Paying for Transportation Infrastructure

Very interesting WSJ article on U.S. transportation infrastructure. 

Billions are being invested upgrading U.S. railroads, including various new technologies. The federal government has little involvement in this upgrade.  Railroad, apart from Amtrak, are privately owned and operated and when demand for services increases, or is projected to increase, infrastructure owners invest capital to expand capacity.

It’s not complicated.  Or rather, it is complicated, but in a free-enterprise system with private ownership, transportation infrastructure decisions are business decisions rather than debate topics.

For some reason, it is government-controlled services and resources that keep turning up as debate topics.  Why is that?  Discussions and debates that would, in a market system, take place within companies and industries (about railroad infrastructure investments, for example), turn into political battles among various government agencies, politicians, and special interest groups when resources are government-owned or regulated (highways, freeways, bridges, and ports, for example).

Consider this meeting from a  Yes, Minister episode to decide how best to manage and fund U.K. transportation infrastructure:

Each of these government transportation officials is lobbied by unions in their industry and by private firms that supply goods and services  The U.S. government owns and operates Amtrak, which loses millions of taxpayer dollars each year. Union workers lobby for higher pay and more jobs, and threaten strikes in response to efforts to lower pay or benefits.  Private firms that provide the railcars lobby for higher prices and contribute to the campaigns of congressmen on committees that make the buying decisions.

Managers and investors in the current private U.S. railroad industry make the key decisions and take the key risks. Not Congressmen or state and federal agencies whose decisions put taxpayers’ money at risk. People who ship goods via railroads will pay fees and railroad firms use those fees to pay expenses as well as to pay investors via dividends or to pay interest on borrowing.

(It is worth noting, though the WSJ article does not, that when interest rates and therefore borrowing costs are held down by Federal Reserve policy, that greatly stimulates long-term investments, such as expanding railroad infrastructure.  There is no easy way to tell how much rail infrastructure investment is actually reasonable and how much is in response to very low interest rates.)

The article does mention highway congestion and high fuel prices tipping the scales from trucks to trains for many goods shipped.  So mismanagement of the federal highway system and the ensuing congestion which delays trucks, makes railroad shipping more attractive.  

Also, state and federal policies that slow or block oil pipeline construction, push oil transportation to railroads. 

Federal highways airports, and ports, I would argue, would all be better managed by private firms, just as  America’s freight railroads are.  Then private firms would make decisions on expanding or otherwise upgrading stretches of freeways, or on building new ones, replacing or repairing bridges.

When these decisions are politically make, mismanagement and misdirected investment is the natural course.  I discuss these problems in the video notes in other posts, drawing from Randy O’Toole’s books Gridlock and Best-Laid Plans, as well as other transportation books and studies.

Link to WSJ article.