Thursday, February 10, 2011

Lessons to be learned: China is on track to over-build HSR

Here's the first blog for today.  China.  They have become globally recognized for building more high-speed rail than any other country.  Therefore, we envy them because we think of ourselves being in an economic race with the Chinese, who are catching up with us and getting way ahead in the development of mega-infrastructure.  They are doing this not only with rail, but with highways and runways as well.

Very recently, words of caution and criticism (in China!!) about their HSR expansionism have emerged.  Maybe they are building too much. Ben Schulman, the author of the article below, is obviously a HSR supporter.  He echoes the "build it where it makes sense" slogan.  John Mica, the House Transportation Committee Chairman, says if it makes sense anywhere in the US, it's the Northeast corridor.

I'm not at all convinced it makes sense anywhere for a number of reasons.  However, I am totally convinced it makes no sense in California and there exists already a huge amount of empirical data that verifies this to be the correct position.

We would do well to attend to China's cautionary lessons.  It is way too easy to spend far too much money to build something that will receive very little use.  You have to ask this question.  If you build a railroad to Los Angeles, and the difference in ticket costs is twice as much to make the trip in three hours than to make it in five hours, what percent of total ridership will opt for the faster, more expensive ride? 

Why would tourists with their families spend twice as much if the slower ride is equally comfortable and convenient? (Wi-Fi, dining and club cars, etc.)  Think about it.  How often in our lives is two more hours so critical that we willingly spend hundreds of dollars to get from point A to point B faster?  It's what is called "opportunity cost" in the article. 

Indeed, why would anyone who doesn't have a generous disposable income to deploy, or who isn't on a corporate travel expense account, ride the more expensive train?  It's very much the same issue with riding first class or coach on commercial air carriers, except in this case all passengers arrive at the same time.  Needless to say, there are many more coach passengers than first-class passengers.  The same is now true in China's HSR system, and many of those trains run half empty. 

There's really not substantive reason to build the train in California, unless, of course, you believe that everyone in California will be far more wealthy than we are now.  How likely is that?  There are, of course, many extrinsic reasons offered in both China and the US for HSR construction, such as jobs, economic benefits, etc.  These are examples of sloganeering, where their endless repetition makes them appear as truisms.  The Chinese are building their HSR for prestige reasons and to artificially pump up their economy.  That will all come crashing down around them and they are now wising up to that fact. 

Then, the final question has to be, why are we intent on building a luxury train for the rich and well to do?  Rest assured, that even if the HSR trains run fully occupied, there will be very few of them running, they will be hugely expensive at the farebox, and they will be massively subsidized by us in the state and in the nation.  

Are we high-speed rail lemmings mindlessly running behind China over a financial cliff?

This long article is justified here because even if there are aspects with which we can disagree, (Chicago hub rail expansion is a good thing), it's well worth reading because the more we know about what's going on with HSR in the world, the better we will understand what's going on in our backyard.



by Ben Schulman 02/10/2011

In a technical sense, the economy has been in recovery since June of 2009. A year and a half into the rebound though, a general cloud of economic malaise continues to cover the nation. Fears of a diminished America are perpetuated from our political and punditry classes. We are told that our collective lack of preparation, education, innovation, industry, and of infrastructure are all setting us up to fall further. Economic indicators may reflect a bounce-back, but structurally, America is waning. 

It is China that is increasingly emerging as the world’s bright spot in terms of development. With its 10% annual growth rate, an economy poised to become the world’s largest, and a strategic smart-growth development plan, resplendent in renewable energy splendor and high-speed rail, the nascent superpower is aimed ever upwards.

This tidy narrative that the doom-chatterers both envy and fear is being dented by a number of recent stories concerning Chinese rail initiatives. As Tsinghua University's Economics Professor Patrick Choavec writes, China’s high-speed rail is "expensive both to build and to operate, requiring high ticket prices to break even. The bulk of the long-distance passenger traffic, especially during the peak holiday periods, is migrant workers for whom the opportunity cost of time is relatively low. Even if they could afford a high-speed train ticket — which is doubtful given their limited incomes — they would probably prefer to conserve their cash and take a slower, cheaper train. If that proves true, the new high-speed lines will only incur losses while providing little or no relief to the existing transportation network.”

Similarly, individual Chinese municipalities are eagerly developing subway systems, but as Chinese political scientist Zhang Ming wrote in China Daily, "geographical conditions in many cities are not conducive to building and/or maintaining subways. The landscape and hydrological conditions of a city determine whether it can have a subway... medium-sized cities may not have enough commuters to sustain a metro. Even in many large cities, which have enough commuters, subways are running at a loss because of the very high cost of operation and maintenance.” Historically, drive and a true demand have never run into a topographic problem it couldn’t solve, but these examples do raise questions about the efficacy of blanket government policies that ordain massive, heavily subsidized projects. Could such ventures produce results that are opposite of their intended outcome?

China can find the answer right here in the States. The Italian sociologist Marco d’Eramo has related how the Home Owners’ Loan Corporation in 1933 and the Federal Housing Authority in 1934, created in part to stem the mass wave of Great Depression-related foreclosures, did “more than any other measure… to contribute to turning America into a nation of unconquerable homeowners.” To increase homeownership for all, both agencies devised classification systems that assigned values to neighborhoods and homes that they then sought to rehabilitate through loans to potential buyers. The resulting standardized divisions largely enforced segregation in the name of stability, only further depressing segments of the housing market.

Recent lessons from the Great Recession’s continued housing fallout show us how government policy can produce the opposite effect of its initial intention, as well. The still-reeling property values of neighborhoods nationwide, and the huge tracts of unused housing at the periphery of metro edges were created with the encouragement of government bodies just like the HOLC and FHA’. These policies expanded the cause of homeownership without taking into consideration the actual demand and cost. Subsidizing trains that very few can ride is quite similar to encouraging the building of houses in which very few can live.

At least initially, it is easy to see why such investments look good to government entities. They promote job growth, increase demand for supplies and resources, and contribute to overall GDP. Where something wasn’t, something now is. But they are unsustainable projects in the long run. Without continued government subsidies—or of higher wages for Chinese workers to afford train tickets, or of an endless supply of cheap credit to US potential homebuyers—they tend to eat off of themselves. The eventual decline in Chinese trade ridership and in US home purchases shows the peril when government policies create incentives for development without real, inherent demand .

With this in mind it is important to view President Obama’s high-speed rail proposals in the context of each location. High-speed rail is an important, necessary step to upgrade America’s infrastructure in certain locales, but it is not an across-the-board panacea. Chicago, for example, the rail capital of the nation, beset with both passenger and freight rail congestion, is a logical beneficiary of dedicated high-speed rail funds to develop a system capable of handling its latent demand and to untangle its gridlock. With Chicago's large economic presence over its neighbors, it makes little sense, then, that freshly minted Wisconsin Governor Scott Walker remains adamantly opposed to a project that would benefit Milwaukee and Madison.

Other places, though, have valid qualms. Cost concerns in Florida, for example, are legitimate. The 90 mph top speed on the Southeast High Speed Rail Corridor between Charlotte and Raleigh doesn’t sound too, well, high-speed. Cities like Denver, which supports a dense enough population to represent a demographic demand for light rail, can encourage its development as its roads reach capacity. In states like South Dakota and Iowa, it may mean going back to dirt.

The new head of the House Committee on Transportation and Infrastructure, Rep. John Mica (R-FL), made sense when he said, “I am a strong advocate of high-speed rail, but it has to be where it makes sense”. There is a difference between creating infrastructure for which there's an inherent demand and nudging people to utilize it, and developing large-scale infrastructure projects for their own sake.

Knowing the limitations of past attempts and failures, America has a chance to outgrow its mistakes and render the supposed competition with China irrelevant, as that aspiring nation fumbles in its own policy prescriptions. Harnessing the lasting lessons of the Great Recession means understanding that success isn’t measured in the size of a home, or in the length of a high-speed rail system. It's measured in the effectiveness and efficiency of a place. If the U.S. holds this to heart, no one could be better primed to compete, as China’s empty trains swiftly rattle onwards.
Photo by Ivan Walsh, High Speed Bullet Train, Beijing to Tianjing, China
Ben Schulman is a Chicago-based writer on urban affairs. One of the proprietors behind independent record label Contraphonic, Inc., Schulman also heads the Contraphonic Chicago Sound Series.