Thursday, September 10, 2015

The woeful state of high speed rail in the United States - the infrastructure crisis

In the doctor's office today the most recent magazine was a June 15th Fortune and it was a lucky find. First there was a compelling analysis of Union Pacific(UNP) and three months after publication the boat has not been missed.  With a 2.5% dividend, strong balance sheet, and a reliance on oil and gas shipments for only 4.6% of its revenues, it looks interesting.  There is still time.

Of greater interest was an article on high speed rail in the world with an amazing chart.  The chart cannot be reproduced here on this low tech blog, but the global comparisons that follow here are worth seeing.  The statistics are of  "miles of high speed rail, existing or under construction", in the listed countries.  Here goes.  The U.K. --- 70;  Saudi Arabia --- 342;  The U.S. --- 456;  Italy --- 651; Turkey ---719;  Germany --- 1,130;  Taiwan --- 1,130;  France --- 1,735;  Japan --- 2,139;  Spain ---2,376;  and China --- 11,622.  Other countries were listed in the Fortune chart that can be googled with a little effort.

Another word for "high speed rail" could just be "new".  The huge China number is not a surprise. With its GDP surplus, limited protections of property rights in the face of development by the government, and vast expanses of territory to connect, the world has watched China's build out in many areas.  The test over time will be whether the money invested is spent for productive purposes or if much of it spent on corrupt projects that will never pay back the capital invested.  The track record, pun not intended, on that in the real estate sector is already looking shaky.

What is obviously of concern is the lack of activity in the U.S.  That Spain, with its troubled economy, would have a number of miles more than five times the U.S. total is almost beyond comprehension. That little Taiwan has two and a half times more is stunning.  Everyone knows that France and Japan were the leaders over the last three decades in developing and implementing high speed rail, but Turkey and Italy ahead of the U.S.?

This is indicative of the lack of infrastructure spending in the U.S. that is on the verge of becoming a crisis.  At this point, the U.S. is far behind just on maintenance of its existing infrastructure of roads, bridges, airports, water systems, levees, rail lines, and more, such that the thought of actually building new infrastructure of consequence seems in the distant future.  The country prides itself on being a consumer driven economy, with 70% of GDP sourced from consumer spending.  Much of that spending is not, in an infrastructure or long term development sense, productive.  A focus on investment is needed desperately for a future that builds the capacity for good jobs and continues to attract capital and talent from around the world.

Politicians could address this, but unfortunately it would fall under the category of raising taxes.  That is not necessarily true at all, as there are many ways to finance projects.  Public/private partnerships should be considered, and these do not need to be like the financing of sports complexes. They can be legitimate business structures and not giveaways.  All of that is almost too difficult for a politician to articulate in a sound bite, and of no interest to the broad American public, one third of which can apparently be infatuated with Donald Trump.


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