The railways have suffered market share losses and financial problems which pose challenges for transport policy in most countries. The author suggests that the answer goes beyond improving efficiency to the development of transport policy and implementation of new conditions on the transport market. The railway situation is compared to the 'road model' where infrastructure is treated separately. The situation is discussed and analyzed with particular reference to Sweden on the basis of three questions: why are the public transport financial results completely separated from road network issues; why is it generally accepted that public transport is subsidised; and why are private bus companies making profits in public transport despite the overall financial results ? Swedish transport strategies are examined and market imperfections explained. The evaluation of external effects is considered and the need to take a long-term perspective of collective well-being noted. The financing of Swedish Rail and the setting up of the National Railway Administration are discussed. A 'second best' pricing strategy is outlined based on current net damage levels modified in response to changes. The use of the word subsidy is examined and a role as private entrepreneur suggested for Swedish Rail.
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