field between modes of transport even more competitors could hit the market with new and innovative products to serve their customers’ needs. “Russian railways have some business interests in Europe. They have made an acquisition of the fine logistic company that what I know. They bought nothing really in Germany, not substantially. But it has something to do with rather expensive to buy in Germany. Germany's infrastructure is state owned, so you cannot buy it. You can only buy trains and it makes no sense. Russia doesn't have so much money to invest outside of Russia. They have so many things to do inside the Russia. The Russian territory is endless. In addition, they have so many development areas. They urgently have to do something. They have no money and what they are doing is privatized. However, Russia is like everywhere. It has not enough money to maintain the old system. System is getting each year one year older and they have not enough money to really keep the track. Once in a while it really crashes. And this is everywhere a case is. Also in Germany, maybe not so dramatic like in other countries, but also.” After TEN-T was started 25 years ago this is a statement of an insider. The next round of plans till 2030 just launched with the newly elected European Union Commission also lacks a clear statement on how this time the investments will be financed. “The security systems on the rolling stock and on the tracks are to some extent connected, but to pay for the infrastructure is on the side of the government, of the state. Everything on the operating side should in the end being paid by the users, by the customers. This is part of the future, I think.” The answer to the question of who pays for what is clear as it is clearly defined and communicated. The how is not. It is almost sad to listen to this while at the same time European Central Bank is looking for enough collateral for its quantitative easing program in the next two years. Because the Lisbon treaty prevents it to lend to the European Union or better to the European Union Commission. European Union Commission could assign European Investment Bank to run the financial logistic of these investments, and European Central Bank could lend to the European Investment Bank the needed funds and take the infrastructure as collateral. This budgeting process in the European Parliament would give democratic legitimacy to such a proposal from the European Commission.
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“I think there is some to do also with the investments, but also with the innovations. On the ticketing side, on usage of the tracks there are some things we can do and yes on competition we can do some more, but this is getting hard because the cost structure is so difficult and you do not find people who would like to go on the competitive market. I mean, if you are on competition and once you get a contract but you don't make any money, this is not a competitive market. Telecom is a competitive market because they can make some money." Ticketing is a great opportunity to make passengers lives using train transport much easier, especially those traveling beyond local commute. It is not a mayor investment, would be done by private companies, should they have the assurance that they can actually sell tickets of the various operators to the interested passengers. Since passengers could be stimulated to book tickets in advance and over gadgets like smart phones, tablets and computers the operators would get more needed data for preemptive capacity planning. “But what about the rolling stock and speeding infrastructure? It's too big for one country. If each country would make his own infrastructure would be fine. But they don't do it. If we plant a high-speed train to the French border it doesn't mean that the French plan to do the same on the other side of the border. And when we have talk to the Polish they said no, we have no money for it. We will make a motorway.” Some central planning and coordination of the cross-border infrastructure and rolling stock would also bring in the economies of scale of production and thus lower the price of investment. “No, not for the infrastructure. The franchise, the PSO - public service. The infrastructure will always depend on subsidies or for the next 50 years let’s say. You can reduce it. In the UK, they have had no investment for 30 years. Now they are investing heavily but since they have separated infrastructure from the operation, they know exactly this is the money which is only for the infrastructure. But the infrastructure is the only thing that is costing the money." Is separation of financing more important than that of strategy, structure, policies or management in the case of running a service on public infrastructure? “So, all these factors have to come together but of course we have to wait on the results. It will take some time. We have one big problem, in my view it's not probably politically correct to say but, the biggest problem for the railway is the cost. The staff cost, at least in western European countries." Rail industry has to be exposed to competition from within and from other modes of transport on a level playing field. It must be organized as a business to be able to benchmark it to other industries. “And nobody invests in infrastructure. That's a short term thinking of the politicians.” Do politicians understand that they are not responsible for the private sector and its short-term results but for the “infrastructure” that does and will provide the environment for the business
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to deliver products and services to the citizens. Is that because of the short-term popularity between elections? “There is a little money. There is not really a parallel as you said. There are three levels and as you said we in Germany have different interest between federal government and regional governments. There was an agreement in 1993 and this agreement later on was never challenged. Federal government had to spend the money anyway. Either they by organizing regional traffic or they give the money to the regions and they take the money and organize the regional traffic. The money for region traffic has to be financed anyway. Money is coming from federal government. That was a compromise. It never was a conflict between these two levels. On the other hand, between Federal governments (European Union Commission) and Germany on the national level the European Union Commission has the ambition to define coming from their Philosophy how to create a common market for everything - services, trading, goods also for transport, including railway transport. To assure this open market for transport it would have been necessary to alter defined rules of the competition. The conflict between the German government and German railways on the one side and the European Union Commission on the other side was about the competition. The competition is not possible if you have an integrated company. The commissioners now trying the same and force the separation. This will not be materialized, I think. The technical harmonization and alteration process, many companies now running traffic in different countries, it's of course not very intelligent.” This is a frank description of the difference between the structure and policy differences between the federal government in Germany and the Laender and the case of European Union and the member states. In the first case the federal government provides the monies and the Laender the content to be financed. In the second European Union Commission provides the content and the member state should provide financing. The world turned upside down; furthermore, it does not work; it never did in history. Leadership has to be supported by money as a mean of civilized negotiations of power distribution. “The alternative would be that the general public would need to pay more for the tickets or the industry would need pay more for transfer to cover all debt." So, the society through the decision of the government took over the historic debt for which neither the actual customers nor the actual company were responsible. “That was a reason why the chancellor at the end have said, we take the debts. Anyway, whatever the philosophy is, there is no other case in Europe. No other government has done that. Mr. Kohl, the chancellor at that time in Germany, took a very unusual decision whatever the philosophy was.” Was Germany the only one that put the burdens of the past decisions of the society on the shoulders of the today’s whole society instead of leaving it on the shoulders of the current companies’ employees and customers?
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“And here apparently, this is something where I would say the learning of the politicians in these countries have not reached the sufficient level of the acknowledgment of the role of railways. Because there are number of states where the railway is simply not seen in a comparable level as the road. The railway is seen more as a consumer of a variety of subsidies but not really the produce of the mobility of the citizens or the alternative transport mode for the transportation of the cargo. Which is a pity because as I said in the context of the entire European policy, we need to integrate better all the transportation and the rail has to play the very important role. But this is lack of really understanding that we can also in East European states and we have even I would say a catastrophe examples in some Balkan countries, that the railways simply not perceived by the politicians, that the railways need to be supported on a political level and of course consequence also on the level on the investments in the infrastructure. So like railway can develop in the way self-financing without obtaining the necessary support from the government.” A self-explaining statement on the difference of perception of the role of rail between among politicians in the eastern and south eastern parts of Europe. The question is what is this perception driven by? Is it the negative public opinion about the rail system that is in a bad shape to provide appropriate service, or by the people and politicians themselves that prefer private vs. public transport? “Financial aspects of the infrastructure is a topic on all three levels, rail organizations, member states and European Union, I would say. The first European Union simply recognized that there should be the better future for the railways is reserving or recall certain funds that are available from the budget of the European Union for the railway infrastructure. I mean first for the transport infrastructure and then part of that for the rail transport infrastructure which should go to the rail infrastructure. On the side of the European Union we see the clear tendency to promoting the sustainable rail transport." In January 2015, the newly elected Commission issued an updated, the so called TEN-T corridors, memorandum on the development of transport and rail transport infrastructure till 2030. TEN-T corridor plans are known for 25 years now whereas in reality they were never implemented as planned. This time the European Union Commission has identified the needed amounts of money till 2030. This amount is substantially bigger than recently believed in and communicated. The memorandum though does not state any realistic plans on the financing sources and structure. “On the side of the member states the situation is slightly different, because they have to balance between the needs of the road and rail sector. It is not 80:20, we are happy if it is 40:60, 40 for rail and 60 for roads and in the number of countries is much less. We try to promote the interest of the railway because if it is below 40% of the rate between the rail and the road, it is dangerous. This is the situation of newest member states. Ratio is very unbalanced in favor of roads."
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As in the European Union Commission case which fully supports trans-European rail corridors without assuring appropriate funding, the member states support regional and urban rail traffic with inadequate funding compared to road infrastructure as well as in absolute terms. “The commission, partially they do deliver, on the aspects of the dossiers they can more or less directly decide themselves. This is true for the allocation of the budget of the European Union, this still have to be negotiable with the council and the parliament. They have a good argument why the European money should be spent on a connecting Europe. They have a full support. This is a part of the financing." The European Union Commission leaders, approved by the EU Parliament and Council, should put the money where they think they should to integrate the EU rail system. It might be that the current EU budget of 1% could not serve this purpose. An increased budget could remedy this purpose as well as an appropriate credit instrument to their disposal could. “Why it is so difficult for us to understand that we hate to pay as tax-payers for the infrastructure on one side, on the other side we hate to pay more as individuals? We all hate to pay. Nobody likes the talks about charging more for the services. It is also the historical development of the road network which has to be offered simply to the citizens, to the population for free. Historically you don't feel you have to pay for each kilometer travel. Of course, you pay the cost of the fuel taxation which part of that goes to the road network for the maintenance and the investments. No doubts about that. But you don't pay proportionally to the distance travel.” This statement points to different perceptions of a) what is public service provided by the state where all citizens participate trough taxation and b) what individual users of public services need to pay for the use of it. Things become even more difficult when the provision of service needs investments into infrastructure with very long return on investment periods and the investments are not distributed evenly among the population as taxpayers and users of the services on this infrastructure. For example, should everyone pay taxes for the rail infrastructure to be built even when he or she does not use rail transport? Should current generations keen on using car transport pay taxes to build rail infrastructure that will make transport more sustainable for future generations? These dilemmas have to be sorted out through the democratic political process. As the statements show there are more problems around resolving these dilemmas in the previously authoritarian member states. In the long run is the continuous and periodical self-reflection of the political process in a democracy more sustainable that the enlightened authoritarian approach? “Swiss by definition they cannot be dramatically different from Germans, Italians or French people, because they are Germans, Italians and French. What is it in the last 50 or 100 years that they made the Swiss people so different from the rest of Europe? But here I would advise you not to talk only Andreas Meyer the CEO of SBB, but also to the government in Switzerland. To the level of the Ministry because here is the money distributed between or among the sectors.”
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The Swiss have a long tradition of a very consensual democracy with its referendums and distributed leadership. On top of this they clearly understand the role of money in the society. The role of money as a mean and measure of negotiating and agreeing on priorities among the distributed leadership between various leaders and followers. They recently opened a two lane Gothard rail tunnel which is the longest in the world (60 km) to further support their decision that there should be no cargo transit over Switzerland performed by trucks on the road. Would comparing Switzerland and the European Union in their respective investment decisions provide more insight? “And the guy from the Netherlands, he was saying I now understand why this is, but don't worry I am now 8 months in business. I am a step ahead of you. We have to bring this vision in, and I think this is a kind of leadership we ourselves should keep in our hands, or the Commission, or we all together. This would be OK, we have to have the focus on all kinds of mobility, so we have equal level of cost structure, of financing and everybody has to take his duty. Many things, where you need a truck for, there are certain things you should take the railway for and you need the railway for those goods. You cannot do it by truck. Once you have some certain goods you have to carry it by train, or public transport, then you will need a track system, the railway system and you cannot afford just to let trains run from time to time. Then once you have a system, we have to see that you can use it efficiently. That's why is the question of costs structure, of competition, especially in rail cargo important question for the future also to fulfil our acclimatization goals we have. I think we are not as green as we think. Now we have some opportunities to take. This is a kind of leadership, and I feel as a CEO, we just started also because of the discussion of the new presidency, of the new period of elections, now is time to get more in detail on that.” Rail infrastructure is needed because there are certain things you cannot move around on the road technically, economically or ecologically. Once the infrastructure is there then effectiveness and efficiency of it should be assured to further justify the investment. Respective leaders must drive this process and its understanding among the voters to support it. For example, healthy voters support investments to build hospitals because they understand that they are needed in case of an accident or sudden illness by themselves and their relatives. In the meantime, they are effectively and efficiently used by others in need. “In order to finance these corridors the infrastructure managements have to get together and discuss what the lines that we have put investment are. We have our new facility for financing up to 10 billion in the next 7 years from the European Union where we can get additional money. We have the TEN-T money for corridor, but essentially it must be the national infrastructure managers. And what we want to achieve with this corridor is a sort of shift in the thinking. Infrastructure managers always think only about their territory. They are responsible to their state, so they come together and say OK; this is a bottle neck here at the border. Here we have to invest; there is a maintenance terminal which needs to be put there and so on. That's what we want to achieve with this is getting together the management board, the executive board and so on. That's very slow process."
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In January 2015, the newly elected Commission issued an updated, the so called TEN-T corridors, memorandum on the development of transport and rail transport infrastructure till 2030. The memorandum still does not state any realistic plans on the financing sources and structure. “But it does not make sense just to announce those things, there has to be an organizational process that money for that will be provided by the national countries. Or everybody has to give money to the European Union and the European Union is a duty to take care of that which the undertakings of the infrastructure may not love because they want to take care of themselves." What is the real money flow in a monetary and fiscal union, a political union? Why such a flow is considered natural whereas there are doubts of such in the case of the European Union? “There is no planning. There are no multiannual contracts between infrastructure manager and state. Now we are pushing. We have achieved some improvement because they are concluding contracts. We want to contractualize this relationship between the state and the infrastructure for the investment that state gives. OK, you get the investment if you do this and this. The state cannot say after half a year, if there is new minister, no I scrap it; you will not get the money. This is not possible. You cannot have any planning.” The statement describes the importance of budgeting, that is the allocation of resources measured in money terms, as a mean of negotiation about the priorities in a society. “We have to have the same pace in a way. It cannot be that one country is quick and the other one is not working on that. We have a failure, we have seen tracks coming from Rotterdam to the Netherland's border, but in Germany nothing is done so far. This cannot be. This is a waste of money of Europeans. We have to do more investments, and we also have to do the investments into noise reduction stuff, otherwise our citizens will not accept the system any more. Growing the frequency means growing the noise and this is not a way. So, when I am talking about Germany, we have to change law. DB is allowed and the country is allowed to do local noise reduction things like walls or whatever. It is good to reduce the noise on the wagons and the trains, but everything costs so much money, that we know are talking again about the level compared to other kind of transport systems." Higher efficiency of track usage means more noise; pollution thus impacts ecology. To compensate for that investments are needed into better rolling stock that would be less of a burden to the environment. “If you talk about the private capital it is difficult to imagine it will be a huge enthusiasm for investing in railways knowing it is a long-term investment. We have parties that may be potentially interested and there are some pension funds. They do work with the long-term perspective of the return of the investments, so those are the parties they can be attracted and not only the Europe, we know the Canadian pension funds are involved in the investments in Europe.” 57
The length of the return on investments in rail infrastructure is long. That has a limit on the type of private investors. Pension funds are identified as potentially such investors. Collectively they are anyway the biggest investor which tells more about the public vs. private nature of savings for the old days. “More potential is on the high speed and airport links, there is more potential for the road projects to use the benefit from the availability of the private capital. The return of investment is slightly faster. Releasing the hands of the member states and allocating the budget for transport infrastructure and moving it slightly towards the rail. If the road can be partially self-financed, we can have more budgets on the rail side. That's also the model we try to promote more.” The sovereign defines where to allocate monies between the public and private sector. In the European Union case of the separation of infrastructure and operations that mean the public sector invests into the infrastructure while the private sector decides further where to invest into services. “No, there are no private investments in cargo dedicated infrastructure. We have the corridors and there are all invested with public money. We only have one exception in Europe where we have self-financed railway system. It is in the Baltic States. Those countries do apply the model very close to the United States of America one. They connect with the rail freight dedicated lines at the ports with the hinterland and the hinterland means Russia. It is a huge territory with the huge potential. This is what they do. They use the price it can cover the cost of the infrastructure as well as upgrades. This is unique. Infrastructure belongs to the public enterprise, it is still a state company, but without any influence of the public budget. There is not state budget for funding the infrastructure.” What is so different here? They use the price to build and maintain the corridors to a vast hinterland. The infrastructure stays with the state-owned enterprise without burdening the member state budgets. Like the United States of America dedicated cargo lines. “So the primer target is always to obtain or to achieve the better understanding of the politicians that the railway has to get the comparable acceptance as the road sector and as a second which is really strong as the first one, if you have a budget for the investment into a transport infrastructure it needs to be properly, evenly distributed among all and not to give all money to the road sector which we sadly observe mostly in the Central Eastern edge of European Union.” Central Eastern edge of European Union gives most of the money to road development as OECD data show (https://data.oecd.org/transport/infrastructure-investment.htm). Is this the consequence of the liberalization of movement provided by the roads of the second half of the 20th century? Or is it that the car manufacturers as private enterprises were more successful in getting into these markets with a much higher penetration rate than before compared to stateowned rail incumbents?
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“It will not be easy to steer the planning of the infrastructure from Brussels. We can only do it much better with projects, trying to give our European Union money only for projects which makes sense. This is a general problem, and if you have that sort of decisions, it's very difficult to cope with the money that you have. There will never be enough money available for the infrastructure. Mr. Grube says he needs 30 billion, because of the bridges are old and they will break down and so on. However, if you use 6, 8 billion for Stuttgart 21, I can't help him very much. He could use that money to do the necessary work. This is one of the projects which completely got out of control. From the cost point of view 6, 8 billion to build a train station in the ground. And it even doesn't lead to capacity increase, but you have fewer tracks. This is completely crazy." Should we be steering the investment projects from the center or by the periphery? In the mentioned example the criticism goes to the periphery decisions that did not bear much fruit. But the periphery provided the money for the project for which the center is rightfully critical about. If the center has better money allocation priorities, it should have the appropriate budgets to support them. “So, for the commission this was not the easiest, I would say, segment to penetrate. It's a bit comparable to, let's say, the hospital systems. Hospital systems are national as well; they represent a huge part of the GDP. If you look at healthcare, its 9% of GDP in Europe. But the commission does not intervene in healthcare, because it is heavily subsidized, nationalized in many countries, to certain extent, state owned, state controlled. So, the commission is virtually staring away from this sector.” There is much less of a need to provide cross-border services in health care in the European Union apart for some extremely specialized treatments that cannot be reasonably economically performed in smaller member states. “Regarding financial aspects we can look on a basis where we look into several examples which will highlight the problems. No. 1 - the infrastructure: if we would think about 1000 km, if we would build 100.000 km or 150.000 km in train tracks, one of the things in Germany which is needed is for example high-speed passenger transportation system like in a circle with diagonals. Every year down the line until 2014 from 1945 cost has been increasing by 5%, 10%. If you take interest on interest, we are looking maybe 100 times or even 200 times more expensive than it used to be in 1945. This is something comparable to the missed chance of a country that didn't invest in environmental friendly buildings, cars etc. over a period of 40 years. It's almost impossible to finance it nowadays, but we need it. We need infrastructure. If you look into the cars, let’s say the mobile equipment, I was always being looking with one eye into the United States of America. The big railway companies. On one hand if you have a railway company, you know that from your own experience, you want to be the one who is deciding which car is going where, which is going to be on reserve, and of course, for competition reason you don't want to give your car to somebody else. The UIC has this system where you rotate the cars without rotating them. And in the end, you don't know where they are. The Americans have a system, those railway companies, 59
where they have 100.000 cars, the big ones and they can put the train together with, this was 10 years ago, even 5 km long, double decker’s and so on in 4 hours. Why? It's all on computer, they know where which car is available and they have access to their competitors. Not overall, but maybe two larger operators, one operator has the infrastructure of 37.000 km. This is the whole infrastructure of Germany. This is an aspect we should think about and it will also save us money in one hand because the bailout on the utilization factor is not very high. If you can solve that the UIC is not going to do the job for us. If we can put everything into a pool with the right type of compensation because in Poland if I have to put a train together - there is a lot of German industry - it's not necessary to get them back after use. They can be left there for 6 or 7 months. So, when they come back, the computer shows where they are, everybody can do the benefit out of it. This is what we need, but this is another jump. If they open their mind, look at the possibility, create business model and see whether it's implementable. And they did it. In the next 10 years, these things have to be solved.” A statement in support of economies of scale in dedicated cargo lines and rolling stock like in United States of America where the biggest seven operators of railroads invested $30 billion in 2015 and since 2011 have averaged $26 billion annually according to the Association of American Railroads (AAR) creating $274 billion in economic activity, generated nearly $33 billion in state and federal tax revenues and supported nearly 1.5 million jobs nationally in 2014 alone. As in EU the infrastructure is owned by the member states and not by the state owned or private companies the investments would have to be made by the member states and in the case of corridors trough many states by the EU.
6.1.3. Policy “The Dutch have had a decree saying that if incumbent loses 0,04% of turnover because of a new operator, then is already compromising the economic equilibrium of the incumbent. I mean you look at the word, compromise in English mean destroy, nothing less. So, they had this degree adopted and we had to act against it but this is the mind-set that you have." “First, they say we liberalize, and then they want to introduce bureaucratic clauses later on, but only in relation to their own territory. They have a subsidiary in Germany. They like very much to participate in tenders there. They have nothing against that. This is a problem that we have.” It is natural that people, companies and nations defend their interests, selfish interests even. If European Union cannot position itself as the place to negotiate these interests, everyone will continue defending them on their own. “Also of course, there is an economic problem for international passenger services, as you say; it's only interesting up to 4 hours. In fact, otherwise you take the plane, with all these budget planes and so on. The international train makes sense for the smaller 60
countries. The Netherland would be a perfect example. It would make a lot of sense to have a train competition between Paris, Brussels, and Amsterdam. That's exactly what they want to block." Cross border passenger trains make a lot of sense in small countries, or in big countries around borders with other countries. This would provide passengers public transport means to travel to cities that are important cultural and business hubs that are just around the corner but in another member state. To visit, study, work and foster further integration of Europe. “After WWII rail lost against autobahn, individual mobility.” Is this struggle between rail and road a struggle between public and private means of transport, a struggle between collectivism and individualism even? A more individualistic approach to the services offered by public transport operators might be of great help to bridge this gap. Here much more flexible ticketing would probably help a lot. “It's an old system, it's centralized. It is government controlled. And when there are changes, they very often go in the wrong direction. I don't have to say to you how the western democracy works. Elected politicians react to events. A lot of the laws that we have are driven by a particular incident which happened somewhere in the past." The system is old and centralized. Yes, it grew up in parallel to the national states in Europe. Changing the rail system in Europe runs much in parallel with the changes of national states into member states of European Union. That is why this study is so interesting. “The railway system is a very complicated system from my point of view. Very complicated. This is also a reason why so many things can happen that makes the system fail in a way. Very sensitive system and you need a railway undertaking that works together with the infrastructure manager very closely to develop also the system, to take care of certain situations, to solve them. And when two companies - two companies would always focus on their income - so this is not a clever idea, I think.” On one side the system is centralized and thus complex, on the other side the statement claims that it is difficult to decentralize and distribute it in smaller manageable chunks. What is fundamental to this statement? Centralized systems are easier to manage in the way they are but the decentralized are more adaptable to changes in the environment. So rail should get a better balance of both? “When you look on rail system, then you see how complex it is. I think it is more complex than doing energy or doing telecommunication. What I see in mine association, how many - I wouldn't say regulations - but how many proposals we have, how many things we have to cover and how many things rules you have to follow to do a safe train service. Also, efficient train service and energy saving train service are followed by a huge number of rules. It is a lot easier with cars. If you want to bring a car on the road, it is a lot easier than to bring a train on the road. Once you have brought certain model on the road, like Mercedes E class or Volkswagen Golf, it's proved and you go ahead. If you change just a very, very little thing on a train, you have to go the whole procedure
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again. It's over-regulated, too birocratic many terms as it is necessary, because the system is kind of dangerous. You have to be very safe on that." In a centralized system where regulation is incrementally built upon, accidents tend to occur. Not much is left to the individual initiative. There are not so many casualties than on the road per km traveled, cargo or passenger, but all the blame goes to the central regulator. Does this statement tell a something about the difference in perception between a centralized system and a distributed system? “The Chinese keep their leaders for 10 years, Americans typically for 8. But the Chinese have a good system. They have the meetings of a central committee. I started to monitor it behind the Chinese working for me. She was working for me because I wanted to know what the decisions of the central committee are. And they are published in China, you can read everything they do, everything they wanted to do and how they wanted to do it. But those guys are smart, they are not stupid. They don't close their eyes." This statement probably says more about European Union than China. What is it about the European Union structure and policies that make it different in comparison to United States of America, China or Switzerland? It is not so much the structure, European Union Parliament and Council, European Central Bank, the Lisbon treaty, legislative and regulation. Is it the taboo theme everywhere present and never spoken about? That European Union is more than a club of admirers of its culture and history that want to overcome its darkest moments in world’s history. That European Union and the monetary union of Eurozone is halfway more that can be easily abandoned technically, and even more so emotionally. At the same time the European Union is not a state in the Westphalian sense with the Eurozone as a currency union which is a monetary union without a political union, that being a precedent in history. This makes it difficult if not impossible to lean on history and theory of sovereign states in order to understand the functioning or malfunctioning of EU. “Philosophy in Germany was there will be subsidies for regional traffic, but long distance passengers and cargo has to be done without any subsidies.” This perpetuates through statements in this research. The sovereign invests into the infrastructure. For cargo and for passenger transport, and collects fees to recover the investment in decades. Operators on this infrastructure provide services for the end users. Why should cargo and long distance passengers pay the market price whereas regional traffic should be subsidized? That means that the sovereign, the people, pay a part for those who use the service. Was not the sovereign role exhausted though the investment into the infrastructure? Is it to motivate people to use public transport like rail instead of individual one like personal cars on the road? Ecologically this dilemma today makes sense. But will it completely change with electrical cars? Electrical cars that are guided centrally and one against the other by modern technology like Galileo, sensor and radar navigation to be able to move in chains? Furthermore, how much different would that be if the same technology would enable rail transport to be more flexible? Are not realities of the past 150 years of rail and the road transport those that blind our eyes and minds with clichés and prejudices about how this can and will further develop in the near and no so distant future. Like as if sitting in a car in the middle of a traffic 62
jam on your daily commute is so much more freedom of movement that taking a bus or a train getting there pretty much on time while being able to socialize with others, read or listen to something or take a nap. “Behind all this, the key challenge was to change the mentality. To make clear to the personnel, that they are not a part of state (the authority) any more, but they are a service company. The only criteria at the end of the day are the satisfaction of the customer. And this means not only follow the rules issued by regulations, by the government or any administration. The only point is satisfied customer.” The other side of the coin are the employees. Civil servants that work for the state vs people that work in a service company to serve those that are in a need of their services. This might seem the same thing named differently. Or there is a subtle difference. People serve people in both cases. The semantic of civil servants is that they do it in the name of the collective, the state, whereas in the latter case they do it directly, organized by a legal entity, that is owned by citizens or some of them who invested their savings into this endeavor to preserve value for the times that this value will be needed. Again, the same theme, collectivism and individualist, the two that a society cannot live and needs not live without, that have to be balanced and constantly re-balanced to avoid the fate of Europe in the 20th century when this balancing act was neglected and ran out of hand. “Volkswagen would never build a car then is costlier than what they can receive on the market. This is a complete different situation that's why it is so difficult also compare to Lufthansa or Air Berlin which is also a nightmare I think. It is so difficult to compare Deutsche Telekom and Vodafone. They have a clear view, they have a cost structure, they try to reuse it, they give a variety of contracts which are good for them which they think will be accepted by the customers, so we can make a profit. But the railway undertakings and infrastructure manager bundled, they also have to deal with politicians, with the state, with the will of the society. We also have the situations and we say no, this line will be finished. We have so many people who signed that it still has to be train service. We are always saying if only 50% of the people who are signing will ride on those trains, it would be a good deal for everybody. But once they signed, you will never see them on the train. This is something what railways have to deal with; it's part of the game.” The statement is unclear about the separation of the infrastructure that is built by public money and the for-profit operators that provide services on this infrastructure. Furthermore, the people mentioned that are against abandoning or for introducing services by rail operators, they do not bear the business consequences of their political decisions. “If you have the feeling you did not really do your homework, maybe the government didn't want it, maybe there was too many interventions from the government side, they were afraid of social conflicts, or whatever. Or they didn't want to spend money. There are many reasons. You feel in a more defensive position. You are always afraid that others, who did their homework already, might come in and you can be in a very competitive situation. It is the same with the French. The French have always trying to block the market and to prevent others from access to the market; only under the 63
pressure of the European Union Commission they have been ready, after many years, to open first the market for cargo. And you have seen the result. The French railways have lost dramatically in terms of volume and market share on the freight side. Because they didn't prepare for this, simply. And the government doesn't want to get in conflict with trade unions or other social conflicts. So, Italians also never really embarked on this, never started really seriously working on increasing competitiveness of the railway system. Once you have a feeling I am not in a very good situation, you start reacting negatively to others coming from the outside. They might be better, they might be more competitive, and they might offer better conditions to customers.” State owned incumbents and the state as a regulator of rail traffic. The state is in a permanent conflict of interests on how to deal with the incumbent, the market, passengers and trade unions. Notice the narrative, the French, Italians, German etc. still so present in today’s thoughts of even so European Union minded people. “One of our famous working groups is a group of DB and all the competitors talking together how to develop a market in respect of competition. They now often working, couple of years together, they are picking the difficult issues and they come to conclusions which they vote all together for. So, it's no descents, they are the same opinion.” Rail organizations agree and cooperate on the policies imposed by the market regulators. At least on the formal level there seem to be no problems in this respect. Possibly subtler mechanisms are used by incumbents to prevent too much and too fast competition buildup by newcomers to the market. However formally everyone respects the rules of the game. Looks like troubles are elsewhere, not in the relations within the industry but in relations of the industry with the member state governments and the European Union Commission, or in the relation between the member state governments and the European Union Commission. “We need competition. We still need more competition in Germany. I think we have some very good approaches, but they are some issues open. We are now touching the energy stuff and we have to see that in the cargo. But to cargo it come also a little bit later, because cargo is a very difficult question when it comes to competition and it's a disaster actually, I think. Passenger trains, regional trains, we now in Germany have quite a good way." Competition in passenger traffic addressed many energy and environment issues, but with cargo the lobbyists are still not satisfied. “We are talking about a lot of things that are cost intensive and the Commission should not only work on good ideas that are nice to have, and could be standard, and whatever. They have to have in mind what it means choosing mobility family in general - trains, car, bus transport, air transport. They have to see the implication on all parts, because it is a system that has to be levelled in the way. Otherwise you lose one of the carriers." Level playing field among modes of transport is constantly asked for by all parties. There is something that caused this unleveled situation in the first place. And might be the same thing 64
or something else that makes it so difficult to level it out despite all the good will from all sides. This could be a very interesting research field as questions point to individualism vs. collectivism dilemmas in the society and its development through time. Freedom of choosing a place to live and mobility in general have developed in parallel with the needs of industrialization, the emergence of national states and technology like trains and road. “In Energy, we also have some through competition, for example in Germany, where you can have a difference of 30% between one supplier to another. Although the average level of energy cost has gone up because of state interventions to protect renewable energies and so on. But that's a different issue. Without the liberalization, you would pay even more.” The belief expressed is that more competition means better service at lower price. Once provision of a service hits the bottom price possible it becomes a commodity. Since many would be tempted to go for the market share with prices below that by further degrading the quality, security, ecology and other standards, regulators must step in with requirements that define minimal standards. The costs of regulation are born by the taxpayer who might not be a consumer of the regulated service at all. So, price of service on the market are just the internal costs, directly paid for by the consumer, whereas there are external costs not accounted for as part of the service and thus born by the society. Are these dilemmas between public and private in provision of services and public services understood by the society as a whole, its leaders and scholars? “The only sector where we still waiting for results is the railway sector where we also started later and where the national resistance to the liberalization is very big." A naïve answer would be that this is an old sector/industry from mid of 19th century. But cars, electricity, telecommunications, energy distribution networks are as old as that, not to mention state administration which is even older. So, where does the conservative nature of rail come from? “The third point was introduction of competition. Market opening for passenger and freight. There will be no improvement in the performance of railway companies if you do not open up the market, if you don't allow other railway companies operating companies, to get on to German network, to get access into German network. The competition force DB to improve performance.” Back to the question markets and competition vs. public service and accounting for the internal and external costs of both. Is the answer as obvious as it is presented? Are the fundamentals of this dilemma understood to an extent that we can feel comfortable with in resolving day-to-day dilemmas? “We had different waves of legislative packages from 1991, where we have introduced gradually this competition starting with freight traffic, because it's politically less sensitive, and is very important for the environment. What you want is to shift the traffic from road to rail and as you say freight traffic makes sense for longer distances, particularly for cross border."
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An argument for liberalization and the deregulation of cargo transport on corridors that are longer and thus cross border. “The truck guarantees you that they will come today. We need to get competition in to make these companies more efficient. Otherwise they will only survive with a help of massive state subsidies. The situation of our countries is that they cannot afford any longer to pay every year these massive state subsidies. The Greek company for example, just the most frightening example, until before the reforms, they earned only 10% of their costs. So, the rest was debts, debts, debts. There is still huge debt in the railway world, but conservative forces don't want competition. They just say give us money and leave us alone. This is the position of the state railways in the community of European railways. They say, leave us alone with your reforms, we don't need that, we just need more money. That is unfortunately not possible any more but they don't understand it and they have strong political lobby power. Now we have seen our fourth package in the parliament. It was practically voted down because of last minute lobbying from these companies." What if the real question is the opposite? If transport costs would be zero, would the economy function more economically and the society more rationally. No, so the ultimate goal cannot be zero price of transport. Markets and regulation provide the frame for an appropriate level of service to the consumers and society at a negotiated price. The role of money is to provide permanent means of negotiation for the power of distributing available resources in a society. When these permanent negotiations stale for too long there are power distribution distortions that build up and are difficult to dismantle. So, the comment to this statement is that deregulation of competition to enable lower prices is not a goal on itself but a corrective to the staled power negotiations on how to distribute available resources. Once the negotiations level off then regulation is needed again. Regulation/deregulation define the required level of service content wise, money provides the negotiation and accounting function in the power games of distributing the available resources. “Belgium is a small country as well. But I mean discontinuing roaming charges is politics. And of course politics, everything which is popular, and this is of course a popular thing, that will be pushed. It doesn't involve any complicate decisions on technology or standards, and so on, it is just a question - lower the price. What am I talking about is of course more complicated, because first of all it's a technology issue, so you have to take as indicate of GSM the initiative to create the working group which will define the standards, then you have to convince all the national governments that this is a thing to do. And so for the moment the commission totally lacks the courage to do these things. And so, the railways, they have, of course, never been high on the agenda of the commission. If they would have been high on the agenda in the 1980's, I think we would be much better in terms of technology than we are today. But at that moment, the 1980’s was the period when in fact the big subject was telecommunications. So, starting with the liberalization of the telecommunication market in 1992, but before that even there was a lot of focus on telecommunications and the commission did a lot of work on that. Railways were never high on the agenda.”
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Back to deregulation/regulation and the power games of distributing available resources accounted for through money. “We didn't know this merger turned out a complete failure. When I arrived in the Brussels in 2002 later on, I met Mr. Cimoli the CEO of Italian railways, he had very bad feelings about this joint venture. Cultural differences between both nations' how to run the company was a big obstacle.” Italian and Swiss railways merger supposedly failed because of cultural differences. Which cultural differences are pointed at here as Switzerland is a confederation in which Italian population lives among others. Is the divide between cargo vs. passenger traffic, or is it between civil service vs. private service type of management? The genuine need of the Swiss population living in the valleys under the mountains of the Alps is that the traffic between north and south of Europe that needs to cross the Alps should get off the road. And the Swiss government supported by cantonal referendums found ways to legislate a ban on cargo transit traffic through the country on road. Transit has to go by rail and they are financing the buildup of the needed infrastructure of tracks and tunnels through the Alps. “I doubt driving trucks would be a solution to employ young men, unless we can find a way to cut CO2 exhaust of trucks. I don't know whether it is anything in the box, but could very well be there is. In general, individual transportation has to be cut down. Reduce it for 80%. If you take the 80% is 100% then 45-50% is airline transportation. Exhaust come from aircrafts, the rest is cars and the industry. Economic growth depends on mobility. Where we are going to go? Did anybody ever think about it? I haven't read anything. What happens to railways? Railways have to come from 20% in total (cargo and passenger) and move up if we have to meet this 80% goal. We have to decide how we are going to do it. The only mean we have, or we could do it, without changing the energy source and so on if we could, like in a sand box, find a model where and how to put everything on train. But we know that this is not going to work. It's a complicated situation. I am sitting here and watching what they are doing, I am thinking, what they are thinking. Why is nobody addressing this issue? Is it a political point or not? Railways are the only solution so far known to us that can master the problem.” The latest developments in electric driverless cars show more and more in which direction urban traffic will most likely develop to. Not only horseless carriages and now driverless cars but a totally new paradigm of local traffic. You will not only not drive the electric car which means more room for passengers on the same platform, more time for other activities while traveling, better use of existing infrastructure through route planning of individual cars that will link themselves into a continuous flow of traffic. You will also most likely not own the car so that it will share with others in this new mean of public transport. The capital investments for cars will move from individuals to public transport service providers, freeing the second highest item after housing out of a family budget. Also, cities will be able to free valuable space for parking that in some urban areas now takes up to 40% of the surface for more productive means. There will be up to 5 times less cars on the streets because they will be shared which will allow returning some of the road infrastructure to pedestrians, cyclist or green areas. Not
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trying to sound overly idealistic I just want to point to paradigm shifts that are on the way already. Medium and long-distance passenger and cargo will be the focus for rail transport, while air traffic will focus on distances and geographies. “I was wondering if this in Eastern Europe is not one of the road transport is eventually not a source of jobs for men that are in the best years, particularly they have families to earn for. I don't have clear statement, but I agree both sectors are socially very huge problem." Economics and ecology bump into employment. There are most likely over 15 million truck drivers in European Union. You can put tens of truck loads on a single train with one lock driver depending on the length of trains the infrastructure can carry. In the European Union, mostly the length of a train is less than 750m with 20 wagons with the capacity up to 40 containers, while in some countries like Russia, China, United States of America and Australia trains longer than 3.000 m are known, thus replacing 160 drivers. “The perspective to competitiveness of the rail, especially rail vis-à-vis the road. If the whole social package that you have to take into account for the rail employee is more expensive that for the road employee, then of course you will have much more difficult situation on the market. So, how can you obtain a comparable market position? That is the part of the consideration of the social aspect. Of course, each mode has got different conditions, different perspective, different expectations that I fully acknowledge, but if you can't get rid of the too expensive social package, that we have to kind of roll on, ahead of us than it will be difficult to get the obtain the right competitive situation on the market.” Market forces against the social package. Earnings of taxi drivers compared to airline pilots, or one container truck driver compared to tens of container long trains run by a lock driver. Not an easy dilemma. Put on top of this changes in technology that allow for better work conditions and improved security and we see a mayor renegotiation of social positions of respective professional groups. And then consider times that will come soon when the world population and thus working population will start shrinking. “With all short trains in Europe you have 120 times less drivers. A lot of young men in their best age are employed as truck drivers. Most of them, at least in Germany and Austria, we have truck companies who employ truck drivers from Romania, Bulgaria.” Market forces against the social package is not an easy dilemma. “Governance of rail companies is worked on by European Union, complete separation, is a completely wrong direction of European Union (IV. Railway package). Right would be a) bottleneck recovery, b) freight, c) removal of technical obstacles, d) opening up the national passenger traffic (they are running an investigation how can a firm come to another country with its own firm and services).” Two sides of the coin, European Union Commission and the rail organizations. Both legitimate. The dialog over the conflict is within the industry. None of them offer a clue how to address the negotiations with stakeholders around the industry, like other modes of transport, customers 68
of cargo and passengers, investors into infrastructure, the governments and European Union Commission. Value creation is done by entrepreneur and businesses. The sovereign provides the money to facilitate negotiations on the distribution of resources like technology, environment, structure and policy, market needs. Leadership is the process and money the means. “So tenures really are the problem. On the European Union level, they are more stable because they are elected for 5 years’ period. But they have now influence on the member states. They can do what they want. It's a bit a frustrating situation for rail. I was always complaining. I have always said it's not enough if you complain, what can we do? But end of the day, nobody in Germany was really interested to develop rail system on the European level. Why? German politicians by themselves do only things where they have put points to be re-elected, not for real. You are re-elected if you say OK, I will make a new motorway and so on.” The statement is that the European Union governance bodies do not have influence on the member states and their governments. Looking at the European Union treaties, currently consolidated into the Lisbon Treaty, one could not deduce that this is the case. The Treaty covers the legal frame of structure and policies of European Union. But law is not what is written on paper, law is what people consider right and that is then written on paper. So, writing how things should be will not change what people think is right (Dennett, 2012). We need leadership, not only leaders, that will lead people through negotiations towards a new collective agreement about what is right and then write this in a treaty. And the means to stir this negotiation process on all levels is money with its emission, allocation, budgeting and destruction of money. “Now, the other thing is of course that not every government is in favor of a totally open situation where we have one navigation system, or safety system, so every train in Europe can run on every network in Europe without interruption. A lot of countries may consider that this will create competition to their local operators. They are rather trying to delay standardization instead of pushing it. Where you see this problem? I would say the strongest is, in fact, in the freight area. Freight, as you know in Europe railway, freight has a big problem, economic problem. It has been liberalized, but it is not doing well. One of the main reasons is exactly this lack of standardization. Because if you send tomatoes from the south of Spain to Brussels by train, the average speed that these tomatoes will move is 18 k/h. And this has nothing to do with the speed of the train. It has everything to do with logistics, the systems and other incompatibles; changing the locomotives, locomotive drivers, breaking tests. Because, there is a very easy criterion, average speed. It is unbelievable that with trucks you can reach a higher speed on average than with trains. And this is just biggest on this problem of standardization." Logistics defines the average speed. In rail logistics, it is spread over many companies, mostly incumbents. Each time the logistic path hands over cargo from one operator to the other there is overhead. This overhead reflects in a decrease of the average speed of cargo movement.
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“The commission has wrong priorities. But we all know what big countries want. They want a weak commission. There is always going to be a difference between small and big countries. Today, they will look for a head of the commission which is the weakest possible. This is a criterion. You will see a commissioner which will be weak, a council of ministers which decides and a council of the ministers of the big countries who call the shots. It's simple as that. This is what big countries want.” Who runs the European Union? The European Union parliament was elected to run the European Union and its executive arm is the European Commission. Or is it the European Council as a collective presidency comprised by the member state prime ministers and presidents elected on member state elections to run their respective member states? The later, on late night gatherings as undeclared work, since during the day they have to run what they were elected for. Question is why are structures and policies agreed upon in the Lisbon treaty neglected and worked around trough decision making bodies that are not even mentioned in the Treaty? Is it because the system has little political legitimacy among the European Union citizens because it was sanctioned by the Treaty before accepted by the populous. “European Union package 2011 has the right vision about the level field. There will be resistance of the member states and their budgets, so they focus on what passes.” The European Union Commission is pragmatic in what to impose on the member states, because it is their governments that provide monies for it. Such a governance system is unique in the world and probably also in history if not de jure then a de facto as a very loose association. Where this unique model ultimately breaks, all rules known in the history is the Eurozone monetary union. Money as a mean of permanent negotiation in a society about power distribution over available resources is reflected in the accounting side of money, in budgeting and budget approval in the parliament, that keeps the power debate in checks and balances. “Technical requirements are different between neighboring countries. The authorization process to alter the use of technical equipment of rolling stock is one company has to go to different processes in different countries. The proposal of the European Union Commission is now the compromise as soon as international traffic authorization can be all to given by the European railway Agency. That would be similar to the financing agreement in Germany between regions and federal government. It can be an agreement in the context of the fourth railway package between European level and national level. What is a compromise being an agreement that is responsible for the technical authorization giving access for rolling stock to infrastructure? Compromise might be if the train is only run in the national context, in the national network then it's done by national authorities. As soon as rolling stock is being used in cross border traffic the authorization cannot be given for a number of countries on European level.” From statement to statement the interviewees are making logically coherent statements about problems that exist because in the European Union there is no power and money in the hands of the central government and parliament. It is the opposite; operational and strategic decisions have to gain support of many if not all member state represented in the European Council. An extreme example of distributed leadership, disembodied leadership. European Union has a 70
common agreed upon set of legislation and regulation and in parts of it a common currency without the political union to accept standards of solidarity. “Of course the perception of the role of railways is not the same in the Brussels scene so to say and on the level of the European Union and then on the level of the member states. But really, how to shape the role of railways within the transport policy of both the European Union and the member states is the critical issue.” This provides another statement that the European Union agreement is not in place to an appropriate extent. It does not work even for something as tangible as railways. How could it work for much less tangible things like communionship; or Grexit, asylum seekers problems, car industry regulation. Not to mention Ukraine, Brexit or Cataluña. “On the other side of the regulation is much different. This goes to the competence of the member states. Member states have to play much bigger role, there is a tension between plans, ideas and expectations of the commission and the negative feedback from the member states saying, no, we don't want to introduce charging on the roads on the systematic basis. Here you have good intentions but bad reactions from member states that simply block the situation.” This statement points to a symptom that is a consequence of a halfway agreement among the founders of European Union. In essence it is the fundamental flaw of European Union and the funders were aware of it and judged that the political will at the time was not mature for more and they decided the future generations should deal with it. If the history of the United States of America serves here as an example it took them many decades as well. “The commission has one advantage; it can make long term strategy. They are not reelected. They can project the future 10, 20, 25 years very easily. They stay stable. On the member state side, the governments typically don't last longer than 3, 4, years. Their strategy is kind of short term and accommodates the short-term needs. To be re-elected or to satisfy the expectation of the population. And now we are talking about this price policy, the charging policy, of course when you start charging on the roads it may change the price of the final product. And this is what in a number of states, especially peripheral states of the European Union, they don't want to see that the product will be more expensive just because of the charging principle supplied across the European Union for the trucks compare to the current situation. This is what we observe. So the acceptance for the charging is much higher in the central European space because the changes will not be that dramatic and it will improve the parameters of the infrastructure because the collected fees will go back simply to the maintenance of the infrastructure. While it is much less accepted in the peripheral states because of the long distances to connect with the central European area.” An extremely interesting start of the statement. The European Union Commission is not elected. The member state governments are. It is interesting not because it is factually wrong, both are elected namely, it is interesting that it surfaces in a narrative of so highly informed and involved people in the maters of European Union and the member states. Where is this statement rooted? What is it that these kinds of opinions appear and are communicated? And 71
that it is politically incorrect almost banned to talk about the fundamental reasons for eventual benefits or negative consequences. The language reflects that in so many terms and sentences communicated publicly. The European Parliament is a called a parliament, but in the next step the government is not called government but the European Commission, with Commissioners instead of ministers, the collective presidency is called the European Council, the Constitution is not called a constitution, but a Treaty, states are member states like in a club and the list never ends. A more linguistic research for the roots of these words would probably reveal a lot more. Various leaders are jumped over by others on matters out of their jurisdiction systematically, without the ones jumping over having issues with that and the ones jumped over raising a complain. In societies or businesses this can happen occasionally but not permanently. “Coming to European question - I think that Europe should take a role there where it's helpful and should respect the system or the idea of subsidiarity. The European Union is not a national government. So, please let us do many things as the national countries. Governments want to organize their country because we are different." One more in the direction of the previous statement. And it is a different interviewee. European Union is there to help where it is helpful only. European Union should respect the idea of subsidiarity. Of who to whom? Would the European Union like to be more than agreed upon? Is it that European Union would like to do something that the people and peoples of Europe do not want? “One of the benefits of the European Union is that we are working together under one roof getting each other better to know and respecting each other but as the idea of European Union has never been make everybody and everything equal. And this will not work. We have to find a system where you respect also the difference.” Now this is getting closer to reality. Getting everyone and everything equal is not possible, so it is not a problem even if one would strive to do it, unless force would be used to do it. Big nations have failed in such experiments. Knowing better and respecting each other is appreciated among neighbors. Once you live in the same building or even share the purse a bit more organization and policies are needed. And leadership to reach closure on decisions, the pleasant ones as well as on the unpleasant ones. “Where we have no reforms at all, where we have the old monopoly structure, there it has gone down further, also it has gone down further but that's also understandable in the Eastern countries where you had a higher share before because simply there were not so many trucks, there were no private companies owning trucks. Once you create this possibility there was a lot shift towards road. At least we have some countries where also things are stabilizing now. Slovakia separated infrastructure from operation. They have also reduced track access charges, which were too high. They were 9 European Union and now they are 1 European Union, also pushed by us and they have strong increase now in freight traffic." The statement claims that European Union driven reforms bring results in term of more cargo on rail instead of road where they were implemented. Is there data or analysis that confirm 72
that? Otherwise that might be a self-prophecy that is not justified. Even if there is a higher share on cargo on rail it might not be caused by European Union driven reforms. So further political decisions are not easy if they are driven by opinions instead of data and their analysis. “Unfortunately the railway sector is much politicized. In our original directive of 1991 was introduced the so-called management independence, the railway company should decide for itself about its own assets and also the infrastructure management. However, if the state gives the money for infrastructure, this is done also on political purposes. Sometimes is more important for the politicians to build nice big projects and then cut the ribbon when they open it, than to have a really commercially oriented infrastructure. Two weeks ago, I sat next to Mr. Rapoport, the chairman of French Infrastructure Company and he said we spent so much money on investment and so little on maintenance. It's an enormous and unjustifiably difference between these two. Those many new lines are then under-used, in other words they are just built for political reason, because the mayor of this city wants to be connected to this big high speed line and afterwards you don't have money to maintain it, or the line is not used. There is no real efficiency analysis before such projects. The same happened in Spain. They built so many high-speed lines for which it was clear they cannot be profitable." Political decisions, red tape. Investments into tracks are ultimately political decisions. They are based on the perceived interests of the voters as well as market and technical feasibility studies, on the perceived long-term benefits to the society and the economy. Would private companies or state-owned enterprises established by private law be a better judge of what is in the interest of the society? “Talking about the conflict between the market developments interests of European Union legislative versus the incumbent we constantly miss the point of what do member state governments play a role in this dialogue. Unfortunately, not very much. They play a role of the incumbents." Incumbents and member states have interests, the charter, to take care of transport within the member state. That is their priority. Why would they invest their money in the needs of cross border transport within European Union? European Union Commission has European Union wide interest and no money to support this interest. Is renegotiating member state and European Union Commission budgets a step towards it? The European Union Commission budget would be spent of European Union corridors the member state would decide about regional and local transport. “You can see in all those countries where they privatized, in the United States of America is also private, the freight operations it has always become more efficient and the market has gone up. Warren Buffett has huge investments, but that would not work if that was a state Agency. He would not, certainly. You cannot force member states to privatize. What we can only force them is to open the market to the competition. At least we are trying. And that is another way, an indirect way of making them more efficient. But of course, then you have the blockages.”
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This statement working on the premise of efficiency and effectiveness of the private sector vs. the public sector which is difficult to confirm in theory and practice. This dilemma is highly dependent on the circumstances. “We started with that in 2006 for the international freight traffic, 2007 the opening of the national freight. So, since 2007 every freight operator is free, at least legally to offer its services in other countries. They get a license from their own country, but that is valid for the overall European Union and then what they need is a national safety certificate. On the freight side, we have achieved a little bit, there is quite some international traffic now." Has the cross-border transport time improved? Has the overall % of cargo on rail vs. the road improved because of that? “The Americans have a different model. They also have this freight only lines, three kilometer trains long with bunch of locks upfront and at the back and they just pull. No interoperability problem. We are trying. We have a corridor regulation. DB was very much against it, because they want to protect their infrastructure. They lobbied against it in the parliament with all sorts of lies that they were telling. We wanted to have this axis, these corridors where at least on these corridors should be priority for freight. And we have talked about it for hours and hours in the council working groups and it was watered down. We said but it is only for this corridor. All the others can be priority for the passengers." The statement approves that the discussion on dedicated freight corridors, just some of them even, did not bear fruit. It does not tell the reasons why. Why would an incumbent be against it? Why would a member state be against it? Where is this rooted? A change that makes business and ecological sense. Are the people living along the corridors against it? Does it matter who proposed such a change? Furthermore, who would finance it? “Companies we cannot maintain our tact traffic for passenger trains, so we have every hour a train, at 6.05, 7.05 etc... if on this part of which goes through this territory, we have priority for freight. But of course, you can solve this with dedicated freight lines if you have enough money to build them. You can solve these problems, but that was a political argument and they have almost managed to stop the whole thing. But the regulation is watered down and now we have as always when you have unclear legislation, we have years and years of discussions and what does it mean and can it be interpreted like that and we don't accept it and we go to court of justice. All of this takes such enormous amount of man hours to sort it out with an uncertain result that it will be really inefficient. We are trying to do these freight corridors at the moment but we build up the governance, we build up the management boards, they have to offer a prearranged train pass. Ideally, if the freight operator goes from Rotterdam to Milan, he doesn't have to apply for the Dutch, the German, the Swiss and the Italian infrastructure manager, but only at the one stop shop. Just like someone who books a flight on the internet, this is my track which takes me from Rotterdam to Milan. This is the ideal. But then they don't offer enough of these train path, Germany has offered 15 74
prearranged train pass. The Dutch which is much smaller country, has offered 180. At the beginning, they tried to block the legislation. When it is adopted, they try to block the implementation. This is a constant fight in this business and the progress that we reach is always very slow.” There are unsurmountable difficulties to reach an agreement among interested parties since everyone would need to sacrifice something. However, the second statement is clear that of course you can solve this with dedicated freight lines if you have enough money to build them. Could you change things on the existing tracks with enough money to invest into technology improvements? Why would enough money help the change? Maybe because instead of the interested parties each sacrificing something all would gain, at least psychologically? “The commission, if informed by the right kind of representatives of the industry, will follow. But also, they have a problem and we face with a lobbying group No. 1, lobbying group No. 2, lobbying group No. 3 and then you have UIC and CER and everybody does its own thing. In a long run this will not be efficient. Also, cost wise it's inefficient. Some of the railway administrative, general administrative system and approach to the commission has to be changed. You have to understand, that those guys when you go there and talk to them, they follow instructions, they have general goal, and general objective and they want to reach it. But they will also be reasonable if you talk to them. We have to make them, without them it will be very, very difficult integrated part of the effort. Because we are talking about our future. We don't talk about railway, we don't talk about transportation, and we are talking about our future. It shouldn't keep us from looking beyond.” The European Union Commission has interests, and the industry has interests. They talk to each other over many channels. Is this the most efficient way? Maybe not, but if the end results are met, it is a good way that they were met in a manner where many opinions were considered thus raising the chances for better decision. If the sought for end results (better passenger connections even cross border and more cargo on rail vs. the road) are achieved, all is well that ends well. If not all these discussions are just a waste of time. Is it leadership that should judge? “Let me give you an example of what we did in DB without European Union Commission. Nobody needed the European Union Commission in that respect because it was an economical advantage and potential profit that came out of such operation. We set up a train; we looked at a Beijing - Hamburg connection. Everybody said these guys are crazy. How can you be? By ship it takes 45 days, or something like this and by train in those days when we started to think about it, it was around 50 days. But we did one thing which was good. We spent a lot of time on planning; we spent a lot of time also on talking to European Union. The emigration system, the taxing system, automatization of taxing, emigration and transportation papers, documents. We did that together with Polish, Russians, Mongolians, because that’s where train is going, and to the Chinese. To cut a long story short, it takes now 13 days. This is three times faster than ship.”
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The statement describes a cross border cargo integration project driven by the industry instead of some multilevel governance structure. Sounds convincing. What is the frequency of such trains and volumes of cargo that the availability of dedicated corridors offers? These dedicated corridors are through areas of very low population density. So, is this a good role model for more densely populated areas in Europe with more passenger traffic? What would happen when the existing infrastructure and its level of maintenance would not suffice anymore? Who would then step in to drive the needed investments and assure money for it? “On the other hand with costs, we have ETCS; we have the noise reduction sold for the trains, for the wagons. We have so many issues that make the system so expensive." Infrastructure and services are expensive. As a society, we have to decide how much can we afford and how to spread it over various needs we have to optimize our living standard. Transport is just one of them. It is expensive. However so are hospitals, sanitation, pavements and park, operas and theatres. Why would rail be different in the perception of people? Is it at all different in the perception of people? “Yes, first just to get influence. My interpretation is power play. The European Union Commission wanted splitting to get more influence. This should not be done by railway companies or member states, but European Union Commission wanted to do by them.” A rather confusing statement. European Union Commission wants influence through power play of splitting the infrastructure and operations. It imposed it on the railway companies and member states. The power play does not work. Why does it not work? Is it because there is no money involved by European Union Commission to facilitate the transition? “It also can work overtime, I mean, in Germany they have 30% freight new entrance. But it took them 20 years, in other countries like UK, you have no incumbent any more. The ex-incumbent has only 40% market share left. The new entrants have 60%. It's much faster, because they don't have these obstacles and the traffic has gone up. This is the way one should do it that was in our original. The commission has proposed exactly the same system 20 years ago. Where it was done, it has worked, but where it was not done we have a problem that the railway is inefficient and too costly.” A statement based on comparison of models, benchmark. It would be interesting to research the supporting data whether they confirm or not such an opinion. “Road vs. rail social standards are dramatically different to get to a level playing field in different social environments.” “It's clear we have a competition between street and rail system. The high flexibility of trucks going from house to a house is in rail not really possible. Therefore, you cannot compare the old days where was no truck available, everything had to go from rail station to rail station and then it was taken over to be delivered somewhere. In the modern world, you have streets.”
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The developments in cargo transport when rail was the dominant mean vs. now when it competes with the flexibility of the road points to the question of what will be the limiting conditions to further expansion of road with its flexibility. Will it be ecology or congestion? “In Germany, after the Second World War they have made, I think, 5, 2 million km new street system. And you have not made a 100 km rail. Invest in street and not enough in infrastructure. And Poland was joining Europe but has it done? They have done nothing for rail, and they have made motorways one after another, paid by European Union. There is a wish to make more freight on rail but it has no practical infrastructure, and there is no practical movement that things are moving forward.” “The other thing is of course and big problems are procedures. At least in Belgium it is. You have security systems and security procedures. Let me give you an example of security procedures. When a train driver passes here a signal, and in fact this happened yesterday, there was another train where the driver had passed a stop signal. I don't know by how many centimeters or meters. What is the procedure at that moment? This driver cannot continue; he cannot even continue for 1 km further to get the train to the station. He has to stop the train immediately. And then they have to bring another driver to continue with the train. In the meantime, this train is completely blocking the traffic. It has an influence everywhere in the whole system. And it has been another trend which has been, I would say, practically general, is that of course from time to time, they have been railway accidents. Although, frankly speaking, the security of the railways is far better than road traffic. There is no comparison. Nevertheless, of course, it's like with plane accidents. If you have an accident, the number of victims is usually relatively large. On the road you have victims every day, but they fall one by one, if I my say so. In railways you can have 10 or 20 at the time and so, this has created the tendency in the political world to say look, and we have to reinforce security. These has been done to a certain extent and when you say reinforce security, there are two elements technology and procedures. General tendency was let’s reinforce procedures. Let me give you another example. Suppose we have a track and a tree has fall on this track. The train which has to go over this track cannot continue, so he has to take another track, maybe via another town to circumvent this track. If the driver of this train has no experience driving on this other track, he cannot continue. So, we have to bring somebody to drive this train, which has experience on this track. Can you imagine this for a bus or for a car?" This sounds as a dilemma between centralized and distributed systems. How much authority is given to the individual vs. the system? As if rail system is in the pivot of this dilemma. “We have the same principle for aviation. It's clear that an airline cannot nowadays control any longer which slots his competitors get on an airport for example. That's why we separated the airports from the airlines. It's the same principle." This is an argument for the separation of the infrastructure sponsored by the state vs. commercially provided services that are paid for by the customers. One difference is surely the return of the investment time horizon. 77
“Also for energy, we separated the infrastructure - the line through which the energy is conducted - from the energy production. Otherwise one producer could control the infrastructure and decide that only his gas or electricity is conducted. This is something where those countries which have started with this type of reform relatively early, they have achieved an increase in traffic performance.” A further argument for the separation of the infrastructure sponsored by the state vs. commercially provided services that are paid by the customers. “What you see is that if you compare the road to the trail world? Then has been a huge different in terms of technological evolution. Trains still use the security principles of the 19. Century. The segmentation of the track into segments of 1, 5 km and then there is one train on every segment. This limits the capacity of the track. Everything that has been done, just apply this principle with newer technology. There is electronics, there are computers and so on, but they still apply the same principle.” Is the efficiency of using tracks dependent on technology that steams from the times of timetables and clocks even in times of satellite navigation and computers? If this is the case, the question is why in this industry did innovation and entrepreneurship not bring in new ideas and technologies and business models? Is it because of the centralized nature of its regulation? Is it because of the historically state owned enterprise nature of incumbents? “Yeah. So, it is perfectly possible to imagine, that you would use this technology for the railways and then suddenly the capacity of the railways would be enormously increased. And also, you could probably do with much less expensive technology.” If you cannot put new corridors into densely inhabited areas then technological improvements of the existing could improve throughput, probably at lover investment levels. “Well, it poses again. If there were dedicated freight corridors, newly build just for freight, a lot of these issues might be substantially lower but you need standardization, because without standardization it's too complicated. The second thing is that all the procedures are still the same. Let me give you an example. In United States of America, you have the same thing, the railway crossings, where the road is crossing; normally you have barriers descending everywhere the trains are going to come. So, the road traffic cannot cross. Suppose for a moment that such a barrier is defective. It does not come down. What happens then? Normally, the train can continue, can pass with 5 km/h. You could say, OK this is reasonable because it means you will not hit anybody. At 5km/h he can stop at any moment. But before he can do that, there is a procedure. And what is a procedure? The procedure is that somebody has to come from the station on foot and hand the driver a form which he has to read. And what does this form say? It says that this is a dangerous situation and that he can only drive at 5 km/h and he has to watch out and so on. Which of course the guy knows, but anyway. And then he has to mark that he has read the document and after he has done this, he can then continue at 5 km/h. You can imagine how much time this procedure takes. In the meantime, you have other trains behind him, which are supposed to pass, waiting and
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the whole railway traffic is disturbed. I cannot believe that in United States of America you have this kind of procedures. Why can't we send this form on the tablet if we really want him to read this form? The answer I have got was, yes, but paper form is more secure. Not driving at all is even more secure.” A statement about the security procedures that have piled up over years of using rail. It sounds like a bit of an exaggeration, but it points to the possibilities of technological improvement. It also points to a very high level of conservativeness in the industry that is difficult to understand and even more difficult to explain. “The system is getting more and more blocked. I am very pessimistic. Any project which necessitates significant public works will be blocked. I am much more a believer in technology. We have tracks; at least we can use those. Why can we not better use a modern technology to get more traffic over these tracks?" What is preventing the initiatives in this direction? Are they immanent to the industry or to the regulatory regime of what a society wants and what a society treats as right? Regulation does not seem to be the right tool to support leadership of change. It might be too much on the passive side. It does not touch people’s minds nor hearts to motivate for the needed efforts of change. Does European Union Commission have an issue that it is overly disembodied, consequentially uninspiring, distant from people’s minds and hearts? “Everybody knows it's a tricky business. You are not just on your own, you have politics, and it’s also not like air transport. They give you flight from A to B on the certain time when its full it's full. Everybody expects from railway - a public transport - it's a service for the citizens and a system has to be as strong that for the case a Union is striking, for whatever reason, all the air transport should be moved to the railway. If it's a bad weather, nobody can drive his car; everybody should have the possibility to go by train. If you have to have a system on hold for such circumstances and that is the focus of the citizens, is onto the system, it's hard to fulfil. But this is something which we want to afford. That's what we expect, that's what we want to afford, because you never see somebody saying but this is not to make. No, we want to afford this and we should by ready on that. It's fair enough and DB is also working on that. After strong winters, we now have a system where we try to have capacities when we can at least help a bit when the weather is very bad.” Rail is the transport of last resort, like a central bank is the lender of the last resort. Maybe there could be parallels drawn here between the banking and the transport system and their regulation or overregulation agendas.
6.1.4. Structure “Now I don't believe it's a very bright movement in Europe. If you look in Brussels and if you look to the people in Brussels who talk about rail system, you don't find one expert, you don't find one who was once again in the past in the rail system. You find 79
finance administrators, you find politicians, lawyers, but nobody who really knows the business from inside. The problem is that we will not be successful in this world, not for real.” One and the other side are not easy. To master both is even more challenging. Leadership can bridge this. However, if embodiment of leadership at the top is important then we need such individuals. Does our society stimulate these levels of specialization and generalization of leaders? “The reform was prepared in a very intelligent way in the sense that in Germany they set up a commission in 1989. It took 3 or 4 years before this was translated into legislative project. This free form of the commission which was asked to develop basic ideas for the free form, including people from all the relevant parties involved. Financing sector, trade unions, railway sector, and former government people. The participation of former trade union leaders was extremely important. Having a good idea how to reorganize is one thing. If the key players don't want to cooperate it is very difficult to do something. This was rather intelligent that the politicians, the government at that time in Germany, under the leadership of Mr. Kohl, they decided to set up this commission, including people from all kinds, groups being important for the railways. This commission developed a concept for this and this was translated into legal acts and was adopted by the parliament in December 1993. The key elements are to take out railways out of public sector and to organize the railways as a normal business company, a normal shareholder company, of course shares were owned 100% by the government but legal frame work was exactly the same as business companies in Germany. The government could not intervene any more directly into the company. They have also to go via supervisory board which is a representation of the owners. If you see the CEO of the French railways is still appointed by a French government. In Germany, the government cannot appoint any more a CEO. Government can develop ideas and present this idea to the supervisory board. If there is no majority in the supervisory board, it's very difficult to do something. We have more independence, more distance between government and the public sector on the one side and the railways on the other side. That is very important to develop a more business oriented mentality including from that time onwards you could not become a civil servant any more. There were just normal employees in the railway sector and the railway company as any other company. Those who were already civil servants at that time of course they could continue to keep their status, but all the additional costs are linked to the civil servants’ status of the formerly employed people were taken over by the government. There was a strict split of money, of costs and on that time onwards railway was only responsible for the normal cost company has to pay for a normal employee and not anything more. This was the first idea to take the company out of the public sector to organize it as normal shareholder Business Company. Meaning also the German law for shareholder companies applies any rules in the public sector. This shareholder law acting in German would the obligations and rights of supervisory
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board of the board of management and of all defined. This was rules which had to be applied at that day onwards.” A thorough description of the process of a transformation. Interesting to notice is that at the pivot of it is an embodied leader with a name and he is also mentioned in the statement. Positive stories have such components. Now look at the European Union Commission Railway packages through the many years. There is no human face behind them. Sure, there was always one, but it is not communicated. Why is the work of European Union Commission so depersonalized in public? On the other side member state governments, at least the big member state governments are so very personalized. “This changes start to change the mentality in the companies. Railways in the Germany, the personnel saw themselves more as state employees, state people, civil servants and not so much as member of a service company. This was the biggest change. The other challenge not only work under reduction of personnel, increasing productivity, doing investments - buying new trains and so on, but also to change the mentality. It was very visible to the public because the conductors in the trains - long-distance trains historically they never served passengers. In the middle of 1990, there was a new concept. They started serving coffee in the first class. This really showed to the public the understanding the company and that started changes. They moved from state owned company with public servants more into direction of a service company. This change of the mentality was the most difficult part.” Structures of civil service and people working in them are different than service organization on the market. Each has its purpose and work best in its own realm. The difference is not only in the values and attitudes of the people working in one or the other but also in the different perceptions of the users of both types of service provision. When a decision is made to move a service from public to private domain one must count that the transition will not be easy for the people providing the service. And it also takes time for the users of the service to accept the change. “In US everything else is done on private basis. They have a private rolling stock companies. They have separated maintenance terminals. The freight is separate. This is a structure which works. Nobody is blocking anybody. If you have one company which is controlling the essential facilities, infrastructure or terminals, on the other hand competing against the same people that want to get in the system, then you have a problem." The conflict between centralization and decentralization and between public and private. This statement shows that the European Union Commission is striving for liberalization, to move away from overly regulated, centralized, public at least in the provision of services leaving infrastructure management in the public domain. “The commission is not re-elected. Commission simply works in the perpetuity." As any legal person, it is perpetual if it is successful and does not go bankrupt. However, the people that take positions in it are embodied, with their own individual names and lives. They are named or elected to their positions. 81
So what is the message here? That this is any different from member state governments? They are perpetual as well. The people with roles in them have been elected. Is it that the seemingly disembodied nature of European Union Commission gives such a false impression? Why is European Union Commission so disembodied? The Lisbon treaty does not require that. Structurally it should be a very powerful body in European Union. If it is a question of a strong leader to position it appropriately to the agreements why do we not have such leaders to run it? “Trucks are also a social corrective, because it employs so many people - truck drivers, because a train takes, even in Europe trains are short but it's immediately 20-25 trucks served by one locomotive driver instead of 25 truck drivers. You get young men employed to drive trucks, because there are no other jobs for them, 80% of truck drivers who drive trucks in Germany are not German, it's a social corrective for the new member states, they don't pay tax in Germany and they even don't respect let's say the standards which we used to have in Germany. You pay them much less and these people basically are underpaid for any social standards in Europe. Which makes in the other hand the rail system again more inefficient? Because of unfair competition. Because it's unfair ecologically and socially. Again, Europe is doing nothing against. That's a big issue. You can talk for days.” European Union is keen on declaring it social and ecological standards. Some of the realities do not confirm this. Like the percentage of cargo being moved around on roads instead of rail thus burdening the environment and spending so many lives of men in their most productive years to drive trucks. There are currently 6.5 million heavy trucks in circulation in the European Union, transporting more than 80% of goods in volume (tons) and more than 90% of goods in value according to the European Union Commission European Union transport in figures Statistical Pocketbook 2014. “The problem is there is a need for Europe, but the central mistake which we have in Europe is there is no European government. It is nothing. Yes, we have two governments, the council and the commission. Yes, but it is not a government. They don't like each other; they don't work together and everybody looks for its own advantage. It is not a government. It is a problem of the currency which we have. You have a Euro, but you have no politics which belongs to Euro.” The statement about the relation of European Union and Eurozone. It points to the governance issues and the monetary governance issues of European Union that because being unresolved caused so many unnecessary issues during the period of political and economic crisis since 2008. The fact that the current system worked well in good times and that it does not work in times of crisis only shows that clear leadership structures are needed for a sustainable political union. Historical documents show that that was clear to Mitterrand and Kohl when they decided for a monetary union at their times. Since their judgement was that European Union citizens would not yet support the needed political union they consciously left the effort to reach one to their successors. Was that a wise decision of that time that has not yet met enough wisdom in the actual leaders of European Union. Time will tell. “It is known that the European rail system at not existing at all.”
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Words and visions do support strategic developments, but they ultimately need to be followed and supported by actual deeds that implement them according to strategy theories. “Necessary investments were also very important. Cargo was clear, we had to internationalize, to get traffic on the long distance. The longer the distance in cargo the better it is. This cannot be done just on international basis. We have to modernize; the ICE trains were developed. This was technical development, it started already in 1980's, and in the early 1990's, first ICE trains called ICE1, were put into service. A new challenge, a new dimension of a high-speed traffic begun. To make long distance passenger traffic more attractive, then in cooperation with regional governments to modernize also regional traffic, to get clear understanding, the regional governments who got money from federal government, they financed in a sufficient way a regional traffic. So, either DB or somebody else tendered in 1996, DB started loss of competitor. In Bavaria, region offer contract to run traffic on some normal commercial ways. Railways companies could actually make money out of it. That worked quite well at the beginning, and today they have a market share 25% in regional traffic." Tenders and commercialization of enterprises so that they could make money with providing services required the federal government to provides money to the regional governments to establish the agreed upon levels of services. “The rest is very much handled as a normal business company. This Philosophy reflects in the composition of supervisory board. In the German system, we have codetermination. Ten representatives of the employees and 10 representatives of the capital side. On the capital side, only 3 members come from the government part. They are representatives of three different Ministries: Transport, Finance and Economy. And 7 people are from business. This is another mechanism which shows support to the company behavior. As a railway company, you always remain dependent on the state, and providing money for the infrastructure. As long as you are not the master alone of infrastructure, we always depend in certain way. The government over the last 10 or 15 years has not invested enough into the infrastructure. Not only the rail, road is in similar situation. Now we see a depuration of the quality of infrastructure. It's a general issue. On rail, road and water ways.” This statement points to a very fundamental dilemma of the policy to separate the infrastructure from the service provided on this infrastructure. Namely who drives the need and volume of investments into the infrastructure? As it is owned by the state it should be the government. But based on whose interests, commercial and technical inputs? The interest is per definition of such a structure is the public, but the commercial and technical inputs come from the private operators. This is not an easy balancing act for the government, but it unavoidably needs to deal with it and provided appropriate funding. Even as the investment horizons spans far beyond political mandates from one election to the other, or even beyond the interests of generations of voters. Governance regimes should assure that there is a mechanism that force and assure that the interests of future generations are taken care of while the current generations of voters and politicians are in power. Money as a measure of indebtedness of current governments and thus generations is a good measure though its political and sociological 83
meaning might not be appropriately understood. To make it very clear, a clear example. Public debt invested into infrastructure that will serve long-term interests of mobility and ecology of current and future generations is money ethically spent vs public debt that went into current salaries and pension payments only to serve their beneficiary’s current needs is at the expense of future generations. “You want to keep the labor conditions. But this is exactly the problem, these labor conditions. This is the reason they don't become competitive. If the labor conditions don't allow the sector to become competitive in relation to road, you have a conflict environmental, efficiency aims of the sector and the labor and the employment. You cannot keep the employment artificially by keeping alive sectors that are not economically viable and not competitive. You have to create value added.” If road transport is private and rail transport is public at the beginning of establishing a leveled playing filed, then making both private would help to level it out. But this could happen at a level too low if there is not enough regulation about the minimal acceptable standards acceptable to the society. So regulation and deregulation are equally important and required to be implemented in parallel. “Labor costs are not a problem for trucks, but they are a big problem for the railways because it's a competition. This is a challenge. In the parliament, they all talk about labor conditions and so on. But what is the point if, like in France you lose 25% in 5 years to the road. At the end, you have a lot of staff and no traffic, no business. They have to understand that they cannot have this sort of public official type of employment for the sector which is in a competition with other sectors where they work until 65 or 67 years and get only 1/3. This is politically difficult challenge.” Comparing road and rail transport is a daunting task. There are so many aspects to it. Roads and tracks are public investments. Road is used by cars and trucks for public and private transport, while tracks are used by trains which are used for passenger and cargo transport and run by operators that are still in mainly in public domain. “Obviously, it could have been done in telecom industry; it could have been done in banking industry, in electricity, in truck and car transport. What is it that it cannot be done in railway industry? Is it because it is 150 years old, but the telephone is almost 150 years old? There are number of reasons why we have this complete anomaly. It is really unbelievable that the railways are in this situation. And that even now with the 4. package discussed in 2014 we have this total lack of ambition." A question that if one would find an answer to it would explain many things. Potentially very many. So, let’s dwell further in this context. “It is the railways, the member states, and it is the commission, I would say. It's all of those plus the industry in addition. The first problem is that the present commission and even its previous ancestor, has a total lack of ambition. You see this in many fields. We have a tendency now that the big countries are dominating and they try to limit all the commission, to have a weak commission.”
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The formal governance structure vs. the actual on goings divert from leadership models established elsewhere and in other times. The interesting question is why is this the case now in the European Union? Does it serve any purpose or is it just a waste of time and energy because of its incompleteness, incoherence? A consequence of initial pragmatism and compromise at the start of the integration are now brought to the surface. You can fool all the people some of the time, and some of the people all the time, but you cannot fool all the people all the time as Abraham Lincoln said. “But I don't think the problem is in European Union governance structure. The problem is the lack of ambition of the commission itself. For 2 years, I have been a chairman of the advisory board of the commission for information technology. It was already obvious when I brought up one of these problems that there was not the necessary courage to say look, this is an obvious thing to do, we need to create a common new standard for railway signaling, navigation on satellites and so on. Let me give you another example which is much more recent one and which is again an example of the same problem - this is electronic payment on highways. This is now very popular subject everywhere. It's a problem all over Europe. You would expect that European Union Commission in this would take an initiative and say let us go to one standard and we will have the same payment system everywhere. And if you will have one small box of electronics in your truck, and then this will work with all the systems all over the Europe. This is not the case. Every country is working on its own system. There are not two countries which work on a compatible system. This is the same thing. If I would have been commissioner I would have said look, this is totally crazy. If we are not careful, you are going to have 28 electronic payment systems in the trucks in Europe.” The statement claims that the problem is not in European Union governance structure, the problem is the lack of ambition of the commission itself. If the structures and policies are there why then the elected leaders do not actually take over their responsibilities, their role in leadership? What is out there that prevents them doing so? It cannot be their individual traits or the lack of them; it must be something more powerful than that. However, what is it? That is a phenomenon that should attract the interest of leadership scholars to be investigated further. “It's a different world, and that's what we are facing. That will be seen by the politicians, by the responsible governments in 2020 at the latest. In addition, the ones who have the most experience and who can decide and make reasonable decisions how to meet the objectives, how to cope with the issues and the problems and technical challenges here, the range of decision making will be very limited.” Leaders should be aware that they are not only judged by the contemporaries but even more so by the successors and descendants that bear the fruits of their works. “In some companies you had each year a new guy, more or less out of office and some other coming in. It's not only a lot of people have changed, the government people behind, permanently new minister, permanently new strategy, permanently somebody was very much interested to say what can we do, but when you started to talk let’s do
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something, ... Next time you could talk to him, he was gone. And it was not only in Slovenia. It was the same in Czech Republic, in Poland in Scandinavian, it was everywhere.” Strategic decisions and their implementation need time. Most of the time even democratic length of tenure is not long enough for infrastructure investments and strategic change needed in rail industry. However, the described length of tenure even less so. What drives these short tenures? The voters who change their minds each year and succeed with referendums to prematurely change parliaments? Is it the parliamentarians, through their political parties, that deceit their voters with ever new coalitions forming governments? Whatever it is, it is not the norm in developed democracies or for the sake of argument even less so in autocracies? Is this part of a maturing process or just shared irresponsibility of immature political party members? Political parties are private endeavors supposedly established to serve public interest in case they get adequate support on elections. Interestingly enough if they do get the charter they are opposed to private initiative from the private sector in the name of the public sector as if they were not initiated in the private sector themselves. Yes, their charter is to serve the society, both the private and the public sector. In addition, their origins should not be deliberately hidden nor neglected by them or the society. “That is also another problem of the railway sector, especially in Central and Eastern Europe. Constant changes in the staff, length of tenure, of anybody, new minister, new CEO. If there is an accident somewhere, the CEO is sacked immediately, as he was driving a train." Because of the confusion who is who and what is what in the structures and policies of democratic governance regimes inefficiencies take place in the society. Whose interest is in CEE that this kind of behavior takes place and is actively supported by legitimate sectors like the press, legislation and judiciary? The danger is that more autocratic alternatives will be sought. “On passenger side we are relatively late with the liberalization, we have had third railway package in 2007 which has opened international traffic from 2010 and the national traffic is still protected. Number of member states have opened it unilaterally in the national law but they were not obliged by the European Union law and now we have a new initiative, the fourth railway package where we want to open the last remaining and the most important sector, which is domestic passenger traffic.” The last package opens the domestic passenger traffic to international competition. Indicative is that in road domestic passenger traffic, private or public, this is long the case already. Why is rail so different? Is this question being asked enough of times? What would the answers to it bring? “It's about a number of different factors that influence the development of rail traffic. It's not one recipe, it's not only about separation, it's not only about technology, it's not only about procedures but all of that must come together if liberalization shall be a success."
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What makes it so difficult to change things in rail? Or is a general rule that once things are so immensely centralized as they were in the rail systems of national states that it just plain difficult to change. Telecoms, electricity and other industry are much more technology and infrastructure driven than rail which is immanently a service industry with a huge impact of the human factor. Might that slow change and development down. “For example in France, they are very reluctant to open their market, especially the passenger market to competition, because the costs of the state incumbent are just too high. You have nobody who works after 55, train drivers work 3 hours per day, and then of course who pays that. That is a huge staff costs. If you allow competition from private companies who have normal contracts, even if they pay the same, they have much more flexibility over the management of their staff. Then you get into trouble. This is why they don't want it and there is a strong opposition from trade unions against this sort of liberalization. They have allowed the liberalization of freight traffic and have lost 30% of market share in 5 years after 2005. That's the warning that they have in their heads. But it was good for the sector since it has helped the modal share to stabilize. If the monopoly had continued, the inter-modal market share would have diminished further because the incumbent company was in such a bad position towards the client. It was so little client oriented; they have lost 25% of their market when they still had a monopoly. From year 2000 to 2005 they lost 25% to the road. Customers are just not happy if you tell them no, I don't come today; I may come tomorrow or after tomorrow." If the competition does not come from within the industry, it will come from another industry. In the mentioned case from the road at the expense of dramatically lower social and environmental standards. “We see the similar tendency with the passenger services for the long distances or the high speeds which do take part of the former services of the incumbent companies, so they what we call a "cherry picking", but on the other side, the incumbent companies still obliged to offer the services of the other kind, the connections or the connectivity for the mobility, so if you only take part of the profitable services and a loss making services do stay with the incumbent company a little bit exaggerating, then you end up in the situation, the competent authorities you will have to pay more for the principle mobility we call it a public service obligation contract.” Cherry picking. What does it tell? That the public service was too cheap in the first place because of the cross subsidization in the incumbent. So, what could be wrong with bringing that to the surface? Canceling wrong promises by the politicians to the public. If keeping checks and balances on that is the only result of deregulating rail it is worth it. “It's like this. However, nobody believes to take lessons out. I was engaged once for a while in Slovenia and the main discussion was the people from the coast against people, against Ljubljana. Nobody was thinking on rail, and everybody was fighting. Each of them had nothing. Even if you would have put everything in one hand, you could may find somebody to cooperate. You couldn't be eye level, but you could come close to say 87
OK. People from the coast line have something with the little harbor and other have something with the tracks. Harbor people have connected to the Austrian rail system before they talked to the colleagues in their own country. For me it was disgusting. There was not even a loyalty inside the country. It does mean you have to make gifts, but at least I talk to the guy and he said, look Austrian want to have it. What can we do that you can win it? But loyalty goes with. It was for me very disappointing to see how it is. But it is systematic in European system. Systematic to all of them.” Interesting to read as it talks about loyalty. Loyalty of business leaders to plain business goals and their loyalty to the region and the member state. This dilemma is not an easy one for business leaders in European Union because European Union is trying to overcome these barriers to business on the business level but not on the monetary and political level. The ethics of the union at the political and monetary level is not clear, thus it cannot be clearly communicated to the business leaders for them to follow, comply, and adhere to it their business strategies. “Because of historical reason we don't have one single railway everywhere in Europe. We have so dramatic differences, even the contract has to be completely different. This is the part of the implementation where the local companies, all players on the market, should have the right to say and to contribute in the debate.” Is this a call for democracy by the trade association to the European Union Commission.? A call not only for top down but also a more constructive bottom-up process of establishing the Single European Rail Area. Surely the bottom up is never easy because the agents have competing interest, but it should not be excluded or ignored because that is the source of real issues and challenges practitioners in the industry work in, suffer from and have industry qualified input for change, that is from where the industry is to where the political leaders would like to take it to. “This is a technical side, but there is also the political or economic side where we have tried in the last 20 years to develop these, where we had national monopolies 20 years ago, there was nobody that had the right to cross the border without the agreement of the other incumbent." A frank statement forms the European Union Commission. It is not an easy process. It takes courage, time and some wisdom. “What did national governments do? This is a totally different story. They have a totally different job; they have to look the national interests are being covered. Down to the elections, to the voters. They have to make sure they are happy; they have to follow economic interests in the country, because this is also employment. Unemployed people don't vote for government, especially if they lose their jobs under this government. All kinds of aspects have to be watched and on one side they want to show, OK European Union we want to follow, but on the other side they say OK, but only to the extended if it is not our own disadvantage. Not the personal disadvantage, but the national disadvantage. Railway executives - this is one of the hardest jobs, at least even I nowadays can imagine. In this situation, especially the last 10 years and then the 88
government is pushing and pushing, because the tax income was getting down or the cost for the train system were going up, they are skyrocketing. To come to a point where they say OK, at least you have to cover your own cost if not be profitable. Which in the end to close the circle, because there was not enough investment in the infrastructure, could not be achieved? If you have to count 6 million for km or even more for infrastructure tracks without curves, without train stations, just straight forward, not high speed or just regular speed, cargo and passenger track with 22, 5 t." A frank statement from the industry that it is not easy. The good thing is that both, the industry and the European Union Commission, agree on that. The question is whether there is anything that could help both? Would some more money have dedicated to this change? Probably, so why then is it not provided for it by the sovereign. “The basic starting point in Europe was that all the countries had built up railway companies and infrastructure networks for several purposes. One of the purposes was commercial transport and then major point in the layout of the companies in the infrastructure networks also was a military transportation. And for that particular purpose, because there was a strong military aspect, there were, each country had its own, individual layouts on infrastructure, on the signaling system, electricity and so on. Just to make sure that the other country in the older days if there was a war before 1914, when the biggest difference is existed, when the other country could not move without major restrictions onto their territory.” Historical facts that might still subconsciously hinder integration. “And the last one that I wish to mention in the context of the intermodal competition would be the passenger rights. I mean, we don't share the same passenger rights.” A level play field in the competition of modes of transport is a responsibility of the legislative and regulatory function of the European Union that is the European Union Commission. Proposing needed changes to support it to the European Parliament, and once appropriate and accepted by European Parliament to be implement by the European Union Commission. “Secondly, we have a lot of debate at this moment here just about freight. I have to say that political support of giving any kind of priority to freight is very low. There are people who say, look freight is important for economy, but the pressure is much more, to say OK, let's get the rid of freight, let's concentrate on passenger traffic. Because freight is not part of public service mission. And the other thing is, to construct new tracks in Europe, is a nightmare. We are in Europe, or democracy has involved. I'm sorry of getting a little bit philosophical." Back to the conflict between public, passenger transport, vs. private, cargo/freight transport. In reality this is a false dilemma, because both are in the interest of the society as a whole. From political, economic and ecological reasons. The society namely needs mobility of people, on the local commute as well as long distance and cross border to facilitate production of goods and services. These than need to be shipped ecologically to its customers.
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“We observe we are not equal, you can have big benefits for the customers, but on the cost of the taxpayers. So, we have to achieve the balance of the benefits. We don't open the market because a certain group of customers is simply benefiting hugely from that while it only goes on the cost of the society. That would be the internationalization of the profits and externalization of the costs. Nobody wants that.” Leveling out the interest of private trade vs. the interest of the public, in investments and costs on one side as well as the benefits on the other, is one of the key challenges of political leadership. Individuals involved in this should not run away from these responsibilities. Leadership is not about resolving conflicting situations with mutual consensus seeking, but with finding the best solutions to the problem in a situation where a consensus if difficult if not impossible to find. Leadership is not about seeking popularity, and by no means should it be allowed to be populism. It is about sticking to one’s own basic beliefs in proposing change and taking consequence for the results of its implementation. “This was big advantage for Germany, especially for cargo part with the Dutch. We were much more successful. Later, the Dutch have sold the shares to the Germans, but this was not an idea at the beginning. The challenge for the management was to keep and maintain the acceptance and the cooperation with trade unions to continue difficult process of reducing personnel. The government was not that important. Government was just the owner. The government want to reduce the financial risk, so they get away the losses railways produces every year. They were happy when railways cooperated and trade unions cooperated. At the end the reduction of personnel was concluded without one day of strike. That was a major success. This was one of the big challenges for CEO and for the top management.” Interestingly the statement claims that trade unions, in some countries called labor, has a much bigger influence on rail organizations than the state. Splitting the tracks from the service company also splits the capital-intensive infrastructure management from the labor-intensive service providing of the operators. This diminishes the strength of labor in the operating company to negotiation about the level of service provision. It detaches it from financing the buildup and maintenance which is done by the state and its citizens. “So, we have the associations of users. They exist in most countries. I don't know how representative they are. How many people they really represent, but they have exactly the second attitude. If you meet with them, they will tell you, look there is a village and they only have 3 trains per day. In fact, why cannot every train which passes their stop in this village? Then you say do you know what this costs? The statistics prove that in this village are only 10 people per day which take the train. This is irrelevant. This people appear on TV. You have a program on TV, you see a guy which is standing at the small railway station somewhere in rural area and he say we have a waiting hole and its 3 o'clock in the afternoon and it is closed. This is not acceptable. You can clearly see on TV that he is the only guy there, there is nobody else. He is gone there especially for this program because otherwise there would be nobody. Why would we have to make sure that this waiting whole need personnel to supervise it? This is not possible,
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and this is a big problem. I have, even when I go to the parliament, very often a rather difficult discussion.” That separation of tracks and service, labor and taxpayers is no silver bullet to solve all issues is clear from this example. If too much power is given to the taxpayers/voters than every little train station matters, whether it has or has not any business sense, at the expense of labor and ultimately the society itself. “I will give you some elements. We have a democracy. How does it work? Normally, every 4 or 5 years we elect the representatives. They are sent to the parliament and they take decisions about laws. They supervise the administration. And they basically make the system work. Now we have a situation - it's a little bit an attitude that comes from France. Even if you have elected the representative, it doesn't mean you will accept the decision that he takes. What you get? Every law that is voted in France - you have people out on the street saying no, we will not accept this thing. Since I worked in France - in Paris for 18 years I have seen this close by, you will see, the governments withdraw laws that they have been voted, simply because there is so much street protest. Not because the parliament has voted the law that it will necessary go through. You still have the power of the street which can block it. The other thing is the phenomenon - the action committee phenomenon. If you have to any kind of public works or even privately construct a building, you are almost certain to have a small group of people, who will protest against that. Because in our laws are now procedures where you can go to state council and say look, I am not in agreement that this building is build, because aesthetically this is going to be a nightmare. It will block my view, there is going to be too much traffic coming to this building. You can find whatever reason. Then you create an action committee; appear on TV, of course you never mention how many people are in your committee, this is of course confidential information. You protest and go to legal procedures and you can delay anything by years. Now, in beginning was more affecting private people, but now in Europe even governments are blocked." The processes of democracy are double-checked and can be also blocked by further actions of private initiative, like the described action committees. Is that that good or bad? Should there be mechanisms in a society that can veto decisions of the majority by individual private initiative or should that be limited to the collective and elected body of the upper house or senate? “The other thing is considered as a public service. You also have decisions of the government or the parliament is weighing very heavily on the economy. Even in this country you have two philosophies. This is an economic activity like any other, and the transport sector has to be run according to the laws of the free market. There is a demand for public transport. OK, we can provide it has a certain cost, the government can decide to subsidize it in a certain way if they consider that this is in the interest for the country. But for the rest we should look at Economics. And then you have, what I would call the French attitude, because this is a typical thing you could find in France, and in Belgium as well, no, no this is not an economic equity. This is a public service. 91
What is a public service? It's a service that is provided by the state to its inhabitants and the Economics of this are in no importance. It should be available to the people at any time, any place and it should be a good quality. What is this cost? It is totally irrelevant." Pointing out to some characteristics of public service, that is a service provided by the state which means paid for by all and used only by some. Is it a source of popularity for politicians? Or is there a deeper meaning in the words that the costs of public services are irrelevant? Following the heterodox economics theories explanations would open a whole new insight into the public private services discussion. “Typically if I mention the public service obligation we have the regulation from 2007 that should have been transposed in the member states. Sooner or later all member state should have done that already. But one thing is what you put in the national regulation and the other thing is how you follow that. You will probably find in all member states that the piece of regulation is transposed so the competently authorities are obliged to compensate for the services ordered or contracted with the provider of the service in the certain region or in the country. But this is one part of the story, because the services it is normal contract needs to be also properly compensated. And the way how this is done is something needs to be done in good understanding between the provider of the service and the national authorities. Otherwise each part may suffer from not equally replicate contract. This is the right implementation which is certainly different from country to country. Because in each country the conditions of the railway systems are simply different.” Legislative and regulation is one side of the coin, also when it is about public services ordered by the state to a private provider. The question of the negotiated price is the other side of the coin. In case of service providers that are owned by the state there is potential for conflict of interest and transfer prices. Since these are regulated separately for all private companies in the interest of the tax authorities, the transfer pricing laws should be used in such a case to get a pricing that leaves a level playing field for potential providers of a public service that are private and not owned by the state. “Blocked by this kind of procedures. We have a huge problem with mobility around the city of Antwerp. For the last 10 years, we are in discussions, because there are all kinds of people saying look, the project which is on the table is not good. There is this, there is that. And the government has already taken, I would say, at least 5 times a decision, but the decision is not executed, because there is always some kind of appeal, file the legal system against it and the situation gets blocked. If you would construct, I would say, new tracks in Europe in a major was, I'm personally very pessimistic that this will in the end go through and the time it will take. Because now everywhere you have action groups. Usually under the banner of the ecology, not always but very often. In all democracies in Western Europe, it's relatively easy to block the system. If you take a good lawyer and his only mission is to delay the things it is easy to do.”
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New tracks in parts of European Union will be difficult if not impossible to implement because of the environmentally cautious citizens, especially those that would live along or close to these new tracks. The alternative is to use new and better technology to upgrade existing tracks especially on corridors as well as the rolling stock to improve their impact on the environment. Replacing diesel locks with electricity driven ones and substantially decreasing noise levers through improved tracks and rolling stock could compensate increased frequencies of the track usage and thus throughput on existing corridors. “It's open access, no subsidies. Everybody can start a business every day as long as he fulfils the necessary safety requirements and technical requirements. The same applies at long-distance passenger. The reason there is no other company is quite simple; the margins you can earn on long-distance passenger are too small. Competition comes from two sides - cars and airlines. This keeps the margins very low.” Competition keeps prices down. That was wanted in the first place. Whether the margins are low depends also on the costs of the service. And there might be a lot of space to improve the service and its costs. Marketing the city center to city center transport, with no time needed to for checking and security as at the airports, no time needed for costly transfer from the airport to the city center. Rail connections are well connected with further means of local connections like underground, tram, bus, taxi, bicycle or walk. Just ticketing is a nightmare because it is considered being a mean of collecting fees from the customer for the service provider. It should be the other way around, a mechanism for the customer to plan how to go from A to B, get an itinerary to follow with good ground support to be able to easily follow it, and the payment of all this is obvious and should be easy on itself. Why is it that the markets do not provide such ticketing services, nor do the member states with its incumbents which is more understandable, around the rail infrastructure and service providers. Uber difficult to understand or maybe a google service is around the corner. Interestingly reading these statements from political to business leaders, they hardly talk from the customer perspective. As if they are all, at least for most of the time, trapped in structural, policy and technology debate. Does this come from the fact that rail was for so many years a public service provided by the ministries or as a stateowned enterprise after it started as an entrepreneurial endeavor? “Road as a market leader, on road you have over capacities, they are pressing the price down and the railways have to follow. Even if the sales are not sufficient to cover the cost. It is good that the state has taken over the debts. At the same time, you need really good business plan and you need competitive cost structures. This is a challenge for the management on the one side vis a vis the own labor force to tell them, that's the way we have to go, to convince them and psychologically to keep momentum and say, OK, if we go that way, this company has a future.” “We have to involve better lobbying for the position, or the role of the railways in a national transport policies and also then the transport policy of the European Union. That is the primary target. And you know very well that the role of the railways is not acknowledged in all the member states in the same level. You have a number of member states especially in the east, center eastern part of Europe but still much higher focus is on the road sector."
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These statements confirm the hypothesis that there is a lack of a more customer perspective. “What we wish to let them understand, if there was a decision to adopt some road model onto the railways. Split separating the infrastructure from the operation also the governments and the member states have to acknowledge that they have to approach them in the same way. If they invest into the road infrastructure they have to invest to the rail infrastructure in the same manner. If they charge railway for the utilization of the infrastructure, they should start charging the road infrastructure in the same manner. There must be a comparable approach to both sides.” The two main modes of transport of passengers and cargo need a more equal treatment to get to a level playing field so that market forces can replace the different involvement of the state. This will provide means for the modes to find its place in providing the value added in their segment of the market. “And this is with a few words the very complex development the European Union now started to look at this and said OK, we confirm railway transportation is the mean of transportation for the future. It should be, we should take the cars of the road, the trucks of the road, we should take at least on the medium distances up to 1000 km we should take the aircrafts out of the air and use the railway transportation system. So, the railway, of course, since 1945 has not really been paid attention to much by the government, by the infrastructure planning and so on, so Germany is a good example since 1945, 1946 there were about 350.000 km of roads built and only 1000 km in railway infrastructure." The establishment of a level playing field was not taking place. Question is why not, what were the drivers of this historical development, are still opened and need to be understood before further progress can be made. Public vs. private, individual vs. collective? “The road was build up and build up and the big explosion of individual transportation. Everybody wanted a car, it was a status symbol. It was also a big pressure on the political side to develop the infrastructure system in that respect. The infrastructure network on the railways did not keep up with it. A 1000 km versus 350.000 km is something quite clear that there will be strong deficiencies and market disadvantages also to the rail system. On top of it, countries with different nations, European nations have different taxing structures on train transportation, like mineral oil taxes, like usage of infrastructure. Those are two biggest. Especially on cargo transportation a truck was much better economically than train. Even so the train could transport 120150 times more load of one truck, with one driver." The past developments in transport are obviously not completely rational, but they have developed the way they did, based on factors not understood and researched for. Should we have known better? “Other issue is that we also in passenger transport we shouldn't make it more expensive as it is necessarily. We have the passenger rights, much higher rights with trains than with air transport. I cannot understand this. I mean, in passenger trains you have to 94
pay not only if anything happens what you are guilty for, but also on things we call force majeure. How do you control force majeure? On the other hand, air transport companies, they get their passenger rights and their duties where they have to pay for, lowered. For what reason, please? " Pointing to the unleveled playing field in terms of passenger rights. Where does this difference, the justification of this difference steam from? “If the road transport is so cheap, why should you do it by train? Question is really if road transport is really so cheap. This is at the moment because a lot of costs are not brought into the equation. But now it is cheap, and you can say it is cheap because not everything is priced. I am very much in favor that we find from some countries experts for some - air transport, railways, for road transport - different transport systems representing the whole Europe together with the Commission to fix a trans-European mobility system that have future, that works and is fair to everybody - to bus drivers, to rail undertakings, also to international air transport. It's a nightmare that we are getting overtaken by Emirates and Etihad. Now it's getting tighter and tighter. Costs are rising by raising the standards and on the other way energy gets more and more expensive. It's also a question of how to make money in the end.” Is road transport really so cheap? And why is it perceived cheap at all? Are all costs considered, or are the cots so well distributed and hidden that it looks cheap? “But the chain itself is very good organized. You can get your goods overnight and all those things are well organized. In the end is the question of money. Is the truck cheaper for transporting the good from A to B or is it a train? Is it more convenient or is it the other one? And this is not much of a business model to develop. You have to be in the cost structure lower.” All costs should be considered to be able to make comparisons. “The freight sector at least has stabilized, you mentioned the market shares, so they were falling 50% after the war, in 1970's it was still 30% and in 1990 it went down to 15% and now we have at least stabilized it. It doesn't go down further. I think this is partly a success of the European Union liberalization policies. In countries like the UK despite all the mistakes they have made with their attempt of the privatization of infrastructure which was then revoked, they have increased the freight market share in relation to road by 50%. That is one of the 2 countries that have really increased the market share and the others at least have stabilized it." The European Union Commission is doing some benchmarking that then drives their policy proposals to the member states. Whether there is consequentially any causality in the actual modal distribution is hard to judge. “There is threefold increase possible in principle to go to from 13%-18% to 50% and something. It would be possible, but you have to take the right structural decisions. There is too much political resistance from people who think they can forever be 95
subsidized if they just lobby enough. So far it has worked quite well but I am not sure it will work forever.” And the gains would be immense if cargo traffic would be threefold increased against the road. “Yes, it is an expensive infrastructure. It's 4 times more expensive per km than highways. Yes, it is a standardization issue on one hand, and the other thing is a utilization. The productivity of the rail is much higher. We make long lines. Everybody who talks "Bahn" he has a station here, and a station here, and the train comes here and people move out and they go on the train to go here. Fully normal that you change train when you go as a passenger. But if you send in a cargo train, you don't allow the container to go to this train. If you want to make an efficient train system, you have to make trains going and you change from train to truck, from truck to train, from train to train, from train to plane, you have to use the network. It is not a big issue. The biggest issue is the infrastructure which we have. What is the utilization to use it in a different way? It doesn't take place. And the question is why it doesn’t take place. It's clear, because you have a very cheap, free of charge street system where trucks can go nearly for nothing. The competitions - trucks - are too cheap to compare with a rail transport.” Technology improvements of logistics and a more level playing field among modes would get better results at getting cargo and passengers from where they are to where they want to be. “Just by reducing the bottleneck. But nobody is interested because they cannot cut the ribbon. It's not fancy. This is one of the big problems in my view of infrastructure apart from the lack of separation and also in Eastern countries the biggest problem in my view is that they are not politically ready to just abandon lines. Infrastructure is very easy; you don't need to take it away. You just close it and say we don't maintain it any more. If you have money, you can restart maintaining it. But they don't want to do it, also for politically reasons and that are related to the passenger sector. It's the same in Slovenia. Slovenian passenger railway has a market share of 2%. Look at the money, the state money that is invested in this system in the relation to this 2%. It's a waste. If you have only 2% of the population which uses the infrastructure, what's the point? However, you don't make decisions like that in the ministry, but you ask the members of the parliament." Everything makes sense, even politically, as long as there is no financial reasoning attached to it. Then reality hits the dreamt for strategies. “It is not a rule invented here in Belgium. It's a European rule. You have people say, and this is a problem when you have civil servants, the first worry of a civil servant is normally not to make any mistakes. Never to be accused of making any. You take every precaution that you can never be accused that something has gone wrong because you have not implemented it. There is this natural tendency to pile new procedures on top of existing procedure and to make it more and more complicated. And of course, all this create delays, it preserves the traffic, this is clear. Railways are in hands of 96
regulators which have a totally different attitude, let's call it the regulators, as for the road traffic. Road traffic is practically not regulated at all. I mean, OK there are some basic rules you have. You have to stop when the red light is on, keep the safety distance, obey the speed limits and this is pretty much it, truck drivers have to rest from time to time." It might not be a financial difficulty after all, but a structural one, since people do not want to take over any responsibility for any change. “The second aspect is the regulatory. If you want to have again the better integration of railway in the entire transport chain, we have to offer the regulatory conditions that can act as a enable of a competitive position of the railways, and this goes hand in hand with the situation of an imbalance conditions from the perspective of the infrastructure user charging, internationalization of external costs, taxation principles that are not applicable equally on all transport modes, social rights and this is a historical problem that still rail is seen as an employer of a huge amount of people that has to accept all variety of relatively strict conditions for the employment which is not the same for the road sector.” This is so simple to do. Just decide for it to be done. And then require from the CEO to make it happen. Where are the obstacles? The political consequences are not clear. “It has to do with liberty of moving around. To change that, you have to have a good understanding of a basic principles how the mobility channel does work. In Switzerland people are proud to have an intermodal arrangement, there is a very good rail network and rail services are also very good. They are complemented by the road. The rail is the backbone and road is complementary means for the transportation. Either for individual cars or for the bus services. They are proud of having this backbone, because it's electrically driven, it's clean, it really offers 0% emission operations. The air is fantastic. They would never depart from that. I think it is the feeling and the thinking behind it. They don't hesitate to allocate robust budget, a huge budget to the infrastructure projects for railway. Because they see the result.” Are the Swiss people different? Do they have a better leadership model? Would they just get drowned by the traffic over the Alps polluting their valleys with air and noise pollution? Is it a question of a high enough living standard of the population? Does money and understanding the role of money in a society help such policy decisions? “We come to cargo trains and railway cargo is about to get lost. When we are talking about infrastructure and the questions that everybody loves to talk about unbundling, then I think if system is implemented that gives competition the whole range, then the question about unbundling is not there anymore. Of course, the infrastructure manager has to provide track slots to everybody equally. I am in favor that the regulatory side is entitled to look into decision-making process of the infrastructure manager fully. This should be under control, also the guidelines' how to give track slots should be defined and there should be a fair system that everybody has the opportunity to use the
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infrastructure. Because infrastructure belongs to the country, so it's for all of us and everybody should have a fair approach to that. This is just a question of how to organize it and this is a question not of which company must have been.” Infrastructure is a public asset, so it has to be financed by the government. Maintenance can be delegated to the private sector per concession. Operations on this infrastructure must be open on a fair share basis to all operators interested that qualify. Public regulators monitor this. “And if you have no separation, you need to have a strong regulation. We have also pushed for that. 10 years ago there was almost no independent regulator in Europe, apart from the UK. We had in the first railway package the requirement for independent railway regulators and now we have managed to impose it, this year the last country Italy – has got an independent regulator, before the rail regulator was in the ministry and that is always a problem because the ministry is also an owner normally of the state company. They have the tendency to protect the incumbent rail operator and also an infrastructure manager which they have a financial interest. We have now finally managed even in Italy to get that regulator out of ministry and create independent authorities." The implementation of legislation through regulation is at the center of the power struggle between public and private interests. EU legislative and especially the regulatory changes with the Railway Packages have strived to provide a level playing field for the private operators within member states with hopes for more cross-border operators to emerge. No new money was allocated for this purpose. In the US, only the seven biggest rail operators invest yearly 26 billion USD according to the Association of American Railroads (AAR). “So for this it would be a point in international passenger but at the moment we still have for example the channel tunnel, the DB tries to get a train certified and that has taken years. Technical certification and now they have problems with their supplier, with locomotives. This business has extremely low margins. DB has bought a lot of companies abroad from the money they get from PSO services whether they had no tendering obligations until 2010, so they made a lot of money and partly is also from the infrastructure. And they bought companies abroad because they want to be a global player, however if you look at the studies done by some professors in Berlin, they will tell you they are not profitable - this participation, because they buy them at the very high price for example Arriva and they don't even pay the interests from the profits of this companies. A normal private investor wouldn't do that and we have a situation where we have some competition but practically only between incumbent’s subsidiaries. It's the subsidiary of the Italy incumbent wants to go to Germany; we have the subsidiaries of the French incumbent offering its services in Germany. Many active in the UK, where everything is free. UK is also one of the few success stories in my view, because they have really reduced the costs of the system, while at the same time increasing the market share. Against the road. That would be the objective."
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All the hassle with moving parts of the system from public into the private sector only makes sense if at the end the overall costs of the system are reduced while at the same time increasing the market share against the road. At the same or better level of service as the objective. “The national member state associations have formal communication with CER like the member rail organizations, as we have as members of CER, before mentioned British, Swedish, German, French, Austrian, Hungarian association are the direct member of CER.” There are less obvious side effects of the privatization process of formerly completely public services. The noble goal of better service at lower costs for the society is accompanied with hazardous subsidies paid by all in favor of the fewer that use the service; pressures on labor must be compensated for with new jobs elsewhere in the private sector; the many new companies that provide services instead of the incumbent must compete, but also structure communication path with the legislative and regulatory bodies as well as the public investor into the infrastructure. So, privatization is not a one-off event for the government through which it would relieve itself from all the burdens of providing a service. It is a restructuring process that requires leadership as any other change, with a result that still requires a continuous and active involvement of the public sector. “For the government would be difficult to cope with dozens of companies approaching them and expressing the different interest. The role of association on the national level is as important as is the role of CER vis a vis the commission. This also should be negotiated internally with members what messages to the convey to the commission and then we come to the commission and to the parliament with one set, one set of statements." Instead of an incumbent where top management took care to manage the internal coalition, we now have a trade association that coordinates the competing companies to agree on common interest and views to be aired and communicated to the government and other public sector bodies. At first glance as if not much has changed. But the change is in its essence fundamental, from a more centralized system to a more distributed system of flexibility, adaptability, innovation and lower risks. “The other way exists in many countries and its national association. It promotes and negotiates with the government in behalf of all the operators and not only the selected number. This tendency is happening. We have a good example in UK which is having the association of trade operating company is really strong one, the similar in Sweden. There is an association of Swedish trade operating companies, in Germany we have the association called VDV, in France UTP, in Austria BKO. The tendency is one partner for the government who represents the interests of all in the sector.” This statement points to the multi-level governance aspects of association organization in European Union. Member state associations joining into a European Union level association. Looks clean and easy. Put in the differences of the size of member states, the number and size of their rail organizations and suddenly maters are easy no more. Should a small member state with just a few rail organizations set up an association just for the sake that this one would be 99
a member of the European Union level association? Must this be a legally organized and independent structure thus causing substantial overheads in such a case? “Yes, but we have a lot of these laws. In addition, the railways since they are such a political item, they are very often the subject of mistakes. For instance, we had a big railway accident here 4 years ago, where 90 people were killed. It was a collision between 2 trains, it was 4 years ago, and the investigation is still running. We still don't know why. OK, but the fact we don't know why, has not prohibited the parliament from creating a commission to investigate a railway safety and to decide on a number of measures to be taken. We are spending billions as a consequence of this. And even today we don't know what the causes of the accident were. This industry is so heavily political. This is one of the reasons this industry is not doing well.” Regulation sounds fair and easy. But it is not such at all. It is the space into which most of the interplay between the interests of the public sector as opposed to the private sector interests are located in. And yes, ultimately the decisions are political decisions. And this is not the case just in rail industry, but all others as well. Like the case of the banking sector has shown us so well in the developments since 2008. As central planning type of economies failed, while extremely laisse fair economies also did not survive, the struggle to find an appropriate middle ground is fundamentally a leadership question and one of the fundamental research questions for leadership studies. “I don't understand why a Freight Company should be state owned. There is no reason for that. Whether you move a good from A to B by truck or by train it doesn't change the public nature of this act." Sounds easy, just like selling apples on the open market. But look how much legislation, regulation and taxation activities are related to selling an apple in the background. So, the statement is right when it says that selling an apple is a public act. “Every CEO has different personality and different philosophies' how to run a company - more in centralized way or decentralized way. The general line, keeping the company independent from the state intervention, keep the state out of internal or externals affairs. One element - integrated company was the goal of all four CEO's. The liberal party in Germany has sympathy to split the railways into infrastructure and operating part. But they were not strong enough.” As in many other statements a leadership dilemma, a power game, not necessarily against the competitors but might be that primarily in talks with the government. Is that good or bad and for whom? The answer lies in political decisions about what are really the goals of the society as a whole. “So, all rail companies are state owned. With state owned rail systems, you have no chance to be, let say, close to customer. You have an administration; you have civil servants. If you take 100 best railway systems in the world, top ten who are making money, who have really potential, are private owned. Private in United States of
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America and private in Australia and New Zealand. Warren Buffett is investing it. But nobody is learning the lesson.” The statements seem to put privatization, the separation of public and private initiative, and the separation of operations from the infrastructure in a relation that is difficult to understand. Why did these dilemmas take the center stage in the first place? Why do they persist for so long and to everyone’s dissatisfaction? “There is no lobby. Most of the things are state owned, so you cannot make lobby. Parliamentarians sometimes have good ideas, but never, believe me, we have talked to a lot of the people. At the end of the day, they had nothing, they have done stupid ideas like to sell out part of it, and then sold out another part of it. At the end the local government was confronted to workless people. We should have let it like it was, less workless people.” A remark that points to one of the downsides of grand decisions that do not take the whole context into the account. Considering the ultimate goals, methods and means to do it including the side effects from the perspective of the whole society are needed. “The second issue was of course, that the railways practically all over the Europe were state controlled. And since they are practically everywhere, with few exceptions, heavily subsidized in addition, it was very difficult for the commission to intervene in price setting or in technology or whatever. Because you have this situation, where it is in fact the service paid by the tax payers. It was virtually no private enterprises present in this market." Is this a good description of what is or still is the issue of European Union Commission assuming that they wanted to take a governing role in European Union also in the transport sector and rail industry in relation to the member state governments. Rail incumbents were member state owned and heavily subsidized by them so it was difficult to impose pricing or technological regulation. Some money from the European Union Commission to support this intent would be the easiest way. “We are deeply convinced that the interactions between infrastructure and operations are so close. If you split that, would be very negative for the efficiency of the railway system as to whole. This is a major conflict between the European Commission and Germany.” The interactions between infrastructure and operations might be very close today. The system was developed as an integrated system. Should the strategic decision to separate this to introduce more competition or just to justify the need of European Union Commission interventions that the course of future developments must change. And for change leadership is needed and money to cover the investments and costs of change. “Not just technological problems of separation, but also a cost. They thought, by separating it they could increase competition, which at the beginning of their thinking process was true, because there was a very restrictive policy in all countries in Europe. Allowing national situation traffic the commercial companies to run in their own 101
countries. Germany was the most open in that particular aspect. They didn't want to lose the control over track usage." A confirmation about technological and the costs problem of separation. European Union Commission believed that that separation would stir competition on the European Union level while Germany allowed competition in Germany without separation of the tracks. Thus, Germany has the highest number of competing operators and European Union has weak cross border passenger and cargo traffic. Sounds like a deadlock. Which way to proceed? A question of leadership and the money to cover the costs. “Germany showed you don't have to separate infrastructure from the other part to promote the competition. And nobody has as much competition on its own infrastructure then Germany. 300 operators, it is quite clear." Ibid. “What we have is these state companies with their old cost structures and their old governance structures. They were always integrated companies in the past. They control the infrastructure and the also control the train operation. We have always recommended separation of infrastructure and train operation for the simple reason, it is not very inviting for a new entrant operator when he knows his competitor controls the infrastructure. His competitor decides how much he has to pay for the access to the infrastructure, which facilities he can use, which train path he gets and so on. Whether he gets a Framework agreement and under which conditions and all these things if it's your competitor that can decide on this, you will be more reluctant to invest in such a market. That's very simple." An argument of the European Union Commission in line with the rather linear thinking about the root problem of the rail integration in European Union and consequentially the mean to overcome it. The technology and cost issues of separation are not mentioned, nor the need for money from the European Union Commission to overcome them. Does that mean that they are not understood and simply overlooked? “The German company has a system, a sort of chemical pipes, whereby all the subsidiaries' infrastructure, passenger, freight, operators have to channel their profits towards a holding. And then the holding can redistribute it. They are resisting, we have a legal action against them because we think that is not legal because we have to have account separation. You cannot use the state money from the infrastructure for the train operation and they say, but we don't use the state money for infrastructure for train operation. We use part of the track access charges. The problem is, if you deduct the state money from the revenue of the infrastructure, you don't have any profit to transfer. You only have a big loss. So, of course, substantially what they transfer is partly also the state subsidy. So, otherwise we are talking about, I mean it's really a bullshit. This bullshit has kept us busy for the last 3 years to prepare this procedure and now we have to go to court to test this. This shows how important it is to say exactly, if the state gives money, for which purpose. Is it for infrastructure? Is it for public services? This is also one of the big reasons in favor for separation. In this case, you have a control where 102
money goes to. OK, if it is really something left from the infrastructure, you can reuse it. You can maintain more lines or it can go back to the state. But it should not go to competitive activities. Your competitors who only have their normal revenue, the money they make themselves, they cannot compete against you.” A description of a system that works in a member state that has the highest number of competitors on tracks. The member state puts money in for the infrastructure; European Union does not put money in for the European Union infrastructure. From here on the statement continues with cross subsidization that hinders even more competition, which is a just statement. A cause for which European Union Commission is working for, but does not put its money into the change process and the cross border let us call it European Union infrastructure. “What we need is to standardize a European rail product, which is not a case. One has its lights here, the other has it here, the other has it the communication and, Europe has not find one single, little way to standardize. If you look on the truck, on the street, each car, if you buy a car in Germany you can drive it through Europe. There is no reason why it is not possible to do the same with rail. European administration has done nothing. They are lazy, they are sitting and make huge meetings without any progress in the last 15 years concerning rail.” Such standardization would come naturally with mayor new investments into new rolling stock, signaling and infrastructure over the whole European Union and its corridors identified since decades. The comments at the end reflect the frustration that this is not being done. The question is why not? It is only leadership and money that is needed. Money is the easy half, European Union at least in the Eurozone, is a sovereign fighting deflation so for it money is really no excuse as I already stated in one of the previous comments to one of the previous statements about how this can be done. Leadership might not be so easy in the context of European Union and its complex multilevel governance structures. But still there are so many multilevel governed sovereigns around the globe that the share complexity cannot be the issue. The peoples of Europe have decided to join into European Union; it is for their elected leaders on the level of European Union and the member states to operationalize this decision of their voters, citizens and the society. They have no mandate not to do it. And no excuse for not willing to or not being competent to do it. “If you wanted to drive a train from Germany to France, you will wait hours on the border. If you want to drive it from Germany to Spain, you have to go through France. You give your train to the French rail. It's a German train and a German driver put on the side. And when you ask where is my train, they say we don't know, attendre monsieur (you have to wait) and start to make the inquire where our train is. Things like this. There should be a German locomotive go to Spain.” Realities of rail system integration in the European Union stated. “We would love to have the system of airplanes. Once, the 787 Dreamliner is approved to fly, it flies all over the world. You can try to get the train from China or from the United States of America and let them run in Germany, in France in Belgium and Netherlands - no way. We are trying for the approval of rolling stock; we are trying to 103
adopt a system like the air system. This is really good system and it shows that the system like this is able to supply safety.” “I think European Union has no clue how to become a European system. Civil servants sitting there, believing making one law after another, it makes progress. It will not. It destroys a market and will be only for the advantage of the trucks, not to the rail business. I don't think that Europe is doing very well to the rail system. It's my opinion and I believe nothing has changed in the meantime. Just to try to make, let's say, structural regulation makes nothing.” Structure is important. But first you need leadership, which is a reasonable agreement between leaders and follower what to aim for, to change the existing into. Then you need to understand your resources, which is people and money. And then you create policy statements and structures. “But they offered, like Germany, like France, like other countries, if crossing - Basle is one of the major traffic knots - you have countries who responding to it, because they saw the actual advantage in it. For them, they were one of the forerunners in the system with the European Union. And the Swiss also jumping into different subject, they had a solution for one of the biggest problem counting wise. Originally they were merging several; the number may be wrong, about 15 or 16 different types of railway companies in Switzerland." Switzerland as a federation and its rail system would be an interesting research topic on its own. “I have had the situation in Slovenia. Last year we were there, and a minister told us we will unbundle, we will separate the infrastructure and few months later after a lot of brain washing done by the company and of course, the minister does not know the situation, he doesn't have the staff to tell him, no it's not the truth what they say, and they are not efficient. They will tell him, we improved our efficiency; we need to have these two together to create synergies. They had a time for synergies for 50 years and they have accumulated debts and deficits. Now they are talking about synergies. Somebody who is new in this sector cannot resist this kind of lobbying. Now they are even talking about abolishing this Agency in Maribor, which is quite useful. At least for essential functions, for charges and path allocation it creates some level playing field for new entrants. They want to scrap that and integrate the whole thing again.” The statement about claimed synergies for 50 years that never materialized on the side of an incumbent is one reality. The other reality are the TEN-T corridors that are spoken about in the past 25 years in European Union and also did not materialize yet. “We are trying to expand it with ERTMS which we are pushing, a common signaling system. If you have it on the corridor, you can change the border without having a new system, because you have ERTMS on your locomotive. That requires of course that on both sides of the border you have the infrastructure. This is still a little bit of a problem, because not all countries respect the ERTMS deployment plan.” 104
Back to infrastructure standardization and how member states have an issue with it and as there is no additional money provided for it by the European Union Commission this is not surprising. “Some countries are more advanced in complying than others. Important is of course the central Europe, which is Germany through which several important railway freight axes go and there we also see some progress, they were quite relaxed at the beginning but now they have committed to fulfil this ERTMS deployment plan.” Germany as the center, according to system theories and heterodox monetary theories, of the Eurozone gathered enough money to be able to finance it. “We have some side issues on the ticketing for example. It does not make sense when we have different companies running into a station and we have 6 different vending machines for tickets there. This is a nightmare and we have to see how we can develop this. We have to give one face to the customer, I think. I believe the Commission is working on that, which I fully agree. What I would like to see is that they don't give us a certain system which we have to follow; they should tell us you how to produce one face to the customer. That is a duty and now you have 3 years of time to organize that. Because when you come to Brussels, to the station, it is a nightmare. And Cologne is also a disaster.” A good advice to the legislative and regulatory bodies of European Union how to lead. Set visions and objectives and not means how to achieve them. What makes it so difficult to change things in rail? Or is a general rule that once things are so immensely centralized as they were in the rail systems of national states that it just plain difficult to change. Telecoms, electricity and other industry are much more technology and infrastructure driven than rail which is immanently a service industry with a huge impact of the human factor. Might that slow change and development down.
6.2. Reflections on the drivers of change 6.2.1. Market “The expectation was reinforced our competitive position not only in relation to other railway companies but to comparison to the other transport modes - particularly road. We started internationalization. We were the first company in Europe setting up the joint venture with one of our neighbors - the Dutch. We set up a company and we internationalized the railway traffic and cargo traffic between the Netherlands (Rotterdam) and Germany and down to the south Germany and Italy. We also start to cooperate with Swiss railways. Not the big one SBB, but with smaller one BLS." “The situation that time was rather complex. The Swiss big one SBB started joint venture with the Italian railways in 1997 to merge the cargo part of the Italian railways with the
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cargo part of the Swiss railways. This was very serious challenge for DB. If they wouldn't be successful they would have a major competition or competitor on the north part in transport line." Leaving things to be sorted out by the markets seems to be a flexible and adaptive proposition. Not necessarily where the market is dominated with a few incumbents and no real legislative and regulatory body with sovereign monetary and fiscal, thus political capacity. “In railway questions, I think that, and I am focusing on Germany, there has to be the market open for competition. Because competition in general is something that is good for the customers and not only in respect of prices and the fees, for tickets and stuff, but also for the development of quality, the innovation of technical issues.” Praise to competition by the industry within the industry is well present. “We want to introduce competition. So, if we allow foreign operators to come in, that means we have no monopoly any longer, so we want to create a competition which will also make the sector as such more efficient as it happened in others sectors, as it happened in telecom sector as you know. Without competition in telecoms we would still have the situation as twenty years ago - when I arrived in Brussels in 1994 and I had to pay 500 EUR provision just to get a contract with a national telecom supplier, I had to wait 3 months for telephone and then the charges for talks were 3 times higher than they are now. So, this is the advantage of the competition and we have the same in aviation. If you compare the prices we had 20 years ago with what we have now (Ryanair and others), you can go for 50 EUR from one place to another if you get a good flight. 20 years ago, you paid 500 EUR and flying was reserved to business people and relatively rich people." Praise to competition by the European Union Commission is well present. “That's also a point that we don't have a real competition, I mean DB is in Germany, SNCF is in France and both of them want to get some market on the other side. This is not a real part of competition, while in the end this is oligopoly and if both would like to open a railway undertaking them, we would see how difficult this market is, this sector is. On the other hand, I am not sure if it would be too clever if we would start railway services. You have to have some knowledge, you have to have some resources and you have to have a real company, at least you can get back to your mother, maybe in another country. Competition is rather difficult, but the benefit is also competition between those national carriers. They learn from other markets. SNCF is having subsidiaries and they are doing pretty well and this is also a question of development for other companies in the German market. That's why I am very much in favor of that and we can see that is very helpful.” Can an incumbent from one member state be a real competitor in another member state? Or are new technologies, products and services that really make a competitor?
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“UK has shown for public services, if you just simply tender, you have to cut your territory into pieces for the contracts, which should not be too big. They have about 30 franchises, they tender all of them and they reach now a position, after 15 years of liberalization, where the state gets out more money from this franchises then he puts in." Moving previous public service onto the market while maintaining public ownership of the infrastructure is a tough balancing act as the UK experience shows. “To be honest, also telecommunication business is an oligopoly and not too many players in the market and even if they don't have a cartel they still focus on each other. It's not a cartel, but when they see the telecom is going whatever two cents up, and then the other one also wants to go two cents up, because now the market gives you the opportunity to take those two cents. This is the situation of course, but we are not talking about making too much money in running trains. The system is not that.” Moving previous public service onto the market while maintaining public ownership of the infrastructure is a tough balancing act also in telecommunications. “Philosophy of DB. Mehdorn has a strong input. Mehdorn came in in 1999. His vision was to establish a holistic view of transport to serve needs of passengers and cargo, to make it simple for users. Bought DB Schenker to offer the whole chain of logistics in the whole world. In passenger: integration, integrator (bought Arriva), underground, bus, car park…Gruber: integrate various means of transport with intelligent ticket and billing like cell phones. Vision: first in the market in European Union, eco-transport, be an attractive employer for generation Y (shows slides). The mega-trends of the future: Globalization, Demographics change, Liberalization and Climate change.” The industry claims market and environmental aspirations. In this sense, they agree with the European Union regulation. Also mentioned are some fundamental concerns of the industry, like generation Y and millennials interests against the baby-boomers. This is not only a mayor demographic change. It also addresses the different worldview on globalization of the two distinct generations. Are this generational concerns of the industry leaders reflected also in similar concerns of European Union and member state political leaders? “The trucks don't put into the account the environment issues. Yeah, it doesn't matter. The fact is, they are extremely cheaper. Why doesn't it count? If you have to make a decision, you take a truck because it's cheaper. You don't say Oh, those gangsters. They get subsidized and don't have to pay. You give them the order and you are happy that you get served." Sometimes too much government distorts the market. “But there it makes sense; however, nobody would take a train between Paris and Munich for example, or Paris and Vienna; it's just too long it's not worthwhile. But the structure of Europe is so that it is basically most of the people are in pretty dense space.
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Whereas half of Germany and Poland is almost empty. Most of the people live here London, Paris, Brussels, Amsterdam, and Frankfurt." The realities of geography, also in European Union. Most of the population lives along or close to the coast. That is where there is the need for passenger traffic. Cargo has goods to be transported from the ports to the hinterland which is less inhabited than the coasts. “This now makes the competition side very difficult, for long time very difficult. But the prices DB Schenker sometimes can do are so difficult to do for the other companies. If DB Schenker is not making enough money at all, then we have a serious problem in rail cargo earnings. The percentage of transport on railway cargo in Germany is still on compare to other European countries. It's not fairly good, but it's at least better than in other countries. Cargo system doesn't work well enough anymore. We have to think what we can do; I mean financial surrounding has to be a lot better. We have to have some innovations. We are talking about individual cars that they can drive without the driver. When you see the trucks are going very close to each other on the highway and when we go on the tracks of the railway then we have to wait 10 minutes till the next train comes. People are telling us that the system is full. This cannot be. I know the ETCS will help a lot when everything is completed, but we have to have some technical innovations and on the other hand we must invest into the infrastructure without getting from the main lines. When you go into the stations, into the knots, then you have bottlenecks and they have to be opened. This is very difficult, because they are usually in the center of cities. This is an issue we really, really have and that's also something where say the European Union is enforced to develop economically the whole Europe." Inventions of new technology for cargo transport on road are further denting the rail cargo competitiveness. Are there new technologies to be implemented in rail cargo not available or possible to invent, think of and implement? “It's not a fair competition if somebody has state money and then can offer a lower price and pushes competitors out of the market. That is just not fair and nobody will go into such a market. You will always only have state money in the railway market, but we want to encourage private investment. Otherwise we will not decrease the cost of the system and strengthen its efficiency.” The split of investments of the state into infrastructure and private ones in operation is not mentioned. Why is that? Is it possible that European Union Commission policies are sometimes not communicated clearly enough? “We started with 200.000 and 7 years later we had about 100.000 employees. That was a major challenge. The intelligent approach at the beginning to integrate the trade unions into the preparatory process for this reform really paid off. Deal was: we reduce the number of employees, but nobody will be laid off. We had to use other instruments - an early retirement. This worked at that time. This was very important to reduce the number of employees to become competitive to reach a normal level of productivity and on the other side reorganize the company and start investing in modernization of the
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company, modernization of rolling stock. The advantage was at that time the pressure from the competition. Competition wasn't developed in European countries. First competitor showed two years later - Veolia. They were the first in Germany. Competition pressure was low at the beginning and rose over the years. It was enough time for DB to adjust the internal structures and to alter to become the competitive company. It was good to have an open, liberal market and to have a risk new competitor could show up every day. To put pressure on the company they have to adjust and to improve the performance. This process reduced the number of employees and increased the productivity." In the process of privatization, public servants were moved from public service to early retirement. Both paid by state collected taxes. However, the company was moved into the private sector and interestingly could operate with half of the previous staff. Was the original obstacle the organizational structure or the people is not clear as both have changed? “Serving suburbia of big cities, could be served by some kind of light rail that be technological more tuned to serving passenger traffic. It depends on the size of the country and of course on the distances. But the demand is always also for speed. We have a lot of reaction, even if we are talking about just 2 or 3 minutes more. People want to speed, they want everything.” In United States of America travel time is part of the day. In Europe, it is wasted time while traveling from A to B. Is it that the freedom of movement inherent in the United States of America culture makes travel time valuable? Whereas in Europe travel time between two locations is just a waste of time? “And the ticketing for example. Google has the best system to tell you how to travel with public transport in Europe. It only does not sell you the tickets yet, because it's probably impossible for them to buy it from the operators. But it's very precise. It tells you walk, take a bus, take a train, take a subway, and walk. And that's only on Google. Interesting. Yes, but the point you said. It's not only advanced and I don't see any problem. It is the same with passenger and cargo. It is the same. No problem, no light on the horizon that someone is changing something.” The margins in transport are in forwarders, those who organize transport from A to B and charge for it especially if they can pick from competing operators who provide the actual service. So Google and the likes are the biggest opportunities for the customers and treat for the operators. “Ticketing was a big problem, and they solved it. They had a solution for it. In many ways, they were an example of solution if you want it to could find them. Like we had big problem, DB to find a joined ticketing system for the train Cologne - Brussels Paris.” There is awareness that ticketing is a problem, an issue and also a great opportunity. One operator cannot put bits and pieces together, apart from actually selling the tickets, probably because the operators do not want to cooperate, or cooperate yet. How come there is no such 109
initiative from the private sector, the entrepreneurial companies in European Union? And if there is no such private initiative, how come the European Union Commission does not regulate the market in the sense that operators would be required to sell tickets to forwarders on top of selling them themselves. That might stimulate operators to collectively organize a joint venture, a forwarder that would the run ticketing in their name. However ultimately that travelers could buy a ticket to travel from A to B in a straightforward and easy manner. This would attract more passengers to public transport. It would become easy to use to all which apart from regular daily commute it is not. Especially cross border, over more than one operator. Ticketing would also allow operators to better plan for the needed capacities. Furthermore, if infrastructure with signaling would allow more flexible usage of these capacities, rolling stock could be more flexibly allocated to meet the demands ticketing is projecting. “Now, we can see the competition doesn't make prices lower. We are now coming to a level where prices are lowered, but to reduce them more and more is not possible. This I also see from the discussions about my membership fee. Everything is getting tighter and tighter. We are talking about some regulatory stuff, we have to talk about some standardization stuff, and we are talking about issues at lower costs, lowering the costs. The ticketing side is one of the primarily issues for me towards the customer, to make it easier for the customer to get into our system and to enjoy traveling by public transport in general.” Confirms the importance of ticketing. To attract more travelers to public transport as well as assure better margins for the transport organizations. “With small packages below 50 kg DHL, German post, I have experience with sending signed mails to United States of America. The moment they take the mail out of your hands you are already in the system. You have a tracking number and you see where package is all the time on the internet. You don't need to call them. And that's one of the problems with more than 50 kg packages that go on the rail. There is nobody it seems to know what is happening to the shipment.” Same as with ticketing in passenger traffic, forwarding is in cargo. The one who organizes and sells transport from A to B. Is it that those who do it today are not interested for a deregulated market where their business could be taken over by the operators themselves? Or are the operators, incumbents, strong enough to prevent anybody to organize cost efficient means of transport from A to B. It is for the regulator to judge and deregulate and regulate so that the market can adapt.
6.2.2. Technology Europe’s geography is difficult for the distances that make rail cargo economic because of many ports that are close to destinations. But there are corridors that make sense and are well defined in the European Union Commission documents. If you look at the map of those corridors, there is an obvious need for coordination of rail infrastructure development and operations across the borders of member states. 110
“Too many ports to close to the center. But there are still longer corridors - 500 km, but the volumes are not high enough for the long distance. Typically, in the United States of America it is 1000 km or more for transporting the cargo. In Europe, you cannot find this distance.” One cannot believe that at the current cargo loads moved around by the road that the 500 limit is real. It might be a consequence of rail transport, and logistic in general, that was developed and tuned for transport of iron ore, coal and grains in the past within the member states. Most of the cargo today is containers. Should new logistical solutions of intermodal terminals be looked into? “You have to find creative solutions and you have to find infrastructure. In that respect, why we need infrastructure, I can give you good example: cargo and, if I remember correctly, on our infrastructure is mainly transport. We also have some daytime trains which are not always been successful but it's working out. Not successful economically but from operational point of view. In the night - from 11 o'clock to 5 o'clock - we have a lot of cargo trains going through. We were thinking about putting some fast trains on certain sectors trunk lines. We found out that cargo train usually moves between 40 and 60 km/h. If we come with train of 120 km/h, on the same sector, we have to put out of 10 trains 6 to 7 out of track so the other train can run through without stopping those, without hindering those, or blocking those 2 or 3 which are still there. The 6 to 7 have to be removed out of that sector and let them run later which increases the bailout and is not going to work, of course. Because there are almost no dedicated cargo lines, it's very difficult. Now they were thinking about it but in the Munich area there is 1 dedicated cargo line which the city of Munich wants to use it for metro. The DB insists this line shouldn't be used for metro, but this makes a lot of political problems. They try to show voters that the cargo line can be run on mixed basis. That's not possible." The insistence of merging passenger and cargo trains on the same tracks is obviously perceived as a problem of efficiency. And there is only a limited number of corridors suitable for cargo in terms of distance. So, the natural question is why is there so much resistance for the separation of cargo and passenger tracks on those corridors? Is placing new corridors into the densely populated areas of European Union the problem of rejection of the people that would live along those new corridors? How are then high speed passenger lines placed into the even more densely populated areas? Is it that passenger lines are politically more acceptable as the cargo lines? “This works exclusively in Lithuania, Latvia and Estonia. The volumes of the cargo are high enough to cover the needs of the infrastructure, but on costs of that there is practically no passenger services. As soon you start to include the passenger service, you have to change the parameters of the rail. The dedicated rail line for freight is much different from mixed or passenger lines services.” Another statement that on corridors that make sense for cargo, separation of cargo and passenger tracks, in this particular case the absence of passenger traffic, makes absolute sense. Cargo lines in such corridors need not go through urban areas to also serve passenger traffic. 111
They could be optimized for the nature of cargo traffic that is run through inhabited areas, much lower speeds and higher axel loads. However, in European Union it would mean placing new corridors and traffic into the environment. “We need to change the thinking completely. We have to get realized that we need a quantum leap in terms of technology in this field. And this, for the moment, I have not heard anybody say. To me, this is obvious. Galileo. Galileo navigation system is European effort because there is no country which can do this on its own. There is no reason why we couldn't do this, but anyway, for the moment there is no political will. The discussions about 4 railway package concentrate on liberalization issues which, to me, are not important.” The technology of running trains on tracks is defined and regulated by technologies of running it by the clock in the mid of 19th century and the signaling systems of the 20th. The statement proposes that the frequency of trains on the same track could be increased on the existing lines by using 21st century positioning technologies to measure and calculate save distances between trains. This would make train transport less reliant on rigid yearly timetables centrally regulated for the whole system, currently this means a member state system, and move it towards a more distributed management system that would be run based on the actual situation in the field. Thus, making it also less reliant and dependent on the yearly timetables defined and approved by the member states regulators. “And railway is substantially a very centralized system, of course. And it is controlled by people who have, I would say, a particular way of thinking, I would say based on total distrusted of all human beings if I can call it that.” An observation about the centralized nature of the rail system which supports previous observations. As any centralized system, it is optimized for the planned for operations under projected boundary conditions. Any disruption to any of the two makes such a systems' performance suboptimal and even inferior to more adaptive distributed systems as so many organizational and political models have demonstrated in the past. Rail as a child of 19th century centralized national states and their economies thus it cannot bet its future on perpetuating an organizational model that has long so proved to be too rigid and was thus replaced with more dynamic models in organizing societies and businesses. “Another problem was drivers, the locomotive drivers. In France, the drivers are standing on the left side and in Germany they are running it on the right side. It sounds simple and also language was a problem. All those obstacles had to be overcome and after the initial problems, nowadays most of them had been solved. Common plain field which is necessary to run inside Europe has been opened. Still, Germany is the country with the highest amount of competition - in the commercial field and in the allowing in the passenger transportation. But Germany insists on not separating an infrastructure from the train system.” Technology is used by people. And they are even more difficult to change than technology. It takes time or even generations for a small change. Take language. In air transport the lingua franca is English. In rail, it is the language of the national state where the tracks are. In the case 112
of European Union that is the member state language. With internet and the Bologna education system, free movement of people and their business initiative it will take a few more decades only till everyone will be able to communicate also in a common language, be it called English, Spanish or German, or most likely EUR English. Separation of infrastructure management and operations as the key mechanism to foster more competition in rail transport within member states as well as allow for cross border operation comes as theoretically smart way to achieve the noble goals of better service for the customer. Starting from the realities of one incumbent company per member state performing both, infrastructure management and operations of passenger and cargo operations, insisting on the split as the first step might not be optimal out of practical, organizational, technological and security reasons. Insisting on opening tracks to other operations seem to be more acceptable in all mentioned terms as well as leads to the same wished for increase of competition as the development in Germany and UK shows and proves. “We are seeing here something that shows to one of the assumptions of the European Union approach, the packages that really do not work. We have the case of the opposite work. It cannot be the only reason of the problems of integrating the European rail system. It is one of the main. It is not an obstacle by itself, but European Union Commission makes an obstacle. Because I think that they are lacking the understanding, the technical understanding of modern days’ train transportation.” “As citizens we should always be in an opposition. This is not an unfriendly attitude, but it's born out of a natural mistrust to overregulation. If you did not grow up in a railway system, like you and I and some others we know, we know if you end up making splitting unities apart, which are economically not independent but dependent on each other, then eventually you will be fallen into the trap that each one of them will do his own thing without considering whether it's right or wrong for the other. What is the best on a sustainable basis for the public? What service is today expected from their national industrial public systems, like transportation systems? How can we control this, when we have instead of one or two or three people units which we can look at and control, when we make 50 or 100 out of them? It is not going to work. Infrastructure going back to this system that has maintenance and support, on the tracks themselves, on the electronic means and measures. It's lifesaving or life protecting system if it works. If it doesn't work, like in England - the guy drives away, its 5 o'clock, and he forgets to tighten the screw, 150 people dead. Ten years ago, 70 or 80 people. It doesn't work this way. Even the commission has to understand that industrial standards in safety in management control and in operational control and quality control have to be kept. We cannot turn the world upside down and turn the clocks back 20, 30, 40 years for some people who don't know what the difference between left and right when it comes to running companies, running the production management, when it comes to safety control. This is not possible. That's what we are facing there, and that's why this deep distrust. My personal experience, I was responsible for Brussels, for a long time, 4, 5 years. If you go to those guys and show them what their rulings could potentially mean, 10% of the cases I couldn't convince them to do the right thing. In 90% they followed after they convince themselves, you have to be open, you have to be honest, 113
you have to be moral and ethical, they listen and they go the right direction and the right path. It's difficult.” “Electrical system is the next problem. Each country has different system. We have 5 or 6 different types of electrical systems in Europe. Axle load is a big problem. How much load per axle can an infrastructure take? Should it take 22, 5 tons? In Germany, not all infrastructure can take it. In a way, Germany has been very pragmatic in building their railway transportation system. They have been unifying on the axle load, they have been unifying like everything else, like the DIN. DIN system - Germans intend to structure things - in that respect we were very successful. We also have very good well-functioning train control system. But it is a train control system that doesn't work in other countries, other national infrastructures. The European Union in their general objectives was right. More competition, open the infrastructure also to foreign and not just national competition, but also international competition, and to assure a high productivity on the infrastructure.” These statements support the role of technology development that can stir not only technological unification but also the business and ultimately the political goals of a more integrated rail system in Europe. Due to the nature of long term investments in the infrastructure technology unification goals can only be set in realistic time horizons. And it must be known today so that investments are made in the same direction. “And in the end after all those studies and even before, we knew that the railway system is efficient distance range of 300 km and onward. 300 km to 800 km and even 900 km, the longer the better. Up until 0 km to 300 km truck is more efficient. The European Union Commission listened to all of this, they looked at it but in the end, they just follow their own ideas, which was not necessarily highly qualified in terms of road transportation. But the benefit we all took from this is that they pushed us to give up our own particular policies and restrictive attitudes and to open up the market. This is one side, the railway companies within European Union." Technology is a foundation to build a dialog on since it is measurable in its current state, development possibilities are comprehensive but also predictable, impacts on the market is subject to its scrutiny. Also, technology is perceived as politically and culturally more neutral than development guided by legislation and regulation. “The third problem is a problem of time scale. If you look at the car industry, and even more telecommunications, you are on a rhythm of renewal, which is very short, less than 10 years. You change your mobile phone, I don't know, every 3 years, maximum 5. This means that, if you want to introduce a new system, you have to go to the old equipment and adapt it. In the car industry you don't have this problem. For instance, when it was decided that safety belts were compulsory, every car has to have safety belts. It did just say look, every new car which comes on the road, needs to have safety belts. 5 years later 90% of the cars had safety belts, because the replacement rate is so fast. The same thing for catalysts, for let’s say cleaning the exhaust or lot of safety
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features of the car which had in certain moments become compulsory. They just have to say look, from this year on all new cars must have it." Exposed is the length of amortization of investments into rail infrastructure. However even here the amortization periods of investments into tracks and rolling stock are dramatically different. And if the so called signaling systems that are securing the safety of operation of the system as a whole could be moved from the tracks to the locks that could dramatically increase the chances to make safe upgrades in much shorter periods of time. “In fact, what you have on the road is a different principle which is based on the fact that whoever drives the car sees the other cars or sees objects and keeps a distance. A minimum distance in a function of the speed. So, if you drive very fast, you have to keep more distance because you have breaking distance, if you in the city in heavy traffic, distances are shorter because your speed is very low. This principle is not at all a prime one. Now we have a new situation. It is called satellite navigation - GPS. Cars are more and more, first of all using GPS as an information system, but it is of course perfectly possible as is shown by missiles. When they launch missiles now, the missile is guided by GPS system. It is perfectly possible to say OK; we will guide the trains based on satellite navigation. At that moment, that you know certainly with the new Galileo system which is coming up, you can then say OK, I know exactly the position of the train, I know the position of all the other trains, I know the speed of the train, I know its breaking distance. So, I either automatically tell the driver or the train, look this is speed you can drive given the circumstances, if he surpasses that speed OK, there is automatic breaking. You know that in cars they are beginning to introduce this kind of systems which are radar based where effective you approach too much the car before you, there is automatic breaking. This is now coming more and more into cars.” “Not knowing that when they talk about the railway, it is not a train running on infrastructure, but in reality, in modern days, they are interacting. High speed train, infrastructure is integrated from technology point of view to the transportation system. You cannot separate infrastructure and train. If you start talking about separating it, like you did it, you start tremendous problems." In high-speed rail a point is raised about the integration of signaling into the infrastructure as well as into the cars. A case to be verified against the ideas to navigate with Galileo. Does highspeed rail at all coexist with cargo transport on the same tracks? Are we talking about more models of track usage: high speed; mixed passenger and cargo; and cargo only? “What makes the situation for the railways worse is the lack of standardization even for these old-fashioned systems. There is no standardization. You have railway signaling in Germany, in France, in Belgium, in the UK, everywhere a different system. For instance, the Eurostar 3 has 5 signaling systems, because every country it goes to it has to have a different signaling system. This of course is another item which distinguishes the railways very much from other industries. Even in the 21. Century there is still no standardization. If you look at the 4. Regulation package for the railways approved by the European parliament, it has a technical section which, lacks every kind of ambition. They talk about compatibility, but they don't talk about 115
standardization. If I look at mobile telephony, before 1987 there was mobile telephony in Europe, but it was based on analogue standards, which were national. Every country has its own standard. Then suddenly, the European Union Commission said in 1980's, let’s go to the digital system. One standard in Europe. In 1987 the GSM standard was defined and in 1991 it was deployed. In 4 years we moved from the situation in Europe where there was no standard where you could not cross the border and continue to phone, to a situation where all over Europe we have the same standard which we came in fact a huge success. It took the world. Since we are in fact in Europe the leaders in railway technology it is for me completely impossible to understand why the European Union is not able to show the same kind of ambition for the railways. They should say we go totally new safety and positioning system which will be satellite based and this will be applied by everybody in European Union." “The third reason why we are in this situation has of course to do with the engineers. Railway technology is very specific. Whether you go in the industry or you go in the railway operators, these people, they live a little bit in an ivory tower. This is not an industry which has very heavy contacts with, I would say, other industries. If I take the car industry, if you take company like Bosch, which makes a lot of parts and subsystems for the car industry, they are very opened to the world of semiconductors, of software, of algorithms, and so on, and they are constantly moving with the latest technology. There is of course not a case, what's called traditional suppliers to the railways. And in many countries in addition these were national companies. You know, because I said there were many reassembly, this had as a consequence that for instance, at the time when I was with Alcatel, we had Alstom as a subsidiary. We as Alcatel, we supplied railway signaling in Germany and in Canada, but we couldn't supply in France, because the standard in France was different and there was a small French company called Compagnie de signaux, which had the French market for themselves in terms of signaling and so on. There was a virtual monopoly because of the technical, different French technical standards." By moving security systems development from signaling standardization on the tracks to rolling stock standardization the chances are opening for faster technology development because upgrades on the rolling stock can be faster than on the tracks. This is a little bit of a black and white statement though it raises a valid discussion point. “We are missing one more item. Unification of transportation material. We could order 1000 trains in Europe, it's open to everybody, we have a totally different pricing structure as we have it now, when we order 10 or 17, the other has his own TGV A, TGV, ICE E, ICE 3, and unified 1 train would be an advantage of something like that would be - it's interchangeable like the cars, it could be used everywhere, we could have a train pool. I don't know what the prices are now, but the TGV used to be 33.000 EUR. 10 years ago ICE used to be 65.000 EUR. One of the objectives was standardization; the other objective was to create a train which is not nearly as expensive as ICE. And of course, it cannot be as low in pricing as a TGV in those times. We had to consent on certain things: speed, stability, brakes, technology. 116
Unfortunately, it didn't work out because the railway industry was not ready for it. Also, we had 2 guys running the biggest railways in Europe were coming from the aerospace industry. National restrictions and very reserved people who thought their national industry would be disadvantaged. This will be one of the steps; Hartmut is always been on the run technology wise, one of the forerunners. The time is ready now for this. In 2020 nobody will have a chance any more to decide on his own, and then my theory is in 2020 the governments will get together and regulate. They have a goal to meet. They have a responsibility towards the people. Living conditions will change drastically if we go up into 3ºC temperature increases. It will be a disaster. Northern Africa will be in Italy.” “It does not make sense when every authority orders trains differently, everybody orders them differently and not differently in terms of orders it at Alstom or Bombardier or Siemens. But when you talk to Stadler, Bombardier as you will see is that for the corridors for example they have to have so many different - in this model they have to deliver so many differences that makes it expensive. So, what I mean is that, we must give a guideline that competition is possible also on the technical side, also on the product side, but it should be in a range that saves costs. This is a key for the future because money gets lower and lower and we must give the companies then afterwards the opportunity that they can make with fair revenues runs a business and the tracks and infrastructure I think is on the different side. This I will explain a little later.” Standardization of key rolling stock parameters will bring in optimizations to the production process and thus lower the price and increase the quality of the end product, the transport service for the customers. “For the passenger trains it is a little bit different. We have developed a lot of quality in the trains and this still we have to continue. We have to talk about wireless lines on trains to bring some more commodities into the trains that people like it. When you are in the rush hour on the tracks, on the platforms you can see so many people; it's also a question of capacity. Do you want to stay like this for 45 minutes when you are going from Duisburg to Cologne? No, you don't want that. That's the situation every day. We also have a question of quality, of volumes which are in the end also question of money.” The statement exposes a technological and marketing question of public transport. What is the actual product sold? To get one from A to B at any time there is a vehicle going there at the expense of not getting a seat, with security issues and no other service of added value. As if today’s digital technology could not address adequately many of these ticketing issues. Together with more flexible allocation of tracks and rolling stock to the expressed demand in real time, more than it was possible 50 or 150 years ago, could increase utilization of the investments into infrastructure as it would provide a better value of service to the customer. “Rail track access is always present. To put together a chain of companies to return control over cargo for the whole A to B transport chain vs. classical string of national organization." 117
To compete or even better, to complement other modes of transport, the whole value chain has to be built not around technology but around cargo or the passenger, moving them from A to B in a rather for them seamless manner, shielding them from the underlying different technologies used depending from the optimizations made by the operators. Good examples are power grids or communication grids. A customer expects to plug a gadget into the electricity outlet to get it powered on without the hassle of how the power got into the outlet. A customer wants to communicate over the communication grid with a chosen person on the other side without the hassle of understanding the details of protocols, hardware passive and active boxes or even optical vs. copper cabling. Moving now to regulation differences that are a consequence of the difference in the underlying technologies. “One problem is technical problem, you have all these different technical parameters - the different gauge, the different electricity - voltage, the different signaling systems, and that means also different safety certification procedures, because you need a safety certificate if you want to run a train. Different vehicle authorization procedures." Whereas regulation, itself a consequence of the underlying technology, prevents by itself better utilization of existing infrastructure and its faster development. Regulation seems to have become a prophecy on itself. “In passenger traffic it's about I would say the best utilization of the infrastructure. Tracks are there, but because of the security systems, there are so many trains which can pass. In Belgium, we have an important part of the tracks where we are saturated. We cannot send more trains even if I have a demand from local communities, to say OK, why we can’t have more trains per day going to different locations. I have to say sorry; we cannot because the system is saturated. Whereas, you cannot explain to a normal constituted human that if you stand along the track and one train is passing and three to five minutes later there is another one coming, that this track is saturated. You cannot explain this.” Additionally, to the existing burden of regulation on the pace of development within a member state there are the cross-border effects of different regulation in respective member states that hinder progress. “Classically, when I started to work for the system, we have the situation where during the rush hour we had 80-90 % thinking every 2-3 minutes’ train goes, another train is passing the same passageway. In between, there is maybe utility load of 80-70%, but an hour later like 10 or 11 o'clock in the morning, you are looking at maybe 20-30%. Is there any possibility to get more traffic and beyond the doubts, we have an average rate of 60-70% all day including cargo transportation, by mixing the right cargo and person transport and using different train control system, monitoring systems and so on? The classical example is the "Brenner". It had a 35-30% and the remaining 70% in those days (15-16 years ago) was nothing going on, very little. This was a situation
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where each country maintained their claim. It was their right and it was under their control to decide what they want to do. This was the situation the Commission met or found. What we are going to do? They first came up with railway package 1, there was a railway package 2, and railway package 3, now is railway package 4, to unify the controlling systems, to unify the transportation. Then they started with an idea to control trains electronically, but it was extremely expensive. If you build a new locomotive, it was a regular type, maybe a little more expensive than the existing systems, but if you refurbish, put this equipment to an old, existing locomotive, it was two digits million efforts just to modify one locomotive to get it also certified security measures." Reconfirming the need for further development of the existing infrastructure from where it is today towards something better could avoid many mentioned issues. New corridors heavily opposed by those who would live close to them would not be needed to be placed into the environment. Incremental investments into the existing infrastructure might be lower than building new infrastructure “Not making everything equal, but to give everybody a chance to develop. I am also thinking that we have to have a railway network. This is something very good I think; this should be developed. I also believe that it should be technically developed more, so that we can use the lines a lot more efficiently." The proposal implies that technology will drive this progress. New technology will need to be followed by new regulation. All of this is needed also in case of cross border corridors of member states providing bettered infrastructure for provision of better transport services. The European Union Commission approach of deregulation of first the national then cross border. Furthermore, the idea of establishing corridors on bettered existing or even new infrastructure. Both approaches are viable. None can be successful unless there is a clear understanding where will the investment monies come from. Operating companies are hardly profitable also because of the underdeveloped infrastructure. Infrastructure managers struggle even with maintenance of the existing infrastructure. The member states governments are focused on investments in their respective member states. European Union Commission has at its disposal only the monies in the 1% European Union tax limits. So, where will the monies come from to kicks tart a faster pace of development and standardization of existing and new infrastructure and rolling stock? “Rail is good product, environmentally friendly and has a bright future, but we need the right framework.” Structures and policies only are wishful thinking unless they are supported by appropriate funding. “I cannot say that this is a successful industry. I would say to the contrary, I think this is an industry where everything has been done to make it not successful.”
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Everything is possible to change in the structures and policies of the European Union and member states to open the markets to new competition. Technology and ecology are being discussed. What was not done is to support these leadership efforts with adequate funding.
6.2.3. Ecology Trains in European Union are up to 750 meters long and up to 20 wagons long, at two truckloads per wagon, a train takes 40 trucks and truck drivers off the road. One truck on a highway is a burden to it equal to about 35.000 passenger cars. Moreover, the gas and rubber from tires emissions and costs of accidents are all factors that are not included. Trains are mainly electricity driven and to some part diesel whereas all trucks are diesel driven. The percentage of rail cargo transport in European Union is just over 10%. In United States of America and Canada, cargo trains are up to 4-kilometer log with over 300 wagons. The replacement of trucks and truck drivers is corresponding. Rail transports around 50% of cargo in United States of America. “With one driver. The ecological balance of course was always in favor of train transportation. Keeping all of this in mind, the European Union find out that the railway system is one of the areas where they would like to open up for the competition, connect different national infrastructures and major object was to bring down the CO2. The carbon dioxide, the carbon monoxide situation and make this world a little friendlier.” “The railway companies and railway system as such, as an integrated system, developed big step into 1930, 1940's, and then as a basic mean of transportation in 1950, 1960 and 1970's. With all the environmental problems and developing as it turns out that the railway system is one of the friendliest ecological transportation systems up to today where we try to move a lot of earthbound transportation from car from environmental transportation means which place a big burden on the environmental system to ecologically friendly means of transportation for example like the train. “ The rail organization interviewees and the commission are well aware of the ecological aspects of rail vs. road transportation. Is lack of investments into the infrastructure, rolling stock and technologies a consequence of misunderstanding of the role of money? Does it have to do with the spread of individual vs collective rights in the 20th century like the right to vote for all, the right of free movement, to choose education, health care, leisure time, engage oneself in entrepreneurial and political endeavors, right to move and chose the place of living?
6.3. Summary of raised topics and key findings Apart from many positive developments there are many lines of divisions, dilemmas and conflicting interests that are touched in interviewee statements about the Single European Rail Area. To name just a few pairs that came out from the interviews: ecology/efficiency; rail/road; 120
public/private transport; cargo/passenger; investment priorities; member states/European Union; small/big member states; more developed/less developed member states; public/private; technology and security on rolling stock/tracks; centralized/distributed; past/future developments; government/business; civil servants/employees; individualism/collectivism; level playing field among modes of transport; European parliament/Commission; state owned enterprise/private enterprise; embodied/disembodied leadership; centralized/decentralized systems; internationalization of the profits and externalization of the costs. There are many firm opinions in the interviewee statements about the Single European Rail Area. To name a few: splitting the tracks from the service company also splits the capital intensive infrastructure management from the labor intensive service providing of the operators; length of cargo trains replacing up to 160 truck drivers per train; speed of cargo trains is not the same as speed of cargo because of logistics; plans for investment need to be budgeted for and approved; change of mentality of former civil servants to service providers; precarious work in the private truck transport; EU Commission/EU Council are not a government; the investment horizons in rail spans far beyond political mandates or and interests of current generations of voters; lack of ambition on the European Union level; length of tenure of business leaders in eastern member states; incumbents provide subsidized public services in passenger transport/private operators cherry pick most profitable routes; loyalty of business leaders to member state or to the European Union; railway executives - this is one of the hardest jobs, both the industry and the European Union Commission agree on that; military aspects of rail; context of the intermodal competition would be the passenger rights, we don't share the same passenger rights; let's concentrate on passenger traffic because freight is not part of public service mission; because of democracy, referendum, action committee new tracks in parts of European Union are a no go so what is left is to use new and better technology to use better the old, better said upgraded, tracks and corridors; while investing into the road infrastructure they have to invest into the rail infrastructure in the same manner; they charge railway for the utilization of the infrastructure, they should start charging the road infrastructure in the same manner; road transport is really so cheap, this is at the moment because a lot of costs are not brought into the equation; because you have a very cheap, free of charge street system where trucks can go nearly for nothing; the competitions - trucks - are too cheap to compare with a rail transport; it's a European rule; Germany alone is a good example since1946 there were about 350.000 km of roads built and only 1000 km in railway infrastructure; there is threefold increase possible in principle to go to from 13%-18% to 50% in cargo transport by rail, but you have to take the right structural decisions. There are critical comments in the interviewee statements about the Single European Rail Area developments like: And this is a problem when you have civil servants, the first worry of a civil servant is normally not to make any mistakes, never to be accused of making any, you take every precaution that you can never be accused that something has gone wrong because you have not implemented it; there is this natural tendency to pile new procedures on top of existing procedure and to make it more and more complicated; sold out another part of the incumbent and at the end the local government was confronted with workless people; European Union Commission believed that that separation would stir competition on the European Union level while Germany allowed competition in Germany without separation of the tracks. As a result, Germany has the highest number of competing operators and European Union but has 121
weak cross border passenger and cargo traffic. Sounds like a deadlock. Which way to proceed? A question of leadership. And money to cover the costs; European administration has done nothing. They are lazy, they are sitting and make huge meetings without any progress in the last 15 years concerning rail; European Union has no clue how to become a European system; They will tell a new minister or commissioner, we improved our efficiency; we need to have operation and infrastructure together to create synergies. They had a time for synergies for 50 years and they have accumulated debts and deficits. Now they are talking about synergies. Somebody who is new in this sector cannot resist this kind of lobbying; what I would like to see is that they don't give us a certain system which we have to follow; they should tell us you how to produce one face to the customer; we have to realize that we need a quantum leap in terms of technology in this field; The third problem is a problem of time scale. If you look at the car industry, and even more telecommunications, you are on a rhythm of renewal, which is very short, less than 10 years; the actual product sold? To get one from A to B at any time there is a vehicle going there at the expense of not getting a seat, with security issues and no other service of added value. As if today’s digital technology could not address adequately many of these ticketing issues; European Union Commission has at its disposal only the monies in the 1% European Union tax limits. So, where will the monies come from to kicks start a faster pace of development and standardization of existing and new infrastructure and rolling stock? and the list goes on and on. All these lines of divisions, dilemmas, conflicting interests, opinions and comments on the Single European Rail Area are part of the wider context of the European Union integration. Leadership phenomena in this ecosystem of rail integration needs to be studied, analyzed, comprehended, structured to be better understood and eventually propose improvements assuring progress aligned with the values and visions of the people in Europe. As the first and most important key finding the interviews point to the lack of clear decisions of what does the Single European Rail Area aim to achieve, and even more explicitly on the complete absence on how to finance it. During the ongoing economic and political crisis of the European Union that started in 2008, during which this research was conducted, it was difficult to expect that such an integrative and capital intensive project like the Single European Rail Area would gather a lot of attention and the needed political leadership and financial support. The European Fund for Strategic Investments announced by the European Union Commission in 2014 is sadly just a reallocation of existing funds within the already too small 1% EU budget and not newly emitted from ECB. Various bodies and committees established also do not have the needed and appropriate financing vehicles. Statements of the interviewees constantly return to the lack of financing mechanisms needed to provide the integration of the infrastructure, with its security systems and standardization of the rolling stock technologies. This situation was felt both in the European Union Commission and among the business leaders involved. To foster standardization of the equipment, the rolling stock and the infrastructure across European Union, a much higher level of procurement and investments would be needed. This would allow coordinated efforts of technology producers to cater these volumes with cross border integration of supplying firms. The claim is not a one and one only Railbus based on the model of Airbus, but a few Pan-European Union consortia of firms that could integrate the “security systems” that more and more reside in the rolling stock and in the locks, versus being part of the investment into the tracks. This trend would also allow for faster upgrades and developments of the provided new technologies in the future, and at lower costs. 122
The second key finding in the statements of interviewees relates to the question of the purpose, values, vision and leadership in the European Union at this stage of its development. One said that only those want to join that are not yet in. Some that are in would like to go out, most of the others complain over issues raised in the times of crisis in the last years. There is lack of political courage to bring proposals to the European Parliament. There is lack of solidarity and cohesion. The treaties including the last, the Lisbon Treaty, talk about an ever closer union but there is currently no political movement, political party that would actively promote steps towards a federation in the European Parliament and Council. Such a movement would open the debate for it and against it, challenging all to put arguments in front of the people. The Single European Rail Area development and its dilemmas would be brought into the context of the interests of people for better services, with member states and the European Union to provide the means. The Single European Rail Area would develop then more easily, even in the case that the federation would actually not be decided for. The third key finding is that ticketing is a nightmare because it is considered being a mean of collecting fees from the customer for the service provider. It should be the other way around, a mechanism for the customer to plan how to go from A to B, get an itinerary to follow with good ground support to be able to easily follow it, and the payment for the provided service should be easy then. Why is it that the markets do not provide such services, nor do the member states with its incumbents around the rail infrastructure and service providers? Uber difficult to understand or maybe a google service is around the corner. Interestingly reading these statements from political to business leaders, they hardly talk from the customer perspective. As if they are all, at least for most of the time, trapped in structural, policy and technology debate. One operator cannot put bits and pieces together, apart from actually selling the tickets, probably because the operators do not want to cooperate, or cooperate yet. And if there is no such private initiative, the European Union Commission should regulate the market in the sense that operators would be required to sell tickets to forwarders on top of selling them themselves. That might stimulate operators to collectively organize a joint venture, a forwarder that would the run ticketing in their name. Consequentially travelers could buy a ticket to travel from A to B in a straightforward and easy manner. This would attract more passengers to public transport. It would become easy to use public transport over more than one operator. Ticketing would also allow operators to better plan for the needed capacities. Furthermore, if infrastructure with signaling would allow more flexible usage of these capacities, rolling stock could be more flexibly allocated to meet the demands ticketing is projecting. This is not a struggle between rail and road. It is a struggle between public and private means of transport. It is a struggle between collectivism and individualism. Maybe Europe, its citizens, are not as collectivistic as they seem to be considered? A more individualistic approach to the services offered by public transport operators might be of great help to bridge this gap, thus a much more flexible and comprehensive ticketing is needed. As I tried to illustrate in this chapter, the focus on a lived experience is a valid source of scholarly questions in a constant dialog of the researcher with the interviewees, the context and the informing theories that lead to new views and insights about the phenomenon which supports the relevance and rigor of constructionist grounded elite interviews as a methodological approach. Turning now to the next chapter, the Discussion and Conclusion chapter, in which I relate the findings of the analysis to the informing literature and the inductively developed theory about 123
the integration issues under investigation in the rapidly changing context of the phenomenon. Relevance of the findings for theory and policy development are elaborated.
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7. DISCUSION AND CONCLUSIONS This chapter opens by revisiting the main research question of the thesis, that is what are the political, financial, organizational, technological and other problems that emerge from the narratives of CEOs of rail enterprises, the leaders of their business associations and the European Union Commission as actors in the integration efforts of a Single European Rail Area? And consequentially can the gained insights from the case study on the Single European Rail Area together with informing theories be of value in thinking about the EU integration issues and challenges in general? It relates findings about what are the political, leadership, finance, policy, structure as enablers and drivers like marketing, technology and ecology that cause change problems that emerge from the narrative of the interviewees, with Leadership, Multilevel-governance and Economics theories. The chapter concludes with relevance for theory, policy, practice and further research opportunities. Contribution to theory and practice supports the relevance and rigor of ‘constructivist-grounded theory in elite interviews’ as a methodological approach where I tighten together two methodologies, elite interviews and grounded theory. It supports qualitative research in complex political environments, such as the multi-level governance structures of the European Union, to help explain policy outcomes such as the problems associated with European Union integration and the European Union rail system integration. Key finding of the analysis of gathered rich data in the Reflections and Findings chapter is the link between leadership and debt/money. It is based on the strongest messages that came out of the interviews, the lack of “standardization” and the lack of “money”. This puts the concepts of leadership and debt into a relationship that could offer profound understanding of certain social relations and contribute to the growth of theory and practice. This thesis illustrates, trough the case of the formation of a Single European Rail Area, the value of combining Leadership and Economics theories in investigating complex social phenomena like European Union integration. It does so using constructivist-grounded theory using elite interviews. The thesis will be subject to evaluation based on its newly-formed insights, the tests of a good theory and convincing grounding in the evidence (Eisenhardt, 1989). Using grounded theory research in several cases (of CEOs of rail organizations and other supranational actors in their relations with each other as a guiding context) should not be seen as a generalization through empirical replication of studying cases, but as an attempt to add an additional case/argument of grounded theory research informed by critical realism to understanding and explaining contextualized leadership as a scientific goal (Kempster & Parry, 2011). For me as the researcher, reading about and living the consequences of actual developments in the European Union integration process during the ongoing economy crisis since its beginning in 2008 was very informative. The turbulent meetings of the European Council devoted to the question of the sovereign debt of Greece and the possible threat of its exit from the Eurozone or even European Union at the time of writing. The actual and implied austerity policies have put tremendous strains on the Greek leaders and citizens, likewise in Spain, Ireland, Italy and elsewhere. Unemployment rates climbed to a staggering 25% or even 50% in amongst young of the population. Interest rates on sovereign debt at which those and other countries raised money to reprogram old debt and fund the exit out of crisis climbed to unsustainable heights 125
of over 5% and even as high as 15%. This comprises a most uninspiring situation for any government and political leaders whose primary objectives are to assure jobs and consequentially decent living standards for their citizens. Business leaders, especially those of the banking sector came under rising pressure from regulators and the public who presumed that they were the cause of the meltdown of the financial system. Some major banks and companies were bailed out by the governments, stripping their shareholders, mostly pension funds, of their assets while putting the risks of further development of these businesses into the hands of taxpayers, as citizens are called popularly by the press in such times. Quantitative easing in United States of America and the lack of it in European Union was a source of controversy in discussions since the results of one or the other case were not apparent immediately and could not be obviously predicted by the classical supply side or demand side economists. Around the new year of 2011/2012 the situation came to a near disintegration of the Eurozone and thus the European Union. The tensions in the monetary union became too high without other leadership attributes to stir the economy and the society. The middle way between a complete disintegration of the monetary union or further integration into a sovereign union of member states that could be compared with models like federations used in other developed countries around the world was sought in the unconventional measures. European Central Bank to emit roughly 3 trillion EUR accompanied by the now famous statement of its president to do “all that it takes”. After this the situation completely turned around on the financial markets, but further developments show that monetary measures of a central bank need to be supplemented by further government political reforms. Referendums were called for, announced or even held in UK, Spain, Ukraine and other countries. In 2014 European Union parliament elections opened the political space to many euro-skeptical political parties all around Europe, some of whom were not yet even successful in local elections. These were the first European Union parliament elections where the biggest political party groups named candidates to run for president of the European Union Commission. Disputes on selecting the new president of the European Union Commission in the European Union Council that followed were resolved rather quickly, but still there were signs of tensions in the change process of giving the European Union Parliament and Commission greater legitimacy as voters have demanded for, for many years now. The Treaty of Lisbon as a constitution informed me on the level of development of the political structures on the uppermost European Union levels. European Central Bank by its by-laws focuses on inflation targets without the employment targets and is not allowed to lend to the European Union or its member states according to the Lisbon Treaty. On the structural side of the European Union regime one must notice that the European Union Council members, being named into the council after being elected in their member states to run their member states governments as presidents or prime ministers are in conflict of interest of whether to serve the European Union interests as a whole or their respective member states interests first. So, on their late evening and night meetings they serve more like a presidency of the European Union than as an upper chamber of the European Union parliament. The problems of collective presidencies in times or crises or major decisions is that they lack embodiment of leadership looked for in such moments by the followers. The most surprising findings of this research did not surface on the structural side of the European Union regime but on the monetary and fiscal side. Written in a short and oversimplified manner the two findings are that a) European Central Bank cannot lend to 126
European Union and or member states (Union, 2010, article 123) and that b) there is only 1% of European Union GDP collected as tax on the European Union level, half of that used for “cohesion”, i.e. EUR speak for integration. To complement practical understanding of the developments of the recent years in the context of the studied phenomenon and in line with the used pyramid spiral model in the methodology used, I had to look for further informing theories. These would provide insight into how a monetary union impacts infrastructure financing in good and especially in bad times, since 18 out of 28 European Union member states are members in a monetary union, the Eurozone. The ‘invisible hand’ of the market did not bring me much new insight from a leadership perspective. Neo-classical theories of Economics as well as post Keynesians, all seem to start from assumptions about economically rational behavior of an individual subject, individual or business, absolute symmetry of information, from which they build theories and propose policies since more than a hundred years. The proposals were as unsuccessful in predicting economic downturns as in explaining them. And “the real reasons that models with imperfect information were not developed was that it was not obvious how to do so.” (Stiglitz, 2002, 486). Although the approaches looked inductive, like the methodology described in this research, there remains a fundamental difference, namely the individual in the methodological approach of this research is not generalized to an average individual upon which to build a theory. Individuals are merely the sources of ideas for theories. Once a theory is built on their ideas, for it to be coherent, meaningful and valid, it needs to see the particular as part of its explanations or insights. In such a worldview theories are social constructs. Bagehot in his book (Bagehot, 1873) helped me to connect Economics with the Leadership topics of my research. He used grounded theory research on how a central bank works which also contributed to the methodological part of my research. “I venture to call this Essay ´Lombard Street´ and not the ´Money Market´ or any such phrase, because I wish to deal, and show that I mean to deal, with concrete realities. A notion prevails that the Money Market is something so impalpable that it can only be spoken of in very abstract words and that therefore book on it must always be exceedingly difficult. But I maintain that the Money Market is as concrete and real as anything else; that it can be described in as plain words; that it is the writers fault if what he says is not clear” (Bagehot, 1873, 1). Bagehot’s term is that of a reality of a social construction of a central bank. That has led on to the dilemmas between metalists and chartalists (Zazzaro, 2002), concerning Economics theories of what is money. In comparison to metalists, chartalists go further away from the orthodox Economics notion of money as a store of value, a media of exchange and unit of account towards more philosophical roots of debt and money, which sounded promisingly close to Sociology, if not at the time of my first readings yet to Leadership. Graziani rounds the literature review with a monetary circuit theory (Graziani, 2003) about how money is created, used and destroyed in a circle, to stir societies, and he also raised the point of who are the actors that actually do it. Monetary circuit theories are placed into the heterodox Economics and compared to the neoclassical in (Zazzaro, 2002) and other fields of alternative monetary Economics where Arestis and Sawyer (Arestis & Sawyer, 2006) have gathered 29 high-quality original essays by leading specialists on heterodox monetary economic, with results and directions of research in a thorough survey of alternative approaches against the mainstream analysis (Reati, 2011). What makes the field of heterodox monetary Economics relevant to the field of Leadership research is that it starts with a very fundamental philosophical understanding of money, or 127
better debt, which is much older than money as its material form. The concept of debt is as old as mankind, like leadership. Parallels between leadership and debt, the latter represented by today's monetary and fiscal policies, can be better understood in how they stir societies, governments, banks, businesses and individuals that are the constituents of a sovereign model. Without going here further into the sovereign model and a more detailed analysis of the articles on alternative theories presented in (Arestis & Sawyer, 2006) it is worth mentioning that though the articles were published a couple of years before the formal start of the current leadership and financial crisis (2008-), the articles describe theories that provide insight in the current developments, and even actually predict many developments that followed. Namely, if there is lack of money on the European Union level to support the integrative efforts of the Single European Rail Area, it is not because there is not enough money as such, but because there is not enough understanding of it’s functioning in a monetary union like Eurozone as a major part of the European Union. Orthodox Economics theories and policies developed for a sovereign state do not work in a monetary union which does not have all those sovereign preconditions that are taken in to account in orthodox economics theories and policies. Thus, study of heterodox monetary Economics is required.
7.1. Implications for theory As implications for theory my research provides further insight and support to critical leadership theories. The outcomes show that leadership cannot be sought in one person or even a defined group of leaders and followers since this relationship is based on influence which is multidirectional, coercive; the relationship is inherently unequal because of the influence patterns; not all the leaders and followers intend real change, that are purposeful, substantive and transforming; The intent is in the present; as well as the need for changes and not in the distant future because of strategic business reasons, like existing and aggressive competition in the market; “Leaders and followers develop mutual purposes in a non-coercive influence relationship, they develop purposes not goals, the intended changes reflect, not realize, their purposes; the mutual purposes become common purposes.” (Rost, 1993, 102-103). Management of change is management of continuity in a constantly changing environment and context, a redistribution of power that causes conflicts that need to be resolved. The language and mechanisms of money, like state budgeting; financing investments and projects; negotiating prices of products, knowledge and work; taxing capital and work and many others are not necessarily fair and optimal on itself each and every time used, but they are civilized means of power redistribution and conflict resolution on all levels of a society. In a sovereign state model, the power redistribution is started on the government level and the monetary system. This relationship is distributed, monitored and to some extent controlled in each step through the banking system into the private and public sector to each and every individual and back again through the fiscal system. This is how money as a mechanism helps the steering of a society. In this sense, it is a leadership mechanism, a mechanism in the leadership phenomenon. The results of my research show a slow pace of policy changes due to the disembodiment of leadership in the Multi-level governance regime of the European Union. It does not touch 128
people’s minds nor hearts to motivate them for the needed efforts of change. Do the European Union Commission and the Council have an issue that they are overly disembodied, consequentially uninspiring, distant from people’s minds and hearts? The inherent lack of understanding of the role of debt/money in steering societies in their development and change is encoded in the treaties and laws of European Union and the bylaws of the European Central Bank. The inability to remedy the symptoms of the downturn of 2008 for over seven years in a row clearly shows that by believing in a possibility of finding a once and for all equilibria, at a point of maximal austerity, one cannot stabilize an unbalanced complex system of divergent societies in the European Union. Member states and their economies need to make constant efforts of seeking appropriate balance the norm instead. A clearer understanding of leadership within such dynamic contexts can contribute substantially to better policy-making in the European Union and better outcomes for its citizens. The literature reviews of Leadership and monetary/fiscal Economics studies and how well are they connected has shown that these two fields of scholarly research are barely connected at all. Should this be the case then this should open a research niche providing valuable insights into theory and policy developments that can help understand and drive political decisions like Grexit and the Eurozone, Brexit, Ukraine, asylum seekers and the future of transport considering the car industry scandal. Without understanding the relationship between leadership and debt/money the leaders in critical moments of crisis have immense difficulties leading their countries out of the crisis which can lead to conflicts or even wars that are utterly unnecessary. New theories that connect the current understanding of Leadership and Economics theories and how are the related is needed to bridge this gap. Economics theories have to and should use new methodologies, enabled by the political will and todays enabling technologies, to penetrate deeper into the network of debts among legal and private entities to better understand where the flows of money stale unproductively and thus cause strains in using financial resources productively. My proposals here are mentioned in the Future research subchapter. Multi-level governance theories provide insight into many aspects of the functioning of a multilevel regime like the European Union. Focusing on the intra-governmental versus the supranational dilemma of the nature of European Union they sometimes go far in seeing European Union as an example of something new, something beyond these two regimes, that could be the role model for the rest of the world (Nicolaïdis & Howse, 2002). With all the problems in European Union that have transpired since 2008 this statement can be easily rejected. Also, the reasoning why did we begin integrating as peoples and people of Europe needs a deeper understanding than is offered by the Multilevel Governance theory field. As does the reasoning for why have we lost the appetite to continue the process of creating an ever closer Union among the peoples of Europe, in which decisions are taken as closely as possible to the citizen in accordance with the principle of subsidiarity as stated in the Lisbon Treaty, when the troubles begun, and the insights of why did they begin in the first place. A debate on the right balance of democratic, autocratic and plutocratic principles in decision making together with understanding how this balance changes depending from the actual context of issues should take a legitimate place in the public dialogue at least to the extent and building on what was a legitimate debate already among ancient Greek and Roman philosophers (Lane, 2014).
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Leadership theories offer as many leadership flavors in literature as there are authors (Rost, 1993), each fitting to a particular situation and seldom to complex polities like European Union, leading or being led. Regimes and coalitions theories are providing insight into the functioning of societies on the system level but miss explaining the mechanism that drives their functioning that is the negotiation process based on which the decision-making is founded. They are strong in providing understanding of the situation but are short on understanding the mechanisms of how to overcome obstacles in reaching the agreed upon visions, objectives and goals. Critical leadership theories are in the field of research that points to the need of adding humanities studies, like history, philosophy, psychology and arts to help understand the deeper roots of where we are, what do we understand and how do we understand it. This helps us understand how can we think about our further options of our development as a society and individuals. We do not own our dreams but they own us (Gosling & Case, 2013) as social constructs. The same is with our leadership roles or our money, these social constructs inhabit and own us. So as whence acting as a CEO I subscribed to that role and then realized that it was the role that overcame me. Realizing this, lead me forward to the new scholarly role of a PhD student reflecting on the social construction of the regime that took me over then as well as now. The field of political science studies the allocation and transfer of power in decision making, the roles and systems of governance including governments and international organizations. In addition, Political economics lead me to better understand the role of money, monetary and fiscal policies, studied only by some parts of heterodox economics in contrast to the mainstream orthodox, supply and/or demand side, neoclassical and/or neo Keynesian economics. Economic theories as of late and traditional schools of Economics are for quite some time preoccupied with trying to understand the relations between symptoms without ever being capable to predict a future cyclical downturn or explain the last one (Stiglitz, 2002). These theories are based on over simplified assumptions of the symmetry of information and that individuals are homo economicus acting economically reasonably all the time in all the cases turning economics into an ideology by believing that these assumptions are generally acceptable. This provides a situation whereby societies seek explanations of actual developments in the fields of thought based on other ideologies or religions. Economics as a meta science will have to address its own weaknesses and will have to find means of understanding the phenomenon of an economy much deeper by simply looking into what is it that is going on in the phenomenon itself. Certain data, which are aggregated to the level of sectors and even the whole economy (and months old or even years) cannot serve this purpose anymore in times when fiscal cash registers compute transaction at 1 EUR price levels in real time for a cup of coffee or a drink (that is at the time when the transaction is executed) while transactions in thousands and/or millions of EUR are only registered aggregately and cumulatively (on a monthly basis for the purpose of calculating value added tax without being able to track transactions with missing traders' fraud potential). Ultimately there are 7 billion people in the world and not more than 7 billion companies, which amounts to 21 billion financial statements at the most. Technologically processing this is miniscule against what many social networks do every day, all the day. The more fundamental philosophical reasoning why and why not is subject to further discussions of various scholars and policy makers, naturally to keep checks and balances on the ethics and morale of it. The recapitulation is that technology and availability of data to provide insight into the depths of the phenomenon of an economy is there easily available. It is up to scholars and politicians to use it ethically and 130
morally to the better good of all. Politics as usual I would say, business as usual for sure. This would allow Economics combined with Humanities and Sciences to build coherent theories that could serve as grounds for policy development. A path that a similar meta science, Medicine has radically gone through that throughout the 20th century. In Medicine looking into parameters of a body, like with NMR, are the norm now in identifying many reasons of maladies that cause the easily identified symptoms. Still not all the causes are easily cured, some are just terminal, but those that are identified and consequentially cured are done so in time and within budget. Such a development in Economics would prevent us from poorly formed analysis and diagnosis of European Union and Eurozone developments in scholarly articles such as in the case of Drudi (Drudi et al., 2012) treating member states of the monetary union as if they were sovereign states with their own currency. This leads to apologetic arguments for cures that are plausibly correct, but which are based on ill-formed arguments (or wrong cures based on right arguments). In both cases this is useless for policy development and implementation.
7.2. Implications for policy and practice A finding of this research is that financing of the needed new infrastructure for the integration of the European Rail Area needs to go to the corridors that cross borders of member states. The natural provider of such monies is the European Union Commission supporting development of such corridors. Because of the Lisbon treaty, article 123, the bylaws of European Central Bank and because the “federal tax” in European Union is at 1% of European Union GDP these monies cannot be provided and are not provided by the European Union Commission but are sought from the member states governments. However, the agenda of the member states governments is different; they were elected to run their respective member states. Heterodox monetary Economics theories of sovereigns and their monetary and fiscal systems (Arestis & Sawyer, 2006) provide insights into the working of an economy and provide policy actions in the public interest. Creation and destruction of money is a consequence of deliberate actions of individual leaders of governments and central banks on level one, leaders of banks on level two and leaders of companies on level three. “States with sovereign currency control (i.e. that do not operate under the restrictions of gold standard, fixed exchange rates, dollarization, monetary unions or currency boards) face none operational financial constrains (although they may face political constrains).” (Arestis & Sawyer, 2006, 70). Neither the European Union nor even the Eurozone as a monetary regime is a sovereign with all the attributes of one according to these theories. Therefore, these theories and their policy actions do not necessarily apply. Either European Union develops further towards a sovereign where such theoretical and practical conclusions would apply, or Multilevel governance theories and corresponding Economics theories for such a regime still need to be developed. Otherwise improvisation and pragmatism of the kind described in the FT series How the EUR was saved (Financial Times, 2014) will be needed whenever a crisis occurs thus further alienating the governing bodies of European Union, like the Council, Commission and the Central Bank as the bodies of autocracy and plutocracy in European Union, from the democratic expectations of people and peoples represented through the European Union Parliament.
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The European Investment Bank is facilitating total spending equivalent to the total of the European Union budget thus has a potentially huge effect on European Union policy-making, yet Multi-level governance research to date has failed to recognize this (Robinson, 2009). It is the European Union Commission which should start funding of the European Rail Area with funds raised at the European Central Bank and initiated into the projects through European Investment Bank. Recent political discussions have raised this line of thinking. This research informs policy development and implementation for institutions like the European Commission – Directorate General for Mobility and Transport and Community of European Railway and Infrastructure Companies, transport ministries of member states and rail organizations consultants and think tanks. My research provides the insight into how complex organizations like rail companies transact and adapt to the multilevel governance regimes they work in. Complexity comes from the coordination of capital-intensive cross-border investments into infrastructure and the improvement of cross-border services in an environment regulated by many layers. This gained insight can inform other organizations and systems that operate in similar regimes, practitioners and politicians, which steer public services and businesses as well as those responsible for policy changes in such regimes. As the European Union is the biggest economy in the world in terms of its GDP, taking purchasing power parity or not into the account, and its net worth by rankings of the International Monetary Fund and the World Bank, European Union has the responsibility to take an active part in recovering the global economy. Comments from other actors are that European Union cannot behave irresponsibly by leading its own recovery and consequentially its impact on the global recovery with governance and economy regimes that are inadequately understood or inadequate for their purpose. Do we Europeans with almost double the population of United States of America having about the same GDP as United States of America, not to mention our reliance on United States of America security support through NATO, ask ourselves why is that so? The total combined American banks’ balance sheet is roughly equal to the United States of America GDP, while the European Union banks’ balance sheet is a double of the European Union GDP. However, taking in account that the businesses in United States of America are financed at 20% by credit from the banks and the rest is through corporate bonds and IPOs, whereas the opposite is true in European Union, a quick calculation shows that the amount of money in the respective economies are about double in the United States as compared to European Union. With more money in circulation it is easier to invest, produce and consume. Also, much more money creation is left to the private sector in United States of America than it is in European Union where the system is much more volatile on lending decisions of banking officials. Since inflation targets in both economies are not met, there is even danger of deflation in European Union, there should be plenty of space for new money created to be invested in projects like the needed infrastructure and technology in rail transport using the same infrastructure as collateral and source of the repayment of this funds. This would not endanger the social fabric of the current and future generations since new money would finance this infrastructure and technology, not money that would be reallocated from other social accounts like education or healthcare, nor through reallocations in the fiscal system. The future generations would be left with fundamental transport infrastructure needed being built to be used also to their benefit. These statements are valid for any such infrastructure not only the transport infrastructure.
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As the history of EU and its integration efforts of a grand idea is carved in small pragmatic steps so will be the hurdles of its eventual disintegration. On the case of transport, can one imagine what would happen with transport of people and goods if custom border controls would be reintroduced on member state borders at current levels of traffic. Identified issues around policy development of the Single European Rail Area as well as infrastructure and services improvements are aimed to provide means of transport of people and goods in a sustainable and ecological manner. To solve the identified issues requires firstly, a clear statement why, what and how to do it and secondly, a clear understanding of how this will be financed. Changing structures, the body of governing law and regulations, does not make things happen. Nor do declarations of intent like White Papers and Rail Packages suffice. Clear statements around the sources, means and rules of funding will get the local authorities, industry and service providers interested to not only start activities but also to streamline them with the proclaimed policies and their legal frame. This way the citizens will be able to benefit from this means of transport and its advantages compared to other modes. Furthermore, we can test the theory of leadership and money being connected as means of steering society by using a concrete example of the main rail corridors in European Union, the so called TEN-T program. This program has been in place for more than 25 years with very little if no contribution to the development of the trans-European network. In 2015 with the new commission it was re-launched as the vehicle for improving infrastructure and services for the benefit of the European Union’s citizens. The estimated required investments are 500 billion EUR for TEN-T in comparison to the overall 1.5 trillion EUR needed for all the projected transport infrastructure within all the various modes of transportation: air, road, rail and waterways. All technical studies, white papers and policy statements are openly published on the European Union Commission’s web pages. Within all of this extensive literature, the “why, who and how” these projects should be implemented is extensively written about. What is not written about (since it was not agreed upon by the same political structures) is how these projects will be financed and the investments recovered. Please take note that the report “Attracting investments towards transport infrastructure: potential lines for action, 2014,” by European Union Coordinators, professors Bodewig and Secchi, the www link to the 2015 final version does not work at the time of my writing. This report points to the complexities of attaining the needed investments funds of 1.5 trillion EUR when the European Union (or more specifically the European Union Commission) and the governments of the member states are only seeking funding for projects that fall within their budgets (and balancing the act of financing infrastructure projects at the expense of health care, pensions, schooling just to name a few). At the same time the European Central Bank is struggling to find enough collateral for its ongoing quantitative easing program. One of the European Central Bank’s goals is to place sufficient funding into the European Union or at least the Eurozone economy to stop deflation and reduce growing unemployment rates, particularly in the periphery of the European Union and among the young. Furthermore, last but not least, the private sources of financing capital, which are predominantly pension funds, are desperately seeking safe investment opportunities that would at least preserve their value in times of near zero interest rates in the banking sector as well as in the public and private bonds markets. Putting these three points together the European Union Commission should seek the assistance of the European Investment Bank to raise the needed project funding from the European Central Bank and then monitor the deployment of these funds into the projects and the recovery of these funds. The repayment of 133
the investment could be through usage fees and would thus bypass the member states budgets. That way the creation and destruction of money would be completely in the hands of the European Union Commission and European Central Bank. This would assure private investors (primarily an opportunity for conservative investors like pension funds looking after the oneoff tide of the boomers’ generation) of a safe investment and give the European Central Bank a major portion of the required collateral for new money deployment. As long as the deflation does not turn into the desired rate of inflation of about 2% and the unemployment does not fall from 50% among young in the periphery to at least 10% or even closer to 5% there is enough room for project financing (major infrastructure financing projects within the European Union rail network), of projects that will not only benefit our generation, but also many generations to come. There are no changes needed to the Treaty of Lisbon nor the European Central Bank and European Investment Bank bylaws. For the prophets of the democratic deficit in the European Union and the neoliberal rule of banks the answer is that this all would be approved and supervised by the elected members of the European Union Parliament and the European Union Council. The policy proposal for the TEN-T corridor financing provides insights into the possible workings of European Union and especially the Eurozone, the monetary union subdivision, as the corridors pass through all member states. Still this is a case of project financing which is not an applicable mean of addressing the periphery problem of a monetary union. With the later a political union is needed to assure the transfers, or more specifically the redistribution of financing from the central budget to the periphery. Replace central budget and periphery with appropriate names and see how that works in other known monetary unions like married or not couples, families, tribes, city states, national states and entities like United States of America, Switzerland, India, China, Canada, Australia and others. With financing the periphery of the monetary union, the European Union Commission should have an appropriate budget to do so since the current 1% federal budget that is redistributed through Cohesion Funds is not sufficient. Compare it to about 10% in the case of Switzerland or 30% in the case of United States of America. Consequentially the European Union cannot fulfill its own pledges from the preamble within the Lisbon treaty, The Treaty on European Union and the Treaty on the Functioning of the European Union (http://eur-lex.europa.eu/). The European Central Bank should be allowed to lend to the European Union Commission directly, currently prohibited by the Lisbon treaty. Such a practice would help to smooth out difficult economy cycles as history of past and current monetary unions shows.
7.3. Implications for professional education Besides the contribution of theory and policy development, from my position as a practitioner who has put theories to work and then reflect critically on those experiences (Rost, 1993), it is my opinion that this research will contribute to professional education and development for senior public managers in state-owned enterprises and in the government. Following experiential learning (Kolb, 1974) in the development of learning styles for practitioners which is used widely in management education, I gained insight into the specifics and backgrounds of my research subject, and additionally and even more importantly gained the insight into how complex organizations like rail companies transact and adapt to their environment in their 134
learning. Following this framework, I anticipate that my thesis can act as a platform for professional development activity which links my experience as a practitioner to the act of active experimentation, or putting theory to use in a variety of organizational settings, which are not limited to state-owned enterprises or industries only. In short, it is of interest to a wide variety of practitioners in the European Union, member states and commercial organizations that influence, partner or are regulated by the government.
7.4. Further research opportunities To overcome the limitations of a single case study of the phenomena of transport integration in the complex context of the multilevel governance regime of European Union; that was performed in the longest and deepest downturn of European Union history; performed by one individual, though supported by other scholars, professors and mentors and a wealth of informing scholarly literature from fields as diverse as Philosophy, History, Arts, Leadership, Economics, Multilevel Governance, Performance Regimes, Political sciences and Coalitions, Sociology, Law; extending research into the following dimensions is needed: a) comparative analysis of comparable multilevel governance regimes, the history of their evolvement as well as their current state of functioning; b) other aspects of European Union integration challenges as phenomena for qualitative research c) establishing hypothesis bases on insights of this research to be verified with quantitative research and d) adding the field of Psychology to the above mentioned humanities and sciences. The themes of further research should cover contemporary understanding of philosophical, historical, cultural aspects of EU integration. Continuing with the political sciences, multilevel governance, law, sociology and psychology in pulling them together to bridge the divide between leadership and economics studies as I proposed to ILA for their next Building Leadership Bridges Book in my Proposal Form to become the editor of this book. My proposed book title is Bridging Leadership and Economics Studies: The Genesis of the EU. It culminates in my research interests and findings that place the concepts of leadership and debt into a relationship that could offer profound understanding of certain social relations and contribute to the growth of theory and practice in complex political environments, such as the multi-level governance structures of the EU. Social implications of a clearer understanding of leadership within such dynamic contexts can make a substantial contribution to better policy-making to the benefit of citizens. The uniqueness of the proposed publication is in the various critical worldviews of the contributing authors that uncover the fundamental driving forces in the past EU developments which provide insights into the current obstacles on the path to the future. Lessons learned are relevant to not only to EU but to any such effort globally. An article that was submitted on the methodology that I named constructivist-grounded theory in elite interviews used in this research was accepted without revisions to be published in International Journal of Public Leadership. I was invited to present the methodology and first findings with further research opportunities as conference presentations on several conferences and business schools; like the ISLC 2014 conference at the Business School in Copenhagen, Denmark; CEGBI at the University of York, UK in 2015; the ILA annual 2015 conference held in Barcelona, Spain and the 2015 Academic conference at IEDC, Slovenia. 135
My research culminates in this PhD dissertation. As a follow-up to this research I would like to write a theoretical article on how debt and leadership are connected based on informing theories from the fields of Leadership, Political sciences, Economics and Psychology by stating a hypothesis on what is the type and the level of debt in a society or economy that correlates with economic cycles and is a lead indicator of economic downturns. Once empirical data for an economy would be available on the level of individual debts due and nonperforming bank loans it will be easy to confirm or reject such a theoretical hypothesis of mine. Debt/money plays a fundamental role in stirring the society as my studies of sciences and humanities studied have led me to understand. Money is a mean of conflict resolution on all levels of the society and in each and every negotiated transaction. However, it is far less aggressive than other means of conflict resolution like violence or even war. It is also a mean of reaching consensus and agreement on the use of our resources. As such it is not necessarily always just or fair to individuals and social groups, nor are the decisions made always wise. Thus, it is our responsibility to further study and develop this mechanism and use it for an even more purposeful allocation of human and natural resources. European Union has still a lot to learn in this respect and it is up to the peoples and people of European Union to do so. The lack of embodiment of leadership in cases when such embodiment is needed is an issue in the EU governance. I state this in the conclusion c) in the following statement and further research would be needed to confirm or reject this statement. The three key policy changes to the current state of the EU are a) the consequences of the Lisbon treaty article 123 are that the European Central Bank has no state to support and the EU, better Eurozone, has no Central Bank; b) the EU federal tax rate of 1% is not sustainable as the 3% tax rate of the US Confederation was not; c) the EU Council members are serving prime ministers and presidents of member states and are continuously in conflicts of interest between the interests of their member state they lead and the interest of EU. The EU Council should become a Senate of EU, of directly elected senators, who do not hold any office any more in their member states. Former prime ministers and presidents of member states could be a good choice for the new EU Council candidates. The EU president should be elected on direct EU wide elections. Whom do you call when you call EU, the EU Parliament president, the EU Council president, the EU Commission president or the EU President? Further research will lead us to better understand these pertaining questions as well as possible answers to these questions.
7.5. Final remarks and observations Brexit or not happening this end of June, the fundamentals of EU and the Eurozone integration issues will be still there. So, let us hear Winston Churchill speaking on 19 September 1946 in Zurich (sourced from the EU official page Europa.eu on The Founding Fathers of the EU): “…we must re-create the European family in a regional structure called, it may be, the United States of Europe, and the first practical step will be to form a Council of Europe. If at first all the States of Europe are not willing or able to join the union, we must nevertheless proceed to assemble and combine those who will and those who can.” What would Winston Churchill, as one of the founding fathers of EU, who delivered the speech about the United States of Europe back in 1946 think about EU today? It is a call of duty for all, the best contemporary leaders, 136
intellectual minds, peoples and people, to share our views about the state of EU today and its future. The three main vectors of these discussions are leadership and debt; the balance between democracy, autocracy and plutocracy; and our concern to leave a better world to the future generations.
137
8.
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9. APENDIX
Codes
Concepts
administration/business
Structure
barriers
Policy
bottlenecks
Finance
cargo distances
Technology
cargo lines
Technology
cargo/passenger
Finance
cargo/passenger infrastructure
Technology
centralize/liberalize
Policy
centralized and birocratic
Policy
centralized system
Policy
centralized/distributed
Technology
china
Policy
civil service/SOE
Policy
competition
Market
146
Categories Theory Cannot lead without understanding the Enabler role of monies Cannot lead without understanding the Enabler role of monies Cannot lead without understanding the Enabler role of monies Cannot lead without understanding the Driver role of monies Cannot lead without understanding the Driver role of monies Cannot lead without understanding the Enabler role of monies Cannot lead without understanding the Driver role of monies Cannot lead without understanding the Enabler role of monies Cannot lead without understanding the Enabler role of monies Cannot lead without understanding the Enabler role of monies Cannot lead without understanding the Driver role of monies Cannot lead without understanding the Enabler role of monies Cannot lead without understanding the Enabler role of monies Cannot lead without understanding the Driver role of monies
consolidation
Market
Driver
corridors
Policy
Enabler
cost accounting
Finance
Enabler
costs
Market
Driver
courage ambition
Policy
Enabler
culture
Policy Enabler
debt
Finance
Enabler
debt write-off
Finance
Enabler
drivers
Technology Driver
EC
Structure
EC/industry
Technology Driver
ecology
Ecology
Driver
efficiency
Market
Driver
electricity
Technology Driver
employment
Policy
Enabler
entrepreneurial goals, to serve the market, employ people
Market
Driver
147
Enabler
Cannot lead without understanding the role of monies Cannot lead without understanding the role of monies Cannot lead without understanding the role of monies Cannot lead without understanding the role of monies Cannot lead without understanding the role of monies Cannot lead without understanding the role of monies Cannot lead without understanding the role of monies Cannot lead without understanding the role of monies Cannot lead without understanding the role of monies Cannot lead without understanding the role of monies Cannot lead without understanding the role of monies Cannot lead without understanding the role of monies Cannot lead without understanding the role of monies Cannot lead without understanding the role of monies Cannot lead without understanding the role of monies Cannot lead without understanding the role of monies
environment EU about structure/legislation/regulation since it has no monies for investments
Market
Driver
Finance
Enabler
EU Commission
Policy
Enabler
EU Commission/EU Council
Structure
Enabler
EU integration will
Finance
Enabler
EU Rail System
Structure
Enabler
EU/market
Technology Driver
EU/member
Finance
Enabler
federal/regional
Finance
Enabler
federal/regional funding
Finance
Enabler
financing infrastructure
Finance
Enabler
freight
Policy
Enabler
freight lines
Policy
Enabler
future
Policy
Enabler
geography
Market
Driver
gradualism/boldness
Finance
Enabler
148
Cannot lead without understanding the role of monies Cannot lead without understanding the role of monies Cannot lead without understanding the role of monies Cannot lead without understanding the role of monies Cannot lead without understanding the role of monies Cannot lead without understanding the role of monies Cannot lead without understanding the role of monies Cannot lead without understanding the role of monies Cannot lead without understanding the role of monies Cannot lead without understanding the role of monies Cannot lead without understanding the role of monies Cannot lead without understanding the role of monies Cannot lead without understanding the role of monies Cannot lead without understanding the role of monies Cannot lead without understanding the role of monies Cannot lead without understanding the role of monies
Hamburg Beijing
Policy
Enabler
infrastructure
Finance
Enabler
infrastructure investments
Finance
Enabler
infrastructure/operations
Finance
Enabler
innovation
Finance
Enabler
integrated
Ecology
Driver
investment
Structure
Enabler
investment cycles too long
Technology Driver
investments
Finance
Enabler
labor costs
Finance
Enabler
lack of ambition
Structure
Enabler
lack of ambition vs. governance structure
Structure
Enabler
leaders
Structure
Enabler
length of tenure
Structure
Enabler
liberalization
Structure
Enabler
long/short distance passenger
Structure
Enabler
149
Cannot lead without understanding the role of monies Cannot lead without understanding the role of monies Cannot lead without understanding the role of monies Cannot lead without understanding the role of monies Cannot lead without understanding the role of monies Cannot lead without understanding the role of monies Cannot lead without understanding the role of monies Cannot lead without understanding the role of monies Cannot lead without understanding the role of monies Cannot lead without understanding the role of monies Cannot lead without understanding the role of monies Cannot lead without understanding the role of monies Cannot lead without understanding the role of monies Cannot lead without understanding the role of monies Cannot lead without understanding the role of monies Cannot lead without understanding the role of monies
loyalty
Structure
Enabler
market
Structure
Enabler
member states
Structure
Enabler
member state/market
structure
Enabler
military history
Structure
Enabler
money
Finance
Enabler
multiannual contracts
Finance
Enabler
new technology for investments into security infrastructure
Leadership
Enabler
no of stops
Leadership
Enabler
noise
Finance
Enabler
passenger rights
Structure
Enabler
passenger/freight
Structure
Enabler
passengers/taxpayers
structure
Enabler
power
Policy
Enabler
private investors
Finance
Enabler
private investors in cargo infrastructure
Finance
Enabler
150
Cannot lead without understanding the role of monies Cannot lead without understanding the role of monies Cannot lead without understanding the role of monies Cannot lead without understanding the role of monies Cannot lead without understanding the role of monies Cannot lead without understanding the role of monies Cannot lead without understanding the role of monies Cannot lead without understanding the role of monies Cannot lead without understanding the role of monies Cannot lead without understanding the role of monies Cannot lead without understanding the role of monies Cannot lead without understanding the role of monies Cannot lead without understanding the role of monies Cannot lead without understanding the role of monies Cannot lead without understanding the role of monies Cannot lead without understanding the role of monies
privatization
policy
Enabler
productivity
Structure
Enabler
public opinion
Structure
Enabler
public service
Structure
Enabler
public service/member states
Structure
Enabler
public/individual interests
Structure
Enabler
quality
Market
Driver
rail/road
Finance
Enabler
rail/road infrastructure utilization
Structure
Enabler
red tape
Finance
Enabler
referendum
Leadership
Enabler
regulation
Structure
Enabler
ROI
Structure
Enabler
rolling stock competition
Technology Driver
sector integration in EU
Structure
Enabler
sector/EC
Structure
Enabler
151
Cannot lead without understanding the role of monies Cannot lead without understanding the role of monies Cannot lead without understanding the role of monies Cannot lead without understanding the role of monies Cannot lead without understanding the role of monies Cannot lead without understanding the role of monies Cannot lead without understanding the role of monies Cannot lead without understanding the role of monies Cannot lead without understanding the role of monies Cannot lead without understanding the role of monies Cannot lead without understanding the role of monies Cannot lead without understanding the role of monies Cannot lead without understanding the role of monies Cannot lead without understanding the role of monies Cannot lead without understanding the role of monies Cannot lead without understanding the role of monies
sector/member state
Structure
security
Technology Driver
security and procedures
Policy
Enabler
security procedures
Structure
Enabler
SOE
Structure
Enabler
SOE out of internal and external affairs
Structure
Enabler
SOE/private
Finance
Enabler
split
Leadership
Enabler
standardization
Structure
Enabler
standardization of signaling security technology
Technology Driver
standardization of technology
Technology Driver
standards
Technology Driver
structural/legal changes
Structure
Enabler
Swiss
Structure
Enabler
synergies
Structure
Enabler
technology
Leadership
Enabler
152
Enabler
Cannot lead without understanding the role of monies Cannot lead without understanding the role of monies Cannot lead without understanding the role of monies Cannot lead without understanding the role of monies Cannot lead without understanding the role of monies Cannot lead without understanding the role of monies Cannot lead without understanding the role of monies Cannot lead without understanding the role of monies Cannot lead without understanding the role of monies Cannot lead without understanding the role of monies Cannot lead without understanding the role of monies Cannot lead without understanding the role of monies Cannot lead without understanding the role of monies Cannot lead without understanding the role of monies Cannot lead without understanding the role of monies Cannot lead without understanding the role of monies
technology to improve exploitation of existing investments in infrastructure
Policy
Enabler
ticketing
Market
Driver
transport of last resort
Policy
Enabler
unsuccessful
Leadership
Enabler
US/EU finance
Finance
Enabler
US/EU policy
Policy
Enabler
153
Cannot lead without understanding the role of monies Cannot lead without understanding the role of monies Cannot lead without understanding the role of monies Cannot lead without understanding the role of monies Cannot lead without understanding the role of monies Cannot lead without understanding the role of monies
154
