Time to set Amtrak free

For almost 40 years, Amtrak has been a burden on American taxpayers.  It has a record of inefficiency, incompetence and overspending. Now we can add corruption to that. Documents released through the Freedom of Information Act (FOIA) reveal that in 2001, several former Amtrak officials “booked false or incorrect accounting entries in Amtrak’s monthly financial statements” while providing a “rosy” financial picture to investigators and members of Congress.

To add insult to injury, The Washington Times reports that Amtrak “advanced nearly $150,000 in legal fees combined on behalf of the two unnamed people who were being investigated, though an outside consulting firm later determined that ‘neither individual acted in good faith.’”

These failures are not due to a lack of funds, but to chronic mismanagement, which is inevitable under Amtrak’s current organizational framework. Government bodies generally perform better when they contract out work, on a competitive basis, instead of trying to do it all themselves. Dishing out money to a single company—such as the Post Office—that faces no competition is a recipe for waste and mismanagement. In the absence of competitive discipline, other incentives lead that way.

Instead of focusing on providing the public with services, executives of publicly funded or publicly owned corporations must devote considerable effort to courting favors with policymakers, in order to secure their jobs and expand their budgets. Since there is no real bottom line, as the taxpayer can be relied on to make up shortfalls, Amtrak executives have little incentive to economize or focus their resources on optimal routes.

In the U.S., passenger rail routes are viable as an alternative to road or air only if cities are closely spaced and have business centers. Yet Amtrak continues to waste money on scarcely used routes used by vacationers, rather than focus on the routes that are most useful to business travelers. Many proponents of passenger rail claim that the government should provide train transport regardless of cost, but that is impractical due to the sheer size of the country. The European rail model simply does not make sense for the U.S.

This cannot continue.  The passenger rail industry requires the kind of careful strategic management which the private sector can best provide. It’s time to privatize Amtrak, thus subjecting it to the disciplining power of market forces. This will not be simple, and there are pitfalls to avoid.

First, any breakup of a monopoly must be done right. For example, the breaking up of British Rail into 30 companies along functional lines—track ownership, train operation, maintenance, safety, and so on—proved to be a mistake, as companies with different functions tended to blame each other when problems arose. A better option would have been to split the industry into regional, integrated companies, which could be more easily held accountable by consumers.

In addition, privatization will only work if the state avoids weighing down the industry with unnecessary, burdensome regulations.

Nonetheless, these challenges can be overcome. A good start would be the neglected recommendations of the Amtrak Reform Council. Completed in 2002, they call for restructuring Amtrak into several different entities and allowing private companies to bid for the operation of some routes.

Amtrak’s competitors are not other rail companies, but air, bus and the private car. The passenger rail industry must learn how to deploy its advantages to effectively compete against these other travel options, rather than rely on Congress to bail it out as it pursues an outmoded business model.

In the long run, Congress should end subsidies, privatize and deregulate passenger rail. These actions are the only way to force Amtrak to abandon unnecessary routes that are not commercially viable, improve safety, and manage its resources effectively—and honestly.