The Perverse Incentives of Public Transportation

Originally published on andrewsmith.medium.com

Wednesday morning, a computer glitch in the Federal Aviation Authority’s system ground commercial air travel to a halt in the United States for several hours.

Meanwhile, an Amtrak train had been stranded for 29 hours in rural South Carolina.

The FAA’s computer glitch shut down its Notice to Air Missions System, which relays important safety and flight information to pilots and flight crews. It led to a snowball effect that caused thousands of delays and cancellations. It’s a rare glitch, but one that had far-ranging impact.

With regards to Amtrak, a derailment on the line ahead caused a train to be stranded in a rural area. Due to government regulations, the crew ran out of hours and could no longer operate the train. It apparently took a long time for a replacement crew to arrive. Passengers were told they could not disembark from the train and were asked not to share photos and videos on social media.

In both of these cases, these are government agencies that operate with a different set of incentives than private ones.

A private company has to please its customers and offer a quality product, otherwise, those customers will go elsewhere and the firm will go bankrupt. History is littered with hundreds of companies — A&P, Blockbuster, Kmart and Sears in the retail sector being among them — who weren’t able to keep up with the times, weren’t able to keep their customers happy, and thus lost their customer base to competitors.

That’s what Southwest Airlines will likely experience after a spectacular systems failure after a major winter storm caused the cancellation of more than 16,000 flights, but it was exacerbated by problems with the crew scheduling software, which pilots had warned about for years.

When a private company fails, it fails. Southwest will almost assuredly pay for its systems failure in lost passenger revenue, and will have to work extra hard to regain passenger loyalty — slashing fares and offering other amenities to try to lure passengers who are now incentivized to travel with other airlines.

When a government monopoly like the FAA fails, there won’t be any bankruptcies, any loss of revenue, any heads rolling. Instead, it’ll likely get more funding and a pat on the back. An alternative would be an airline safety administration that was privately-run and paid for by the airlines, which would be accountable to their customers — the airlines, who are in turn accountable to their customers to deliver good service — similar to how the privately-run Underwriters Laboratories regulates electrical products. The air traffic control systems in multiple peer countries, including Canada and the United Kingdom, are privatized.

On to Amtrak’s failure. Amtrak is a government-run monopoly that arose out of the fact that passenger rail travel was rapidly declining and passenger trains had become a money pit for railroads. Ridership had been on a steep decline since World War II ended — and ridership declines had actually begun in the 1920s, only staved off briefly by the WWII travel restrictions. Newly-emerging forms of competition from highways and airlines began to make passenger rail stuck in the middle — less convenient (and sometimes slower) than driving, slower than flying and on a marginal basis, more expensive than both. So, to save some modicum of intercity passenger rail, the railroads turned their passenger operations over to the newly-formed Amtrak.

Since, it has had a reputation for poor service, long delays, inconvenient routes and times and, well, what you’d expect from a government-run firm that exists to prop up what had been a dying industry while keeping a few Congresspeople happy. The routes available often leave and depart at such odd times, they cannot compete with the frequent departures and quick arrival times and on-time performance of airlines. The freight railroads they use have no incentive to divert profitable freight operations to accommodate money-losing passenger trains run by another railroad.

Because of that, there’s no real incentive for Amtrak to deliver good customer service. And the delay in South Carolina is a spectacular example of that festering problem. A privately-run railroad would have had an incentive to keep its passengers happy to ensure repeat business once a major delay was inevitable due to a derailment and the lack of an available replacement crew. That might have taken a few different forms, such as sending buses to the train to take passengers to a nearby community to wait out the delay, providing them food vouchers for local restaurants, or even using buses to finish the trip. Something would have been worked out.

A great contrast is Brightline, which is the one truly fully-private intercity passenger rail system in the United States. Operating in Florida, it has started small and incrementally grown its line to serve more destinations, eventually to serve Orlando and Tampa from the Miami-Fort Lauderdale area. It has frequent departures, relatively low fares and a level of service that allows it to favorably compete with driving. As a result, ridership and revenue are increasing rapidly and Brightline is looking to expand to connect Las Vegas and Southern California. You never get a second chance to make a first impression, and Brightline’s stations are generally clean, bright, clean and have a number of amenities, including snacks and drinks for premium customers and an in-station bar, a far cry from the Amshacks the government-run passenger service had become known for.

The FAA and Amtrak don’t rely on customers to stay in business, they rely on the government, so their primary customers are Congresspeople, not travelers. Brightline and private airlines rely on customers and need to keep them happy or they’ll lose them to competitors or other modes of transportation.

As someone who loves trains, I’d love to see more robust intercity passenger rail in the United States. But it needs to be regionally-focused, customer-centered and built on connecting cities that see a lot of traffic between them while being comparable to driving both in terms of cost and time. That is best done by private operators who need to keep customers happy to stay in business. If passenger rail will have a revival in the U.S., it’s not going to come from the halls of Congress subsidizing Amtrak with our taxpayer money. Just like with the airlines, it will come from private firms like Brightline and Texas Central who operate by serving consumers, and in turn, serving the public.

This piece solely expresses the opinions of the author, and not necessarily the Classical Liberal Caucus as a whole.

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