Rocky roads

Mark Thoma asks "Should the allocation of transportation services - driving on roads - be allocated by the price system?" Now that's a tough question. But if the question is "should we privatize public roads by selling them off to the highest bidder?" then the answer is an emphatic "No!"

Indiana Sells Road for Billions; Prepare for Deluge, by Joe Mysak, Bloomberg: On Monday, Governor Mitch Daniels said a Spanish-Australian consortium had bid $3.85 billion to run the Indiana Toll Road, a 157-mile highway across northern Indiana that runs from the Illinois to Ohio, for 75 years. The legislature still has to approve the proposal...

A Merrill Lynch & Co. report published last July on the subject of U.S. toll road privatization asked whether sales like the Skyway were one-offs, "or do they represent the beginning of a sweeping trend that will spread to other tolled bridges, tunnels, expressways and long-distance toll roads?'' Let's bet on the sweeping trend. The money is just too big to resist...

Privatization done bass ackwards, again. We should realize that the virtue of privatization in any given industry is so that the power of the competitive marketplace will allocate resources more efficiently than the government can. In this case, the highways are already built. The capital investment is already spent. For something like highways, which is pretty much a monopoly good for people who have to use it, the way for private business to get maximum profit is not by providing the best "product", but to extract the most tolls for the least maintainance.

Yes, I bet the state government is salivating at the thought of the billions of dollars rolling in if they put their highways on the block. But businessmen are not stupid. If they are willing to buy, it must mean they think the tolls would yield a good profit. Now correct me if I'm wrong, but I don't think toll collection is such a great arena for the entrepreneurial spirit to manifest itself -- one set up booths and collect. If we rule out corruption, then there are only two possible reasons why the state government would let the businessmen in on this sweet deal. (1) The government is politically uncomfortable with bilking the public as much as businesses can, so it is effectively selling the bilking rights for a cut of the take, or (2) like the desperate masses at the payday lenders, they need the money now! I hope I don't need to go into why neither reasons are worthy of our elected officials. This reminds me of nothing more than the municipalities who sold off their sewage systems to private companies in name only simply so that the company could claim "depreciation" of their newly acquired "assets" on their tax returns.

Not that I am against privatization of roads per se. I really think this country would have been better off in the long run if the government didn't get into the road business at all. If all the roads we had had came into existance as profit-making ventures, and abandoned when any profitable route ceases to become profitable, we would not have the same sparse, sprawling development pattern that we see in the U.S., at least not to this extent. Other modes of transportation like rail would become much more competitive if the true cost of roads were borne by each consumer (drivers and homeowners) rather than subsidized through taxes. We might be facing the coming carbon crisis with something like equanimity.

But the historical window of opportunity for allowing things to develop organically has passed. And now development patterns are set and it is much harder to change them without putting a lot of people in distress (to connect the dots and point out the obvious, it is not an option to shut down state-sponsored highway road-building tomorrow). We now have a much harder job of promoting mass-transportation against the advantage automobiles hold of an existing "free" infrastructure that extends everywhere. Our gas-heavy mode of transportation also means a brutal crunch is in the offing.

(Lest I make things sound to dire, there are a heck of a lot we can do to make our current system work out OK. A higher tax on gasoline is regrettably regressive, but it will do a lot to kick start our transition off carbon. Hybrid cars are already selling like hotcakes, and electric cars are on the horizon. But that's a separate question altogether.)