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Discuss the view that nationalisation of the railway services in the UK would be beneficial for consumers.

[This is an exam style essay question, with the response being just one paragraph of multiple the student would have to write]One significant advantage to UK consumers of nationalising railway services could be that greater levels of economic efficiency, and in particular dynamic efficiency, would be achieved, allowing for lower prices and consumer welfare gain. Dynamic efficiency can only be achieved in the long-run and is characterised by the LRAC curve falling as a firm makes investments in areas such as R&D, which lead to falling costs as more efficient techniques are adopted to offer services to consumers. However, to do this, there is the requirement of large funds for investment; if the government were to nationalise the railway industry, it is in a much stronger position than private firms are to allocate large amounts of money towards R&D and should be able to achieve significant dynamic efficiency gains. For example, the government would be able to engage in more projects like HS2 if the network was publicly owned, as it has the funding ability through taxation to do so. These investments will lower the LRAC curve (show in diagram), and enable the firm to lower prices for consumers, thus increasing consumer surplus. However, it could be argued that private firms are more likely to invest in R&D and achieve dynamic efficiency gains as opposed to the government, because traditional microeconomic theory highlights that private firms are entirely profit maximising and will thus make the necessary investments to generate greater profit through lowering costs. Furthermore, some particularly neoliberal thinkers, such as Milton Friedman, would argue that the lack of government incentive to generate profit, owing to no fear of bankruptcy from lack of profit, means that they are in fact much more likely to not invest, meaning consumers are worse off under a nationalised railway service, which was arguably the case during the period of British Rail pre-privatisation.

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