Monday, January 28, 2013

HS2 - Why politics needs to get out of transport

The announcement today of the proposed route for the second phase of a high speed railway out of London beyond Birmingham to Manchester, Liverpool and Leeds should be read in future as a textbook case as to why politics needs to be removed from transport policy.  It is, encapsulated in a tidy package and £33 billion of money that will have to be borrowed from future generations, an almost perfect example of a political "boondoggle" as they are known in the United States.

Almost all of the claims made about this project are dubious.  It wont deliver economic nirvana to the areas it serves, it wont generate economic benefits above the costs of building it, and it is highly unlikely to regenerate more than a handful of small areas.  What it will be is a massive transfer of wealth from future taxpayers across the UK to a handful of construction companies, engineering consultancies, property developers and finally the relatively small numbers of people who will use the railway.

What is worse is that the Government portrays opposition to the project as being solely about people living along the line who will be affected by its construction and the noise, intrusion of a new railways through their properties.  NIMBY is a term used by anyone who wants to demean the interests of private property owners who don't want their property taken for someone else's purpose.  These NIMBYs wont stop the project.

However, the real opposition to the project is the shoddy business case.  You can always buy off NIMBYs with compensation and new routes (after all, it's just about borrowing more money from voters who haven't been born yet, so can't punish you for wasting their money).  It is harder to argue economics, especially when so few Ministers are able to tackle officials and lobbyists on the big issues, and when it is seen as being politically positive.

The opposition itself, the Labour Party, doesn't make that argument, because it simply can't, as it started the project in the first place.  

Besides, HS2 is a symptom of a wider problem.  The belief that politicians are able to make these strategic infrastructure decisions wisely.  Given the UK's history at failing to do so, you'd think they might learn.  Concorde, as beautiful and technically magnificent as it was, was an economic disaster and left no sustainable legacy for its monumental expense.  Indeed, the UK's entire commercial airliner manufacturing sector was largely decimated by inflexibility and state demands that it provide bespoke aircraft for the UK's then state owned airlines BEA and BOAC.  

So why is HS2 wrong?


Eddington

The previous government commissioned Sir Rod Eddington to do a fundamental strategic review of the transport sector and transport policy, he reported in December 2006.  It is telling that the Brown Government didn't like what he said, because the report was largely ignored.  

It came to some very clear conclusions about why high speed railways will deliver little for the British economy:


Although care should be taken with generalisations, the UK’s economic geography means
that the principal task of the UK transport system is not, in comparison to the needs of France
or Spain, to put in place very high-speed networks to bring distant cities and regions closer
together, in order to enable trading and facilitate economies of scale. Instead, because the
UK’s economic activity is in fact densely located in and around urban areas, domestic freight
routes and international gateways, the greater task is to deal with the resulting density of
transport demand.


In other words, congestion on existing networks is the critical concern, and the ways to deal with that are a combination of pricing and bottleneck relief projects.

Given that Britain has long had a fast railway network, with speeds of 125 mph (as the privately owned railways in the 1920s and 1930s sought to compete with each other and road transport), the incremental benefits of going to 186mph are limited.  

Eddington said:


a new high-speed rail line between two cities would not offer the economy significant new connectivity or trading opportunities, if those cities were already a day-trip away from each other by existing rail, road or air links. However, new high-speed rail networks in the UK would not significantly change the level of economic connectivity between most parts of the UK, given existing aviation and rail links. Even if a transformation in connectivity could be achieved, the evidence is very quiet on the scale of resulting economic benefit, and in France business use of the high speed
train network is low.

...step change measures, such as a new nation-wide very high-speed train network, are not, in a world of constrained resources, likely to be a priority. That is why it is critical that the government enforces a strong, strategic approach to option generation, so that it can avoid momentum building up behind particular solutions and the UK can avoid costly mistakes which will not be the most effective way of delivering on its strategic priorities.


This, of course, is exactly what is now happening.  The momentum is building up behind HS2, when it is a solution looking for a problem.  There is precious little evidence of unfulfilled demand for high speed rail services in the current environment.


You can see it now on the London-Birmingham rail route, which has the special benefit of being the most competitive intercity railway route in the country.  Three rail companies operate passenger services on the route.  From Euston Virgin Trains operates the 125 mph fast trains and London Midland operates slower 100mph stopping trains and Chiltern operates trains on a completely different slow (70-100mph) route from Marylebone to Birmingham.  If you believed the speed hype, you'd think the fast trains would dominate, but in fact the slow ones are packed with people, paying lower fares, because the saving in travel time isn't worth it to them (bearing in mind the fast trains save around 45 minutes off of the trip).  

Need for new capacity

One of the core arguments for HS2 is that the railway will face a capacity squeeze in the medium term.  Unlike, airports and roads, this is seen to be unacceptable.  The old philosophy of "predict and provide" is alive and strong in railways, so if more people want to use the railway than it can carry, the idea of increasing prices to ration a scarce resource is absent (which has the added benefit of eventually self funding any capacity improvements from those who pay a high price to use it).  Instead, taxpayers are expected to pay for it.

The key arguments about new capacity come down to this:
-  There is ever growing demand for intercity travel along the proposed corridor;
-  There are particularly constraints to capacity south of Birmingham that limit the ability to grow commuter services on that part of the line, and hence grow commuter housing there;
-  The alternatives are more disruptive and less beneficial.


Yet this deserves some serious questioning.  There was substantial growth in the period leading up to the current economic crisis, and one reason for that is that the West Coast Main Line upgrades (substantially taxpayer funded, that went several times over budget) reduced journey times, along with the new faster Pendolino trains on the route.  These attracted some passengers from air services, coinciding with significant deterioration in air service quality due to increased security and ever increasing delays at Heathrow Airport due to a lack of capacity.  What good reason is there to assume this will continue?  The 19% increase in population is a fair source of increased demand, but why should there be ever increasing intercity rail travel growth when road and air traffic growth are not presume to increase (bearing in mind the political decision to freeze airport runway capacity in London, and to essentially freeze urban road capacity in major cities).

Even so, today there is ample capacity on the line outside peak times.  Service frequencies increased 50% a few years ago, but outside peak times, fares are cheap because trains have many spare seats.  This suggests that with more peak pricing, demand could shift outside the busiest periods or to other modes (i.e. leisure travellers on competing express coach services).   However, why should intercity travel, by rail, that is highly priced at peak times be a negative for economic growth?   That is never adequately answered.

Indeed the HS2 business case is explicit in saying that DfT is incapable of assessing the effects of demand responsive pricing:

Since the strategic modelling suite  used to assess both HS2 and the alternatives is not designed to be  capable of modelling the impact of demand management techniques, the Department agrees that it may be possible to improve the case for some, if not all, of the alternative packages in this way.

Yet this is then pushed to one side because others claim that HS2 itself could have more benefits by using peak pricing.  This logic is madness, because it suggests that you should ignore better pricing of existing services and capacity until you've committed to adding new capacity, then price it wisely.  What business in the real world operates on this basis?

What about on lines approaching London? Isn't there a case that by removing intercity fast trains from existing lines, that new commuter services could operate, allowing the townships along the line to expand to accommodate more people working in London?  There the arguments are more sound, except the existing commuter services if overcrowded could be addressed through pricing.  Higher prices at peak times would reflect the relative demand and supply of capacity, and allow demand for rail services along that corridor to be moderated between intercity and commuter services.  After all, why should people living along that corridor get a massive uplift in services paid for by taxpayers when other commuters do not, and certainly car commuters (who often have little other realistic alternatives) do not either.


Given the existing network is already very busy during peak periods, it is possible that any demand management activity under alternative packages would also involve fare increases on overcrowded peak services to encourage rail passengers to travel on earlier/later trains. Such a policy could generate additional net revenue from crowded rail services, depending on how it is designed, and could improve conditions for those passengers who continue to travel at the busiest times. However, passengers who decided to change their travel patterns could experience welfare benefits or disbenefits.

So, it understands, but dismisses the fact that some people could change travel patterns as being a negative.  Yet, like any pricing, this is true, but is typically offset by the extra revenue and improved conditions for existing passengers.  Of course, the welfare disbenefits for taxpayers having to support the debt, interest and subsidies for HS2 are well out of scope.

Eddington says while there can be benefits from relieving commuter lines, there are likely to be better ways of achieving them:

Faced with such arguments, supporters of HSLs point to the capacity increases such new lines would deliver in London and selected urban areas by removing some or all interurban trains from commuter and freight lines.  Such benefits are likely to be both real and substantial. Crucially though, these goals could be achieved by other solutions, and perhaps at much lower cost. The range of policy measures would include fares pricing policy, signal-based methods of achieving more capacity on the existing network, and conventional solutions to capacity problems e.g. longer trains. Indeed, in keeping with a non-modal approach, the measures assessed should include improvements to other modes that support these journeys (e.g. motorway, bus, and urban access improvements).

In other words, there are more cost effective ways of addressing peak capacity problems on the West Coast Main Line into London, ranging from targeted bottleneck improvements, longer trains, pricing, new signalling technologies (ERTMS is the new signalling technology that dynamically controls trains by abolishing trackside conventional signalling in favour of computer managed slots, increasing capacity).  In addition, there should be improvements in highways, bearing in mind the potential express coaches are already realising at no cost to the taxpayer.

Network Rail itself did a study into (rail based) alternatives, with a clear tone of reluctance to support them.  It did say that one option would cost £2 billion (and perhaps more), but would be unsatisfactory because by 2026 all seats on commuter services would be occupied, and some passengers would be standing for periods of half an hour or more.  This, of course, is the norm for thousands of commuters every day in London today, on the Underground and surface rail services.   The report gives the strong impression that this option is seriously inferior to HS2, which for 10% of the cost isn't surprising, but from a cost-benefit point of view will be quite different.

Another option is £3.6 billion, and also delivers a fraction of the benefits of HS2. 

An economic appraisal has been undertaken of the alternatives, but tries to downplay the superior economic appraisal outcomes, and exaggerates the disruption of doing work on the existing railway.  The claimed benefit/cost ratio of HS2 is a range of 1.7-2.5 , but the alternatives are from 1.61 to 6.06. What this suggests that even if you accept the assumptions behind the business case of HS2, it is far superior to spend £1.2 billion for the "51M" proposal of improvements or the £1.8-£2.5 billion for the "Package 2 or 2A" improvements than HS2.  Indeed, doing such work would delay the "need" for HS2 by around 20 years if demand continued to grow.

Delaying capital expenditure of £30 billion for 20 years is a worthwhile saving, but this is ignored.  Indeed, the main reason it is ignored is because the alternatives, as stated, wont deliver the capacity relief at the London end that is desired.   However, there has been little consideration of how these alternatives could be enhanced to do that.  After all, a doubling of the £2.5 billion of Package 2A in cost could achieve that, at a fraction of the HS2 cost, but it is clear that there is little interest in doing this.  One conclusion could be that politicians, and following their instructions, officials, have simply built up momentum with HS2.  After all, increasing amounts of "advice" on this project come from HS2 Ltd - a company set up by the government to manage the project.  It is hardly going to say or commission reports that say "it doesn't look like a good idea", as it would be bureaucratic suicide.

Questioning the benefits

The largest assessed benefits of HS2 are in business travellers saving travel time, which is in part based on the assumption that travel time is unproductive on a train.  In an age of mobile phones, laptops and onboard wifi, this assumption has to be fundamentally flawed.   This hasn't been totally ignored, as a small report was undertaken to investigate it, but it comes to the conclusion that if this point is accepted, then it should also be accepted that less crowded trains enable people to work on them.  Yet, this in itself is really only applicable to commuter trains and presumes that people on commuter trains work - on trains with little privacy, no tables and no wifi.  This point is essentially whitewashed due to lack of evidence, and suggests further work be done with sensitivity tests.  It is unclear whether these have actually been undertaken.  

However, it suggests that by halving the business value of time benefit, it may be a more realistic assessment. Doing this makes a notable difference, as the BCR of the London-Birmingham segment drops from a midrange assessment of 1.6 to 1.2 (including "wider economic benefits" which I will come to later).  Without "wider economic benefits" the BCR drops from 1.3 to 0.9.  At very best, the project looks borderline.

Some politicians say this is about relieving airport capacity and shifting people out of cars, but DfT admits this is marginal.   11% of users will shift modes, 3% from air, 8% from car.  Notably nothing has been said about coaches which offer non-stop unsubsidised express services now, and will face serious subsidised competition.  

Environment

The environmental case is even more questionable, as a majority of users will be users of existing rail services, and high speed railways typically have higher energy consumption than conventional railways, it is fair to say it will mean emissions increase per existing rail passenger. This is included in operating costs, which of course makes it less transparent. The second highest group of users are new users, so by generating more trips, there are more emissions. Bizarrely, this is completed excluded from the analysis, whereas for road projects, induced traffic is typically considered to create a disbenefit in emissions.  Reductions in air travel are considered to be neutral because airline passengers are assumed to already pay for emissions through the Emissions Trading Scheme (and may also be said to do so through Air Passenger Duty).  Reductions in car travel are estimated to cut emissions as well, by a value of up to £240 million, but by excluding the new trips by train, the environmental case is incomplete.  Another £550 million is"saved" by reduced noxious emissions from cars and car accidents, although the assumptions around this (with ever improving vehicle safety, new technologies that obviate collisions and loss of control accidents, and ultra-low emission vehicles) are questionable.  It is likely that, if fuel excise duty is substantially replaced with road pricing within the next 20-30 years (not least for revenue protection reasons), that many of these savings reduce considerably, although it might make rail marginally more attractive. 

Wider economic benefits

"Wider economic benefits" came to light in the past decade or so as economists noted that some of the effects of large infrastructure projects were not captured in the conventional economic appraisal of the projects.  Conventional appraisal takes travel time savings, savings in operating costs and reduced accidents and emissions, so that a project that delivers monetised benefits over capital and operating costs is seen to be positive.  However, wider economic benefits are seen to be beyond that. These are "agglomeration benefits" (when lots of similar firms co-locate and can enhance the attractiveness of the location, the competitiveness of the firms and attract more labour - London's role as a financial service centre is just that), "labour market impacts" (when firms can gain access to more potential employees and potential employees can get better jobs due to improved access to them), and "imperfect competition" (whereby the savings in transport costs are likely to underestimate the total savings to firms and their customers).  

In the case of HS2, they add 20-25% upon the conventional "benefits".   However, the academic basis for these is questionable at best.  


It is consistently reported that HSR does not generate any new activities nor does it attract new firms and investment, but rather it helps to consolidate and promote on-going processes as well as to facilitate intra-organizational journeys for those firms and institutions for whom mobility is essential.  In fact, for regions and cities whose economic conditions compare unfavorably with those of their neighbors, a connection to the HST line may even result in economic activities being drained away and an overall negative impact (Givoni, 2006; Van den Berg and Pol 1998; Thompson 1995). Medium size cities may well be the ones to suffer most from the economic attraction of the more dynamic, bigger cities.  Indeed, Haynes (1997) points out that growth is sometimes at the expense of other centers of concentration. Several reports describe the centralization of activities in big nodes, especially in the services sector. It is perhaps worth pointing out that only those cities with a significant weight of services in their economic structure appear to benefit from HSTs. In other words agricultural and industrial activities are indifferent to HST stops. Evidence of this lack of economic impact is the little attention given to a HST railway stations by firms in their location decisions, even
those of service companies.

So what that implies is that cities not served by HS2 will lose, as those served get businesses attracted to them, and that the largest cities gain the most, meaning that far from promoting greater activity in the north, HS2 will promote more economic activity in London, at the expense of the south-west, Wales, Scotland and all places in between.

It might be good for a little tourism at best:

HSR impacts on the tourist industry by promoting the number of leisure travelers to connected cities but at the same time it reduces the number of nights spent in hotels.

Roger Vickerman, from the Centre for European, Regional and Transport Economics, at the University of Kent, Canterbury, wrote that:

Following this theme, initial research into the impacts of the French TGV lines focussed on the relative impacts on Paris and the provincial cities. This suggests that although such services led to a substantial growth of traffic the impact on the local economies of the cities served was much less certain. Generally such services cannot be shown to have had a major impact on the net redistribution of economic activity between Paris and the provincial cities, or on the overall rate of growth of these cities.

The evidence includes studies of the TGV Sud Est, Paris-Lyon, opened in 1981 (Plassard and 
Cointet-Pinell, 1986), the TGV Atlantique, including a study of Nantes, opened in 1989 

(Klein and Claisse, 1997; Dornbusch, 1997), and early studies of TGV Nord, including 

studies of Lille and Valenciennes, opened in 1993 (SES, 1998; Burmeister and Colletis-Wahl, 
1996). All of these studies demonstrate a considerable growth in traffic between Paris and 
each of the provincial cities since the opening of TGV. The impact on business traffic is more 
mixed....

The Paris-Lyon study showed a major impact on the pattern of mobility, but with changes in both directions. Essentially many businesses in both locations modified their pattern of working leading to increases in travel in both directions. There was no overall net impact on the economies of either of the major cities, but a general tendency towards the concentration of economic activity towards these major cities from the regional hinterland, especially in Bourgogne and Rhônes-Alpes regions. This centralising effect of high speed rail is now a well established impact.

In other words, the primary impact appears to be to concentrate activities in major cities which it services.  London would be the main beneficiary, but so would Birmingham, Manchester and Leeds.  The losers will be satellite towns or others on the way, and less obviously, the other cities that are not serviced.  It is questionable, for example, if having stations on the outskirts of the likes of Sheffield will help or be a hindrance to such cities.  Bear in mind that the likely net impact is that as much will be attracted to these cities as is lost by them to London, and most importantly, it is highly unlikely to have a net positive impact for the economy as a whole.  HS2 wont attract new business to the UK.  It is difficult to see why it would.

Finally, there is the case for regeneration, which was made for HS1 before it was built.  John Preston, Adam Larbie and Graham Wall, Transportation Research Group, University of Southampton examined the impacts in a paper called "The Impact of High Speed Trains on Socio-Economic Activity: The Case of Ashford (Kent)".  Their conclusion was that there were very limited economic impacts on Ashford and those that could be implied are difficult to distinguish from other factors.  However, they did suggest that such benefits would be apparent in large regional cities, but that many of these are transfers from other cities in the same country.

In short, the case for saying HS2 will be an economic boost is highly questionable.  The most likely impact is to shift economic activity around the country, but not from London to the regions, but from unserved regions to served regions and from the regional cities to London.  It suggests the net impact to London will be positive, the net impact to major regional centres may be neutral and to unserved centres will be negative.

Oh and let's not pretend jobs building a railway are sustainable.  It completely ignores the jobs created if the government spent billions elsewhere or returned it to taxpayers.

Transfers from taxpayers to a tiny elite

The final case against HS2 is what is completely ignored by any political level assessment of the project.  The  equity question as to why all future taxpayers should pay for the economic benefits of a handful of business users on this railway.  This is a political question, and it should exercise those on the left who care about redistribution of wealth (and this is a redistribution upwards) and those on the right who oppose state redistribution to anyone (or if any, only to the most needy).   

The users gaining the greatest benefit from HS2 are business travellers (over 60%).  Those travelling at peak times on the trains that are most likely to be overcrowded first.  They typically pay the highest fares now, because they value travelling at peak times.  Their value of time is high, because they are on above average incomes (plenty are in the top 20% of income earners).  So why should taxpayers help subsidise their rail journeys?  Similarly, why should commuters choosing to live far from London get a subsidised seat on a more frequent train service, rather than have to pay a higher fare?  

Only 8% of trips, on a per mile basis,  in the UK are by rail, and of these only a tiny fraction will benefit from HS2.  Why are they so special?

A strong case can be made that it would be fairer to consider the HS2 business case only on the basis of rail fare levels that could recover the cost of capital for the project - which would give a true picture of demand because then users would be paying for the benefits they get from the project.

A business case that uses key assumptions to point towards the politically desired outcome

So a strong argument can be made that the business case for HS2 is a chimera.  That the projected need for new capacity is on the one hand overly optimistic, and on the other hand a function of the failure to use price to spread demand across a railway that has ample off peak capacity.

A second argument can be made that if there is a strong case for HS2, based on the benefits that will derive to users, then they will pay for it.  If it will help regenerate land for development, then the landowners who would benefit could pay for it.  In other words, it ought to be cash positive, but it isn't.

What isn't happening that could be happening

Meanwhile, transport infrastructure projects that could go ahead, don't.

BAA has long sought to build a third runway at Heathrow Airport, fully privately financed and paid for by airport users.  No taxpayers' money at all is sought for this.  Yet it has been stopped for political reasons, because the people who live under the Heathrow flight path are more politically valuable (being swing voters) than those living along the route of HS2.   A third runway at Heathrow would enable the airport to largely eliminate delays due to queuing, it would enable the UK's two major long haul airlines to expand in competition with European and Arab carriers, and it would enable Heathrow- London's primary gateway - to be transformed from being a frequently avoided airport, to one that attracts users.

There is an £11 billion backlog of major highway projects across the country, and the same again in backlog in maintenance on the local road network.  Now, it is always possible to question some of this, but it would not be too difficult to privatise the major highways allowing the private sector to toll them, in exchange for giving people 50% refunds of fuel tax.  Then the projects that were worthwhile could proceed, meanwhile fixing up local roads would save money in fuel, time and accidents.

Of course building new airport runways and roads creates NIMBY problems, but if the private sector has to buy land and work these out, it is more likely to do it in a more cost effective manner than the state.   Consider that Britain has a poor reputation for airport delays especially at Heathrow, and substandard roads, then allowing the private sector to fix these problems would do far more than a totemic high speed railway.

The UK government will say it is acting on airport capacity by holding a three year long inquiry, which of course is simply kicking the political football down the road.  Bear in mind it has also stopped Gatwick and Stansted airports from expanding if their owners wished to as well.

The government is also soon to announce plans to allow more private investment in roads, yet is unlikely to let go of the tens of billions of pounds it currently raises from fuel tax and vehicle excise duty, nor is it likely to shift the roads of local authorities into commercial structures to allow them to be privatised. 

Conclusion

HS2 is a politically driven totemic project, which primarily benefits the construction and consultancy companies who receive significant taxpayer funding from the project.  The claimed critical need for more capacity on the West Coast Main Line is based on forecasts that are questionable at best, and there are potentially more cost effective solutions to address to more immediate bottlenecks.

Beyond that the business case is fundamentally flawed.  It rests on assuming that travel time on a train, for business travellers, is wholly unproductive, which is simply wrong.  It also assumes that rail passengers are unwilling to pay rail fares to cover the costs of providing the improved journey times, which whilst true shows how utterly fatuous the "benefits" are, when the only way they can be obtained is by making all taxpayers pay for them.  Imagine if resource allocation across the economy was undertaken using such a mechanism.

Further beyond that, the spurious claims of regeneration and "bridging the north-south" divide are ludicrous and beyond parody.  There is virtually no evidence that this will occur, in fact there is academic evidence to suggest it will further exacerbate economic gaps between areas unserved by high speed rail and those that are.  It is a way of redistributing economic activity, but not from London.  Indeed it may concentrate more there.

With all major political parties supporting this project, taxpayers may be doomed to pour money down a project that is not largely driven by them, but driven by politicians looking for a project that looks cool, progressive and exciting.

It isn't promoting growth to borrow to subsidise well-heeled business travellers on their trips to a few choice cities, it isn't equitable to take from future taxpayers so that cliches can be repeated about a cargo cult boondoggle that few businesses are promoting.  What it demonstrates is that government should wean itself off of spending taxpayers' money on railway capital projects.

If Network Rail or a private investor thought it could borrow the money for HS2 and recover the costs from train companies and end users for it, then they should.  However, taxpayers should not have anything to do with it.  BAA knows it can borrow the money for a third runway at Heathrow and it will recover the costs from airlines and ultimately airline passengers.

Meanwhile, if politicians think infrastructure projects will help boost the economy, they may be correct, but the best way to do that is to get out of the way of the private projects that can proceed now, and to restructure the road and rail sectors to attract such investment directly.  Instead of supposedly sexy exciting projects like HS2, spending a decade rebuilding, resealing and renewing much of the decrepit local road network can be fully funded from road users (through existing taxes or future tolls), and many bottlenecks on it and the strategic road network can be relieved with significant direct economic benefits.

Yet all of this misses the core point.  You see politicians are no better at making decisions in this sector than they are in others, like car assembly, steel, aerospace, information technology, publishing, fashion or food.  In the not-to-distant past, politicians and bureaucrats all engaged in what Hayek called "the fatal conceit" of socialism, of thinking that they are capable, through central planning, of knowing what is best over the decisions of millions of individual citizens.

What the attempt to create a "business case" for a taxpayer subsidised railway actually is, is a sophisticated, but fundamentally clumsy attempt to "value  benefits" to people choosing to ride a railway, putting a price on it, and deciding if it is worth taxpayers paying for people to gain those benefits.   It isn't entirely clear if the private sector would invest, build, own and operate HS2, but I suspect probably not.  As such, is it market failure if it does not?  The private sector financed, built, owned and operated the canals and the railways in the 18th and 19th centuries, is it not telling that they would not do so today?

It is ludicrous to pretend that Ministers could pick winners in the IT sector, or pick technologies for communications.  It is equally ludicrous for them to pick winners in agriculture, and it is widely accepted that it is best for government to not pick winners in heavy industry.  The prolonging of British Leyland was a mistake, although the saving of Rolls Royce in the aircraft engine sector was an example of success.

The problem is that the consequences of getting this wrong lie only with taxpayers.  They do not lie with this generation of voters, but with the future voters and taxpayers who will face higher taxes or lower public services to pay the debt for a project like HS2.  The users will be highly unlikely to face punitively high fares to recover it, because they will simply choose other modes that don't face that.  Bear in mind that coach users, car users, and airlines all provide services along the route of HS2, without net taxpayer subsidies.  Why are the railways special?

However, to do that the politics behind these decisions need to be removed.  They are in the telecommunications and water sectors (by and large), it is time to restructure road and rail funding and management to do the very same.    Bear in mind the one word that most betrays politicians who discuss spending taxpayers' money on transport projects - "investment".  "Investment" is the euphemism for "spending taxpayer's money to get the perception of something getting better".

Now if you wouldn't give your money willingly to someone for the sort of "investments" politicians tout, why let them take it?

No comments: