Saturday, January 16, 2010

Transportation and Free Enterprise

Shortly after taking office President Obama announced plans for government spending that calls for “billions of dollars to rebuild roads and bridges, modernize public schools, and construct wind farms and other alternative sources of energy.”

He didn’t say much about railroads but it is common to ignore the differences between America’s highways and railroads. With highways everyone has equal access. Anyone can start a trucking company and be ready to haul freight and pay fuel taxes by using Federal highways and the interstate highway system. The trucking companies are private enterprise, but the roads are public enterprise so truck transportation becomes a joint partnership of business and government.

Railroads are private companies that build and maintain their right of way and they own their locomotives and rolling stock. America’s rail routes go back to the 19th century when the Federal government provided land grants to investors who built the lines.

Suppose for the last 50 or 100 years that anyone who invested in a locomotive and freight cars had the right to use the entire rail network as long as they paid fuel taxes just like truckers do for the highways. That way new shippers and new investors could decide trucks or rail without the need to spend billions building and maintaining their own railroads.

Think of a big shipper like United Parcel Service that started way back in 1907. Now they operate their own airplanes and their own trucks, but using the rails means an additional set of transactions with railroads. Shipping rates must cover the cost of fuel, locomotives and freight cars, but also the cost of capital and profit for the railroads.

When it’s time to decide rail or truck, the decision depends on different financial considerations rather than the best way to move freight. Since rail is not available with just the expense of locomotives, freight cars, fuel and fuel tax like it is for trucks, decisions favor trucks.

A whole highway, street and bridge construction industry has grown up from America’s system of interest free and pay as we go fuel tax finance for highways but not railroads. Railroads have to resort to risky private funding and fluctuating interest rates.

We can only speculate how much more rail transportation America would have if the rails and roads had equal access to financing, but even more important, if shippers could use the rails like they use the highways.

During the presidential campaign the Republicans pulled out their favorite bogeyman and called Mr. Obama a Socialist. The terms capitalism and socialism have special definitions in American politics. Socialists are bad guys in political campaigns, but socialist projects like the Interstate Highway System get funded anyway. We can also see that capitalism and socialism are not really the issue; it’s the rules and the finance that make the difference.

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