Friday, 7 March 2008

What's a railway worth?

Here's a question that's launched a thousand dinner parties: how much is your house, car or railway line worth? Well, maybe the first two questions anyway.

The short answer to "How much is something worth?" is "As much as someone is willing to pay for it on the open market" -- "someone" in this case being the willing buyer who reaches agreement with your willing seller. That explains why your house is worth less than your friend's house in a more popular area, and why your other friends' rarer and more sought after car just sold for a higher price than your run-of-the-mill old bomb.

All things being equal, the value of things on the open market is the price that a willing buyer is prepared to pay a willing seller.

This explains why the government was able to buy back the railway lines from the previous owner for the princely sum of one dollar: on the open market, that was all the rail lines were really worth as rail lines.

In fact, the lines would have been worth far more as real estate, but as a network of steel rails carrying near-empty trains around the place it's likely that the lines were worth even less than one dollar, and reinforcement for this view comes from the fact that only a government was even interested in picking up the tab for them -- since governments have a sure eye for a losing proposition, it's a fair bet that we're talking about something that's worth less than nothing.

So government bought back the rail lines. And now the Government is talking to the owner of the rail rolling stock about buying that back too -- all lock, stock and rusting old rolling stock of it. Why are they interested when no other buyer is? Simple. As Liberty Scott said when these negotiations first began, "it's a dud investment. Something socialists are good at finding."

Rail owner Toll Holdings wants seven-hundred million of our dollars in return for handing over the whole train set. The government has offered half-a-billion dollars of the money they've stolen from us. No one else is likely to offer one cent, which is a sure sign the whole train set isn't worth even that much. So what happens to half-a-billion dollars of the money that's been stolen from us if the government does 'invest' it in rail? Answer: within a very short time the whole railway -- all lock, stock and rolling stock of it, will be worth less than one cent, which is what our investment will then be worth. Only a government or Hugh Fletcher could destroy so much value in just one investment.

Half-a-billion dollars is roughly the amount New Zealand's sheep farmers earned last year for exporting sheep meat. Half-a-billion dollars invested productively could be worth roughly double that in ten years time -- that's what free enterprise can do, and it's how country's make themselves rich. Instead, in ten years time, the government will have turned the equivalent of New Zealand's entire sheep meat revenue into something equivalent to the value of a rotting carcass -- which I'm afraid pretty much describes New Zealand's railways.

Whether the whole operation is nationalised or not, the taxpayer will still lose either way. We're already paying to subsidise a failing operation, and renationalising it won't stop it losing money. Renationalising rail will simply make the socialists in cabinet feel good, and pose yet another problem for John Boy's will-they-wont-they non-policy makers, but it won't for a second change the all-too transparent fact that this is going to be a dud investment.

There's a point to make here that should by now be obvious to all but the most braindead socialist, and which even supporters of privatisation seem to have overlooked. When the NZ Rail dinosaur was hocked off the argument used was that private business would run rail more "efficiently." This was the justification at the time for all the morally necessary privatisations done in the late eighties and early nineties. This was in all truth utter nonsense. In truth, "efficiency" is only ever one part of the economic story of privatisation; only one of the strings in the privatisation bow.

The full economic argument for privatisation includes the urgent necessity to discover what government-run industries are really worth -- something that can only be established by private ownership in an open market -- and then to invest industry and capital to make them worth that, and more. In the case of rail, the real value of the rail network was less than a dollar, and on the open market the rest of the train set looks to be worth little more. In fact,without the ongoing subsidy courtesy of the taxpayer (ie., money thrown straight down the rail corridor), rail operations would have ceased long ago, except perhaps for the three or four lines able to keep their heads above water -- indicating that in this day and age the real business of rail is not transporting things and people, it's farming subsidies from governments, and that the country's 'rail network' is far from being "vital infrastructure" -- more like an expensive, arthritic and completely futile waste of precious resources.

UPDATE: Naturally, when the discussion is on planes, trains or automobiles, one needs to check out what Liberty Scott has to say today. He's not just better informed than Jeanette Fitzsimons, he's better looking as well.


  1. Yes, PC. But its worse than that.

    I recently made a few rail trips into Auckland City at rush hour and to my amazement I wasn't asked for my ticket once!

    The trains were full and there were two 'ticket collectors' in each carriage.... and they just stood there like dummies, doing absolutely nothing.

    Now, admittedly, it would have been a big ask for them to have pushed through and exhaustively checked every ticket in the throng as the carriage was so crowded - but these 'workers' are probably being paid, um, I dunno, $30,000 per annum each and there must be scores of them on the Auckland rail network, all doing nothing during rush times when the crowds are too big for them to be bothered with.

    As the commuters will all have realised by now, its hardly necessary to pay for a ticket during rush hour. Probably the majority of them buy 10-trip tickets which last for 20 or 30 trips - so how much revenue is this silly invented "Veola" company bleeding each day? Bucketloads. Just because they couldn't be bothered installing barriers and a decent ticketing system, but instead the employ brain dead morons who just do nothing.

    And why is this?

    Why would a company behave in this way?

    ..... because some government or local government agency is giving them a subsidy to pretend to run a railway, thats why. This "Veola" or whatever they call themselves, couldn't care a fuck whether the commuters pay or don't pay, because our money is being poured into their coffers in the way of subsidies from your and my taxes, so the little matter of revenue from customers is just a trifling detail.

    They call it "private enterprise", but really it is just another huge rort. A good rail network would be absolutely great in Auckland, but we're not going to get one while one in three passengers travels free and the staff just stand there picking their noses.

  2. I find Idiot/Savant's blog posts, just simply idiot. His comment from the link that PC linked to :

    Time to buy back the trains too

    IS said...
    Rail services are vital infrastructure, and its entirely appropriate for the government to own them.

    Appropriate for the government to own them for what?

    Mr. Idiot blog site is just rubbish. He doesn't have any intellectual argument or debate about what he writes about. This means that I/S is what his blog site says.

  3. This is just horrible. The way this government wastes money is absolutely ridiculous.

    Now, how do we throw Jim Taggart out of business...
    I suppose the only way is to get the government to stop paying him.

  4. There are only two passenger railway companies that make profit. All the rest are in the game of extracting subsidy and receiving stolen property.

    Can anyone guess the names and locations of the two profitable passenger railways?


  5. Solid Energy should look at leasing or buying the rolling stock that shifts their coal from the Coast to Lyttleton; possibly buying the Tranz Alpine plant for running during the months of high patronage.

    Sell the rest for scrap, at $500+ a ton, it would be better than dipping into the taxpayer trough.


  6. Is one of the profitable railway companies the (privately owned) Taeri Gorge Railway? Does it own its own lines or lease them?


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