Does the liberalization of the European railway sector increase systemic risk?

Recent large-scale blackouts and other incidents have shown that failures in network industries can have serious economic and social consequences. A large body of literature covers critical infrastructures (and their protection), but most of it is confined to a relatively restricted number of sectors such as electricity and information and communications technology (ICT). In addition, much of the literature discusses systemic risk in complex networks from an engineering perspective with the goal of mitigating risk using quantitative techniques. The railway sector is a critical infrastructure that shares a number of characteristics with electricity (e.g. interconnection), but it has received little attention when it comes to systemic risk. This paper analyzes the extent to which the liberalization of the railway system increases the sector’s systemic risk, a pressing question in the wake of the creation of a single European railway market. The paper also discusses the broader issue of the governance of systemic risk in the railway sector, especially since the mitigation of risk tends to be limited to risk management from a technical perspective while ignoring the institutional dimension.

Systemic risk in the network industries: is there a governance gap?

Ian Robert Bartle, Marc Laperrouza

Systemic risks and hazards have become increasingly significant features of modern industrial society of which the network industries form a vital element. The idea of systemic risk, however, is much less prominent in the network industries compared to banking and finance. This paper addresses why there is such a difference between these sectors. It then addresses how complexity and systemic risk in the network industries should be managed and governed. Does it above all require more and better scientific and technical analysis to understand the risks and reduce uncertainty? Or does it require qualitatively different forms of governance that draw on many different types of knowledge, and involve a wider range of stakeholders? We argue in this paper that systemic risk is very important in the network industries and it needs to be a considered more explicitly than hitherto in the governance and regulation of risk in the network industries. Traditional technocratic forms of risk management and governance while necessary are not sufficient, particularly due because of heightened uncertainty and interdependence. Unless and until the problems of uncertainty are overcome, means of governing risk and uncertainty beyond the technocratic are required. In particular, judgements by different experts and stakeholders are required about the nature of the uncertainty, about the potential hazards and their consequences, and about the level of caution required. This requires a more participative and open form of risk governance, a form which draws on socio-political forms of governance as well as technocratic. This is recognised in part in the recent literature on risk governance of critical infrastructures but the literature says little about the participative governance structures which might be appropriate nor how they may be developed in the patchwork that is the European regulatory environment for the network industries.

2009

Systemic risk in the network industries: is there a governance gap?

Ian Robert Bartle, Marc Laperrouza

2009