Investors Line Up for HSR Profits
One of the core arguments made by opponents of passenger trains is that nobody will ride them and the system won’t be profitable. Personally, I don’t care whether the system is profitable or not, that isn’t the point. The purpose of any transportation is to find effective ways to move people given your political, geographic, and energy constraints. Profit should be a side issue at best. But as it turns out, most high speed rail lines do turn a profit, including the Acela.
Investors are quite well aware of this. And as Jeff Siegel argues at Seeking Alpha, they are ready to take a piece of the HSR profit pie:
While California has issued $2.6 billion in state bonds and has received $3.2 billion in additional federal funds for track construction, I anticipate 2013 will open the door for private sector involvement.
And this will go beyond just the California high-speed rail line.
Here’s the deal: Set aside California’s high-speed rail system for a moment and take a look at Amtrak. Aside from the Northeast Corridor, it’s just not profitable.
And let’s face it; this is something the government doesn’t really have the capacity to fix. I would actually argue it’s the government that’s responsible for the inefficiencies keeping Amtrak from being profitable (again, outside the Northeast Corridor).
So it was no surprise when the International Business Times reported that there are now a number of U.S. venture firms — including the Carlyle Group — as well as some foreign companies from India, France, and China looking to pony up to get a piece of this action.
I would profoundly disagree with the point that government involvement is why Amtrak isn’t profitable. If it were, why does the Acela make money? The problem is that for purely political and ideological reasons, the government isn’t allowed to make the capital investments that would make the rest of Amtrak’s routes profitable by upgrading speed and reliability. Of course, I also don’t care whether Amtrak is profitable or not, but let’s be accurate about why is isn’t.
But Siegel’s broader point is that the private sector understands quite well that riders will flock to HSR systems when they are built, that profits are generated, and that therefore there’s an opportunity for them here. And he’s definitely right about that.
In Japan, Korea, and throughout Europe, high-speed rail has proven to be profitable.
All of these systems eventually incorporated some form of public-private partnerships where the private sector was embraced, not ignored….
In fact, because the potential profitability from these new high-speed rail systems is so staggering (we’re talking billions of dollars a year in direct and indirect revenue streams), I don’t think it’ll be much longer before a round of hefty campaign contributions results in Washington warming up to the idea….
High-speed rail is coming, my friends. And I have no doubt we’re going to be able to profit along the way.
The italics were in the original post, as Siegel wanted to make sure his readers got the point. With government stepping up to help support the project, especially with an initial capital investment, the risks are lowered and the private sector becomes willing to act. Those who argue the private sector should do this alone show they don’t actually understand how the investors make decisions or how they assess risk. It’s just not feasible for the private sector alone to finance and build megaprojects. Government has to play a role.
If it were up to me, government would not just play a role, it would be the entire cast. As we’ve seen on France’s TGV, Spain’s AVE, or the Amtrak Acela, government has repeatedly demonstrated that it is quite capable of building and operating efficient, popular, and yes, profitable HSR service. Any extra money should be plowed into system maintenance and expansion, not put in the pockets of people who are already wealthy.
Alas, that battle was lost in California some years ago, and may be lost at the federal level soon too. It’s worth continuing the struggle, but it’s not worth holding up the HSR project over it. California and the nation need high speed rail, as it’s an essential piece of a sustainable 21st century infrastructure and economy. We can always reverse the political economy of bullet trains later on down the line.