Washington is in a mess of accounting irregularities, lax corporate oversight, executive lies, and political favors. No, I'm not talking about Enron, or even about Bush's $2.13 trillion budget -- at least not directly. The center of this saga is Amtrak, Enron's analog in the never-neverland of public sector corporations.
Last November, the Amtrak Reform Council (ARC), an outside board established in 1997 to monitor the railroad's performance, declared it financially hopeless. The ARC will submit a plan for the railroad's reorganization today. The law that created the council compelled Amtrak to submit plans for its own liquidation today as well. That's not happening.
The point of this column isn't to beat up on Amtrak. It's to remind readers that all economic systems have pros and cons. Enron's legendary failings -- lying executives, see-no-evil accountants, dimwitted Wall Street analysts, a slumbering-on-the-job board of directors -- are a product of capitalism, especially during a boom. Amtrak's 30-year history shows the limits of the leading alternative, which entails active public oversight and participation in a corporation.
This isn't to say that Amtrak isn't a poorly run excuse for a railroad. But being poorly run is a design characteristic. Amtrak's problem is that most of its lines cost far more to operate than they make in revenue. Yet in 1996, when it wanted to cut out four of its biggest dogs, its congressional overseers threw a fit. Sen. Kay Bailey Hutchison (R-Texas) called a hearing and insisted that Amtrak keep the Texas Eagle rolling.
This is a line that costs $3.37 for every $1 it takes from passengers. If Amtrak were a for-profit corporation, investors would insist that it close the route, as would the board. But Amtrak doesn't worry about profits, and it effectively has two boards, one composed of appointed political hacks and the other of elected officials. The congressional board causes inefficiencies even as it berates Amtrak for being poorly run. "People at Amtrak would rather keep a congressman happy by keeping a stop in his district than fight the battle to close it down," says the Cato Institute's Edward Hudgins, co-author of a report on Amtrak. "That's one more ally, and one less enemy, when it comes time to getting the subsidy down the road. This is legalized corruption. Congressmen do the influence and the payoff comes from taxpayer funds, approved by Congress."
Amtrak shares Enron's penchant for financial obfuscation and fancy accounting. "They have actively, with premeditation, misled Congress, the public, and the media on how great they were doing only to have it revealed last year that they lost $1.1 billion, the largest in their history," says Joseph Vranich, co-author of the Cato report. Vranich, a former Amtrak employee, quit the ARC in July 2000 over the railroad's unwillingness to open its books.
Vranich is especially exercised over some lines that Sens. Ernest Hollings (D-S.C.) and Joseph Biden (D-Del.) inserted into the must-pass defense appropriations bill, prohibiting Amtrak from preparing a liquidation plan. (Such a plan would crack open Amtrak's books.) "There's not a shred of difference between what Biden and Hollings did with lawmaking power and what Enron and Andersen executives did with their shredding machines," Vranich explains. "They covered up the gross financial mismanagement of Amtrak."
There are, however, significant differences in the consequences. When a private company gets caught lying and cheating, it pays. At Enron, voluntary investors and employees take the hit when the company turned out to be a poorly managed product of slick PR and questionable, perhaps criminal, accounting. While Amtrak deserves to come crashing down, it never does. Taxpayers are forced to pay billions in bills to keep the employees in their jobs and the politicians happy.
The ARC is expected to recommend splitting up Amtrak into separate companies that will operate the actual trains and maintain the tracks. This lets it off too easy. Like Enron, it should get thrown into bankruptcy court. Instead, odds are that Biden, Hollings, and other political benefactors will throw billions more at it to build a high-speed rail system.
This may be the only way to run a national railroad in a country that needs one about as much as a Hawaiian needs a wool overcoat. But it suggests a reason to celebrate an economic system that allows an allegedly great company to come crashing down in a matter of months.