Sunday, October 23, 2011

Serious Business - Proposition 4

This is the fourth in a series of blog posts about how America might go about getting private enterprise back in the Passenger Rail business.

Proposition 4 is that bankers and venture capitalists are going to have to be willing to take more risk with less guarantee that government will back them up.

Hold on, you say?  This is supposed to be a blog about Passenger Rail and not about the sorry state of the banking system.  Well, the two overlap.

Proposition 4 probably applies to a lot of businesses, particularly heavy industries and heavily capitalized ones. Railroading is both.  America has gotten itself bunged up in an economic situation that has no way out without risk.  And this risk is going to have to be on the part of private enterprise and government both.  As a country, we have to be willing to believe that government bailouts of businesses -particularly financial ones - simply postpones the inevitable, and that the term "too big to fail" should not be a part of our vocabulary.

Now, from my point of view, government regulation and public policy drove the financial industry to ruin when institutions were forced to lend money to home buyers who had no hope of paying it back.  This house of cards had to fall.  No, I don't care who's to blame, but I do care who's to blame for our current situation.  Now we have a situation where the lending institutions are gun shy, and the government has just slapped on more regulations.  This is probably good for the single-family home market.  It will keep home prices reasonable for years.  But it's not good for the business community, and not for heavy industry.  Heavy industry runs on capital.  If the capital is not out there, heavy industry does nothing but stagnate.

I think Passenger Rail could return to the private sector if lending institutions were willing to forgo the promise of government bailout along with the regulations that come with it.  I think that, as time goes on, institutions with money to lend will see the upturn in demand for Passenger Rail, the astute management of the rail industry in general, and with God's grace the lifting of onerous regulation, and then see in Passenger Rail an opportunity to make a lot of money.  This will do a lot for the country and a lot to lift Passenger Rail out of the doldrums of Amtrak.

The only question is:  Do we have the political will to accomplish this?

By next time, I'll decide if there is a Proposition 5.

© 2011 - C. A. Turek -

Sunday, October 09, 2011

Serious Business - Proposition 3

So far, I have suggested two propositions regarding a new direction for intercity Passenger Rail in America.

The first was that the freight railroads could absorb some of the losses it may take to get passenger service re-integrated with the rail system in general.  I think this is true, but only under certain conditions.

The second was that freight railroads do not have handling passengers in their business plans, which, I think, is false for the reasons stated.  (Go back and read!)

Proposition 3 is that freight rail will want some serious concessions from government in order to re-assume the burden of moving passengers in any form greater than their lackadaisical handling of Amtrak.  I think this is true, but I don't think these concessions will have to be as costly as one might think.

Go back to the airport/airway model again.  Making railroads copy this model wholesale is just not a good idea.  The railroad business has too much capital tied up in land, track, and other infrastructure.  This wouldn't be a concession to a profitable private enterprise, but a wholesale nationalization.  But I think freight railroads, the profitable ones that have experience in leveraging real estate to their advantage, would listen if government was ready to provide the land and pave the way for new kinds of passenger terminals.

Didn't railroads used to lose money on terminal operations before?  Why would they want to go back there?  These questions do not jive with historical perspective.  Railroads lost money on passenger services for many reasons, the chief among them being loss of revenue to cheaper and faster modes of transportation.  But hear me out.

I don't have a crystal ball, but I don't see anyone saying that air travel is going to get cheaper or easier.  I don't see anyone saying that highway congestion is going to go away, or that trucks are going to stop using the Interstates altogether.  I don't see any competition on the horizon for moderately fast, comfortable and efficient Passenger Rail.  Terminal services, from large stations to small, could be where the already well established sales departments of freight railroads could shine.  I'm not talking about service from the 1930s to the 1960s, but the kind of amenities that could be provided today.  Luxury hotels, amusement, shopping, short-term layover facilities, casinos, tours, and things that haven't been created yet, all integrated to a much greater degree than possible before our digitally connected era.

I think there are freight rail companies that would be willing to get things like this going for passenger rail, and make them profitable, given just the minor subsidy of real estate to build on, and the minor guarantee from government that the tax structure and regulations for this form of transport would remain predictable and stable for the better part of a half century.  Railroads aren't the staid old corporations run by grandfatherly old men that many people think of when they think of railroads.  In the new era, the average railroad executive is going to be just as connected as the rest of us.  And maybe just as creative.

Next time, Proposition 4.

©2011 - C. A. Turek -