Industrial Policy on Parade – Econlib

It’s no longer news that industrial policy is making a comeback. Too bad, that. The zombie parade of bad policies being staged by the Left and the New Right right now is especially surprising. Industrial policy has been tried on a large scale – think the Soviet Union – and on a smaller scale, including in the United States and many other countries.

While past industrial policy efforts have been abandoned due to the perplexing failure to achieve their goals, they seem to have no intention of reviving this practice. Indeed, we need look no further than the 1980s for evidence of the folly of trusting government to guide industrial development; We have a contemporary example. And none other than this example is detailed 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:

Now, as the nation embarks on a historic journey, $1 trillion infrastructure construction game, The tortured effort to build the nation’s first high-speed rail system is a case study in how ambitious public works projects can be dangerously undermined by political compromises, unrealistic cost estimates, flawed engineering and a determination to hang on to projects that have become what they are. 2008 crippled financial institutions, too big to fail.

This effort qualifies as industrial policy because the government claims to know better than the private market what the best mode of transportation is. And High-jacking asset prices to produce outcomes bureaucrats prefer. But as usual, government officials – spending other people’s money – miss the obvious.

There’s a reason trains in the U.S. are far less popular than planes There is a reason for rail travel in small countries and along the densely populated northeast coast of the US, but politicians and intellectuals are attracted to the idea that trains are friendlier to the planet than planes, ignoring these realities in pushing for an industrial outcome that probably won’t be profitable. Check out this piece by Phil Klein for a walk down failed-rail-project memory lane.

Building a high-speed rail link between Los Angeles and San Francisco was always going to be challenging because of California’s geography. And of course, most of you won’t be surprised to learn that this large-scale government project is actually failing, in large part because of the perverse incentives that surround such a government project. From conception to building plans, incentives consistently encourage waste and error. Again, legislators are not funding this boondoggle with their own money. They will not be personally liable for cost overruns, delivery failures or any technical problems that may occur.

The cost here is almost ridiculous for something that has literally not been built yet. In 2008, the train was estimated to cost $33 billion. Fourteen years later the final plan would cost $113 billion—just 242 percent more than the sum used to peddle the scheme to the general public.

Additionally, construction decisions are unduly – but not surprisingly – influenced by special interests rather than good economic sense. as times Wrote: “Political agreements posed serious obstacles to the project from the start.” Here’s more:

A review of hundreds of pages of documents, engineering reports, meeting transcripts and interviews with dozens of key political leaders shows that the trek through the Mojave Desert was part of a decision that, ostensibly, severely hampered the state’s ability to deliver. On the promise of creating a new way of transporting people in an era of climate change.

As if delivering the project wasn’t difficult enough, legislators decided to create expensive avenues to serve political cronies:

Political compromises, records show, created difficult and expensive routes through the state’s farm belt. They run the train across a geologically complex mountain pass in the Gulf region. And they mandated that construction begin in the center of the state, in agricultural areas, not in the urban fringes where millions of potential riders live….

Mike Antonovich, a powerful member of the Los Angeles County Board of Supervisors, argued that the train could get more riders if it were routed north of Los Angeles, through the growing desert communities of Lancaster and Palmdale in his district.

Even France’s SNCF engineers 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 kingdom they were moving to North Africa, which was less politically viable. They went to Morocco and helped build a railway system.

Morocco’s bullet train has been in operation since 2018.

The report is worth reading in its entirety. This 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) which drives up costs and in extreme cases leads to project failure.

This experience is common. My colleague Jack Salmon told me about plans for HS2, a high-speed rail project in the UK, which began in 2009 to link London with Birmingham, Manchester and Leeds. The high-speed train was promised to cut journey times by 30 minutes. Salmon sent me the following information:

First stage was predicted to be completed by 2020, and further links to Scotland by 2030. In 2010, the new Conservative-led coalition 50% of planned route modified After rural Conservative MPs raised an uproar over noise pollution and property values. At the time, the cost was estimated at around £30 billion. In 2013, the cost of the project was amended Up to £50 billion. In 2014, the The cost has been revised Up to £57 billion. By 2019, Oakervee review approx That’s an expected increase in spending to £88 billion at 2019 prices. Lord Barclay, deputy chair of the review, said that this estimate was too optimistic and Actually maybe A maximum of £170 billion. The route is now projected to be completed by 2045, although this will likely be pushed back. By then, this £30 billion gravy train could cost £1 trillion.

This is the problem with industrial policy and gravy train projects like this one. Politicians can’t help themselves and these projects always Hijacked by special interests.


Veronique de Rugy is a senior research fellow at the Mercatus Center and a syndicated columnist for Creators.

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