From Business Day, Monday 19 September 2011. http://www.businessday.co.za/articles/C ... ?id=153738
TIM COHEN: The perfect illustration of inherent inefficiency
Published: 2011/09/19 08:39:16 AM
I WAS recently driving from my home in the Karoo to Cape Town down the N1 highway, a trip I do fairly often these days. On the way, there are six places where the road was closed for roadworks. Right next to the N1 on this route runs the Johannesburg to Cape Town railway.
In all of my many trips down this road, I have never actually seen an operating train on this line. And the opportunity to do so has been magnificently increased by the long periods of standing on the side of the road by my car waiting for permission to proceed.
All of the old houses next to the railway track are now gradually disintegrating into vandalised shells. Yet the road is wonderful and getting better. It’s irritating to be stopped, but in a way, being stopped is preferable to the gradual disintegration of the alternative transport service visible across the veld. This seems like a trivial thing but in fact, it’s oddly fundamental and asks a wide range of questions about the nature of development and even the history of SA.
Modern South African history books tend to gloss over this for politically correct reasons but SA’s railway history can be summarised in three words: Cecil John Rhodes. There were tiny railways before Rhodes, but post-Rhodes there was a real network. The "new rush" started in Kimberley in 1871, and thanks to Rhodes, 14 years later there was a railway line from Cape Town.
To fund the construction of this line, the Cape parliament apparently went into debt to the tune of three times its annual income. Luckily Standard & Poor’s wasn’t around at the time to do a credit check. The huge expense involved was one of the reasons SA is cursed with cheaper, narrow-gauge lines, only recently changed with the advent of the Gautrain.
Like the American west, Rhodes pushed his railway network onward, and in its wake came the new world. Rhodes was armed with the dubious righteousness of colonial conquest on the back of a dream of reaching Cairo. The Transvaal republic, whose isolationist farmers were staunchly against the railways, was by-passed, essentially creating Botswana in its wake, while the new destinations, Zimbabwe and Zambia, created two more countries.
With his dual access to mineral wealth and political influence, Rhodes laid more track in his brief lifetime than has been laid in the century that followed his death. There is still no railway line from the Cape to Cairo. I wonder what he would think of the frameless windows and grass growing through the concrete slabs of the signal keepers’ houses. And what about the gleaming highway at its side? Would he welcome the progress implicit in the new mode of transport or bemoan the ruination of his legacy?
What I don’t understand today is why there are so many people working on the road and so few on the railway line, which obviously needs more work.
Improving the railway network would enhance the government’s own balance sheet. Improving the road network improves the balance sheet of the myriad transport operators that use the road. They are getting essentially an in-kind tax return, something akin to a social wage. This might be entirely defensible but it surely operates contrary to the implicit incentive structure. The answer lies somewhere in the complicated organogram of "yes" which is the core of government. Government officials all over the world are famous for their ability to say "no".
If you want to do anything from putting up a building to getting a medical prescription, most often the short answer is, "No, come back tomorrow". There are some precious corners of government where people do have the ability to say "yes".
Because of the economic downturn, one of those ministries has been the ministry of creating quick make-work projects. And one traditional, fast and effective way of making work is to build a road. So SA has a road system that makes German’s autobahns look only marginally more impressive. But SA’s railway lines belong to a bygone era.
The reason is a quirk of history. In the rush to modernise in the late 1980s, the ruling National Party underwent a death-bed conversion to capitalism. Huge divisions of the state suddenly became private companies, with their own hands-off minister. For reasons that are almost inexplicable, the African National Congress accepted this weird state of affairs, which involves having a Department of Transport that has no real say over the transport system.
Although the department is constitutionally mandated to make transport policy, the head of the state-owned transport company — in this case Brian Molefe — can, incredibly, overrule the department, as took place earlier this month over the issue of allowing the development of private rail networks.
This little spat is so interesting because it reveals the conflicting and contradictory impulses of the Zuma government: a deep distrust of the private sector but also a deep desire to expand, with the assistance of the private sector. Or at least its own version of private sector, its own personal private sector. So Public Enterprises Minister Malusi Gigaba said last week there is "nothing inherently inefficient" about Transnet. But standing on the side of the road behind kilometre-long queues of trucks on a glistening highway looking at an empty and decrepit railway line, I’m sorry, I have to disagree.
Ironically, while I was waiting at one of these stops, I was listening to a podcast of something called Freakonomics Radio. The programme emanates from the book of the same name, which tries to apply the rules of economics to everyday circumstances.
The interviewee was talking about a hypothetical situation.
Imagine, he said, there are no restaurants permitted in a given city. Imagine that all these "canteens", as they become known, are run by the state. Obviously, for reasons of efficiency, the canteens would all have the same menu, drummed up by a single committee of nameless nutritionists responsible, really, to no one.
It’s not hard, in these circumstances, to imagine the food would become pretty goopy, for the simple reason that there is no incentive to improve the quality. The reason there is no incentive is that the customers have no choice, so it makes no difference to the restaurant or to the customer.
It’s almost impossible, all things being equal, for the canteen to go out of business so long as it sticks religiously to the same goopy menu as everybody else. The result is a low, generic service with careless, lazy waiters and poor management.
This is pretty basic economics. Here is the un-basic thing. What is the difference between this imaginary system of city canteens and our school system? What parents get out of the state education system is a low, generic staple with the standard menu of knowledge items set by a nameless committee of experts. Service is sloppy and results are poor.
The same applies to the rail system. So long as there is no choice, how can anyone one seriously argue it is "not necessarily inefficient?" It is absolutely, necessarily, inefficient.