Privatization Fails Rail

By Jim Mathews / President & CEO

Elon Musk’s recent musings about privatizing Amtrak set off an avalanche of social-media comments and widespread press coverage, and it also has emboldened some of the traditional boosters for Amtrak privatization to dust off their arguments and try again.

The trouble is, the arguments are as unpersuasive now as they have been every other time they’ve been advanced. Privatization advocates refuse to look evidence in the face that privatization fails most of the time. It fails railroads, it fails passengers, it fails governments, and it fails communities.

Musk is not the only person to observe that right now Amtrak service is not reliable enough, not comfortable enough, and not affordable enough. But the idea that privatizing Amtrak would solve any of those issues betrays how little he and other privatization boosters know about why Amtrak exists in the first place.

Just look at the actual experience: passenger-rail privatization enjoys a record unblemished by success.

In the 1990s, British politicians trotted out privatization as the panacea and came up with a model that is nearly identical to what some American leaders are proposing today: a nationalized infrastructure system, with franchisees awarded licenses to operate routes independently of one another. Privateers insisted that service would improve, and that government subsidies would go down, although even the most optimistic boosters acknowledged that fares would go up. Those boosters tried to paint this as a feature, not a bug, arguing that it was only fair that passengers should share more of the burden for operating the trains on which they ride.

Then, 26 years later, leaders in the Conservative Party – the same ones who crowed the loudest about the benefits of privatization – ended franchising trains. After accounting for inflation, the British government was paying more than two and a half times the subsidy they had been paying under the old model. The number of trains operated went up, but so did the fares. Service quality deteriorated, and in some instances companies that won franchises wound up walking away from their contracts – not unlike what happened in 2015 when Indiana kicked Amtrak off the Hoosier State and tried to get a private operator instead. And now there’s no Hoosier State.

Privatization has always had its proponents, and over the years several congressional efforts have appeared to try to make it happen. In 2008, when the Federal Railroad Administration asked for alternatives to develop high-speed services on the Northeast Corridor and elsewhere, nobody stepped forward for the NEC, and other bidders emerged for other corridors but without any credible commitment to invest private capital.

In 2016, they tried again and this time only one actor came forward – our friends the Chinese, who had been building 2,500 km of rail each year in their own country (see last week’s commentary here). They wanted to build on the Northeast Corridor but expected government money like the kind they got back home. When that money was clearly off the table, the Chinese bidders walked.

Later, under a provision in the Fixing America’s Surface Transportation, or FAST, Act surface transportation bill, the FRA went out looking for someone to take on a pilot program to run as many as three existing Amtrak long-distance routes. FRA would pay the winner 90 percent of what Amtrak collected to run the train. Guess what? There were no takers.

There’s a reason for this. Amtrak was created in 1971 precisely to serve hundreds of communities that could not be served profitably by private capital. If there were profits to be had in taking Grandma from Marks, Miss., to Memphis to see her grandchildren, CPKC or Union Pacific, or BNSF would be falling over themselves to do the job. They’re not.

None of the large and successful private operators now running trains in the commuter space – well-respected companies like Herzog and Keolis – have any interest or desire in taking on the challenge of running a long-distance train while attempting to make it profitable.

But whether the argument is that private companies could do it better or that long-distance routes shouldn’t exist because they aren’t profitable, the entire conversation continues to miss the point of Amtrak and of government-supported passenger-rail investment.

Amtrak is a prosperity engine in communities all across the United States, supporting local economies by bringing passengers who spend on tourism, shopping, restaurants, lodging, and myriad other categories. Those communities are recouping their “return on taxpayers’ equity” for decades of funding passenger rail. The money we spend to have an Amtrak generally produces three, four, or even five times what is invested in the form of gross domestic product. Privatization would degrade that return without any clear benefit; that is, if it could be done at all.

As I argued recently before the Surface Transportation Board, the continued existence of Amtrak is in and of itself an ongoing subsidy to the mostly profitable U.S. freight rail industry. That’s because without Amtrak to absorb the unique challenges of operating daily passenger service, those freight railroads – as legally defined “common carriers” – would have an obligation to run them and to ask the Federal government to relieve them, individually, of that burden. Because Amtrak produces a net positive to our Nation’s GDP, it has made sense to keep Amtrak going – with Federal and state dollars – because every year the communities served get much more back than is spent to operate that service. Until that math changes, privatization remains a very bad idea.