Memorandum by Professor Richard Goss (P
02)
I understand from a press release that the Sub-Committee
is enquiring into UK ports and has invited written evidence. As
I have written extensively on the subject I see no point in repeating
myself: rather, I shall bring out the salient points and give
a few references.
A historical survey of the subject in recent
years is available in my paper: "British ports policies since
WWII", Journal of Transport Economics & Policy,
Volume 32, Pt 1, January 1998.
Britain is currently suffering from the uneven
and confused nature of the privatisation measures of the previous
government. They were uneven because privatisation was applied
to some ports and not to others. They were confused because of
the failure to distinguish between the public sector functions
of a port authority and the activities carried on within the port.
The former (which are equivalent to those of a town council) should
be in the public sector: the latter are more suitable for the
private sector, provided that adequate competition can be maintained.
I have covered the subject in the "Are port authorities necessary?"
the third of a series of four papers under the general title "Economic
Policy and Seaports" in Maritime Policy and Management,
Volume 17, Nos 3 and 4, 1990. There are many countries which have
reformed their ports in recent years, often by introducing measures
of privatisation. However, apart from New Zealand, no other country
has privatised the port authorities themselves.
Most seaports, in Britain and elsewhere, occupy
valuable sites. That, indeed, is the reason for their location.
Valuable sites are, by definition, capable of generating economic
rents, or surpluses. It is therefore important to consider who
gets these rents. In the past it is clear that they have been
acquired by parties on the supply side, whether as employers or
employees. Whatever the reasons for establishing it in the first
place, the former Dock Labour Scheme came to provide substantial
opportunities for combining high wage-bills with low productivity,
whilst restricting entry. More recently, privatisation has provided
quite different opportunities, eg for the directors of the recipient
companies to enrich themselves by securing the capitalised value
of economic rents.
It is therefore important for the Sub-Committee
to consider the destination of the economic rents of UK seaports.
In this, they will wish to distinguish economic from contractual
rents, and to appreciate that economic rents are not to be found
in published accounts. I suggest that the most appropriate destinations
are the original producers of the exports and the ultimate consumers
of the imports that they handle, for these are the ports' true
consumers. In short, the rents should go to the demand side and
all necessary steps should be taken to prevent their being intercepted.
The Sub-Committee should not, therefore, be distracted from this
objective by statements from intermediaries, or their trade associations,
on the supply side. The subject has been covered in my paper:
"On the distribution of economic rents from seaports",
International Journal of Maritime Economics, Volume 1,
No 1, January to March 1999, where the various possibilities are
set out and their implications discussed.
The size of economic rents will, of course,
be affected by the level of competition but the recent records
of British ports shows that, despite fairly good inland connections,
they can be substantial. This is confirmed by the retention, in
most British ports, of charging systems which are not related
either to the specific facilities used by the ship being charged,
nor to the length of time for which it uses them. In other words,
the charges paid by a particular ship are not related to the costs
incurred by the port in respect of it. The subject has been covered
in the Report of the Committee of Inquiry into Shipping (Rochdale
Report), Cmnd 4337, 1970, Ch 11, especially at paragraphs
632-638, most of which I wrote in my capacity as Economic Advisor
to that committee. As far as I know, every UK port has ignored
those recommendations. This continued use of arbitrary charges,
based on broad averages, confirms their monopolistic positions
and their ability to extract rents. Naturally, the extraction
of rents occurs mainly in the private sector.
The Sub-Committee may care to note that, although
there are a large number of ports in Britain, most of them have
advantages of specialisation, location or facilities, and also
that competition between them is limited by common ownership.
Examples abound and the Sub-Committee will easily find them. I
would merely draw attention to two areas.
All the ports in South Wales, and all those
on the Humber, are owned by Associated British Ports (ABP). ABP
suppress all information on the profits made in their various
ports by consolidating them into one account. Various of their
officials, in various places, attempt to defend this practice
by suggesting that publishing results for individual ports would
be like expecting Marks and Spencer to publish results for individual
stores. The Sub-Committee will appreciate the fallacy: individual
stores have competitors in the immediate vicinity and seaports
do not. At present, the interested citizen, or town councillor,
of such a port as Southampton has no way of finding out whether
the port which forms the centre of his town is a financial success
or not. The Department of Transport has, in the context of Trust
Ports, suggested a fuller form of reporting aimed at overcoming
this and, further, that this should be applied to all ports: but
I am not aware that any progress has been made. If it is to be
made then it will require much more determination than their officials
generally show when facing such vested interests.
The best way to secure efficiency in British
ports, and to ensure that is benefits are passed on to their consumers,
as defined above, is through competition. By keeping prices and
costs down, this will ensure that the economic rents of British
ports are not intercepted by anyone on the supply side. For the
reasons discussed above, we do not currently have enough competition,
neither between our ports nor within them. The Sub-Committee may,
therefore wish to explore ways of increasing competition so that
more of the economic rents may be distributed to the original
producers of the exports and the ultimate consumers of the imports
passing through them.
Richard Goss
Professor Emeritus
3 January 2001
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