Economic Framework

Heritage railways operate in a resource-constrained environment and must make choices about how to use their limited resources to meet their objectives. In this aspect they are no different than most firms or households. However, heritage railways have other characteristics that need to be understood, including: public goods and externalities, philanthropy and provision of public goods, and non-profit organization.

Public goods
Conservation of the railway heritage has aspects of both public and private goods. Private goods are excludable and rival in consumption, but public goods are both non-excludable and non-rival. For example, a loaf of bread is private goods because it is both rival and excludable. In contrast, a lighthouse is public goods. York Minster has a joint output of public views of the exterior and private excludable access to the interior. The exterior is non-rival since one person’s viewing of it does not affect another person’s viewing except when the crowds become too large. It is non-excludable since persons who pass by cannot be excluded from looking at it.
Conservation has aspects of both public and private good. The existence of the heritage item, the option to visit and to bequeath it to future generations are all aspects of public good. There may also be externality benefits from tourism revenues in nearby locations. The private goods are the visitors to the heritage railway who pay access fees. The public goods and externality benefit cannot be captured by a for-profit conservation activity who would therefore not be able to undertake as much conservation as society would be willing to pay for.
Main-line steam specials are joint public–private goods. Travelling in the train is private goods, but the views of a steam train in the landscape are public goods.

Provision of Public Goods

Government intervention
The government can either undertake the conservation itself or can encourage the private sector to do so. Examples of public-sector provision include the National Railway Museum at York (NRM) in the UK, and Steamtown National Historic Site and the Cass Scenic Railroad in the USA. Public partnerships with the for-profit or non-profit private sector include the Cumbres & Toltec Scenic Railroad in the USA. Encouragement of the private sector can be through:

•	Regulations to protect the existence, appearance, function and use of a historic site (listing and control). This has only been applied to a few heritage-railway buildings and not to historic rolling stock. An issue is who pays for the costs of regulations—the property owner or the public.
•	Direct incentives, such as grants (discretionary or right), or indirect incentives (reduced taxes or provision of loans). Incentives can provide leverage for public funding, compensate owners for the adverse consequences of regulations, and increase the level of preservation efforts. They can be a decentralized approach to encouraging preservation, but discretionary grants raise questions concerning the decision-making process about grant approval.
•	Information dissemination to create awareness and a consensus for preservation. The tools include: disclosure, publicity, identification and documentation; validation, recognition, promotion (coordination, education, persuasion and exhortation), and preservation and maintenance techniques.

Philanthropy and non-profit organizations
Conservation can be undertaken through philanthropy whereby concerned individuals or private corporations donate money, materials and time. The benefits for the philanthropists must include a private warm-glow benefit to themselves as well as a benefit from seeing the public good produced, otherwise the free-rider effect would result in minimal philanthropy. Philanthropy is often channelled through non-profit organizations, but where governance is not a problem, friendly societies can raise funds for public museums, such as the NRM. Philanthropy and non-profits have been described as the other invisible hand, the first being the private market1.
Non-profit organizations can be categorized by who benefits, the type of output, the revenue sources, and who controls them. The benefits can either be for the members (e.g. trade associations, country clubs) or be collective public-type outputs that generate significant benefits for non-members. Non-profits are multi-product organizations potentially producing three types of goods: (i) preferred collective that is difficult to sell in private markets; (ii) preferred private that can be sold in private markets; and (iii) non-preferred private that is produced in order to generate revenues for preferred goods. Revenue sources can be donations and grants, and user fees and revenues, thus distinguishing donative from commercial non-profits. Mutual non-profits are often controlled by their members, while entrepreneurial non-profits are often controlled by a self-perpetuating board of directors.
The growth of the non-profit sector is a response to the failure of the private market to produce sufficient collective goods and to the failure of government to step in. Government failure can occur because a representative government typically produces only enough of the public goods to meet the demand of the median consumer, but some consumers may want more of the goods. Donors may be reluctant to contribute to for-profit firms undertaking charitable activities because donations might be diverted to the proprietor’s profits. Because non-profit organizations operate under a non-distribution constraint and surpluses must be reinvested, kept as endowment, or given for charitable purpose, donors may be more willing to donate to them. Non-profit organizations in the cultural sector often rely heavily on donations from people who also buy tickets. The donations enable those who greatly value the experience to contribute more than those who do not.
Starting and operating a non-profit organization requires motivated persons who will risk their time and energy despite not being permitted to earn a monetary profit in compensation. Their motivation is likely to be closely linked to those who donate money and provide volunteer support to the organization and they may feel the unmet demand the most.

Organization of non-profits
The non-profit sector includes large bureaucratic organizations with paid staff and where the organization of volunteering is based on the volunteer being an unpaid employee. The sector also includes associations staffed and managed by volunteers and formed by members to facilitate their pursuit of specific objectives. Decisions in such associations need to be based on consensus, informality and democracy, and planning can be a threat to informal decision making. Association leaders have to adopt a nurturing and enabling style to motivate and manage members who do not expect to be subject to the methods of hierarchical bureaucratic structures. Leaders can however become entrenched and the fear of offending a fellow member can make it difficult for others to control their activities.
Associations often experience a strong pull towards membership growth, formalization, and professionalism and towards becoming more like bureaucratic services delivering non-profits. However, paid staff can share the motivations, commitment and values of volunteer co-workers. When employees are also members, accountability can be difficult, and changes affecting their role may be difficult. As associations move towards becoming a bureaucratic non-profit agency, the challenge is to adopt some systems used in larger agencies (defining roles and responsibilities of volunteers, etc.) while retaining the informal characteristics of flexibility, and individual relationships2,3.
Voluntary organizations can stagnate and die. The management group can become set in its ways and be reluctant to pass the leadership to a new generation. Personal differences can lead to the loss of people and fracturing of an organization. Long-term viability depends on the successful interplay between the recruitment and education of new members who can bring in fresh ideas and contributions, and the maturity and self-restraint of the older ones, particularly those in management.

Cost Disease

Productivity in the cultural sector lags behind that of the rest of the economy4. Productivity gains permit wages to rise without inflationary pressure, but much of the production of heritage services is labour intensive and requires the same labour input as it did originally. Modern methods can be introduced for maintenance and interpretation, but running a traditional railway requires the same operational staff as the original. To attract staff, the growth rate in real wages needs to be similar to that for the overall economy, requiring the real prices charged to visitors to rise with time. However, overall rising living standards tend to mitigate the effect of rising prices on demand.

Characteristics of Heritage Railways

Heritage railways are an example of joint public–private goods, of the private philanthropic provision of public goods, and of non-profit organizations which not only have a large volunteer input but are also volunteer managed. The heritage services recreate the atmosphere of a traditional railway using the stock of heritage assets. Their private benefits accrue to members and visitors and their public benefits are externalities such as option, existence and bequest benefits; business development in the local town; and reduction in traffic congestion for those heritage railways that can provide park and ride services.
The output consists of:

(a)	Preferred public goods: Conservation (existence, option and bequest), re-creation of the atmosphere of a traditional railway
(b)	Preferred private goods: Visitor travel, photo charters, dinner specials, heritage weekends.
(c)	Non-preferred private goods: Shops and restaurant, Thomas the Tank Engine events, and Santa Specials, etc.

As non-profit organizations, heritage railways tend to maximize the preferred outputs rather than maximize profits, which could fund the public goods. However, declining average costs offer scope for increased net revenues as visitor numbers increase.
The growth of heritage railways was a response to both market and government failure. When private and commercial (nationalized) transport organizations were modernizing during 1950–70, they did not preserve enough obsolete equipment and systems. Public sector preservation was inadequate for those interested in transport preservation and many transport enthusiasts were willing to take on the task of preservation themselves.
Sometimes this was done on an individual basis, but usually groups were formed to undertake preservation. While these groups were almost always de facto non-profit organizations, there were some associated individuals who saw the opportunity for private financial benefits and a few heritage railways have been able to operate on a commercial basis with no volunteer input.
Initially, railway preservation was regarded as a minority interest and received little or no public-sector support. However, as preservation achieved a greater degree of authenticity over the years, various avenues of public-sector support emerged including various grants for development of tourism and depressed areas, manpower services support, derelict-land grants and, more recently, Millennium and Heritage Lottery funding.
Heritage railways often start as totally donative and become commercial once they open for visitors. Tallylyn became part commercial at the start of the 1951 season, but others may take 5–10 years before visitor operations begin, offering only limited scope to earn early commercial revenues. As regards control, many are mutual (in practice the volunteers rather than the total members). Some are self-perpetuating trustees with a formal relationship with a supporters society or association.
Heritage railways have to a large extent been able to reconcile the needs of a volunteer-staffed-and-managed organization with the bureaucratic and safety needs of an operating railway. In part this is because volunteers expect the operational requirements to be formal and this does not prohibit the continuation of informality and flexibility of individual relationships. Also heritage railways have many different activities and equipment and infrastructure maintenance can be done in a more informal environment than train operations. The very strong sense of teamwork and camaraderie that pervades heritage-railway activities can offset problems. Furthermore, although tensions do occur in heritage railway organizations, they are usually resolved before the viability of the concerned organization has been threatened.

Leisure and Heritage Railways

The growth of heritage railways over the past 50 years has surprised many. In the UK, there are now about 170 railways and steam centres, attracting between 5.3 to 7.8 million visitors a year and being supported by 1000 paid staff and 23,000 volunteers. However, heritage railways are a still a very small part of the nation’s 1.2 billion tourist day trips or even the 0.4 billion visits to tourist attractions. The increase in visitor numbers for heritage railways during 1989–99 was consistent with overall tourist attractions, but there is no room for complacency because the constant sample growth rate was just over 1% per year (Table 1).
The boom in visits to tourist attractions slowed during the 1990s. The number of visits grew by 14% during 1989–99 compared to 24% during 1979–89. Surveys5 conducted on the incidence of people visiting various activities during the past 12 months indicated a steady decline of visits to museums and galleries during the 1990s from 42% in 1991 to 28% in late 1999. However, another survey6 found that people value the historic environment and felt that it is important in promoting regeneration in towns and cities. Thus, while museums, galleries and historic properties were losing their appeal as tourist attractions, the general public continues to value the historic environment and its conservation. Visitors to heritage railways are typically family groups (65%) and couples (27%)7. Nearly half (48%) of visitors were looking for a railway experience; 8% visited because of a special event and 44% visited for non-railway reasons. However, since that time, special events on some railways are attracting an increasing share of total visitors. A 2000 survey of visitors to the NMR found that 56% were interested in railways and 44% wanted a day out or had a general interest in museums. About 50% of the adults were visiting with children.
Heritage railways are part of the leisure sector, both with regard to demand for leisure activities and in the nature of their philanthropic support. Thus, the prospects for heritage railways will be affected by developments in leisure and their impact on visitors and volunteers. Leisure time has increased during much of the 20th century; hours of work have declined and working life is starting later and finishing earlier while life expectancy has increased. Until lately, people were retiring early and remaining active and interested in a range of leisure possibilities. However, reductions in working time have recently slowed or reversed. Whereas the number of weekly hours worked in the UK by manual male workers in manufacturing declined from 46 in 1951 to 42 in 1981, it rose to 44 in 19978. Also the incidence of paid holidays rose from 38% in 1938 to 95% in 1979 and then fell to 90% in the early 1990s9. And pressures are emerging to raise the retirement age. Globalization trends have made labour markets more flexible and employment less secure. The end of a job for life requires the need to retrain and learn new skills, and more self-employed people are working even harder on their own account. Modern communications keeps an increasing number of people in contact with the workplace outside office hours. This process began in the USA where productivity tripled from the 1950s but the benefit has been in the form of pay rather than more free time. Over the 20-year period ending in 1990, the average American employee had 140 fewer hours of leisure time10. In 1995, 33% of American employees took 50% or less of their vacation entitlement.
Rising incomes have permitted participation in more leisure pursuits but this has put pressure on limited leisure time and increases competition from home and nearby attractions11. Leisure activities are increasingly designed for time-squeezed consumers where time may be more of a constraint than money. Leisure options now include new media, sport and fitness, eating and drinking out, travel and holidays, shopping, etc. The family leisure market is changing and the focus now is on providing ‘perfect moments’ for families. Theme parks are popular among adults with children. Work pressure and job insecurity are encouraging shorter, more frequent and more intensive breaks. The demands of the retired, free to travel throughout the year but with a widening range of incomes, will be different. The time-and-money rich may take frequent high-style, high-fashion holidays, but others will be concerned with affordability.
Changing leisure trends have affected museums and other tourist attractions12. After continued growth during the 1970s and 1980s, visitor demand plateaued in the 1990s although the supply of museums continued to grow, assisted in part by National Lottery funds. Museums now face strong competition from commercial leisure options including one-stop multipurpose leisure centres as well as Sunday opening and car boot sales.
Visitors have rising expectations of the quality of services from leisure activities, but many museums were slow to adjust to the need for imaginative marketing and often confused publicity and promotion with designing museum presentations to meet the changing visitor needs. Two thirds of museum visitors are general day-out visitors and tourists with an annual market size of about 1.5 billion visits—museums (and other heritage sites) need to focus on this market. Museums and other heritage attractions as well as arts and other cultural activities are recognized as an important part of urban regeneration strategies, and museums need to exploit their strengths while meeting the public’s expectation of leisure activities. Museums are often stand-alone attractions that open for a small number of days each year with short hours from 10:00 to 17:00, while other leisure activities are open late into the evening.

Philanthropy
Philanthropy consists largely of gifts of money and time (volunteering). Between 1974 and 1994, the proportion of households making gifts of money declined from 34% to 29% although the amount given in real terms increased13. Participation rates have fallen among successive generations of households and was unchanged only for those above 63 years of age. The 1997 National Survey of UK Volunteering14 found that close to half of respondents had volunteered during the past 12 months, that about 30% volunteered at least once a month and that 20% volunteered on a weekly basis. Volunteer hours have increased since 1991. Also since 1991, the participation of retired people has increased while that of young people declined. The motives to volunteer were found to be a mix of altruism and self-interest, including enjoyment of the activity, the satisfaction of seeing results, satisfying one’s own needs, meeting people, and a sense of personal achievement, learning new skills and responding to community needs. Older people stressed free time as a motivating factor, while younger respondents emphasized learning new skills leading to a qualification. Being asked to volunteer is critical. About 50% of volunteers received reimbursement of expenses.
There is significant potential for reversing the decline in volunteering by young people15. Attracting young volunteers requires flexibility because the young have many conflicting demands upon them and find it hard to make the time and commitment. There needs to be choice and spontaneity in volunteering. Legitimacy would be improved by creating more positive images about volunteering. Ease of access needs to be improved because most young people don’t know how to find out about volunteering opportunities, and information, encouragement and easy access points are needed. Young people want interesting experiences that will contribute to their personal and career development by offering opportunities to learn new skills, take on challenges, explore different careers, and obtain work experience. Incentives are important because of the competition for young people’s time and attention. Volunteering should generate a reference or qualification, and payment of expenses would be an incentive. Variety in types of work, issues and structures is needed to accommodate individual interests, goals, constraints and preferences. Organization needs to be efficient but informal, providing an environment in which young people feel welcome and valued. Volunteering should be enjoyable, satisfying and provide laughs, since competition for young people’s time is from activities that provide a good time socially.
Many retired volunteers begin volunteering after age 5016. The most common reasons for volunteering are: to put skills and experience to good use, because the organization had a good reputation and was short of volunteers, and because they were asked. Some organizations develop successful recruitment strategies. Practices regarding older volunteers differ between training, payment of expenses, supervision, social activities, and in the types of volunteer work. Practical support could also be significant and include payment of expenses, insurance, help with transport, meetings organized at convenient times and places. More than half (60%) of volunteers identified the social aspects as what they would miss most when they stopped volunteering. Many of these findings have been confirmed for volunteering at museums and heritage attractions17. More than half of volunteers were over 60 years old. In a 2000 study18, ‘the retired volunteers were looking for something to replace the aspects of their working lives that they had valued, while trying something new and continuing to develop. … that they had simply changed career, but were no longer being paid. …. over a third had volunteered for more than 6 years.’ About 50% of volunteers were repaid out-of-pocket expenses.

Sustainability

Visitors
The sustainability of heritage railways depends on many factors but two critical ones are visitors and philanthropy, in particular volunteers. Some tourist railways, such as the Paignton and Dartmouth, Brecon Mountain Railway and the Vale of Rheidol, can operate without volunteers and others that are currently dependent on volunteers might be able to adopt a similar approach if necessary. But without an adequate number of visitors, most heritage railways would be in difficulties.
Although the rapid rise in visits to heritage attractions has plateaued, conservation of the historic environment remains important to many people. Leisure activities have come under increasing competition and expectations of what constitutes a perfect moment for a family continue to change. Rising incomes also enable some people to look for a more up-market product. Heritage railways as a group have responded in recent years to these changing circumstances and have offered an increasing variety of special events, ranging from Thomas the Tank Engine events and Santa Specials to heritage weekends. Multi-modal events can also prove popular, combining railway activities with bus/canal/river transport and also vintage car and traction engine events. An example of a well-established railway focusing on special events is the Middleton Railway where normal operating days in 2000 accounted for only 27% of passenger numbers and 15% of passenger revenues. Some railways are close to other attractions and can benefit from the larger number of visitors in the vicinity. However, the circumstances of each railway are different and what may be needed for a small railway in an urban area may be different for a railway in a popular tourist area. Another issue is that many leisure facilities are increasingly staying open longer in the evening, and visitors may also expect this of heritage railways.
Up-market activities have carved out a useful niche. Many railways have lunch and evening dining trains, and others such as the Embsay Railway have introduced a vintage train charging a premium fare, which is used for a ‘Strawberries and Cream Train’ on some summer evenings. Vintage trains provide a means of reviving derelict wooden coaches that might otherwise have little prospects of survival. Photographic charters, corporate events and films are other premium activities.
While considerable initiative has been taken in designing special event and up-market activities, there is also a need to ensure that the regular facilities are presented to the visitor in a way that meets changing needs and expectations. In the 1960s and 1970s, most visitors were familiar with what they would experience on a heritage railway, but many today are entirely unfamiliar with rail travel itself! Active interpretation of tourist attractions is becoming increasingly common and visitors may expect this of heritage railways. Many volunteers interviewed in a study of Yorkshire heritage railways described below said that increased attention could be given to improving the interpretation of the railway to visitors. This could be done in various ways including display boards and leaflets handed out with tickets. It can also be done through what museum railways in the USA called docents—people who introduce the railway to visitors, guide them around and provide commentaries both at stations and on trains. The operations staff are the human face of the railway and crews could interact with visitors when time permits. Travelling Ticket Inspectors also have the opportunity to make people feel welcome on trains. A visitor centre with a short but well-designed presentation about what the visitor is going to experience could be helpful before travelling on the train. Interactive facilities for children are another useful facility as evidenced by the NRM’s hands-on room. Discussions of heritage railways often note that general tidiness of stations, trains, track, restaurants and related services need to meet contemporary standards so that an otherwise quality family experience is not spoilt by unsatisfactory sanitary or other facilities.
In sum, the heritage-railway industry is taking a wide range of initiatives to meet the changing leisure market and this bodes well for the continued ability to attract visitors. As new initiatives prove successful, they can provide many opportunities for the rest of the industry to remain competitive with other leisure activities. The unique selling point remains the fascination of steam locomotives and other vintage equipment such as trams, as well as a leisure-oriented journey in equipment from times past.

Philanthropy
Gifts of money and time have been critical for heritage railways. While much depends on new members and volunteers continuing to replace older members, the existing but aging supporters have an opportunity to ensure that their creation is sustainable by leaving a bequest to their railway, which could be used to build up an endowment fund. Such funds are common in the museum and heritage world and can support the operational costs of the organization. Over perhaps 10 years, a heritage railway with a membership of 1,500 people might be able to raise a substantial amount through bequests. If 5% of the fund’s principal could be spent each year, the amount needed to cover the costs of a full-time paid staff member with a total salary and overhead cost of £30,000 would be £600,000. Individual heritage railways might wish to explore ways to tactfully encourage bequests.
Share issues have been a popular way for well-established heritage railways with substantial membership and volunteer support to obtain de facto donations, but there may be a developing trend towards issuing bonds to finance new heritage railways. However, if some of the latter schemes run into difficulties, it might adversely affect the ability of established railways to issue shares. Similarly, public-sector support originally supplemented volunteer efforts, but with more available grants there may be a danger of schemes being promoted primarily because grants are available. A survey of volunteers at five Yorkshire heritage railways conducted in early 2001 is currently being analyzed. It confirms many of the earlier findings about why people volunteer. The warm-glow benefits they perceive from volunteering include undertaking activities they enjoy, social aspects of meeting other volunteers and visitors, and, for retired persons, filling the gap from not working. Some railways have a retired person’s group and schedule for midweek activities. Many young volunteers indicated that they benefit from their experience in jobs and careers, not only from the skills and references obtained but from the self confidence developed from meeting people, working in a team and from the sense of accomplishment.
The interviews generated many comments about how volunteers could be encouraged. A friendly welcoming environment to help prospective and new volunteers feel at home as well as help to develop the skills they need are important. A sense of fun is considered vital. A proactive volunteer coordinator and non-intrusive guidance could be helpful.
The need for more younger volunteers to replace aging volunteers was widely expressed; some ideas included making local schools aware of opportunities for work experience at heritage railways. However, to be effective, some specific proposals for 2- to 3-year work-experience activities for 16- to 18-year olds may needed. Obtaining formal engineering qualifications may not be a less essential selling point for most young people, than the opportunity to gain recognition for general work experience. Similarly, some way might be found to inform people nearing retirement about opportunities to fill a gap in their lives. With sustained focused effort, both younger (16–20) and retired (55+) persons could be recruited in larger numbers.
Although many 16- to 18-year old volunteers drop out by their early twenties, they can make a net positive contribution for 2 or 3 years. Moreover, some might become involved again in their 30s and later. For example, if 5 young people completed the work-experience activities each year, there would eventually be 150 ‘graduates’ in their 30s–50s. If active encouragement resulted in 10% becoming involved again, there would be 15 experienced volunteers.
While the above measures may help, it may prove difficult to adequately replace long-term volunteers with developed core skills and experience but who are now in their 50s–70s. Often, this group was inspired by the traditional railway of their youth, but today’s modernized railway may not similarly inspire the next generation. It might be prudent for heritage railways to consider how to deal with a shortage of long-term volunteers aged 30–late 50s. Larger railways may be able to afford to employ full-time staff to handle the shortfall but medium and smaller railways may need to consider how they could adjust their activities. Modern labour-saving technologies for behind-the-scenes activities, such as equipment overhaul and track replacement are being introduced on some railways. However, streamlining train operations through modern methods may be more controversial, although some railways have made useful steps in this area.
In many countries, community involvement is regarded as an essential ingredient of many successful non-profit activities. People in the community who feel an activity is a valuable local asset can become important stakeholders. For some heritage railways, this is already the case with many members and volunteers living locally and a visit to the railway is often a well-established annual activity for local schools. However, while most heritage railways have close contacts with the local council, an ongoing active relationship with the wide range of community organizations in the area may also be useful in creating stakeholder ownership. Of course, this comes with the ‘price’ that the local community is not just told of plans and programmes but is involved in preparation and implementation!

Conclusion

With a strong volunteer base, heritage railways are not dependent on shareholders looking for a continued good return on capital. However, dependence on volunteers can constrain new initiatives. Volunteers do the things that interest them and cannot be easily moved to undertake other tasks. Developing new initiatives to attract visitors or young people looking for work experience requires volunteers with interest and capability in these areas. My Yorkshire study suggests that there are volunteers who are interested in these areas and they need to be encouraged to participate. Perhaps this is part of the overall aspect of the recruitment and education of new members who can bring in fresh ideas and contributions, and the passing of the leadership to a new generation. Also, some of the larger heritage railways that employ many staff may be willing to share some of their work on new initiatives with the rest of the industry at least in a generic way. Also the NRM, which already works closely with heritage railways, can undertake or commission work in these areas on behalf of the industry.
The volunteer constraint also applies to the industry’s trade association. The Heritage Railway Association is completely volunteer run and does not have the budget to fund industry-wide studies, etc. However, there are many initiatives in the public sector concerning heritage, tourism and leisure that are relevant to heritage railways and perhaps some volunteers would come forward to be involved in the relevant committees, etc.
In summary, there is room for cautious optimism but not for complacency!