Add Grants and Subsidies to Reduce Costs and Investments

The cost of investments that benefit many stakeholders can unfairly fall more on one organization than on another. Amtrak, the American government-owned passenger rail corporation, is an example of this problem.

Amtrak was formed at a time when for-profit passenger rail operations were losing lots of money, as were the railroads that owned such operations. Fearing for their financial survival, U.S. railroads petitioned the federal government for legislative relief so that they would no longer be required to transport passengers. Since citizens still needed rail service, Amtrak was chosen by Congress for the purpose.

For most of its history, Amtrak leased access to railroads' tracks. Eventually, it was able to obtain its own tracks from Washington, D.C. to Boston and the funding needed to upgrade its track so that higher-speed trains could operate on it. This higher-speed service soon became profitable and continues to be so today.

Overall, Amtrak loses lots of money, which U.S. taxpayers subsidize. As a result, the passenger rail corporation has a hard time making any new capital investments for upgrading the track it owns, for improving the stations it uses for passengers, and for adding rolling stock.

In 2009, Amtrak's then number one fan, Vice President Biden (who while in Congress daily rode Amtrak's high-speed service to and from Wilmington, Delaware and Washington, D.C.) helped the organization to gain $1.3 billion in investment funds to improve its services.

Normally, such a story might describe a political favor for a failing organization that gained support unfairly. Closer examination reveals, however, that this investment is an opportunity to reduce investment intensity for U.S. citizens.

Amtrak isn't the only form of passenger travel that's heavily subsidized in the United States. Airlines are subsidized through airport building and providing of air-traffic control. Roads are heavily subsidized to keep high-speed Interstate highways in good shape. Even cruise ships for people taking vacations are subsidized through safety-related services.

Railroads provide a major opportunity to add travel capacity without taking a lot more highly desired (and expensive) urban land. You could lay ten rail lines side by side in the space that a new freeway occupies. To expand an airport usually means carving out major sections of the most densely occupied land in or near any urban center. Most rail lines, by contrast, are often lightly used and could easily handle much more passenger traffic if the requisite track maintenance and upgrades were done.

As an example of what I mean about alternative solutions being investment intensive, part of the Boston area's major roads were rebuilt over twenty years at an estimated cost of $22 billion. That's four times what was needed at the same time to add or to improve higher-speed railroad tracks over all the most congested parts of the United States.

Here are some statistics about subsidies: The average Amtrak passenger is currently subsidized to the extent of $40 per trip, mostly to pay for legally mandated services where usage is light. By comparison, travel in the average American passenger vehicle is subsidized through road building to the tune of $600 to $700 a year.

I rode Amtrak from Seattle, Washington, to Portland, Oregon, in 2009. I was delighted to find that the fare cost 80 percent less than flying, and 90 percent less than renting a car. The service was terrific, the seats were new and comfortable, the trip was quick, the scenery was outstanding, and I couldn't imagine why anyone would travel between those two cities in any other way.

Clearly, in places where it would be hard (or ridiculously expensive) to add capacity for airplanes and vehicles, it makes a lot of sense to expand higher-speed passenger rail capacity and services. Alternative ways to travel would probably require fifty to a hundred times greater investments.

Naturally, if your business has heavily subsidized competitors, you need to be prepared to obtain your own subsidies in order to compete.

If you don't have subsidized competitors, it may still make good sense to seek grants and subsidies when the alternative is for all stakeholders to incur much higher investments and costs.

Let's next consider the idea of a service that would provide comprehensive databases for tracking and delivering services to all the poor people in the United States. Because many poor people don't know what services are available to them, they often don't receive needed services that they qualify for and often, instead, consume more expensive services than they need. For instance, most poor people could qualify for subsidized or free food, housing, and job training. Most will only be getting one or two of these benefits because they are ignorant of how to obtain the others.

Some poor people don't know that most state governments will provide them with no- or low-cost health insurance so that they can receive many of the same medical services as everyone else. Lacking health insurance, these people often go to a hospital's emergency room for care because they know from experience that hospitals rarely turn them away. Through subsidies to cover the cost of such "free" services, governments may pay $600 to $1,000 for a medical visit rather than the $60 to $300 that would have been incurred for treatment at a physician's office.

By using all the comprehensive services well that governments provide, most poor people can get a job and take care of themselves within two or three years. Otherwise, they may need government help for decades.

By having a comprehensive database for poor people who are receiving government services, a social worker could be sure that someone is receiving all the needed benefits he or she is eligible for. In addition, service providers can tell if the person has access to other forms of services that are less expensive. As a result, a hospital emergency room could forward the prospective patient to a nearby clinic where a nonemergency medical condition or illness could be treated appropriately (and often more quickly), focusing more of the emergency room's scarce resources on critical care.

It's unlikely that such a database would be built and maintained without a government subsidy. That's because although many other stakeholders would benefit from such a database, none of the individual stakeholders has enough financial incentive to develop and to maintain it.

In seeking grants and subsidies, it naturally helps to point out how other investments and costs are reduced as a result so that total stakeholder benefits are substantially increased well beyond the investment costs.

In a for-profit business environment, it's not usual to think in terms of how some stakeholders might receive benefits that are so substantial for reducing investments and costs that these stakeholders might be willing to provide grants and subsidies to encourage the use of the for-profit enterprise's offerings. Such opportunities are probably more common than you think.

Here's an example. Imagine that you provide new software that enables certain types of equipment to perform with fewer breakdowns. Let's further assume that such breakdowns often cause serious injuries. If the country where you sell the software normally incurs major ongoing costs for injured workers, its government may be very interested in paying for software improvements that further reduce injuries or to subsidize equipment owners' purchases of the existing software.

When no other source of funding is available, governments may pay for the development of new technologies that reduce investments and costs for their citizens. Such grants and subsidies can be essential to making improvements available.

In examining your future business opportunities, you should consider where new developments, offerings, expansions, and other investment-intensive activities would yield major benefits for all stakeholders... as well as for citizens at large. When everyone benefits, you should look into applying for grants and subsidies. Whether or not the government agrees, also consider foundations and other private sources of grants and subsidies.

What's the key point about seeking grants and subsidies? Redesign your company's business models, methods of operating, use of facilities, ownership of facilities, breadth of product line, and offerings to develop alternatives that reduce investment and costs for all stakeholders, and seek grants and subsidies from beneficiaries to help reduce investments by 96 percent and to create lots of excess cash for everyone.