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The Never-Ending Woes of a Government "Enterprise"

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Tags Bureaucracy and RegulationTaxes and Spending

History is something one can try to escape, but sometimes you can’t as millions of train riders find out every day.

They can’t escape Penn Station falling apart along with Amtrak, New York City commuter railroads, and the New York City subways. They all have the same problem: Every day they are reminded of the sordid history of government enterprise with derailments, delays and the billions of dollars of red ink of these dysfunctional systems. The bill is handed to the taxpayers whether they ride these trains or not.

As the New York City subways, Amtrak, and other government enterprises continue to fail, mainstream media and our political class have consistently missed how we reached this point of rail disasters as the norm. That’s because few of them have time for history. The management of Amtrak, New York Subways is actually a story of generations of the limitless failures of government. Indeed, most of the analyses and criticisms of government ownership and management of the subways are hopeless.

Among the lost are the Goo-Goo groups of the 1930s  — who called for public subway ownership — and their scions, the Straphangers Campaign of today.  And then there's the allegedly laissez-faire Manhattan Institute. All reject the privatization discussion. That’s because they work from a proposition that Albany and Washington, owing to their ability to tax and spend, are omnipotent and should continue to run transit systems; that they are part the solution. History proves the opposite.

The City to the Rescue?

Today, there is an assumption that no degree of private management can be allowed on the rails because they will always fail.

Yet it was private management that was there at the beginning. Private railroads helped build the economy of the United States in the 19th and 20th centuries. And it was private management that was essential when the first subways were built.

Private management companies built the first lines in 1904 under a contract with the city. They were considered “an engineering marvel,” wrote Robert Caro in The Power Brokerhis biography of the New York uber-builder and power broker Robert Moses. And the subways made money in their first 15 years of operation until the inflation of World War I squeezed the nickel fare. Repeated attempts to raise the fare in the 1920s and 1930 were rejected by politicians as the actions of “greedy” owners. However, soon after the city took control of the subways in 1940, ousting the last private companies, fares went up and up.

But the ousting of the private management companies and the triumph of government enterprise supposedly heralded a new brighter period in subways. The sacred nickel fare would be protected. Labor unions would be happy and wouldn’t strike. (They would illegally strike several times and cripple the city’s economy). New lines would be built because, in 1940, the avaricious private management companies had been shown the door.

Back then Mayor LaGuardia drove the first city train after the last private management company was bought out. He also promised a Second Avenue subway line as the city’s East Side el lines were ended. It took three bond issues over more than half a century even to get just a few stops of the Second Avenue going. New York Governor Cuomo, in recently opening the stations, bragged about the accomplishments of the system. However, he said nothing about the reverse signaling system the subways desperately need but haven’t been able to afford over decades. Yet what happened in 1940 had a significance that has redounded throughout the American economy. Governments increasingly moved into areas that no one could have imagined generations ago.

The Broken Promises of Forgotten Leaders

Let us review where this all started — the supposed golden era of the New York City subways that started just before World War II

The subway promises of 1940 were a joke in every way — from the fare to the quality of service to the promises of line extensions (Example: what happened to the 1960s plan to extend the E and F lines to the Queens/Nassau border? It never happened. This one of a number of trains to “nowhere,” new branches that were started and never finished). Under city mismanagement, the subways became a mess. The city yielded control over the subways in 1968 to a state authority.

Now, after almost 50 years of Albany controls, after countless bond issues and deficits in a system that is an effective monopoly, the system, by all accounts, is a disaster. Many New Yorkers, in numerous ways, have no confidence in this state subway system, with millions of New Yorkers driving cars even though it is incredibly expensive to run a car here (My old neighborhood in the South Bronx, a poor area, has a huge parking problem).

The state authority running the subways, the Metropolitan Transportation Authority (MTA), is in debt and hasn’t been able to maintain the system properly for decades, a fact mainstream New York media only seems to have discovered lately. Vital repairs and improvements can’t be made because the subway system has no money since it consistently loses tons of money. Yet the MTA spends billions of dollars recklessly and has its headquarters in the most expensive part of town, located on Madison Avenue in Midtown.

New York City Mayor Bill de Blasio, who rarely rides the subways, now offers to solve their problems. The mayor says the city should take over the subways from a state authority. Apparently, he has forgotten that the city under LaGuardia once owned the subways. Few pols are willing to learn from history.

An Enlightened Critic Ignored

One journalist understood what was happening when private companies were forced out of the subways.

“The City of New York has set a pattern for the nationalizing of the railroads of the country.” Libertarian journalist Frank Chodorov, in reviewing the events of 1940, said that, “A regulatory body, with power to fix rates and compel unprofitable operation, squeezes the business into bankruptcy, so that the owners are quite willing to sell their property to the taxpayers, and bureaucracy improves its position.”

Chodorov’s analysis was prescient. He would be proven right in the 1970s under President Richard Nixon as the government took over the passenger railroads (This is the same Nixon who imposed wage and price controls, kept interest rates artificially low so he could win re-election, proclaimed himself a Keynesian and led the nation into a decade of stagflation). In the 1970s this was a group of passenger railroads that were pushed into bankruptcy by the over-regulation of the ICC as detailed in the book No Way to Run a Railroad: The Untold Story of the Penn Central Crisis by Stephen Salisbury.

Nixon’s kind of backdoor socialism is one that had been under discussion by American social democrats for over a century. Their goal was, and is, how does one repackage socialism to the average American, a person who usually is repelled by the idea.

The backdoor socialism dream of progressives to take over transportation companies through over-regulation goes back to Herbert Croly and William Jennings Bryan, who favored nationalization of the railroads after visiting Czarist Russia. Wrote Croly in The Promise of American Life in 1909, when the idea of government railroads and transit systems seemed ridiculous, “the railroads might submit to the operation of some gradual system of appropriation, which would operate only in the course of several generations, and the money for which could be obtained by the taxation of railroad earnings.”

By 1971, Americans got a national passenger railroad system called Amtrak. Amtrak officials, at the founding, then promised “the greatest turnaround in business history,” as detailed in the book End of the Line by Joseph Vranich. That hasn’t happened as anyone who uses Penn Station these days will tell you. Amtrak ran in the red from day one (Amtrak lost at least $13 billion between 1972 and 1997, according to author Stephen Moore). In fact, all the lines using Penn Station, including New Jersey Transit, the Long Island Railroad and the city subways, are deep in the red.

Feeding the State Enterprise Beast

You don’t solve the problem of government enterprise by giving the entity — whether it be the New York City Subways or Amtrak—more money and more power. For instance, Senator Chuck Schumer proposes that Amtrak now be given trillions of dollars in new funding. The governor calls for an emergency appropriation of a billion dollars. Many city officials propose the same for the subways. But this has been tried before. Often bond issues were once routinely approved by trusting New York voters. Proposed emergency plans, all providing for more taxpayer geld and new forms of state or city authorities, abound.

Writes one historian of the subway system: “If anything has emerged as a timeless and universal characterization of the New York Subway, it is the endless search for some future salvation, some not yet realized resolution of it difficulties and cure for its ills. Plans are made, programs developed, goals established. But they never quite live up to their initial expectations, and a new cycle must begin.”

The writer was Brian Cudahy, and yet he is a former federal transit official and longtime defender of this flawed system of public subways. He wrote that some 20 years ago.

 

Collectivism and Coercion

Subway socialism, the government enterprise of Amtrak, not only is collectivism, which is inherently flawed, it is undemocratic. No elected official is directly in charge of these enterprises. The New York governor, for instance, appoints some but not all members of the state authority that runs the subways. That is the way our lawmakers duck responsibility for the woes of the government trains.

Most of the lawmakers haven’t a clue about what is going on at the MTA or on Amtrak. And that is the way they want it. They wanted transportation companies to stay in the public sector, but they don’t want to be held accountable when Amtrak trains crash, the subways break down or when high speed train service is egregious.

This collectivism combined lack of accountability in running state enterprises is dangerous.

“If anything has been demonstrated by modern experience in these matters,” F.A. Hayek wrote in 1960, “it is that, once wide coercive powers are given to government agencies for particular purposes, such powers cannot be effectively controlled by democratic assemblies.”

It is the same with the majority of mainstream media. It still favors continued government ownership of the subways and almost always rejects op-eds like this one (I write from experience).

Through the years it and most state and city lawmakers have failed in its job of policing these government authorities. Most media outlets don’t even go to MTA meetings and have no specialized reporters covering these transit authorities.

But again, this government ownership with no accountability idea is part of the long history of government enterprise. Alexander Gray, an economist who wrote the “The Socialist Tradition from Moses to Lenin” over 70 years ago, warned of the lack of accountability in the London Underground. “More and more,” he wrote, “the state interferes and controls, the less does it show a disposition to accept ultimate responsibility.”

Sounds similar to New York or Amtrak or almost any other government enterprise today.

Gregory Bresiger (GregoryBresiger.com) is an independent business journalist who lives in Kew Gardens, Queens, New York. He is the author of MoneySense, a forthcoming book of basic of money management with a libertarian point of view.

Gregory Bresiger (GregoryBresiger.com) is an independent business journalist who lives in Kew Gardens, Queens, New York. He is the author of MoneySense, a forthcoming book of basic of money management with a libertarian point of view.

Note: The views expressed on Mises.org are not necessarily those of the Mises Institute.
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