Republicans Can Privatize Amtrak If They Want To

It is an election year, so Republicans are once again calling to privatize Amtrak.

Presidential candidate Mitt Romney and his party say they want private rail operators. The chairman of the House Committee on Transportation and Infrastructure, John Mica, who tried last year to push through privatization legislation, says he will hold hearings once a month on Amtrak.

If these plans sound familiar, it is because President George W. Bush tried to do the same thing. Yet Amtrak remains a ward of the federal government, and Republicans are largely to blame. If they are serious, they will learn from their earlier failure.

The effort under Bush fizzled after the ouster of Amtrak President David Gunn, a hardened transit executive with a reputation for cost-cutting and efficiency.

Gunn and the Bush administration would have seemed like a good fit. A self-described economic conservative, he made a name for himself in Philadelphia fighting regional rail unions during a 1983 strike that shut down commuter-train service for months.

Early in his tenure as president of Amtrak two decades later, Gunn says he approached the Transportation Department with a request to address problems with Amtrak’s labor agreement.

He was bothered by contracts that reinforced what are known as craft union restrictions, among other union work rules, the same issues he took on two decades earlier.

Low Productivity

“In the maintenance shops at Amtrak,” Gunn explained in a recent interview, “you’ve got a variety of crafts. Electricians, machinists, sheet-metal workers, carmen.” But because of work rules written into contracts and union divisions, they are not allowed to do one another’s jobs, even when they are perfectly able.

“You could have a carman,” he said, referring to one of the least-skilled craft designations, “who’s a space technician out of the Army, but he can’t touch anything electrical or mechanical. So he’s stuck banging on wheels and doing the heavy bull work.”

But the administration rebuffed Gunn. “They told me they’re not going to touch that with a 10-foot pole!” he said.

After Gunn was fired in 2005, he offered to come back to help with Amtrak’s labor negotiations, but the railroad’s board declined his offer.

In December 2007, a presidentially appointed panel set up to arbitrate the dispute recommended to deny Amtrak’s requests to make broad work-rule changes or give the company more latitude to outsource its work. The board chided Amtrak for not demonstrating any “proof of compelling operational need for any of these work rule changes.”

Instead of aggressively pursuing reform within Amtrak, the Bush administration came out with a much more ambitious proposal: no more federal subsidies.

The tracks, rolling stock and responsibility for financing service would be handed to the states, according to the administration’s plan. Rail corridors would be spun off through interstate compacts such as the Port Authority of New York and New Jersey.

The hope was that some state consortia would then contract out to a private provider, as is the case in the U.K.

Michael P. Jackson, who was a deputy secretary of transportation under Bush, was one of those who said this more immediate approach would be the best path to reform. Regarding Gunn’s labor requests, Jackson said in an interview, “It was difficult to imagine under the circumstances that we were going to get substantial legislative reform.”

Bush Approach

“The administration took a more aggressive reform path,” he continued, “rather than trying to nip around the margins. What we were trying to do was a more substantial reform, and in the end it failed.”

Jackson agreed with Gunn that labor reforms, among others, were needed, but thought that piecemeal change would never be enough to challenge the established interests -- “freight railroads, labor unions, passengers, politicians.”

“My assumption was that these types of issues would have been thrown on the table and addressed in ways that were more creative than could be done in an annual appropriations bill, or in a once-in-a-blue-moon authorization bill.”

Jackson compared the reform attempt to his experience ending a freight railroad strike during the Bush administration: “When you have an artificial crisis created around dramatic change, all sorts of things come into play that you didn’t think could.”

Somewhere between Gunn’s gradualist approach and the Republicans’ full-throated drive for privatization lies the Japanese experience.

Like Amtrak, Japanese National Railways, or JNR, was a struggling public corporation. It failed to make even operating profits on its most robust intercity railway routes. Ticket prices were high, and service was poor despite the yearly subsidies.

Japan’s suburban railways, on the other hand, showed what was possible with good management. They remained in private hands after World War II, and were renowned for their efficiency and low fares. They made profits for their private shareholders while their state-owned intercity counterparts were bleeding cash, not unlike the contrast between American freight railroads and Amtrak today.

The road to private ownership for JNR’s three successor companies on Japan’s densely populated main island was a long one, though. It began with labor reforms in the 1980s, and wasn’t completed until the last shares were sold to the public in 2006. Full privatization was the goal, but steps similar to what Gunn pushed for came first.

JNR was spun off into seven different companies in 1987, but labor revisions began even before that. JNR’s workforce was slashed by almost a third from 1980 to 1985, followed by a shake-up of its unions.

Japan’s Lessons

The government held out on offering the first shares to the public until the mid-1990s. It feared that “the dismal reputation of the deficit-laden and inefficient JNR would affect stock prices negatively,” according to a 2004 paper by a Kobe University professor, Fumitoshi Mizutani.

Mizutani wondered “why private purchasers would not recognize the potential for future efficiency gains and factor them into the purchase price,” but it seems that political uncertainty would have been seen as a barrier to private interest.

Even after the labor reductions, the Japanese railroad still required changes that threatened entrenched political interests. Private companies couldn’t be sure they would succeed. Still under government ownership, management was overhauled and given a large degree of autonomy from meddling politicians.

One difference between the U.S. and Japan, however, is that passenger rail has always been an integral part of the Japanese economy. Reform was imperative.

In the U.S., on the other hand, Amtrak is more likely to be seen as a political punching bag than as a critical mode of transportation. When asked by Fortune magazine what programs he would cut, Romney lumped Amtrak in with PBS and federal-arts and humanities endowments.

But as U.S. cities come back to life after generations of decline, passenger rail is gaining respect. New private service for the first time in a half-century is planned in Florida, and even Texas has considered proposals.

The Republicans’ ideas about private rail have merit, but if they want them to succeed, they will have to be patient. They will need Democratic support, which they had while Gunn was trying to fix Amtrak from within.

“If they’re going to go around talking about privatization,” Gunn said, “they damn well better do a little homework.”

(Stephen Smith is a writer based in Brooklyn, New York, who covers land use and transportation. The opinions expressed are his own. Read his earlier articles on mass transit costs here and here.)

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Today’s highlights: the editors on bringing back Build America Bonds and on judging Georgia’s Saakashvili; Caroline Baum on Romney’s best chance to win; Michael Kinsley on Romney’s incompetence; Ezra Klein on undecided voters; Amity Shlaes on why pensions are fueling U.S. class warfare; Jeff Rubin on whether high oil prices will save the planet; Stephen Smith on how Republicans derail Amtrak privatization.

To contact the writer of this article: Stephen Smith at smithsj@gmail.com.

To contact the editor responsible for this article: Katy Roberts at kroberts29@bloomberg.net.

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