Magazine article Ideas on Liberty

Lunch with a Free-Market "Subversive"

Magazine article Ideas on Liberty

Lunch with a Free-Market "Subversive"

Article excerpt

CHOSICA, Peru-As the old steam locomotive pulls a single passenger car slowly up a steep grade in the foothills of the Andes, the Latin American revolutionary is inside having lunch with several men.

He doesn't look dangerous. He carries no guns and leads no left-wing guerrilla army. He wears a suit and a necktie and is armed only with ideas.

But in a poor country like this, where many of the bogus theories and broken promises of socialism are still frozen into law, businessman Juan Olaechea is definitely an enemy of the Peruvian state.

Olaechea, 45, is much more than the CEO of the Ferrocarril Central Andino, a small, recently privatized freight railroad that hauls mostly horrible industrial things like acid and zinc and lead concentrates between Lima and the mountains. He's also a fire-and-brimstone free-market capitalist who speaks out boldly-some say rudely-in Lima's newspapers and in Peru's Congress against the evils of protectionism, socialism, and laws designed by politicians to benefit certain industries, including his own.

Olaechea is taking a special luncheon train ride with his friend, business partner and fellow revolutionary, Henry Posner III, a global railroad entrepreneur from Pittsburgh. Posner is president of Railroad Development Corp., a tiny international railroad investment and management company that owns one-sixth of the Ferrocarril Central Andino and operates it under a 30-year concession granted by Peru's government in 1999.

Posner, the son of a well-known Pittsburgh businessman and philanthropist, makes his living running privatized railroads in Third World countries like Peru, Guatemala, and Malawi. Last fall he was in Peru to inspect and joy ride on the Ferrocarril Central Andino, one of the most spectacularly engineered railroads on earth. It's also the highest, climbing from the seacoast to more than 15,600 feet into the Andes.

Posner, Olaechea, and their consortium of British and Japanese investors are risking what once was thought impossible-trying to create a profitable business in an economy still hamstrung by regulation and crippled by a paternalistic government elite prone to play dirty and to play favorites.

It's not easy. But Olaechea doesn't take guff from anyone-which has put his railway in peril. When he debated a congressman on TV and made the official look bad, the congressman began an investigation of his railroad. Nothing came of it. It was just the age-old way for the politician to show the businessman who's boss, Olaechea says. His message to Peru's government is simple: "Stay away. Don't do anything for us. If we fail, we fail."

Meanwhile, he and Posner are working to make their unsubsidized company more efficient, more worker-friendly, and more profitable. As Olaechea told a Peruvian transportation subcommittee last fall, the freight trains of the Ferrocarril Central Andino run faster and safer than government trains did. And spills of their cancerous cargoes have been cut to virtually zero.

Yes, there are fewer workers employed, now that the railroad must pay its own way and no longer serves as a fat farm for relatives and pals of politicians. But Olaechea says the 170 who remain on the payroll are paid better wages and have fewer accidents. They also get basic benefits they didn't get before (like steel-toed shoes).

As for the bottom line, for-profit management clearly proves the benefits of the privatization revolution that swept South America in the 1990s, a decade that began with nearly every railroad in state hands. Now, thanks to pioneering privatizers like Posner's company, everything's been turned upside down. As Lou Thompson, the railway adviser to the World Bank, says, now every significant railway in the Americas is in private hands, "except for Cuba-and Amtrak."

Under state mismanagement, Peru's railroads were as bad as the rest of the continent's. They rang up $437 million in losses during the 31 years of government ownership that ended in 1999. …

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