Tag: privatization

Will Congress Let Amtrak Stem Losses?

The federal government does a lot of things poorly, including trying to run businesses such as an electric utility, a postal system, and a railroad.

After the government helped ruin private passenger rail in the post-WWII years, it took over the remaining passenger rail routes in the 1970s under the Amtrak brand. Amtrak was supposed to become self-supporting, but it has consumed tens of billions of taxpayer dollars over the years.

Today, Amtrak operates 44 routes on 21,000 miles of track in 46 states. Amtrak owns the trains, but freight rail companies own nearly all the track. A Pew analysis found that Amtrak loses money on 41 of its 44 routes, and an analysis by Randal O’Toole found similar results. More information is here and here.

The few routes that earn positive returns are in the Northeast, and the biggest money losers are the long-distance routes. That brings us to a story in the Wall Street Journal regarding Amtrak head Richard Anderson’s current efforts to stem the losses.

Will Congress let Anderson cut money-losing routes or will it continue to put parochial interests above the system’s overall soundness?

Seeking to attract millions more passengers, Amtrak is preparing an overhaul of its national network targeting increased service in the South and West—at the expense of long-haul routes beloved by train buffs and their allies in Congress.

The goal is to revamp the way Amtrak runs trains on the aging network of national routes it already maintains, with more frequent service between pairs of cities, such as Atlanta and Charlotte, N.C., or Cleveland and Cincinnati. Running more trains over shorter distances would allow Amtrak to better serve those commercial corridors where rail can compete with flying and driving, railroad officials said.

The new service could come at the cost of curtailing some long-distance routes, where storied trains like the Empire Builder and the Southwest Chief have small but fervent bases of support and lineage stretching back to the golden age of U.S. railroads. Any change in Amtrak’s management of the national network will require approval from Congress, which has aggressively defended the long-distance routes in the past, even while pressing Amtrak to focus on improving its financial performance.

Amtrak’s long-distance routes carried about 4.5 million riders in fiscal 2018, down slightly from the previous year. Amtrak reported an adjusted operating loss of $543 million on those routes in 2018, more than offsetting the $524 million in earnings coming from its operations on the Northeast Corridor.

… Amtrak Chief Executive Richard Anderson, a former Delta Air Lines Inc. CEO, has hinted at his desire to boost ridership along densely populated corridors where Amtrak currently runs infrequent service—and has already tangled with supporters of long-distance trains in the process.

… “The present network simply does not fit the future,” [Anderson] said.

Anderson is right. But the best fit for the future would be a privatized Amtrak. Privatization would allow for innovation and cost-cutting to improve service and make rail more financially viable. A private rail company (or companies) could prune excess workers and end harmful union rules. It would be able to close the routes that are losing the most money and shift resources to the core routes to improve service quality.

Congress should get out of the passenger rail business and give rail the private-sector flexibility it needs to better compete against other transportation modes.

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Shulkin Out at VA

President Donald Trump has dismissed Secretary of Veterans Affairs Dr. David Shulkin amid disagreement within the administration over the future of the beleaguered  Veterans’ Health Administration, a single-payer health system whose closest analogue is the United Kingdom’s National Health Service. 

In a farewell printed in the New York Times, Shulkin criticizes proposals to improve health care for veterans by privatizing the VHA:

The private sector, already struggling to provide adequate access to care in many communities, is ill-prepared to handle the number and complexity of patients that would come from closing or downsizing V.A. hospitals and clinics, particularly when it involves the mental health needs of people scarred by the horrors of war. Working with community providers to adequately ensure that veterans’ needs are met is a good practice. But privatization leading to the dismantling of the department’s extensive health care system is a terrible idea. The department’s understanding of service-related health problems, its groundbreaking research and its special ability to work with military veterans cannot be easily replicated in the private sector.

Actually, Shulkin is probably right. The VHA has built expertise in treating the special challenges veterans face (which is not to say the VHA always treats veterans well). If privatization “dismantl[es] the department’s extensive health care system,” it could take the private sector years to fill in the gap. Simply “closing or downsizing V.A. hospitals and clinics” could well be “a terrible idea.”

Fortunately, that is not what privatization means. To privatize does not mean to dismantle. It means to transfer ownership of a resource from the government to private individuals. 

Privatization of the VHA need not dismantle any aspect of that unique system. All that privatization would or need do is transfer ownership of VA hospitals and clinics–of all the system’s physical capital–to the people that system exists to serve: veterans. The VHA would continue to exist as the nation’s largest integrated health system, and would preserve its capacity to meet the unique needs of veterans, but under the control of veterans themselves rather than politicians who persistently renege on the commitments they make to veterans.

Cato Vice President for Defense and Foreign Policy studies Christopher A. Preble and I explain in the New York Times how privatization can have bipartisan appeal:

The alternative system we propose combines the universal goal of improving veterans’ benefits with conservative Republicans’ preference for market incentives and antiwar Democrats’ desire to make it harder to wage war. 

Read more about this bipartisan VA privatization proposal in Chapter 14, Veterans Benefits of Cato’s Handbook for Policymakers (8th ed.).

Air Traffic Control: Remote Towers

Momentum is building for air traffic control (ATC) reform. With health care reform prospects dashed for now, and tax reform facing a difficult path, ATC reform could be an area for legislative progress in coming months. The Trump administration and House leadership are on-board with an ATC privatization plan passed through the lower chamber’s transportation committee. And while the Senate is always a hurdle for fiscally conservative reforms, privatization supporters have leverage because current funding for the ATC system runs out at the end of September.

Why do we need major ATC reform? This is a high-tech industry that is rapidly evolving, yet our system is trapped inside of the hopelessly sluggish Federal Aviation Administration (FAA). In other countries, independent ATC systems are moving ahead with an array of innovations. We are falling behind in a very real way, which has important ramifications for airport congestion, flight delays, and aviation safety.

Consider one cool new ATC technology: “remote” or “virtual” control towers. The iconic airport towers that have the big windows for controllers to see runways are likely on the way out. They will be replaced by visual and infrared cameras on runways able to pan and zoom, with the electronic feed going to control centers either nearby or hundreds of miles away. The feed will be displayed on wall-sized high-definition monitors that will be overlaid with electronic flight and sensor information.

The United States is behind on remote towers, as we are on many ATC technologies. The first remote tower was built by Saab and put in operation in Sweden in 2015, as shown in the photo. The company describes some of the advantages of remote towers here, including superior performance at nighttime and during bad weather. 

Privatize to Drain the Swamp

The new mayor of São Paulo is showing the way if President Trump wants to follow through on his “drain the swamp” pledge. According to today’s Wall Street Journal:

The multimillionaire star of the Brazilian version of “The Apprentice” TV show, who took over as São Paulo’s mayor this month, is set to embark on the biggest municipal privatization drive in the country’s history.

João Doria, who won a landslide victory in October and has drawn comparisons to U.S. President Donald Trump, said in an interview with The Wall Street Journal he plans to sell off everything from São Paulo’s carnival venue to rights to the city’s cemeteries, aiming to raise more than 7 billion reais (about $2.2 billion).

The plan by the businessman-turned-mayor comes as Brazil looks to shrink its cumbersome and graft-ridden government apparatus in the wake of a vast corruption scandal that has destroyed voters’ faith in traditional politicians.

“The heavy role of the state is one of Brazil’s most serious problems—it is inefficient and it invites corruption,” said Mr. Doria.”

The problem is the same in the United States, and so is the solution.

Privatize Washington’s Metro System

Some members of Congress are considering restructuring DC Metro’s management and oversight. Big reforms are needed given the disastrous service, safety, and financial performance of the system in recent years.

Why not privatize Metro? Countries around the world have been privatizing their transportation infrastructure in order to improve management and efficiency. Privatizing Metro buses would be straightforward, but even privatizing the subway system would not be an unheard of reform.

Hong Kong privatized its subway system in 2000. In a recent study on infrastructure, McKinsey reported:

Hong Kong’s MTR Corporation has defied the odds and delivered significant financial and social benefits: excellent transit, new and vibrant neighborhoods, opportunities for real-estate developers and small businesses, and the conservation of open space. The whole system operates on a self-sustaining basis, without the need for direct taxpayer subsidies.

MTR’s railway system covers 221 kilometers and is used by more than five million people each weekday. It not only performs well—trains run on schedule 99.9 percent of the time—but actually makes a profit: $1.5 billion in 2014. MTR fares are also relatively low compared with those of metro systems in other developed cities. The average fare for an MTR trip in 2014 was less than $1.00, well under base fares in Tokyo (about $1.50), New York ($2.75), and Stockholm (about $4.00).

That sounds pretty darn good. The average fare on the DC Metro is about $3. The on-time record of Metro is unclear, but in technical terms I think “crappy” best describes it. Note that Hong Kong’s 99.9 percent on-time record means that “of the average 5.2 million passenger trips made on the MTR heavy rail and light rail networks on each normal weekday, 5.195 million passengers safely reach their destinations within 5 minutes of their scheduled arrival times.” In 2014, “the system ran for 120 consecutive days without a single delay over eight minutes.” Wow.

That stellar performance induces strong demand for the Hong Kong system, which in turn generates high fare revenues. The ratio of passenger fares to operating costs is a high 185 percent, which means that fares fully cover operating costs and part of capital costs. MTR raises other funds for capital from real estate deals under which it gains from land value increases near stations. The Hong Kong system is profitable and unsubsidized. By contrast, the average ratio of fares to operating costs for U.S. subway systems is just 46 percent, and the systems are heavily subsidized.

The MTR is probably the best-run subway system in the world. The system is an “immaculately clean, well-signposted, cheap, regular, convenient system.” And there’s free Wi-Fi in most stations.

The system is so admired that MTR has been contracted to run systems in other cities. CNN says: “MTR Corporation now operates the London Overground, and two lines of the Beijing Metro, as well as parts of the Shenzhen and Hangzhou Metro systems in China, the Melbourne Metro in Australia and the Stockholm Metro in Sweden … London Overground enhanced its punctuality from 88.4% in 2007 to 96.7% in 2013 after MTR took over its operation for a year.”

Can we get MTR Corporation to expand into Washington? Metro Board Chairman Jack Evans wants a federal takeover of Metro, but how about a private takeover?

Devolving Federal Lands

The federal government owns 28 percent of the land in the United States, including about half of the land in the 11 westernmost states. Federal agencies are poor land managers in many ways, and the government’s top-down regulations on land use are frustrating to many Westerners, as I discuss in studies here and here.

Much federal land would generate more value if it were owned by the states or the private sector. Economic and environmental needs would be better balanced by local policymakers than by the unaccountable bureaucracies in faraway Washington. Increased federal control over lands does not automatically benefit the environment, as liberals seem to think. Instead, it usually creates disincentives for sound environmental management.

The good news is that the House took a step toward devolving federal lands yesterday, as reported by the Washington Post:

House Republicans on Tuesday changed the way Congress calculates the cost of transferring federal lands to the states and other entities, a move that will make it easier for members of the new Congress to cede federal control of public lands.

Many Republicans, including House Natural Resources Committee Chairman Rob Bishop (R-Utah), have been pushing to hand over large areas of federal land to state and local authorities, on the grounds that they will be more responsive to the concerns of local residents.

But…

Rep. Raul Grijalva (Ariz.), the top Democrat on the Natural Resources Committee, sent a letter Tuesday to fellow Democrats urging them to oppose the rules package on the basis of that proposal.

“The House Republican plan to give away America’s public lands for free is outrageous and absurd,” Grijalva said in a statement. “This proposed rule change would make it easier to implement this plan by allowing the Congress to give away every single piece of property we own, for free, and pretend we have lost nothing of any value.”

Rep. Grijalva gets it backwards. Devolving ownership would increase the value of federal lands to Americans, not reduce it. And far from being “outrageous and absurd,” devolution was the general policy of the government for much of the nations’ history. The federal government privatized 792 million acres of land between 1781 and 1940, and it transferred 470 million acres of land to the states.

President-elect Donald Trump and his nominee to head the Department of the Interior apparently lean against devolving federal lands. But I hope they reconsider, as there are 640 million acres of diverse lands we are talking about here. I am not saying that we should privatize Yellowstone. But what about the Bureau of Land Management’s 250 million acres, which is mainly used for cattle grazing?

Today, artificially low federal grazing fees encourage overgrazing. Federal ownership also makes ranchers insecure about their tenures, such that they have an incentive to overstock grazing lands and a disincentive to make long-term investments to improve the lands. Privatizing grazing lands would create more secure property rights, and thus encourage ranchers to improve their stewardship of the lands. That would benefit the economy and the environment.

A good first step for the Trump administration would be to create a detailed inventory of federal land holdings. Then the administration should work with Congress and the states to identify those parcels that might be better managed by state and local governments, nonprofit groups, and businesses.

 

How President Trump Can Fix Veterans’ Benefits Once And For All

Another Veterans Day brought another round of lamentations about the Department of Veterans Affairs and promises to fix it.

President-elect Donald Trump promised to do so throughout the campaign. Paul Rieckhoff, founder and CEO of Iraq and Afghanistan Veterans of America, is skeptical. Veterans are “used to big promises and disappointing results,” he says. “Fixing the VA might be one of the biggest challenges for President Trump. Every president says they’re going to do it, yet we’ve still got a VA with backlogs and massive problems.”

If Trump tries to fix the VA the same way other presidents have, he will fail. But there is a way he can succeed.

Trump’s predecessors failed because they tried to work within a model of top-down, centralized economic planning. The Veterans Health Administration is America’s only purely government-run health system. Its closest analogue is probably the United Kingdom’s National Health Service. The VHA even produces the same results as the NHS: chronic shortages and long waits for care alongside idle and wasted resources, instances of horrific care, and often good care, you know, if you can get it.

Presidents can and have fixed such problems temporarily by moving resources from here to there, or investing in some new system. It never lasts, though. The VHA is a socialist enterprise. Unlike a market system, it has no price mechanism or competitive pressures that automatically fix such problems when they re-emerge. And not only do they always re-emerge, Congress usually takes forever to get off its duff. If Trump retains the VA’s basic structure, he will join a long line of presidents who have failed our nation’s veterans.

How to Privatize the VA 

Trump can distinguish himself from other presidents by working with Congress to create a system of veterans benefits that fixes problems automatically. Here’s how.

First, the federal government should increase military pay sufficient to enable workers to purchase–from private insurers at actuarially fair rates–a package of life, disability, and health benefits equivalent to what the VA provides. Benefits would kick in as soon as they leave active duty and cover veterans’ service-related disabilities or illnesses for life.

Second, having privatized the insurance component of veterans benefits, the federal government should then privatize the delivery component. It should incorporate the VHA as a private company and issue shares to active-duty personnel and veterans based on length of service or other criteria.

You read that right. Military personnel and veterans would literally own the VHA, including its many hospitals and other facilities. Privatizing the VA would both increase the pay of active-duty personnel, and create a massive wealth transfer to active-duty personnel and veterans. Veterans would be able to receive medical care from health systems owned and operated by veterans, for veterans.

Third, the federal government should give current veterans vouchers to purchase insurance and medical care from the insurers and health systems of their choice, including the new veteran-owned and -operated systems.

Privatization Means Better Benefits for Veterans 

Privatization would improve the quality of veterans’ benefits immeasurably.

The federal government promises veterans’ benefits to military personnel once they leave active duty. Only it’s not an explicit promise. And Congress doesn’t fund it. As a result, Congress can–and does–renege on that commitment.

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