The story of infrastructure in capitalist vs. socialist systems

By Hua BIN

Contact us: info@strategic-culture.su

A friend visited Germany recently and told a story how a delayed train caused him to miss the flight home.

I was shocked since you could set your watch by the Deutsche Bahn when I was living in Germany back in 1997.

I was doing an internship at Mercedes Benz in Stuttgart in those days. I could time my walk from the apartment to the bus stop, then connect with a train to the office with less than 5 minutes in total waiting time.

The bus and train schedules were synced so perfectly that you could count on a two-minutes’ walk and exactly 2 minutes wait in between. Both buses and trains were on time to a fault.

I had a particular fondness for DB since I traveled around Germany almost every weekend with its 35 Mark Schones-Wochenende Ticket (happy weekend ticket). Unfortunately that service was discontinued in 2019.

In the winter of 1997, I got lost on a hike with several friends in the Black Forest near Baden-Baden.

We were only able to walk out of the cold night after stumbling upon a rail track that led us to a small rural train stop. I can still remember the warm platform light to this day.

I’ve held German rail in high regard ever since.

So you can imagine how incredulous I was about the delay and bad service my friend complained about.

This prompted me to read about what happened to Deutsche Bahn over the last 30 years. In a nutshell, things certainly have changed for the worse.

Deutsche Bahn today defines an on-time train as one arriving less than 6 minutes behind schedule – a long cry from the clock-setting punctuality of the late 90s.

Even by such a low bar, punctuality hovers around 50 to 60%, well below DB’s own target of 70%.

The official explanation is aging infrastructure, heavy construction, and overloaded tracks.

However, as I dig a bit deeper, the decline of the German rail efficiency seems to stem from a deeply flawed privatization in 1994 which led to decades of extreme infrastructure underinvestment.

The 1994 Bahnreform merged the old East and West state railways with a clear mandate: DB was supposed to operate as a profit-seeking private corporation to prepare for an eventual stock market IPO.

To attract investors, DB prioritized extreme cost-cutting over public service.

They aggressively cut staff, outsourced maintenance, and began divesting into global logistics companies (like DB Schenker) rather than focusing on domestic rail.

Under the guise of maximizing efficiency, DB severely downsized its physical network to save money.

Nearly 8,000 kilometers of secondary rail lines were completely dismantled. Thousands of track crossovers, passing loops, and spare sidetracks were removed.

In 1997, if a train broke down or was delayed, a dispatcher could easily reroute it around the problem using these spare tracks.

Today, the network is stripped of its buffers. If one commuter train stalls near Frankfurt, it acts like a broken-down car on a single-lane highway, causing immediate, cascading delays across the entire country.

The problem is compounded by a mixed-rail system where fast Intercity Express (ICE) trains share the same physical tracks with slow regional commuter trains and heavy freight cargo.

In comparison, Chinese high-speed rail or France’s TGV networks mostly operate on dedicated high-speed tracks.

As the DB physical network was drastically thinned out, annual passenger numbers went up from 1.5 billion passengers in 1994 to 2.4 billion today.

Back in the 90s, it was still very common to live near where you worked in Germany. Over the last 30 years, skyrocketing housing costs in major hubs like Frankfurt, Munich, Berlin, and Hamburg forced a massive portion of the workforce to move further out into surrounding suburban regions and smaller towns.

As a result, Germany experienced a commuter explosion, with millions of people traveling significantly longer distances back and forth every single day.

Now, the Deutsche Bahn system runs at 100% capacity nearly constantly. Any small delays can quickly snowball into network chaos.

To make things even harder, Germany’s strict structural debt limits have restricted state spending.

For years, Germany spends only a fraction of what its neighbors do on rail. For example, Switzerland invests over €400 per citizen annually into rail infrastructure. Germany routinely spends around €100.

DB’s disastrous experience with privatization mirrors what happened with other similar projects such as the Thames Water in the UK.

When Margaret Thatcher’s government privatized the UK water sector in 1989, Thames Water was handed to private investors with a clean slate and zero debt.

However, successive private owners treated the utility—which serves 16 million customers across London and southern England—as a corporate cash cow.

Private investors – Wall Street banks and hedge funds – loaded the utility with a mountain of debt and extracted hundreds of millions in management fees and dividends.

Instead of using revenue to upgrade Victorian-era pipes and treatment centers, money was funneled to shareholders and executive bonuses. By 2026, that debt has ballooned to roughly £20 billion.

While the financial engineering generated short-term returns for private equity, the physical infrastructure rotted.

Thames Water has become a national scandal as it has spilled billions of liters of raw sewage directly into the River Thames and local waterways.

Due to aging infrastructure, 25% of all treated water leaks straight out of the pipes before ever reaching customer homes.

Amid severe dry spells and record temperatures, Thames Water repeatedly implements prolonged hosepipe bans because the system lacks structural resilience to manage the region’s water security.

Most privatization projects of public utilities have witnessed a similar pattern of chronic underinvestment, extreme operational cost cutting, and unsustainable debt leverage while enriching financial investors.

Deutsche Bahn and Thames Water are symbols of public goods degradation for private investor gains in rentier capitalist economies.

In stark contrast, Chinese infrastructure remains firmly in the domain of public ownership.

While Europe and the US follow a policy of reactive, austerity-driven, rent-collecting management of their nations’ infrastructure, China has adopted a strategy of anticipatory, supply-led construction – often years ahead of demand.

Back in the 90s, China still was heavily reliant on decades-old, technically backward rail networks that suffered regular breakdowns.

I still remember sitting in rail cars with no air-conditioning in the height of summer for hours when the train from Beijing to Chongqing broke down due to an engine failure during a trip home from college.

The ride used to take 40 hours by scheduled timetable. Today the same trip takes less than 7 hours on highspeed rail.

When China started building its national highspeed rail network in 2004, there was an avalanche of negative press from the West.

Western “experts” eagerly called out how wasteful the project was and how the rail would never generate a positive return on investment.

Despite the nay-sayers, the country has built over 50,000 kilometers of highspeed rail in the last 20 years, over 70% of the world’s total capacity.

Just today, China announced the completion of 4 new highspeed rail lines in 4 provinces, adding another 1,142 kilometers to the network.

One of the lines is the 318-km Harbin–Yichun Line, which is now China’s northernmost highspeed rail traversing alpine permafrost.

The network now covers 97% of all cities with over 500,000 residents. It operates on dedicated rail lines and achieves 98% departure punctuality and 95% arrival punctuality.

Rather than aiming to achieve profitability and high return for every single line, the Chinese highspeed rail system serves as a public good that generate system-level benefits for the entire economy and the public.

Deutsche Bahn and China Rail represent two systems that operate on completely opposite philosophies, leading to radically different outcomes in rail performance and economic impact.

Building ahead of demand vs. Managing declining assets

China’s infrastructure strategy rests on the philosophy that building massive, high-capacity transport networks creates economic growth and future demand, rather than just responding to it.

By constructing the world’s largest highspeed rail network, largely ahead of full demand saturation, China bypassed the bottleneck phase entirely.

On the other hand, Germany operates on a strict “just-in-time” for-profit corporate framework.

Investments are only approved if existing capacity is mathematically proven to be completely exhausted.

This means that by the time a project is planned, funded, and built, the demand has already vastly outpaced the upgrade, leaving the network perpetually lagging behind.

China recognized early on that mixing slow freight and fast passenger trains limits a network’s ultimate capacity. Beijing built an entirely separate, dedicated network for the high-speed Fuxing and Hexie trains.

On the other side, because Germany tried to save money by avoiding the construction of entirely new corridors, they forced ultra-fast commuter trains to share the exact same physical tracks with heavy cargo trains.

When one slow freight train breaks down, the entire national express system grinds to a halt.

Economic Multiplier vs. Direct Profit

The Chinese state views high-speed rail as a public utility and an economic multiplier.

Even if individual rail lines operate at a financial loss or carry high debt, the investment is justified by the massive economic productivity, regional integration, and urban development it unlocks.

As part of the 1994 privatization, the German government treated Deutsche Bahn like a standard commercial enterprise.

Success was measured by cutting operational costs and generating a direct financial profit, which directly starved the physical tracks of preventative maintenance.

One would probably think the German model at least achieved higher ROI for investors even though China achieves higher total societal benefits.

Yet, reality has an ironic twist – the German model ultimately failed the investors, too.

Deutsche Bahn ended up in a financial worst-of-both-worlds scenario.

In a standard capitalist system, starving an asset of maintenance to boost short-term balance sheets usually generates high dividends for investors or pushes stock prices up.

But because DB’s privatization was half-baked, it achieved neither. The only investor in Deutsche Bahn is still the German Federal Government as its IPO plan was abandoned 2 decades ago.

Because the network was run into the ground to cut short-term corporate costs, the long-term liabilities eventually caught up.

Rather than paying rich dividends, DB has cost taxpayers billions in bailouts. The company recently reported a €2.3 billion net loss.

To manage its staggering debts, DB was forced to sell off its highly profitable global logistics subsidiary, DB Schenker, just to artificially steady its balance sheet.

By treating a core public monopoly like a private business, Germany didn’t create a highly profitable enterprise; they created an operational bottleneck that costs the broader German economy billions in lost corporate productivity every year.

China’s model operates on the opposite financial wavelength.

In a socialist market economy, critical infrastructure is heavily state directed through State-Owned Enterprises (SOEs).

While China Rail carries a massive debt load from building its expansive high-speed network, the losses are directly absorbed by the state.

From Beijing’s perspective, the direct financial return on investment of the railway itself is secondary. The real payoff is the societal and macroeconomic ROI.

By connecting far-flung cities, the state slashes shipping friction, drives real estate value, unlocks regional labor markets, and creates economic mobility.

The state effectively subsidizes the train ticket to capture a massive tax and economic growth harvest across the rest of society.

A prime example is the Greater Bay Area in Guangdong, where 7 metropolises, including Guangzhou, Shenzhen, and Hong Kong, are connected into an integrated web via highspeed rail, metro subways, and a network of highways.

The region enjoys unprecedented supply chain density and is ranked as the No. 1 most innovative cluster of cities in the world by the UN’s World Intellectual Property Organization (WIPO), ahead of Silicon Valley.

The same formula is repeated in nearly every natural monopoly domain – telecom, electric and water utilities, national highway network, and banking.

Rather than allowing private capital to derive rentier-income from such assets, as what happens in capitalist societies, Beijing firmly controls these commanding-heights of the economy in the public hands.

The German capitalist model tries to draw a neat box around Deutsche Bahn and demand that the box itself be profitable. China’s state-led model views the railway as just one cog in a larger national engine.

Ultimately, Deutsche Bahn’s 30-year experiment has proved that for critical public monopolies like rail, trying to squeeze out the last penny of corporate micro-profits usually breaks the system entirely.

Original article:  huabinoliver.substack.com