(FORTUNE Magazine) – Why does Amtrak still exist? Despite minuscule ridership and conclusive evidence that intercity train travel--except in a few specific markets--is dead in the U.S.A., the government-owned passenger railroad has frustrated a decade's worth of attempts to shut it down or privatize it.

Amtrak was formed in 1971 from the ruins of the nation's once mighty private railroads, when federal regulators finally let them abandon their money-losing intercity routes. (They had lost some $1.7 billion in today's dollars running passenger trains the year before.) Instead of letting the market sort things out, Uncle Sam stepped in, and taxpayers were stuck with the tab.

Amtrak's financial situation hit bottom in 1995. Despite a federal subsidy that had reached nearly $1 billion per year, losses were widening as ridership dwindled. Worse, Amtrak's business plan seemed to describe a very predictable death spiral for an uncompetitive, capital-intensive industry: Its trains and facilities were old and unattractive, scaring off passengers and in turn guaranteeing there would be no money for maintenance and modernization, much less for the kind of capital investment that might attract new business.

As Amtrak's current fiscal year began last October, the railroad unveiled a five-year plan to pare down its worst routes and increase service on profitable ones, aiming for self-sufficiency by 2002. But local pols successfully opposed some of the service cutbacks, and the losses are worsening. For the quarter ended December 31, 1996, Amtrak announced a $24 million loss--up from $10 million a year earlier, and said it could need $70 million to make it through 1997. Its long-range plans are highly dubious.

Amtrak owes its continued existence to its successful exploitation of one of the inherent flaws of democracy: Reform is difficult when benefits from a specific government activity are concentrated among a small group of citizens while the costs of the activity are diffuse. That's Amtrak. Its constituency of employees, suppliers, train buffs, Europhiles, and politicians from sparsely populated areas support it fervently and lobby to keep it alive; the public couldn't care less. Even at its worst, eating up $1 billion per year, Amtrak's subsidies are a mere $10 per working American. It's just not worth your while to spend hours boning up on Amtrak's finances, much less lobbying against it. Economists even have a name for this mind-set. They call it "rational ignorance."

Parts of Amtrak could be viable businesses--like the Northeast corridor, where relatively high-speed Metroliner trains almost break even running between Boston and Washington, D.C. Maybe someday reason will prevail and the government will sell the railroad--or even give it away--to private investors. Then we'll find out.

RESEARCH ASSOCIATE Kerry L. Hubert