How on earth that is possible remains one of the best kept secrets (to me). But I am sure there is a boat load of tax money involved.
America is probably the poster child for how bad this can be, by looking at Amtrak. For all but the shortest routes along the northeast corridor, taking the train is slower, many times MUCH slower (like going cross-country), yet it can cost far, far more. Taking an Amtrak from DC to Seattle is horribly expensive and takes days, compared to an airplane which is a fraction of the cost and takes 6 hours or so. Why would anyone take an Amtrak for a long route like this? Mainly, it's just people who want the quaint experience of "seeing the country"; for actual travel between these points it makes no economic sense whatsoever. Even on the northeast corridor it doesn't make much sense for many cases/routes. Even worse, it's frequently much cheaper to take a bus (such as MegaBus) for inter-city trips in the NE corridor than Amtrak, if you don't mind it being slow (but not that much slower than Amtrak).