China's Empty Trains... & Other Unintended Consequences

In a technical sense, the economy has been in recovery since June of 2009. A year and a half into the rebound though, a general cloud of economic malaise continues to cover the nation. Fears of a diminished America are perpetuated from our political and punditry classes. We are told that our collective lack of preparation, education, innovation, industry, and of infrastructure are all setting us up to fall further. Economic indicators may reflect a bounce-back, but structurally, America is waning. It is China that is increasingly emerging as the world’s bright spot in terms of development. With its 10% annual growth rate, an economy poised to become the world’s largest, and a strategic smart-growth development plan, resplendent in renewable energy splendor and high-speed rail, the nascent superpower is aimed ever upwards.

This tidy narrative that the doom-chatterers both envy and fear is being dented by a number of recent stories concerning Chinese rail initiatives. As Tsinghua University's Economics Professor Patrick Choavec writes, China’s high-speed rail is "expensive both to build and to operate, requiring high ticket prices to break even. The bulk of the long-distance passenger traffic, especially during the peak holiday periods, is migrant workers for whom the opportunity cost of time is relatively low. Even if they could afford a high-speed train ticket — which is doubtful given their limited incomes — they would probably prefer to conserve their cash and take a slower, cheaper train. If that proves true, the new high-speed lines will only incur losses while providing little or no relief to the existing transportation network.”

Similarly, individual Chinese municipalities are eagerly developing subway systems, but as Chinese political scientist Zhang Ming wrote in China Daily, "geographical conditions in many cities are not conducive to building and/or maintaining subways. The landscape and hydrological conditions of a city determine whether it can have a subway... medium-sized cities may not have enough commuters to sustain a metro. Even in many large cities, which have enough commuters, subways are running at a loss because of the very high cost of operation and maintenance.” Historically, drive and a true demand have never run into a topographic problem it couldn’t solve, but these examples do raise questions about the efficacy of blanket government policies that ordain massive, heavily subsidized projects. Could such ventures produce results that are opposite of their intended outcome?

China can find the answer right here in the States. The Italian sociologist Marco d’Eramo has related how the Home Owners’ Loan Corporation in 1933 and the Federal Housing Authority in 1934, created in part to stem the mass wave of Great Depression-related foreclosures, did “more than any other measure… to contribute to turning America into a nation of unconquerable homeowners.” To increase homeownership for all, both agencies devised classification systems that assigned values to neighborhoods and homes that they then sought to rehabilitate through loans to potential buyers. The resulting standardized divisions largely enforced segregation in the name of stability, only further depressing segments of the housing market.

Recent lessons from the Great Recession’s continued housing fallout show us how government policy can produce the opposite effect of its initial intention, as well. The still-reeling property values of neighborhoods nationwide, and the huge tracts of unused housing at the periphery of metro edges were created with the encouragement of government bodies just like the HOLC and FHA’. These policies expanded the cause of homeownership without taking into consideration the actual demand and cost. Subsidizing trains that very few can ride is quite similar to encouraging the building of houses in which very few can live.

At least initially, it is easy to see why such investments look good to government entities. They promote job growth, increase demand for supplies and resources, and contribute to overall GDP. Where something wasn’t, something now is. But they are unsustainable projects in the long run. Without continued government subsidies—or of higher wages for Chinese workers to afford train tickets, or of an endless supply of cheap credit to US potential homebuyers—they tend to eat off of themselves. The eventual decline in Chinese trade ridership and in US home purchases shows the peril when government policies create incentives for development without real, inherent demand .

With this in mind it is important to view President Obama’s high-speed rail proposals in the context of each location. High-speed rail is an important, necessary step to upgrade America’s infrastructure in certain locales, but it is not an across-the-board panacea. Chicago, for example, the rail capital of the nation, beset with both passenger and freight rail congestion, is a logical beneficiary of dedicated high-speed rail funds to develop a system capable of handling its latent demand and to untangle its gridlock. With Chicago's large economic presence over its neighbors, it makes little sense, then, that freshly minted Wisconsin Governor Scott Walker remains adamantly opposed to a project that would benefit Milwaukee and Madison.

Other places, though, have valid qualms. Cost concerns in Florida, for example, are legitimate. The 90 mph top speed on the Southeast High Speed Rail Corridor between Charlotte and Raleigh doesn’t sound too, well, high-speed. Cities like Denver, which supports a dense enough population to represent a demographic demand for light rail, can encourage its development as its roads reach capacity. In states like South Dakota and Iowa, it may mean going back to dirt.

The new head of the House Committee on Transportation and Infrastructure, Rep. John Mica (R-FL), made sense when he said, “I am a strong advocate of high-speed rail, but it has to be where it makes sense”. There is a difference between creating infrastructure for which there's an inherent demand and nudging people to utilize it, and developing large-scale infrastructure projects for their own sake.

Knowing the limitations of past attempts and failures, America has a chance to outgrow its mistakes and render the supposed competition with China irrelevant, as that aspiring nation fumbles in its own policy prescriptions. Harnessing the lasting lessons of the Great Recession means understanding that success isn’t measured in the size of a home, or in the length of a high-speed rail system. It's measured in the effectiveness and efficiency of a place. If the U.S. holds this to heart, no one could be better primed to compete, as China’s empty trains swiftly rattle onwards.

Photo by Ivan Walsh, High Speed Bullet Train, Beijing to Tianjing, China

Ben Schulman is a Chicago-based writer on urban affairs. One of the proprietors behind independent record label Contraphonic, Inc., Schulman also heads the Contraphonic Chicago Sound Series.