August 10, 2004

Why I am not that worried about the absence of high-speed lines in the UK

Patrick Crozier | Rail Economics

This is something I said in "The UK rail problem". Essentially, the argument boils down to the fact that (to my knowledge) no high-speed line (even the cheaper ones) has ever made a profit and that (at least in the economic sphere) things that don't make a profit shouldn't be done.

Perhaps one ought to add that a train's top speed is not necessarily that big a factor in overall journey time. Frequency, line speed, acceleration, the number of stops and, of course, the distance between the railway and the start and end points all have a big part to play. this is one of the reasons why (as I understand it) the business-orientated railway of the 1980s was so keen to increase service frequency.

Oh, and one other objection: they're no fun.

But what about the externalities argument? This is something I have some sympathy with but while I have heard it mentioned in relation to urban systems I have never heard it convincingly argued in relation to high-speed railways. Even so, the answer is for potential builders of high-speed railways to capture those benefits. I believe there may be ways of doing this but if it proves impossible then so be it.

But won't it lead to our roads becoming even more clogged with traffic? Only if we do nothing and there is a fairly simple solution to congestion.

Update 03/09/04

Interesting report from the Commission for Integrated Transport entitled "High-speed rail: international comparisons"

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"(to my knowledge) no high-speed line (even the cheaper ones) has ever made a profit and that (at least in the economic sphere) things that don't make a profit shouldn't be done."

I heard recently that virtually no public transport systems anywhere in the world make a profit i.e. that they all rely on subsidy to some degree. Do you know if this is the case and would you therefore wish all subsidised public transport to be withdrawn?


Posted by BobC on August 10, 2004

What a question. I assume you are talking about railways. Apologies if you aren't.

Firstly, the easy bit: railways that right now are surviving without subsidy. These would include the major Japanese private railways and the Honshu JRs. I think we could also add to that those UK TOCs that are currently not receiving subsidy. These include (if memory serves) Thameslink, First Great Western Link, Midland Mainline, GNER, Heathrow Express, Gatwick Express and (I think) WAGN.

Secondly, the hard bit: railways that would survive without subsidy. Now, this all depends on a whole bunch of other things like, whether they are allowed to set fares as they like, employment legislation, safety regulation, whether they would have to pay for their infratructure and, of course, some fantastic, nuclear-powered alternative not appearing in the meantime.

If there were a true free market and the railways were just given their infrastructure, I reckon that most of the following would survive though maybe in a reduced state: London Underground, London's commuter network, InterCity. Almost all regional railways would be shut down. I really don't know enough to be able to comment about other countries.

In answer to your question about whether all subsidy for public transport should be withdrawn, the answer is yes. Why? Partly, because in general I believe that (in the economic sphere) things that don't make a profit probably shouldn't be done and partly because I think it is unreasonable to expect other people to pay for your transport.

Posted by Patrick Crozier on August 11, 2004

High speed trains are no fun? *head explodes*

Posted by Jackie D on August 11, 2004

High speed trains are no fun?

You'd better believe it.

Posted by Patrick Crozier on August 11, 2004

I perhaps ought to add to my first comment that another reason why I think that subsidy should be withdrawn from UK railways is that I don't think the direct, real-world results would be that bad.

Posted by Patrick Crozier on August 11, 2004
...UK TOCs that are currently not receiving subsidy.

But doesn't Network Rail receive a subsidy? Is it fair to say that a TOC receives no subsidy even though it is dependent on using subsidisied infrastructure, which is run by someone else? Or, to put it another way, could the same TOCs remain unsubsidised if vertical integration were restored and they owned their own tracks?

Posted by Andy Wood on August 11, 2004

I was not particularly thinking of inter-urban rail, more of urban public transport bus/rail/underground/tram networks. The cost to society of these disappearing would be immense, with much worse congestion, people without cars being unable to access employment and basic health services etc. The case for public subsidy surely goes way beyond paying for other people's cheap rides.

Posted by BobC on August 11, 2004

The cost to society of these [urban public transport networks] disappearing would be immense, with much worse congestion, people without cars being unable to access employment and basic health services etc.

In some cases it would be disastrous in other cases less so. But it strikes me that the more disastrous it would be the less likely it is to happen.

Congestion. There are better ways of dealing with it.

Employment. If the job is not worth doing when you add in the transit costs then it probably shouldn't be done. Reduced subsidy ought to mean lower taxes and lower tax economies are better at creating jobs. I accept that is a medium-term thing and the transition could be painful though I think it fair to point out a couple of things. First, it is painful precisely because government has got involved in the first place. If it hadn't the transition would have been much smoother. Secondly, the longer you hold off on pulling the plug the more painful the transition will become.

It would be nice to think of ways of making the transition as smooth as possible. But, of course, that requires a degree of competence the state is not normally known for.

Basic health services. In my experience, there is usually a doctor within walking distance and if you need one in an emergency they'll take you there.

Posted by Patrick Crozier on August 12, 2004

Andy,

I've boobed. I have some figures in my head that may well be up to four years out of date ie before Hatfield.

Having said that, given what has happened since, maybe those figures aren't quite so stupid.

Anyway, before Hatfield, Railtrack was not receiving any (or, at least, not much) direct subsidy from the state. Instead, the state was buying services from TOCs who were in turn paying Railtrack Track Access Charges (TACs). These TACs were set by the Regulator. So, Railtrack was indirectly subsidised.

Now, assuming that the Regulator had got his sums right then it would be reasonable to say that any TOC that did not require a subsidy from the state was also not using subsidised infrastructure.

But, that's not quite the whole story. Because, of course, that was before Hatfield when it was revealed (or so it is claimed) that there had been a serious underspend on the network. If this is true then that could be taken to imply that some of the apparently non-subsidised TOCs were, in fact, receiving a hidden subsidy. Murky.

Fortunately, there is another way of looking at this. Before privatisation, BR used to provide separate accounts for InterCity, Network South East and Regional Railways. InterCity was profitable. Network South East needed some subsidy and Regional Railways loads.

Posted by Patrick Crozier on August 15, 2004

The means you propose to deal with congestion, and your notion that activities that don't make a profit should not be done, plummet into a logic abyss. As you've said:

"charging for something reduces the demand for it."

And reduction in demand for transport services is exactly the opposite of legitimate objectives of public policy, because:

lower demand for transport -> less economic activity -> less wealth -> less freedom.

Furthermore, because less economic activity -> less tax revenue -> less subsidy for transport -> higher fares -> lower demand for transport -> etc., this is a vicious circle, just as economic growth sustains a virtuous circle.

As someone who spent his formative years in two of the world's most disgustingly socialist industrialized countries, and as someone who thinks he has a brain, I'm no lover of government. People here in the States often drop their jaws when they hear my one liner that "government is evil," which is what's known as "ha, ha, only serious". I certainly don't want government to provide products or services. However, I recognize that this evil is pragmatically necessary for certain purposes.

For example, you wouldn't advocate eliminating the armed forces so as to refund their massive cost to you, the taxpayer, and thereby make you more free. You wouldn't be more free. You'd be invaded and occupied by Country X. And then it would tax you. And the economy would tank; it doesn't tend to like prolonged hostile occupation.

Likewise, you wouldn't advocate eliminating the rule of law, which is not only costly when you add up the police, courts and prisons, but impedes on people's freedom directly as well--by regulating their conduct. Anarchy, after all, is one of the biggest economic turn-offs there is; libertarians have always cited rule of law as one of the few purposes of government they recognise.

Would you seek to increase freedom by eliminating, and returning to the taxpayer the cost of, government-funded scientific research? This is an example in which your notion that the unprofitable shouldn't be done collapses most obviously, because even if government stops funding research, businesses will not assume support for research too distant from deployment to generate reasonable returns or to be legally protected from having their advances swiped by competitors. In brief, they will not do something for others of which they themselves will not specially benefit. It's the reason communism doesn't work. Yet without research at this level, technology and science would never reach the level at which business-funded applied research can take over for the sprint to the finish. The resulting permanent blow to the pace of sci/tech progressthe economy, wealth and freedom won't be as wet a blanket as war or anarchy, but it will be up there.

For the very same reasons, it would be counterproductive not to subsidize transport. Demand would drop as the supply curve lurches right, and the vicious circle would engage. On the contrary, where congestion exists, showing strong demand, it is in society's interest to subsidize additional supply, so as to increase economic activity and thus wealth and freedom. Encouraging economic activity by shifting some of its marginal cost (tickets) to a fixed cost (taxes) works. It is, indeed, exactly the very same thing that malls who operate parking validation programs do, an idea you like--you've even proposed it for public transport (the vouchers).

Posted by Boris Levitin on August 21, 2004

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