High-speed rail: considering alternatives

The United Kingdom's high-speed rail project aims to pump money and jobs into the flagging economy but is it the best use of government investment?

In the wake of the British government's decision to go ahead with high-speed rail linking north and south, the debate on the subject has barely begun – with websites reporting an equal number of votes in favour and against. Many emotional appeals are being thrown in, from the lack of high-speed rail in Britain on one hand, as if that has deterred visitors and immigrants to the UK, to the usual complaint about a win for special interests on the other.

Perhaps we should add some light to a rather smoky fire. In every slump, in every recession, governments seek to invest in mega projects. This serves two purposes: One is to simply pump money and jobs into the economy get it moving. The second, more important, is to let loose Keynesian animal spirits to lift sagging consumer confidence and thus revive the economy. Of course, these projects may or may not make sense economically, but, what price would one put on reviving animal spirits?

Still, we must consider the case for high-speed rail. In general, high-speed rail, if it actually moves fast, can not only move people more quickly – as advertised – but also move more of them. Eventually, the cost per commuter may decrease owing to the investment being spread over trips and more commuters. This is the simple story.

Any good business case, though, must also look at alternative investments to see what the best use of the money could be. So a good business case should present evidence, real or at least fictitious, to show that the particular investment is better than all the other investments that were considered given the objectives of the investment; these objectives need not be return-on-investment-related but at least they should be clear.

That is why the objectives for the proposed investment need to be assessed. As far as I can make out, there are six possible objectives for high-speed rail in the UK – and it is hard to see these being met at all, or being met better, than with the available alternatives. The first objective is to move more people. However, current rail capacity is not used enough and could move more people with better operations and pricing.

The second aim is to move people faster. This is always desirable, but with high-speed making up only a small proportion of a big network, even if the speed on any one link becomes much faster, the overall time of any traveller's journey may not improve. In fact, it may even get worse owing to congestion stemming from the greater variability of speeds.

Third, lower travel cost. This may not be achievable and no one seems to be making this claim; in fact, based on the proponents' claims the net present value of the fares over 60 years at 5 per cent amounts to only about one-fourth of the net present value of the investment over the 22 years or so – clearly a heavily negative return-on-investment.

The fourth objective is to create jobs and this investment will do so. But are there alternatives that can create jobs? Some might make the case for giving loans to small businesses, and indeed the government has pondered such an idea given the major banks' reluctance to fund them. What about improving badly rundown infrastructure whether in the north or in the south? Also, given austerity measures, can we really train people who have lost their jobs into construction workers for high-speed rail?

Fifth, investment in infrastructure: high-speed rail will clearly meet this objective. But, as mentioned, is there any existing infrastructure that the money could be invested in first? Other reasons for going ahead with the project include the aforementioned animal spirits and to revive consumer confidence, as well as mending the so-called north-south divide. But again, are there are other investments that can serve both these economic and emotional needs?

My own recommendation would be to spend £34bn on sending the first woman to the moon, instead of doing high-speed rail now. After all, it would satisfy the animal spirits argument. Furthermore, it would revive British space efforts – no need to make an economic argument there. And it would be an investment in British manufacturing and science, creating high quality jobs for British engineers and scientists rather than for less-threatened bankers and contractors.

Even closer to the context, we will need more rail to move goods as climate controls start biting on road transport – that will require upgrading the existing infrastructure and operations drastically in the coming years. Perhaps we could consider required investments now and worry about optional ones later? You may be already thinking of other alternatives – if so this article's purpose is served.

Professor ManMohan S. Sodhi is professor of operations and supply chain management at Cass Business School, in the United Kingdom