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Saturday
Jan192013

Argentina’s Railroads: Atlas Shrugged vs. Twilight

Contributed by Bianca Fernet, stilettos-on-the-ground American economist in Buenos Aires. Her blog Not Paris dives into financial and economic topics in Argentina.

I was on the bus on my way home last night when I passed this sign at the rail station:

Fighting whom?

Roughly translated, this means fight for the return of the Argentine Railway System and is an argument for the re-nationalization of the Argentine rail system, which was privatized about 20 years ago. To this day it remains highly subsidized and fraught with quite dangerous problems.

I couldn’t help but be drawn in, as I happen to be currently re-reading Ayn Rand’s sexy ode to free markets and railroads, Atlas Shrugged. I got to thinking about a conversation that I have had with multiple Argentines about the difference in cultures between the United States and Argentina – namely the Protestant work ethic vs. the Catholic ideal of suffering and salvation.

A depiction of Catholic purgatory or the Subte at rush hour in the summer?

The protestant work ethic emphasizes hard work and frugality as the way to achieve heaven, and is indeed considered synonymous with capitalism, as the term was coined by Max Weber in his 1904 work, The Protestant Ethic and the Spirit of Capitalism. This ideal is personified by Dagny Taggart, heroine of Ayn Rand’s Atlas Shrugged. In contrast, Catholic salvation ideology is defined by gaining heaven through suffering and enduring – the tools for salvation come from within. To stay within the theme of flat female heroines, I think that Twilight’s Bella Swan provides an interesting example of achieving success through endurance of suffering and waiting.

Doesn’t quite pull herself up by her bootstraps

As a preface, I was raised Catholic, I don’t think idealism is very productive, and I fully acknowledge that the majority of railway systems in the world are either highly subsidized by or entirely run by the government. That being said, the Protestant vs. Catholic culture is an interesting concept to roll around especially when comparing Latin America to the United States. And I couldn’t resist taking a stab at the railroad nationalization movement in light of my current reading.

Impressive, no?

The above infographic (click to enlarge) describes the premises and goals of the Federación Ferroviaria Argentina, an umbrella organization of railway unions and associations. Their major complaints are the following deteriorations that have occurred since the 1991 privatization:

▪ Number of employees has fallen from 92 thousand to 15 thousand

▪ Working track has fallen from 35 to 10 thousand kilometers

▪ Annual subsidies have risen from US $305 million annually to US $1520 million annually

Image

Nationalization of a railway? Shudder.

They report that rail service is irregular, inefficient, and dangerous, and that the owners of the routes have used subsidies to get rich at the expense of necessary development. Sounds a lot like the world faced by Dagny Taggart, Atlas Shrugged’s heroine of capitalism, hell bent on saving her family’s railroad empire in the face of dirty words such as progressivism, socialism, and equalization – a world where subsidization would be equally distasteful.

Here’s where it gets fun. The FFA states the following goals for nationalizing the railway:

▪ 792 new kilometers of metropolitan rail

▪ 500 new electric, two story trains that are designed and produced in Argentina

They further blame privatization for Argentina’s lost ability to produce rails and trains domestically. The final successful outcome of this campaign consists of: employment, economic independence, political sovereignty, and social justice.

Notice anything missing? Perhaps goals of increased transportation, benefits to commerce and trade, increased economic output? Even if you consider transportation as a public good, the goal of a railroad is not economic independence, social justice, or even employment.

Which swings back to the larger theme. Culturally, Argentina has an ideology that promotes fighting, suffering, and endurance to eventually be rewarded, quite a bit like Twilight’s Miss Bella Swan, who is repeatedly rescued and rewarded for her natural talents and attributes after enduring difficulties.

Argentine protests have far more action than Twilight’s “battles”

In all actions, both government-led and in private enterprise, it is crucial to define what is success and strive for it. In Atlas Shrugged, profit and making money become dirty words in a Dickens-worthy comically overemphasized manner. Yet even under the “transportation as a public good” premise, the goal of a railroad system should be increased movement of people and goods and the benefits that occur as a result.

Consequences of neglect: December 2010 collision in Buenos Aires killed 50 passengers

State intervention and indeed nationalization are arguable in many cases, but fighting and suffering for a nationalized railroad system seem to considerably miss the mark.

I am in complete agreement that the current private but subsidized model in Argentina is not cutting the mustard, but fighting for subsidization of projects to boost employment and diminish importation seems about as well thought through as one of Bella Swan’s suicide attempts.

Don’t cry for me, Argentina

Cross-posted from Not Paris.

Also by Bianca Fernet: The dust has settled—for the time being—from the November/December drama surrounding the US Court rulings regarding Argentina’s payment on defaulted bonds. But it remains a confounding snaggle. And an appeal is coming. It will certainly be a titillating February. Read.... Argentina's Bonds, Defaults, and Vultures

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Reader Comments (5)

The main problem facing railroads that nobody ever mentions is that they compete against roads, which are subsidized.

The main argument for subsidizing roads concerns personal travel, generalized tolls woud be quite impractical on most secondary roads, but the main strain on roads is trucks. Trucks are responsible for about 90% of road maintenance but pay nothing for the marginal cost they generate - they do pay taxes but are effectively subsidized by car owners/taxpayers.

railroads can't compete
January 19, 2013 | Unregistered CommenterJean-Louis Beaufils
They should just nationalize all of the railroads and get on with it. Ditto in the US.
January 19, 2013 | Unregistered CommenterMakati1
The name Atlas may well derive from an early Greek word meaning to endure. What is mythologically certain, however, is that Atlas was punished by the victorious Olympian gods after being on the LOSING side in the war with the Titans. His task to hold up the Earth (or heavens) was intended to keep him out of trouble. The Olympians promoted altruism and heroic self-sacrifice in human affairs. They punished pride and hubris. Ayn Rand has chosen a poor example in Atlas to embody her ideals . Chronos would have been better, the Titan who devoured his own children.
January 20, 2013 | Unregistered CommenterRoger Yates
Does not cut the mustard is really an understatement for what a total disaster the privatization of the railroads are. One could argue that merely restoring the status quo before thinking about actually improving the railroadservice once again would be a cartainly better definition for their goals. It's not as if they fight for suibsidies per se, rather than ending the experiment of privatization wich will perhaps lead to subsidies in the old levels, so in effect for lower subsidies.

Public infrastructure in private hands does not work per se, as it will collide with profit interests. It is a service, and should be equally usable by all participants of the market. Additional to that of course, you wouldn't want to let one player provide the groundworks for the rest, hence the need for a neutral entity.
January 20, 2013 | Unregistered CommenterAnonymous
Rail road transportation is practically everywhere a textbook example of government failure. Rail road's applicability for a paltform for government failure can be explained by rail road technology and cost structure: externalities, scale economies of production, and large initial investments requiring large sunk costs.

All these are theoretical reasons for the government to get involved as the network developer and operator, and/or fleet operator, and always as a regulator. Once the government has gotten control, it will not let go easy. It will abuse its power according to all the vices described in public choice literature.

There will be nation building/ image enhancement projects with unfulfilled promises of system wide benefits, grandiose investments with "unexpected" budget overdrafts, over-optimistic demand projections and repetitively arising needs for additional operational subsidies, utility projects turning into employment projects requiring procurements of unoptimal rolling stock, procedural problems in the procurement of network equipment and rolling stock, zoning disputes and political logrolling connected to building rights and right-of-way disputes, disputes concerning usage allotments of the existing tracks, and various fleecing operations involving federal moneys (in Europe EU Commission moneys).

And while this is going on, the level of operatios and service quality is diminishing. Gradually the general public grows disillusioned and finally withdraws its support from the institution. The rail road "service" becomes a national joke.

At that point a crisis is declared. A major "reset" is arranged by a less-than-perfect privatization, which includes dirty golden handshakes and parachutes and illogical arrangements, which will maintain unhealthy politico-bureaucratic influences on the newly privatized operations.

The new owners and managers soon rediscover the multiple roads to successfully rent-seek. This in turn frustrates and dismays the public, which was sold on the idea of privatization by a story of productive entrepreneurship efficiently providing a high quality service to the customer.

After a while, but now with the regained public support, the rail road company and its regulators start on a long path towards increased regulation and a prolonged takeover process by the government. And again, just like in the beginning of the cycle, the government fails miserably in its claimed effor to protect or support the customer and the interests of taxpaying public.

In the words of Paul Simon: Everybody loves the sound of a train in the distance. Everybody thinks it's true.
January 20, 2013 | Unregistered Commentercool river

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