There are two business issues at work here. There is the HSR business plan, which the California High-Speed Rail Authority refuses to produce in legitimate investment-grade form. Then there is the cost-benefit of high speed trips on the train for the business class of travelers, those expected to be the back-bone of the total ridership.
This point has been made before in this blog. What's the hurry? What's the need for speed? Is professional productivity the issue? Is it that the faster the train, the sooner one can arrive at business meetings in other cities? Does everyone's schedule demand shaving and saving minutes from their schedules? What are the actual cost-benefits of the cost difference between regular express train trips in Europe and the high-speed rail costs?
Let me put that another way, is all this enthusiasm and demand for faster trains a gut intuition that faster is better? That 200 mph is better than 150 mph? That arrival at 2:00 is better than arrival at 2:30?
What if the train ride itself is highly productive for all those in-a-hurry business professionals? What, with wi-fi, comfortable seats and desks, food carts and other conveniences such as club and dining cars, not only is getting there half the fun, it's also half the business trip as well as office time. We are learning that in today's infotech world, our office is where our lap-top and PDA are. Aren't we conducting business in restaurants, golf courses, the dry cleaner? Don't we now work in the office AND at home. In that case, the train-ride, regardless of time under way, is not wasted or lost.
My point is that for professionals in the business sector, the cost-effectiveness of speed is expressed with an asymptotic curve. That is, after a certain optimal point on the graph, the costs will still keep increasing but the benefits flatten out. A one half hour longer train ride does not mitigate our productivity on the train; we are simply one half hour more productive at a far lower cost when we get there.
Our obsession with speed is, to a great degree, emotional, irrational and testosterone-driven. It is also an easy metric for the competitive culture in which we find ourselves. We buy cars with top speed of over 150 mph but never, ever reach those speeds. Our expensive, speedy car gives us bragging rights. How much is that worth?
Our high-speed trains are promoted on the basis of their top speeds, but that ignores the realities imposed by the train route that keep average total speeds at a far lower limit. The perceived benefits of HSR are not so much whether the train ride is one or one and half hours long; it is the trains' luxury and exclusiveness. HSR is posh, as they say in the UK.
But for realists, such as those economists who judge the market by measures that are conceived in cost/benefit terms, the high-speed rail obsession is highly over-rated. As the article, below, points out, HSR like the HS2 in the UK can't make a compelling business case. We are discovering this in California as well where we are still, now impatiently, waiting for the investment-grade business plans that have eluded the rail authority's honestly and capacity.
The Brits., as we have said numerous times, are on a parallel train route headed for the same train wreck we are. They are doubtlessly watching our HSR disaster unravel, just as we are theirs. Perhaps they are learning from us. Shouldn't we be learning from them?
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PUBLICSERVICEEUROPE
Cancel high speed rail, UK government told
12 May 2011
The political story that the British government wants to spin is pretty simple – Conservatives in Buckinghamshire protest due to unfounded fears it will scar the countryside, brave political leaders press on knowing that the country needs high speed rail.
The reality is very different but simple too. The scheme is a big fat waste of money and not in the national interest. Politicians are ploughing ahead with a white elephant.
The business case for the line doesn't stand up to scrutiny. In the latest version, they have toned down their incredibly optimistic forecasts for rising demand. But they are using what economists call a fixed elasticity model to predict demand all the way out to 2043. Senior figures in the transport industry like Sir Rod Eddington have worried about using those models for forecasts of anything more than a decade in the future before.
They still rely on the idea that people do not get any use out of their time on the train. It makes sense that people are less productive than they could be in the office, but the idea they do not get anything done is unrealistic, particularly with advances in mobile communications.
The government's line is that this is not critical as they will reduce overcrowding, and make it easier for people to work on the train, but more affordable alternatives – one imperfect alternative not given a fair hearing, called RP2, is contained in the consultation document – will mean even less overcrowding.
Not properly considering those alternatives, not using a proper comparator, is the final big flaw with the HS2 business case. You just can't work on the basis that without HS2 the network will get no improvements for 30 years and that even improvements operators are already planning do not go ahead.
Despite all those assumptions flattering HS2 in the business case, it still does not look great. The ratio of benefits to costs does not match up to the standard normally expected of road projects, for example. The project is not good value.
We have seen these kinds of mistakes before. Research by Danish academics in 2006 found that "for nine out of ten rail projects, passenger forecasts are overestimated; average overestimation is 106 per cent." [Edit. That's Bent Flyvbjerg.] When the Public Accounts Committee looked at HS1 they reported that the Department for Transport had told them "next time it considered undertaking a major transport project, it would factor more severe downside assumptions into its business case analysis".
HS2 is expected to cost well over £1,000 a family. It would be incredibly irresponsible to go ahead if the business case does not stand up.
It would also be unfair. Long distance train journeys are mostly enjoyed by the well off. 47 per cent of those journeys are taken by those in the top income quintile. With all the strains that the public finances are likely to be facing for some time, can we really spend a fortune on high speed rail for a fortunate minority of passengers while everyone else faces cuts and higher taxes?
Some towns will get a worse service. Coventry for example will go from three trains to one train an hour and it will be slower. The government claim that will not happen, that those plans are at early stages, but there is no way it will be commercial to maintain the same service to Coventry if it is not also carrying passengers to Birmingham, and their business case includes a total of £5.4bn in savings from reducing existing services. If that does not happen, HS2's cost to taxpayers will be even higher.
It is often said that we need high speed rail to keep up with other countries building it. But the Netherlands are regretting their programme which is facing bankruptcy. The Americans have largely given up on theirs as states balk at the likely need for expensive subsidies long into the future. The Chinese ministry responsible has racked up a $200bn debt and the minister has been arrested.
We have reached the stage of "me too HS2" where governments are behaving like jealous neighbours. They buy expensive garden ornaments to show off instead of thinking about what they really need around the home.
Voices ranging across the ideological spectrum from the Green Party to the TaxPayers' Alliance to the Conservative competitiveness guru Simon Wolfson have lined up to say that this scheme doesn't make sense. The government need to listen and cancel it.
Matthew Sinclair is director of the TaxPayers' Alliance
