The Railroaded Not Taken

Reeling from a scandal in which ministry employees allegedly embezzled at least $28.5 million, China has dismantled the Ministry of Railways and replaced it with a state-owned company. Managers of the new China Railway Co. had hoped that they would be given the Ministry’s assets but not its debt. However, the government says they will have to deal with its debt as well–all $428 billion of it (2.66 trillion yuan).

China’s high-speed fail.

Restructuring will not save China from that debt, which either taxpayers or creditors will have to cover–it certainly won’t be repaid out of rail fares. The debt is roughly $73 million for each of the 5,840 miles of high-speed rail lines built by the Ministry. This suggests that China got off cheap considering that California is planning to spend close to $300 million per mile for its high-speed rail, while Amtrak wants to spend $345 million per mile ($151 billion divided by 438 miles) building a new Boston-to-Washington high-speed rail line.

Still, that $428 billion debt could prove crippling for China’s growing economy. It happened in Japan, which in the late 1980s was much more prosperous than China is today. But an extensive high-speed rail construction program had left the state-owned Japanese National Railways in debt to the tune of 28 trillion yen–about $300 billion in today’s money.

Japan responded by privatizing the rail lines but the government took over most of the debt. Government plans to pay off the debt by selling the railway land that had been the collateral for the loans were halted by (and may have precipitated) the collapse of Japan’s property bubble. The result of that collapse has been more than two decades of a stagnant economy.

Spain isn’t doing much better. After being infected by the high-speed rail craze, it built one line that attracted so few passengers that it had to shut it down. The debt that Spain has rung up building high-speed trains is a major contributor to that country’s economic crisis. But high-speed rail creates jobs, right? Tell that to the six million unemployed workers; the country’s 26 percent unemployment rate is the highest in decades. It would almost certainly be lower if they had built something worthwhile instead of high-speed rail.

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The top speed when Amtrak operated it was 79 mph, but train took 2 hours and 50 minutes, for an average speed of 51 mph. This was ten minutes slower than Greyhound’s express bus over the same route. Minnesota proposes to spend $821 million increasing the top speed to 110 mph. Page 6-6 of appendix C2 says the proposed route will require 2 hours and 19 minutes for an average speed of 62 mph. (Misleadingly, rail proponents round down 2 hours and 19 minutes to 2-1/4 hours.) Since people can drive the same route in less than 2-1/2 hours, a 2-hour, 19-minute train that also requires trips to and from the stations will hardly be competitive.

Moreover, the assessment doesn’t say how they will run trains on BNSF tracks at 110 mph when BNSF chair Matt Rose says the railway will not allow trains faster than 90 mph on its tracks. (Government agencies seem to never talk to the railroads whose tracks they are planning to use until the plans are fully financed.) If 90 mph becomes the limit, the state will have spent more than $830 million increasing average speeds from 51 to about 54 mph, which won’t be at all competitive.

Until Democrats take over both houses of Congress, the chances of this line being funded are precisely zero. But Minnesota is doing the environmental documentation so that the project will be “shovel-ready” if ever Congress appropriates a few tens of billions to high-speed rail.

Just the fact that anyone takes Minneapolis-to-Duluth seriously shows what a mistake it is for the government to subsidize high-speed trains. It is one thing to dream about a high-speed train in the California or Northeast corridors, which each have about 30 million people. It is another thing to spend millions planning a train in a corridor that has a population of less than 3 million and whose rail ridership is so poor that Amtrak won’t even serve it.

One of the problems with high-speed rail is that, once governments start building it, they can’t stop because the political momentum is so great that they continue until they end up with lines that practically no one rides. And then they keep building them anyway.

In Minnesota’s case, the initial political momentum came from the fact that, at the time the state received the original federal grant to study the corridor, the chair of the House Transportation Committee, Jim Oberstar, represented Duluth. No longer in Congress, Oberstar is campaigning to become Secretary of Transportation, but even if he doesn’t get it, the consultants have been paid millions of dollars, much of which will no doubt be used to lobby for this route.

Matt Rose predicted that the ultimate cost of Obama’s high-speed rail program would be about a trillion dollars, and that may in fact be conservative. Since all of that cost would ultimately have to be paid out of tax dollars, American taxpayers can be grateful that some Republicans have taken a firm stand against high-speed rail.