How American trains opened up their economy

[vc_row][vc_column width=”2/3″][vc_column_text]A large two engined train was crossing America. After they had gone some distance one of the engines broke down. “No problem,” the engineer thought, and carried on at half power. Farther on down the line, the second engine broke down, and the train slowed to a dead stop. The engineer announced:
“Ladies and gentlemen, I have some good news and some bad news. The bad news is that both engines have failed, and we will be stuck here for some time. The good news is that you decided to take the train and not fly.”

I spent a lovely summer in the village of Pewaukee, Wisconsin in the United States, which has a population of 8,236. It is part of the bigger city of Pewaukee that itself has a total population of 13,195 as at the last census in 2010. Tucked away in a corn and soya bean growing topography in central Wisconsin, the nearest large city is Milwaukee which lies about 17 miles East and Chicago which is a fast ninety minute drive to the south. The central focal point of the village is Lake Pewaukee which is about the size of our own Lake Elementaita and is surrounded by million dollar homes. The lake therefore attracts residents to its shores during the weekend and the local authorities have ensured a well maintained pier exists for the public to walk along, bring their chairs and sit, swim and generally enjoy free safe and secure access to a public asset. There are also clean public toilets and changing facilities and I once found a man in a waterproof overalls waist deep in the water cleaning out the waterfront area near the pier. Pewaukee is fairly safe and front doors are often left unlocked and the local police’s idea of excitement is catching a wayward driver doing 35 miles per hour in a 25 mile per hour zone. Enough said. The serenity is, however, often interrupted by the ear splitting warning horn of cargo trains that often traverse through the village as the railways tracks are part of the wider interstate web of railway track that opened up the United States to progress, new population settlements and vibrant trade in the 19th century.

On one lazy, languorous afternoon we sat by the lake and watched a cargo train trundle past. It took all of five minutes. But five minutes is 300 seconds of a long, rumbling iron snake carrying containers arranged in a double stack on wagons. So we did some quick back of a grease stained serviette calculations. Having lost count after about 30 wagons (the relentless heat and humidity does wear one down when conducting a mind numbing activity like counting train wagons) we figured that the train was easily carrying 200 containers. Assuming that a Kenyan truck on the nail biting treacherous Mombasa to Nairobi journey carries one 40-foot container, this particular train we were observing could easily eliminate 200 trucks from the road, just like that. It goes without saying that 200 trucks off Mombasa road would also mean far less damage to the road and, heaven be praised, less traffic on that critical East African artery. But surely I’m exhibiting bouts of insane fantasy so let me get back to reality.

The railroad system in the United States can be traced to the dawn of the 19th century and was primarily built to haul cargo and later, as more railway lines were built on the back of a rapidly developing financial system in Wall Street that provided funding options, passenger trains emerged. The railroad system thus opened up significant trade opportunities for manufacturers of goods as they could find and reach new markets in a cost effective manner. Towns soon started popping up along the railway routes as the trains needed skilled craftsmen to repair the steam locomotives which developed difficulties along the journey. It is also noteworthy that by the mid 19th Century, over 80% of farms in the Corn Belt (from Ohio to Iowa states) were within eight kilometres of a railway. Access to markets had led to the creation of many large scale farming communities.

Like any industry, the railways in the United States have gone through great highs and spectacular lows. Competition from trucks did affect the railway in the mid 20th century particularly with the rapidly developing interstate highway system. However deregulation of much of the industry in the early seventies removed the stumbling blocks that had made it economically unviable thus making the American freight railway system one of the best in the world.

Which brings me to our Chinese driven standard gauge (SGR) railway that is currently under expedited construction. I did a little research and was pleased to see that actually I wasn’t exhibiting bouts of insane fantasy. A typical freight train on Kenya’s SGR, once complete, will consist of 54 double stack flat wagons and measure 880 metres long. 54 double stack wagons converts to 108 containers. Poof! 108 trucks gone just like that off our roads, assuming of course that the wagon is carrying two 40 foot containers rather than 20 foot ones.

It bears some reflection as to what role the SGR can play in the reversal of the importation pressures placed on the shilling. Since our oil will have its own pipeline to take it to the port when it is eventually extracted, our higher capacity trains should not return to the Mombasa port empty. As American history shows, the railroads were a core component of the growth of the economic powerhouse as they were used to crisscross raw material and finished goods to domestic markets. What impact will having the faster delivery mechanism called SGR have on future production of agricultural and finished product in Kenya? I want to believe that this is being given careful consideration within the facilitative roles of Ministries of Agriculture as well as Industrialization. Otherwise both these engines of facilitation will have catastrophically failed.

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Twitter: @carolmusyoka [/vc_column_text][/vc_column][vc_column width=”1/3″][/vc_column][/vc_row]

Outsourcing the Government

The National Assembly today voted unanimously for the bill to outsource the oversight and representative role of parliament to a leading international audit firm CWP. The same bill also outsources the role of government ministries to Dineshco, a Business Processing Outsourcing company in Madras, India. The extraordinary bill was the brainchild of the Member of Parliament for a previously unheard of constituency in Kwale county, long known to have harboured desires for secession anyway. “Since Pwani cannot leave Kenya, the next best thing is for the government to leave us, and for us parliamentarians to leave ourselves,” said the diminutive and often vituperative MP.

The quotation above sounds like a ridiculous headline story in a freakish nightmare movie. But is it preposterous to think of outsourcing as the solution to the chasmic corruption in the executive and the cataclysmic rent seeking in the institution that is supposed to keep the executive in check, namely parliament? Think about it for a River Road minute. We find a company that is willing to run our government ministries and ensure that efficient service delivery is procured for the ultimate customer: the mwananchi. We pay the company a percentage of the national budget. The company then delivers proficient services in health, education, tourism, environment etc. procuring supplies from the least cost provider and leveraging on economies of scale just from ordering in bulk across the ministries. We throw out the Cabinet Secretaries, Principal Secretaries and the entire civil service. We will have a President who will be the head of the country in as much as the non-executive chairman of a private sector corporate is the ceremonial head of the institution.
The President is actively encouraged to visit schools and hospitals and take appropriate kissing baby pictures for the media.

We then turn our attention to parliament. We throw them all out. We hire an audit firm to provide monitoring and oversight over the company running the executive. We keep 47 senators who will represent the counties and meet the audit firm once a quarter to receive a report on what the company running the executive is doing. We allow the senators to ask questions relating to services that are being provided to their counties. The senators never meet the company. They only engage through the auditors. We actively encourage the senators to visit schools and hospitals in their counties and take appropriate kissing baby pictures for the media.

Kenya has now hardwired corruption both in its institutions and in its collective DNA. We have to reboot. But we have to outsource management of our institutions away while we reboot. The idea of outsourcing everything, while extreme, has been undertaken in smaller measures elsewhere that are worthy of mention.

The Financial Times, in its March 23rd 2015 edition ran a story headlined: UK government outsourcing raises questions over pay. It turns out that the coalition government in the UK has outsourced GBP 88 billion worth of contracts to the private sector. The FT also reports that more than 2,800 top-grade engineers – who service military equipment including aircraft at the Defence Ministry’s Defence Support Group – are expected to lose the right to their civil service terms on April 1st 2015 after the agency was sold for GBP 140M to the outsourcing company, Babcock. The FT article also cites the example of the Lincolnshire Police Force where the G4S security company manages a number of back office functions. G4S staff now supports police officers in the logistics and administration surrounding arrests, which frees up more expensive police resources to remain in front line roles.

A November 2014 article in The Economist also sheds some light on government outsourcing. Titled Government outsourcing: Nobody said it was easy, the article mentions that the two big private-prison firms in the United States, Corrections Corporation of America and GEO Group, have delighted shareholders with an average annualized return since 2004 of 18.5%. The main cause is America’s bloated justice system, which locks up more people than in other rich countries. An American online magazine published by GOVERNING, ran an interesting article on the pros and cons of privatizing government functions in December 2010.

An interesting excerpt is as follows: “This past March, for example, New Jersey Gov. Chris Christie created the state Privatization Task Force to review privatization opportunities within state government and identify barriers. In its research, the task force not only identified estimated annual savings from privatization totaling more than $210 million, but also found several examples of successful efforts in other states. As former mayor of Philadelphia, Pennsylvania Gov. Ed Rendell saved $275 million by privatizing 49 city services. Chicago has privatized more than 40 city services. Since 2005, it has generated more than $3 billion in upfront payments from private-sector leases of city assets. “Sterile philosophical debates about ‘public versus private’ are often detached from the day-to-day world of public management,” the New Jersey Privatization Task Force reported. “Over the last several decades, in governments at all levels throughout the world, the public sector’s role has increasingly evolved from direct service provider to that of an indirect provider or broker of services; governments are relying far more on networks of public, private and nonprofit organizations to deliver services.”
The report took careful note of another key factor: The states most successful in privatization created a permanent, centralized entity to manage and oversee the operation, from project analysis and vendor selection to contracting and procurement. For governments that forgo due diligence, choose ill-equipped contractors and fail to monitor progress, however, outsourcing deals can turn into costly disasters.”

All these stories are of course ringed by spectacular failures as in any industry. But they demonstrate a willingness to look externally for solutions when no internal ones are forthcoming or viable. We are collectively sick as a nation, perhaps it’s time to give others a chance to cure us from the corruption malaise that bedevils us.

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Twitter: @carolmusyoka