Net present value

The train now approaching platform 2 has been delayed for 155 years.

A few weeks ago, I found myself on the Cornish Riviera, the fastest train from Cornwall to London, stopping only at Plymouth, Exeter and Reading between the Tamar and Paddington, and timetabled to go from Penzance to London in exactly five hours.

Splendid. Except that the distance is a shade over 300 miles, so the average speed is a less than dizzy 61mph. And even that average covers some interesting variation. Looked at section by section, the speeds tell a powerful story.

Distance (miles) Time Speed (mph)
Penzance to Plymouth 79½ 2h 40
Plymouth to Exeter 52 57m 55
Exeter to Reading 137¾ 1h 38 81
Reading to London 36 25m 86
Penzance to London 305¼ 5h 61

Some of that variation is explained by the fact that the train stops eight times between Penzance and Plymouth and not at all between the other pairs of stations, but on any basis, a supposed express taking two hours to cover eighty miles is hardly impressive.

This isn’t about the trains. They may be forty years old, but they are still capable of reaching 125mph and they certainly don’t get close to that anywhere west of Exeter.  So it comes down to the track and, more specifically, to a set of design decisions made in the 1840s.  The terrain was not easy, with lots of steep valleys perpendicular to the line of route, money was short, and construction costs were minimised. Apart from the curves, other obvious signs of those constraints remain today – the splendid Royal Albert bridge across the Tamar is an engineering masterpiece, but it is only single track, as was the entire line in Cornwall when first built.

In making those design decisions, did the promoters of the line give any thought to the fact that they were investing for the next two centuries or more? Of course they didn’t – what, after all, had posterity ever done for them? With the benefit of those two centuries of hindsight, would it have been rational to have invested more at the outset in order to secure a long stream of higher benefits? Almost certainly, and if the capital markets were not capable of doing that, we can now see that it would have made good sense for the government of the time to have borrowed to make more effective investment possible. Leaving aside the fact that that’s not what governments in the 1840s saw their job as being (we are already well into the realm of fantasy here), the very long range value of some kinds of investment decisions, combined with the very long term constraints some of those decisions bring means that the there is a long-term skew to sub-optimal levels of public investment.

Meanwhile, Daniel Davies has written a beautiful essay, summarising Switzerland in 18 vignettes. The whole thing is a delight and well worth reading, but a couple of sentences prompted me to think again about my Cornish experience:

The SBB, great though it is, is not the real miracle of Switzerland compared to the dozens of little cantonal and sub-regional railways that serve even the smallest little towns on rails carved into the roads or running alongside them. This sort of infrastructure asset doesn’t depreciate if maintained properly, and it keeps providing the services for which it was intended in all economic climates. It’s a classic illustration of a point that John Quiggin has regularly made – that classic “risk-adjusted” discounted cash flow analysis will always overstate the risks of government spending and result in underprovision of infrastructure.

Devon and Cornwall provide a different example of that point with the closure of the line between Exeter and Newton Abbot earlier this year when a stretch of track was washed away. There was once some redundancy in the system which could have routed round the damage – but that has long since been removed, leaving rail access to Plymouth and beyond vulnerable to a single point of failure. Again, we can only speculate about the long term return there would have been on keeping the line across Dartmoor open.

This isn’t a post mourning a pre-Beeching world, where trains puffed across sunny rural landscapes, pausing from time to time to pick up a few milk churns. Seeing how the past might be valued differently is not the same as valuing everything that is past. Trying to understand the long-term value of infrastructure is not the same as saying that all infrastructure has long-term value.

Indeed, this isn’t really a post about the past at all. The railway line across Cornwall, curves, gradients and all, is what it is, and nobody is going to build another one. So this is a post about the future: can we find ways of being smarter about the long term value (and costs and risks) of our investment choices?