The Agenda

Yonah Freemark on Public-Private Investment in Rail

Yonah has written a thought-provoking post on federal and state investments in Norfolk Southern’s Heartland Corridor:

 

The reopening of Norfolk Southern’s Heartland Corridor last week will undoubtedly improve the transport of goods between the East Coast and the Midwest. After $321 million in investments, double-stacked freight trains will be able to travel directly between Norfolk and Chicago in just two days, shaving 250 miles off the existing route — until now an impossibility.

It’s exactly the kind of infrastructure the United States must develop to encourage the use of efficient and environmentally sustainable railways for the transport of goods.

I think this is wonderful news, and just the tip of the iceberg for what we can do to increase freight capacity. The benefits to the public are clear. Yet Yonah raises the question of what the public should ask for in return:

 

But the American government’s propensity to both advocate the private ownership of infrastructure and then use public funds to improve those facilities is quite problematic. If the U.S. is committed to the current (inefficient) system in which a natural monopoly such as a railroad system is held in private hands, it should at least ensure that there are regulations encoding open access to said network.

That, however, is not the situation here. Indeed, Norfolk Southern has not only received a series of solid grants to pay for improvements but it will also be the sole direct profit taker here. This means, in essence, that a number of government entities have chosen to direct public funds towards capital facilities in the hands of one corporation — and that business is motivated by money-making, not the public interest.

It’s not clear to me that this is the right way to look at the problem. By Yonah’s account, the public share of the project was large:

Washington chipped in a total of $111 million to the program, Virginia added about $9 million, and Ohio threw in a bit less than $1 million. Some of this money also went to the creation of a new intermodal freight terminal in Columbus and the relocation of the Commonwealth Railway at the Port of Virginia, not a Norfolk Southern program. 

But it seems as though Norfolk Southern made the lion’s share of the investment. Instead of imposing an open access requirement, which could undermine the efficiency of the route, wouldn’t it make more sense to demand our money back with interest, but over a longer time period than a private investor would find acceptable? Given that the broader regional economy would derive much of the benefit from this investment, it seems reasonable to offer a modest subsidy.

Reihan Salam is president of the Manhattan Institute and a contributing editor of National Review.

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