State-Run Companies and Investment, Part 3

One of the urban legends of the civics world is that is some project really requires investment for the long-term, the government needs to do it since private companies are too short-term profit focused. 

Over a series of posts, I have been showing just how terrible state run companies are at making long-term investments compared to private companies.   I showed the Mexican state oil company eschewing investment in favor of bloated patronage-based payrolls and social spending, and the nationalized Venezuelan companies doing the same thing.  What you see in both cases is that the state run oil companies are particularly bad at making investments to maintain production, investments that can be huge in the oil business.  Leftists have convinced themselves that oil companies make a fortune with little or no work, that oil extraction is kind of like clipping coupons.  But the maintenance of any infrastructure is hugely expensive, and takes a discipline and focus that the state does not have.  Belatedly, some of them are learning that producing oil takes real work and constant re-investment.  It bizarrely reminds me of Carl talking to Vernon in the Breakfast Club:
"You took a teaching position, 'cause you thought it'd be fun, right?
Thought you could have summer vacations off...and then you found out it
was actually work...and that really bummed you out"

But I don't want to imply that this is just a poor-country, banana republic problem.  Defenders of big government in the US will say that government can do all these things just fine, if only you have the right people in charge.  But under-investment in public assets, particularly in refurbishment, is a constant problem in the US as well.  Every Senator likes to get his name on building a new facility, but you don't get your name on a maintenance contract, so lots of things get built by the government but few get maintained.  Disney would never let its parks get as run down as the government
allows its public parks to get.  Wal-Mart (like most retailers) virtually rebuilds its stores every
twenty years, and would never let its infrastructure get as run
down as, say, the average US post office.

So I take as my example the Washington Metro system, one of the highest-profile public infrastructure projects in the country:

The Metro Rail system was built with federal dollars, with the
understanding that local governments would pay for its operation. But
no one was prepared to pay for rail reconstruction, which is
needed every 30 years or so and which costs a substantial fraction of
the original construction cost. Now, some of the system is approaching
30 years of age and is breaking down with increasing frequency.

The article, by Randal O'Toole of Cato, goes on to show another example of this same mindset:

Meanwhile, everyone is trying to ignore the gorilla in the corner,
which is that VTA's board wants to spend $4.7 billion to connect the
San Francisco BART system to San Jose. The agency only has enough money
to build to the edge of San Jose, but even if it had all the money for
construction, its general manager admits "we clearly do not have the money to operate the system." Nevertheless, the board recently voted to spend $185 million "” more than half of VTA's annual operating budget "” on preliminary engineering.

Meanwhile, VTA is still short on operating funds, so it is contemplating "eliminating or consolidating" service on more than a quarter of its remaining bus lines.

  • http://CaseySoftware.com/blog Keith Casey

    I live just outside Washington, DC and experience the Metro on an almost daily basis. The thing is a mess. Just last year, they announced that they were removing the carpet and plastic seat cushions from many of the trains because of lack of funds. But at the same time, they're adding Spanish signs to go along with the English ones. I guess "Ballston Metro" doesn't mean the same thing in the two languages.

    Lately, they've started taking corporate sponsorship of the train cars and buses and have further increased rates. Apparently, getting gas tax revenue from MD, VA, and DC wasn't enough. I've heard it time and time again "I can pay 2*X to take the Metro into the city or I can just drive and pay for parking." To me, I appreciate getting some of the time back to read, but I see their point.

    The only saving grace is the people. Other than the food-police, the bulk of the staff is great. They're polite, helpful, and generally seem to enjoy what they do. Then again, last week we found out that a huge number of the drivers are making $100k+ - on a $60k base - due to overtime. I'd be pretty happy if I had that deal too...

  • Dan

    It's fine to cite failed government projects to back up your anti-government theories, but at the same time you're purposely ignoring government projects that do work. How about the Interstate highway system? And here in Chicago, I am quite happy with the publicly-run commuter rail service. Always on time, comfortable, convenient. Maybe a private company could run it better, but so far, I'm happy with the way it's going, and I've been taking the train for nearly five years.

    I'm not saying the government always does things best - obviously that's not the case. But it's easy to simply overlook examples that don't support your theory.

  • http://www.liftport.com/progress/wp Brian

    There are things that 'the state' can do better than private corporations - space exploration being about the only item I can come up with. There is no value for a private corporation to send a probe to the Kuiper Belt - but it's going to discover things there that benefit the rest of us.

    Me - I favor less government control in our lives - if the state needs something badly enough to charter a corporation to do it there are other and better ways of getting it done.

  • Dale

    Another reason that government can't do longterm and are just as short term focused: the holders of the purse strings (Congress and Senate) always have an eye on the next election which is either less than 6 or less than 2 years away. These folks aren't thinking long term at all.

    And what in the way they have handled social security, medicare, medicaid reforms or they way they handle budget deficits and national debt persuades anyone that these guys are long term thinkers?

  • Jim Collins

    Actually the Space Program through the Apollo landings, suceeded in spite of the Government which is something of a miracle. When Congress got involved you ended up with Challenger and Columbia.

  • Mark

    I'm not even sure why we have manned spaceflight at this point. What, exactly, does it accomplish that unmanned flights could not?

  • http://www.liftport.com/progress/wp Brian

    I'm not even sure why we have manned spaceflight at this point. What, exactly, does it accomplish that unmanned flights could not?

    Manned spaceflight won Scaled Composites a $10 million dollar prize. It probably goosed Richard Branson to launch Virgin Galactic.

    I don't know what the profit is for the Russians but every tourist they send is $20 million gross.

    From a technical pov there are things that people can do that robots can't. I'm not a partisan one way or the other - but the cheaper it becomes to launch to orbit the more manned activity will make sense.

  • http://www.liftport.com/progress/wp Brian

    When Congress got involved you ended up with Challenger and Columbia.

    Wasn't Congress - it was everyone. The Nixon administration (IIRC) initiated the program. The Air Force wanted a piece of the system and demanded cross-range capability for polar orbits. Cross-range dictated wings which were the proximate cause of the latter accident.

    Plenty of blame to go around. We all share a wee bit of it - we elected the guys who oversaw the entire program.

  • Josh

    Manned spaceflight won Scaled Composites a $10 million dollar prize. It probably goosed Richard Branson to launch Virgin Galactic.

    Generating a government subsidy isn't the same thing as being productive. The $10 million prize was a government research grant. So the money didn't go to NASA - it's still a government investment. Not that I dislike government investment in research; quite the opposite. But you make it sound like Scaled Composites made $10 million because of some practical product or service.

    I don't know what the profit is for the Russians but every tourist they send is $20 million gross.

    How about none. Negative. The $20 million doesn't even pay for the flights the tourists ride on.

    I'm not a partisan one way or the other

    Debatable.

    - but the cheaper it becomes to launch to orbit the more manned activity will make sense.

    The cheaper it becomes to launch to orbit, the more *any* space activity will make sense.

    I'm all for manned spaceflight. It's very cool. But let's not pretend that people are needed to sample the rocks of Mars, or to drill holes in Europa. If we send people to Mars, it'll be to say: we sent people to Mars.

  • http://www.liftport.com/progress/wp Brian

    The $10 million prize was a government research grant.

    I don't have a breakdown of how much came from what sources but the Ansari X-Prize money mostly came from private sources.

    I'm all for manned spaceflight. It's very cool. But let's not pretend that people are needed to sample the rocks of Mars, or to drill holes in Europa. If we send people to Mars, it'll be to say: we sent people to Mars.

    There are things that robots are good at the people are not - and visa versa. Robots are great at long missions but they suck at unexpected situations. I can see a Mars mission with people and robot surveyors. The robots just go and go, the people improvise if needed, provide on the spot correction and guidance. And hit the reset button if the things get stuck.

    But we may be getting off track. What I can't see is how a private venture can profitably explore space. Is anyone here in favor of tax breaks or prizes to get things like that going?