On the first leg of his journey, Schwarzenegger cut a deal with the Japan Bank for International Cooperation to loan California funds for the rail project. (The exact amount was not revealed.) In return, the governor dangled the prospect that California would choose Japanese trainsets and a Japanese operator to run the railroad.
With this understanding in hand, the ex-actor marched to Beijing and struck what may be a better deal with the Chinese Rail Ministry. The agency announced that it could offer California a “complete package,” including financing, to build the high-speed railway. “What other nations don’t have, we have,” bragged a ministry spokesman. “What they have, we have better.”
Then it was off to Korea, where the governor rode on Korea’s fastest train, the KTX, with Hyundai executives and met with President Lee Myung-bak. Afterwards, he offered the assessment that Korea and California would “be a terrific partnership” and asked his hosts to be sure to bid on the California project.
Schwarzenegger is on to an old idea. In the 19th century, European governments, as well as private investors, helped finance America’s railroads. Competition was often ferocious between the different syndicates, which kept overall costs down while enriching the Wall Street middlemen who set up the investment tranches.
Schwarzenegger’s strategy of letting experienced rail operators propose financial deals to California in return for potential entry into its market comes in sharp contrast to the approach in Washington.
Ever since it proposed a high-speed rail program in April 2009, the Obama administration has kept foreign rail builders at arm’s length and peddled the notion that American manufacturers can upscale their expertise and produce their own state-of-the-art train systems.
So far, no domestic company has even remotely stepped up to this task. Pullman-Standard, the last U.S. manufacturer to build rail passenger cars, exited the business 25 years ago. General Electric makes world-class locomotives, but these are freight locomotives unsuited for speeds above 90 mph.
Schwarzenegger realizes that having invested tens of billions of dollars in their high-speed-rail industry, governments in Asia and Europe are ready to fight for a chunk of his state’s $40-billion project. Jobs and manufacturing opportunities in California will flow naturally from the demands of the new service – as long as it gets started.
Right now, nobody in Washington seems to know how to pay for high-speed rail. A paralysis is taking shape as the federal debt grows, with no long-range funding set up. Maybe the “governator’s” shrewd negotiations with Asian officials this week will bring some fresh ideas to policymakers.
Photo credit: Hyundai
With his own state government deep in the red, Schwarzenegger needs cash to build a $40-billion high-speed railroad between San Diego, Los Angeles, San Francisco and Sacramento. Instead of resigning himself to critics’ attacks that now is not the moment to spend money on rail, the governor went abroad to strengthen California’s ties with overseas train builders and bankers. At a time when folks in Washington are scratching their heads over how to pay for high-speed rail, the Governor’s trip offers an instructive way forward.