Robert P. Murphy

The Private Production of Roads

Robert P. Murphy*
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Most Americans recognize the efficiency of private enterprise in providing goods such as computers and cars. Yet for various reasons, when it comes to roads, most people recoil from the idea of private production. Indeed, many people think that one of the essential functions of government, in addition to other tasks such as coining money and providing military defense, is to provide roads.1

However, this presumption in favor of government provision of roads is misplaced. As both theory and history illustrate, the private sector is capable of constructing and maintaining roads. The standard problems that we associate with government enterprises—cost overruns, shoddy quality, and poor customer service—are also associated with roads. Furthermore, the dreaded and costly phenomenon of traffic congestion is entirely a product of government mispricing.

Privately produced roads would be vastly preferable to the government alternative. If the government were to sell off its roads to private owners and allow further experimentation in the field from private companies, then the public would enjoy smoother roads with less congestion and fewer traffic fatalities. Although it's harder to imagine a free market in roads than a free market in TVs or hot dogs, there is no serious obstacle to private enterprise in this arena, just as the market can produce other "network" goods such as cell phones.

History

Economists routinely used to cite the lighthouse as a classic example of a "public good" requiring government provision. Yet Ronald Coase showed in a 1974 article that the "early history shows that, contrary to the belief of many economists, a lighthouse service can be provided by private enterprise."2

Similarly, many analysts simply assume, because currently the government virtually monopolizes the production and administration of roads, that it must always have done so. And yet, from the 1790s through the 1830s, the private sector was responsible for the creation and operation of many turnpikes. According to economist Daniel Klein, "The turnpike companies were legally organized like corporate businesses of the day. The first, connecting Philadelphia and Lancaster, was chartered in 1792, opened in 1794, and proved significant in the competition for trade."3 "By 1800," Klein reports, "sixty-nine companies had been chartered" in New England and the Middle Atlantic states. Merchants would often underwrite the expense of building a turnpike, knowing that it would bring in extra traffic to their businesses. Exhortations and public shaming were sometimes used to encourage subscriptions.

To be sure, just because roads (or lighthouses) in the past were regularly produced in the private sector, we can't conclude that private provision is optimal. But we at least know that it is possible, showing that calls for privatization are not as fanciful as many believe.

Road Pricing and Traffic Jams
 
"Ironically, the non-economist's most obvious objection to private roads--'Outrageous pricing!'--is actually the chief virtue of the proposal."

Ironically, the non-economist's most obvious objection to private roads—"Outrageous pricing!"—is actually the chief virtue of the proposal. Traffic congestion is directly the result of government's habit of underpricing current road use, especially during rush hour. Just as the government's unwillingness to charge market-clearing prices for water and electricity leads to water shortages and blackouts in the summer, government mismanagement of roads causes drivers to suffer through needless traffic jams twice a day.

In a 2009 article,4 at the Library of Economics and Liberty, Ben Powell outlined the immense costs (in terms of commuter time) of the road congestion problem and offered several examples of privatization. By charging higher tolls during times of peak demand, road owners could reduce congestion and allow for faster traffic flows. The influx of revenue (compared to what the government managers are currently collecting with artificially low tolls) would provide the means for private owners to build more lanes, bridges, tunnels, etc.

In contrast, non-price approaches to reducing congestion are inefficient and ineffective. For example, "HOV" (High Occupancy Vehicle) lanes limit access to portions of the road (concentrating the single-occupant vehicles into the non-HOV lanes), without giving the road owner the incentive or financial means to build more total road surface. Further, although the goal of the HOV lane is to encourage carpooling, it is a very blunt instrument compared to a pricing approach, in which vehicles are charged according to the congestion they cause, and in which any driver (with or without other passengers) can use the "fast" lane in a pinch. The HOV lane is akin to government regulations forcing fishermen to use slower boats to discourage overfishing, rather than simply charging them more for the fish they catch.

A general problem with the non-price approaches to congestion is "latent demand." As Kenneth Small explains: "Because many potential peak-hour trips are already deterred by the congestion itself, any success in reducing that congestion is partially undone by an influx of these previously latent trips from other routes, hours of the day, or travel modes."5

Years ago, critics objected that private roads would require tollbooths or billboards every few hundred yards, in order for the owners to charge for their product (either explicitly or through advertising revenue). Because this would be so impractical, these critics claimed, road finance through general taxation was preferable. Whether that objection ever had merit, it is clearly a moot point now, as "EZ Pass" stickers and camera footage of license plates are commonplace.

Road Quality and Safety

Besides potholes, construction delays, and congestion, an often-overlooked defect of government roads is the large number of traffic accidents and fatalities that better design and usage policies could reduce. In 2015, more than 35,000 people died in traffic accidents in the United States.6 As Walter Block notes, most observers are quick to attribute the large death toll on roads to alcohol, sleep deprivation, speeding, and other forms of user error. Yet we should also consider whether government management is a large part of the problem.7

Although there has been steady improvement in the rate of traffic fatalities per vehicle-mile traveled,8 Block is right to highlight the staggering loss (in absolute terms) due to traffic accidents. By placing roads in the hands of private owners and by allowing experimentation with different approaches to road design, we would probably see enhanced safety, among other benefits. For example, Dutch traffic engineer Hans Monderman was able to reduce traffic fatalities by removing signs and other ostensible aids to drivers, in an effort to make them slow down and drive more alertly when approaching an intersection. "A wide road with a lot of signs is telling a story," according to Monderman. "It's saying, go ahead, don't worry, go as fast as you want, there's no need to pay attention to your surroundings. And that's a very dangerous message."9

One of the advantages of privatization is that, unlike centralized government control, it decentralizes decision-making. To be sure, the mayor of a city doesn't want her constituents dying needlessly in traffic accidents. However, a mayor must make thousands of decisions while in office, and, during each election, few voters are going to decide among the candidates based on their respective plans for road safety.

If a private road company learned from an external audit that it controlled the "most dangerous intersection in America," that would be horrible for business, and the company would be under pressure to diagnose and solve the problem very quickly. In contrast, after an intersection in Pennsylvania won that dubious distinction in 2014, a Time magazine story reported: "Since the audit, at least six fatal crashes have occurred. A regional planning commission [has] suggested a full redesign of the crossway to improve capacity."10 As this episode attests, the problems of sluggish bureaucracy plague government-managed roads, making the entire system less adaptable when new ideas—such as those from Hans Monderman—enter the scene.

Coordination Problems

It is true that roads form part of a network and that it would be confusing and dangerous if the different owners had different rules, such as a green light sometimes meaning "go" on one road and "stop" on another.

Yet in the private sector, all sorts of standards arise spontaneously and foster coordination, even without a powerful third party enforcing compliance. Screwdrivers and screws fit together; printer paper fits into printers; and software companies develop programs that work on computers that they didn't build.

It's true that there isn't complete standardization across the private sector. For example, some types of hardware work only for Macs or for PCs. But that's a good thing, because complete standardization would mean putting all of our eggs into one basket for each product or feature. One reason that the market produces good results is that it allows for experimentation and diversity inside a framework of tough competition. By the same token, we want different firms tweaking road design and signage, while at the same time respecting the obvious desire for compatibility among peers.

Roads and Freedom

Some skeptics might concede that private companies could produce high-quality roads at affordable prices but would worry about placing the "freedom of movement" in the hands of businesspeople. Suppose that a homeowner tries to leave his cul-de-sac, only to find that the Acme Road Company has raised the toll to $1,000. Or suppose that Walmart pays the local road owners to block transport to a mom and pop rival.

Although these are understandable worries, it is naive to assume that government ownership suddenly washes away the dangers and ensures integrity in the allocation of road services. The most obvious example is the "Bridgegate" scandal, in which a Port Authority official and a top aide to New Jersey Governor Chris Christie intentionally created traffic jams to punish political opponents.11 More generally, when government officials make decisions about roadway construction and repair schedules, they may help or hurt local businesses, and, surely, large campaign donors typically receive unfair consideration in this process.

Furthermore, some of the more ominous aspects of invasive government occur in the context of roadways. Besides the use of "speed traps" as revenue-raising devices, police in many parts of the United States used to be in the habit of forcibly drawing blood from DUI suspects (though the practice has been curbed after Supreme Court rulings12).

As a former Nashville resident, I was familiar with the "policing for profit" scandal on a certain section of I-40. Local media covered the scandal and reported on many cases of completely innocent drivers carrying large amounts of cash (in order to, say, buy a car or a business, or simply because they didn't trust banks) who had it seized at a traffic stop and then had to prove that they weren't drug dealers if they wanted to try to get it back.13

Thus, we see that the critics are right to worry about citizens' freedom, but it is far from obvious that leaving roads in the hands of government is the solution. Consider an analogy to freedom of speech. Most of us want to live in a society in which people are free to express unpopular views. Surely, the best way to achieve this outcome is to allow the newspapers, radio stations, and book publishers to be in the hands of private owners, rather than giving the government a monopoly in these industries.

 

For more on these topics, see Winston on Transportation on EconTalk.

Likewise, the best approach to protecting the relatively powerless is to allow competition in the road sector, where road owners will bear the full economic cost of their decisions. It would be foolish for housing developers or mall owners not to think through the logistics of road access. The market value of a house would plummet if its residents had to pay an outrageous toll to gain access to the road network. Although the "power" of the local road owner is very high once a particular house is built, there is great flexibility beforehand, when the developers are researching different plots of land.

Economies of scale would prevail in the road industry, as well as in the construction industry (for both residential and commercial properties), meaning that large companies would deal with each other on multiple deals over the course of years. Contracts for long-term access and pricing would be standardized, with companies striving to attract customers.

Roads aren't the only good where the customer makes a large upfront purchase and then is "locked in" to needing complementary goods or services. For example, if a restaurant buys an industrial-grade oven, it might need to buy additional components and schedule technician visits from the manufacturer. In principle, the manufacturer could charge "outrageous" amounts for these follow-up services, but that would be a great way to go out of business.

Conclusion

Most people assume that the government should finance and maintain the roads. Yet privatizing the roads would lead to immediate benefits in the form of reduced traffic congestion. In the longer term, road design would become safer and more aesthetically appealing. Invasive checkpoints and asset forfeitures would also disappear, as private owners would never find it profitable to treat their customers in such a fashion. Although there are some logistical difficulties with private road provision, modern technology makes toll collection quite simple, while the private sector solves network and coordination problems in countless other sectors with ease.


Footnotes
1.

Indeed, it has become a humorous catchphrase among advocates of an anarchocapitalist society to ask, "But without government, who would build the roads?" I, as well as the editor of this article, have personally faced this question.

2.

Ronald Coase, "The Lighthouse in Economics," Journal of Law and Economics, Vol. 17, No. 2, October 1974, 357-376, p. 375.

3.

Daniel Klein (2002), "The Voluntary Provision of Public Goods? The Turnpike Companies of Early America," in Alex Tabarrok et al., eds., The Voluntary City (USA, Independent Institute), pp. 76-101.

4.

Benjamin Powell, "Sell the Streets," Library of Economics and Liberty, May 4, 2009, available at: http://www.econlib.org/library/Columns/y2009/Powellstreets.html.

5.

Kenneth A. Small, "Urban Transportation," The Concise Encyclopedia of Economics, available at: http://www.econlib.org/library/Enc/UrbanTransportation.html

6.

The precise 2015 figure is 35,092 fatalities from motor vehicle crashes, from: http://www.iihs.org/iihs/topics/t/general-statistics/fatalityfacts/overview-of-fatality-facts.

7.

Walter Block, The Privatization of Roads and Highways (Auburn, AL: Mises Institute, 2009), p. 4.

8.

Data on annual traffic fatalities per 100 million vehicle-miles traveled (from 1994 to 2014) available at: https://www-fars.nhtsa.dot.gov/Main/index.aspx.

9.

Tom McNichol, "Roads Gone Wild," Wired.com, December 1, 2004, available at: https://www.wired.com/2004/12/traffic/.

10.

Time, "Where's the most dangerous intersection in America?" August 28, 2014, available at: http://time.com/this-is-americas-deadliest-intersection/.

11.

See Paul Berger and Dustin Racioppi, "Christie allies get prison for roles in Bridgegate scandal," USA Today (reprint from The Bergen County, NJ Record), March 29, 2017, available at: https://www.usatoday.com/story/news/politics/2017/03/29/bridgegate-sentencings/99772338/.

12.

See Matt Ford, "Justices Against Drunk Driving," The Atlantic, June 23, 2016, available at: https://www.theatlantic.com/news/archive/2016/06/supreme-court-drunk-driving/488555/.

13.

See Phil Williams, "Man Loses $22,000 in New 'Policing for Profit' Case," NewsChannel5, original story March 20, 2013, article posted January 17, 2016, available at: http://www.newschannel5.com/story/18241221/man-loses-22000-in-new-policing-for-profit-case.


*Robert P. Murphy is Research Assistant Professor with the Free Market Institute at Texas Tech University. He is the author of Choice: Cooperation, Enterprise, and Human Action (Independent Institute, 2015).

For more articles by Robert P. Murphy, see the Archive.

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