It’s no longer news that industrial policy is making a comeback. Too bad, that. In the zombie parade of bad policies that the left and the new right are now staging, this one is particularly baffling. Industrial policy has been tried on large scales – think the Soviet Union – and on smaller scales, including in the US and many other countries.
The fact that past industrial policy attempts were abandoned due to grotesque failure to achieve their goals seems to make no difference to those who are intent on reviving this practice. Indeed, we need not look as far back as the 1980s for evidence of the folly of trusting government to guide industrial development; we have a contemporary example. And this example is detailed by none other than the New York Times, which recently reported that, after years and billions of dollars, California’s effort to build a high-speed train has been a disaster. A tidbit:
This effort qualifies as industrial policy because the government claims to know better than private markets what is the best means of transportation and worth high-jacking resources to produce bureaucrats’ preferred outcome. But as usual, government officials – spending other people’s money – miss the obvious.
There’s a reason why trains in the U.S. trains are far less popular than planes. There’s a reason why travel by rail make more sense in small countries, and along the densely populated northeastern coast of the U.S. But politicians and intellectuals, enamored of the notion that trains are more friendly to the planet than are planes, ignore these realities in pushing for an industrial outcome that will likely never be profitable. For a walk down failed-rail-project memory lane see this piece by Phil Klein.
Building a high-speed rail connecting Los Angeles and San Francisco was always going to be challenging due to California’s geography. And of course, most of you will not be surprised to learn that this large-scale government project is in fact failing, in large part because of the perverse incentives that pervade such a government project. From conception to planning to building, the incentives consistently encourage waste and error. Again, legislators aren’t funding this boondoggle with their own money. Nor will they be personally accountable for cost overruns, failure to deliver, or what are certain to be many technical problems.
The cost overruns here are almost comical for something that literally hasn’t been built yet. In 2008, the train’s cost was projected to be $33 billion. Fourteen years later the final plan is projected to cost $113 billion – a mere 242 percent more than the sum used to peddle the scheme to the general public.
In addition, decisions on construction are unduly – but not unsurprisingly – influenced by special interests rather than by good economic sense. As the Times writes: “political deals created serious obstacles in the project from the beginning.” Here’s more:
A review of hundreds of pages of documents, engineering reports, meeting transcripts and interviews with dozens of key political leaders show that the detour through the Mojave Desert was part of a string of decisions that, in hindsight, have seriously impeded the state’s ability to deliver on its promise to create a new way of transporting people in an era of climate change.
As if the project wasn’t difficult enough to deliver on, legislators decided to create costly detours to serve political friends:
Political compromises, the records show, produced difficult and costly routes through the state’s farm belt. They routed the train across a geologically complex mountain pass in the Bay Area. And they dictated that construction would begin in the center of the state, in the agricultural heartland, not at either of the urban ends where tens of millions of potential riders live….
Mike Antonovich, a powerful member of the Los Angeles County Board of Supervisors, was among those who argued that the train could get more riders if it diverted through the growing desert communities of Lancaster and Palmdale in his district, north of Los Angeles.
Even the SNCF engineers from France who came to work on the project eventually gave up:
There were so many things that went wrong,” Mr. McNamara said. “SNCF was very angry. They told the state they were leaving for North Africa, which was less politically dysfunctional. They went to Morocco and helped them build a rail system.
Morocco’s bullet train has been in service since 2018.
The report is worth reading in its entirety. It is the most ridiculous and clichéd story of why industrial policy fails. Such projects are often taken over by special interest groups (remember Alaska’s bridge to nowhere) that bloat the cost, and in extreme cases lead the project to failure.
This experience is commonplace. My colleague Jack Salmon told me about the plans for HS2, a high-speed rail project in the U.K., that started in 2009 to link London to Birmingham, Manchester, and Leeds. The high-speed train was promised to reduce the time of the journey by 30 minutes. Salmon sent me the following information:
That’s the problem with industrial policy, and such gravy train projects. Politicians can’t help themselves and these projects are always highjacked by special interests.
Veronique de Rugy is a Senior research fellow at the Mercatus Center and syndicated columnist at Creators.
