Free market roads
From Wikipedia, the free encyclopedia
| Part of the series on |
|
Schools of economics
Ideas
|
Free Market Roads is the libertarian concept of privately owned roads as opposed to the most normal government owned ones in existence today.
Roads are often cited as a justification for the need for Government action, both for their creation and maintenance. As such, free market alternatives have been devised.
Arguments for the denationalization of roads include the alarming amounts of deaths, congestion, and the inherent lack of efficiency and stability found in government owned and operated enterprises. Free markets could allow for a more effective cost-analysis of new roads, and prevent too many (or too few) being created, or in the wrong place. In addition, new technologies that allow automatic electronic payment of tolls would simplify a private toll-road system.
Opposing arguments include that such a system is in practise unworkable or would be too complicated.
Examples would include French motorways.
[edit] Arguments for and against free market roads
[edit] Arguments for free market roads
[edit] Competition will motivate better service than is provided by the government road monopoly
Proponents often cite competition among road providers as an advantage, as road companies would have an incentive to seek innovative ways of lowering prices and improving service to gain a competitive edge. For this reason, arterials (major highways) are often viewed as a prime candidate for privatization, since there are typically many possible routes one could take to get to a particular destination, which could facilitate competition among road companies. However, local neighborhood streets could also be provided by private road associations, in much the same way that common stairs, hallways, etc. are provided in a cooperative living arrangement, condominium, or gated community. The association might allow members to drive these streets for free and charge fees to motorists using them as cut-throughs to get to other places. Contractors would compete to provide good road service in much the same way as elevator companies compete for the business of office buildings, despite the fact that a typical building may only contract with one elevator provider at a time.
[edit] Privatization will encourage infrastructure construction and reduce congestion
Since traffic congestion is caused by there being more traffic than the highway can handle, one way to look at congestion is simply a shortage of roads, lanes, exits, or other infrastructure. Libertarian economists frequently cite the free market's pricing mechanism as a superior means of avoiding shortages than government planning. Peter Samuel's Highway Aggravation: The Case For Privatizing The Highways compares American traffic jams and Soviet grocery store lines:[1]
- "In Russia communism's failure was epitomized by constant shortages in stores. Empty shelves in supermarkets and department stores and customers in line, wasting hours each week, became the face of the system's failure, as well as a source of huge personal frustration, even rage. Communism failed because prices were not flexible to match supply and demand; because stores were bureaucracies, not businesses; and because revenues went into a central treasury and did not fuel increased capacity and improved service. We in supposedly capitalistic America suffer communism--an unpriced service provided by an unresponsive monopolistic bureaucracy--on most of our highways. Our manifestation of shortage, our equivalent of Russian lines at stores, is daily highway backups. There is no price on rush-hour travel to clear the market. There is no revenue stream directly from road users to road managers to provide incentives either to manage existing capacity to maximum consumer advantage or to adjust capacity to demand."
Ronald F. Kirby, transportation director for the Metropolitan Washington Council of Governments, opined that private companies have more of an incentive to invest in infrastructure early, before a public outcry prompts construction. He noted, "Too often in the public sector, the easiest thing to do is let things sit unresolved. The private sector is motivated by self-interest to resolve things quickly".[2]
A company that owns a private road will typically want to at least recoup its earlier investment to construct the road. Furthermore, when construction is complete, the company wants to keep investing in the road to keep up its initial value, because roads deteriorate over time. Road maintenance needs to be quick and of high quality, to keep the road from becoming idle again in the future resulting in a capital loss for the company; road traffic needs to be maximized, because that will result in the most revenues to the company. A government does not seek to maximize traffic or reduce road maintenance, because it has no incentive to do so, claim supporters of private roads. These supporters also claim that road safety is increased by companies that own private roads. Those companies do not want to see people getting injured on their roads, as it will tarnish a company's reputation. The companies will seek active removal of unfit, drunk and other reckless drivers, if allowed to discriminate so by the state, and will want to see increased mechanical standards of vehicles, because a stalled vehicle means an idle road. The company itself needs to pay for its removal, or passes this cost on to the owner of the stalled vehicle, inciting the owner to upkeep the quality of one's property.
B. H. Meyer stated, "It is evident that the turnpike movement resulted in a very general betterment of roads."[3] The book Street Smart claims that Brazil has saved 20 percent and Columbia 50 percent through efforts to outsource road maintenance to the private sector.[4]
[edit] Voters prefer tolls to taxes
Voters frequently support tolls over taxes:[5]
- Washington, D.C. (60% / 30%): A randomized telephone survey conducted by TNS of Horsham, Pennsylvania of 1,003 adults for The Washington Post conducted in the last days of January, 2005 had Washingtonians saying tolls are a "better way to pay for highway expansion or new highways" locally than taxes by a 60/30 split. 9% said neither and 1% no opinion.[6]
- Minnesota (69% / 23%): An opinion survey for the Star Tribune between January 15–20, 2004, showed 69% of people there favored tolled express lanes against 23% who wanted the gas tax raised to pay for extra free highway capacity.
[edit] Free market roads facilitate internalisation of external costs
A private company can more easily be held accountable for negative effects of the highway than that if it is publicly owned. For example, residents living next to urban highways will benefit from noise barriers. However, campaigning for the city council to erect the walls is often ineffective and the process can take years, since the council needs to divert funding from other more pressing projects. A private highway will try to avoid court action and feel more obliged to cater for residents. The cost of erecting the walls will be passed on directly to the drivers (who are causing the noise), rather than the general public.
[edit] Private roads wouldn't use eminent domain
In 2006, eminent domain authority was stripped from private highway developers in Colorado due to concerns over abuses.[7] Cato rebuts the potential for eminent domain abuse by noting, "In California the state highway agency approved private development of the Mid-State Tollway on the eastern fringe of the San Francisco-Oakland area. Bay area residents, however, strongly opposed the tollway and favored of a Bay Area Rapid Transit line built nearby to serve the area. As a result, the highway developer abandoned the northern leg of the project. Had a public agency been building the highway, it could have invoked eminent domain authority to build the road in spite of political opposition."[8]
[edit] Arguments against free market roads
[edit] Road owners will overcharge users
A common argument against privatization of public highways is that the companies will charge exorbitant tolls. According to the Growth Management Institute, Mexican highway privatization was a costly failure:[9]
- "Over the last decade, the government licensed companies and banks to construct and manage 43 highways and 9 toll bridges. On several of these facilities, the tolls are the highest in the world, the prime example being a 13 mile (21 km) stretch outside Mexico City that costs $6 to use, twice the daily minimum wage in Mexico."
However "overcharging" may lead to several results: if price-elasticity is high it will lead to less traffic and loss of revenue. If demand is rigid and other private roads can be created as needed it will increase profits, spurring competition and signalling to the business to reinvest in more road construction.
- "The total investment of $12 billion is at risk, causing the government to propose a $7.5 billion bailout to renationalize 23 highways and 2 bridges, most of which carry little traffic and require expensive maintenance. Many of the facilities, it seems, were built in areas needing little additional capacity and priced at a level that dissuaded potential users. Some road-building companies, however, recouped part of their investments through lucrative fees paid during construction, and at least one road was built mainly to benefit a developer's ocean-front property. According to the Times, one prominent political scientist called it 'a dumb idea that didn't work.'"
[edit] Private industry cannot plan road locations as well as governments
Another argument against privatized roads is the companies' construction plans will not be in the public interest. For instance, in May 1996, the Growth Management Institute criticized the Greenway builders for building a road to nowhere:[10]
- "Despite optimistic predictions by all involved, the road failed to attract anything close to the 33,000 vehicles a day required for the company to make loan payments, let alone the 68,000 vehicles a day needed to turn a profit. In early 1996, the road was averaging 10,500 vehicles daily."
Another counter-argument is that in the early years of the United States, road companies did coordinate with one another to provide coherent structure and linkages of roads. The Pittsburgh Pike, for instance, was comprised of segments built by five turnpike companies. It ran from Pittsburgh to Harrisburg, where travelers could take another series of turnpikes to Philadelphia. Corporate papers reveal that organizers of different turnpike companies talked to one another to plan mutually beneficial activities, including the series of turnpikes that utilized the natural opening through the Appalachians to connect Albany to Syracuse. In the West, entire road systems were sometimes built by a single entrepreneur; for instance, Otto Mears built a system that comprised 300 or 400 route miles in southwestern Colorado.[11]
[edit] Highways are natural monopolies
In many parts of the world land use patterns mean that building two or more highways in parallel isn't practicable. Kroeger claims, "This would result in an incredibly inefficient use of land resources."[12] When there is only one highway connecting A to B, the main advantage of privatization, competition, disappears. In absence of regulation a private highway operator is likely to charge an exorbitant monopoly price, resulting in huge profit margins and few benefits for drivers. The initial franchise fee and/or savings public capital costs can offset the resulting monopoly profits in terms of societal costs, however there are distribution issues in that the income is spread over an entire region while the burden falls on a small subset of that region's population who actually need to use the road. Also, it is difficult to predict the long term present value of a road, for example for 407 ETR was leased for 3 billion CDN and was subsequently valued at nearly 10 billion CDN. While alternate local roads and other forms of transportation may provde some competition, it is often impractical, especially for goods.
A counter-argument is that ownership of the highways by members of the affected communities could reduce the incentives for overpricing. Many of the turnpike companies in early U.S. history sought simply to break even, rather than making a profit. Merchants, farmers, and others bought stock in the companies because they stood to benefit from facilitating movement and trade by building connections to other cities.[13] In the United Kingdom, early turnpike trusts were organized as nonprofit entities.[14] Moreover, two-thirds of Sweden's road system, including some roads that carry more than 1,000 vehicles per day, are owned by private road associations controlled and funded by the landowners the roads connect to.[15]
[edit] Free market roads divert needed funds from the government
A Mother Jones article notes that toll revenues from privatized highways go to private corporate profits and shareholders, rather than the government. It quotes a study by NW Financial as saying, "If road users are willing to pay higher tolls, these funds should be captured for the public good."[16][17] Indeed, the book Street Smart claims that the main obstacle to private road services thus far has rested with the reluctance of the political classes to give up their lucrative sources of power, wealth and influence through government road monopolies.[4] Anwar Ibrahim notes that in Malaysia, "the creation of private toll highway operators such as PLUS benefited primarily shareholders, while making transport polluting, difficult and expensive for ordinary Malaysians and weakening government’s resolve to provide excellent alternative public transport systems."[18]
A counter-argument is that this objection states the problem in reverse; the real issue is that government is diverting needed funds from private highways. Those who choose to drive private highways in jurisdictions that also fund public highways pay twice – firstly for the toll, and secondly to support the public highways. It is very similar to how parents who send their children to private school pay tuition and also taxes to support the public school system that they don't use.
[edit] See also
[edit] Sources
 |
This economics or finance-related article is a stub. You can help Wikipedia by expanding it. |
