Note to libertarians: the argument against privatised roads is not that no roads would ever be built by the private sector, it is that leaving it to the private sector would be more inefficient and unnecessarily raise costs.
First, it is quite obvious that to design a system of efficient public roads not only at a community level, but also at a regional and national level (e.g., highways), you need good information on population, traffic flows, the needs of trade and commerce, likely population growth and usage of roads.
Governments are in a much better position to plan roads and highways and transport systems generally, precisely because they tend to have access to much better information than the private sector. They are also in a position to collect such information when it is lacking in a way that it is difficult for the private sector to do.
Secondly, private sector businesses would be perfectly capable of building roads to nowhere or roads people do not really need, so just because a government might occasionally make mistakes of this kind, it does not follow that the government is necessarily inferior to the private sector.
Thirdly, once roads are built they become a public good, and above all a kind of public capital good for private business for their transportation needs, free at the point of delivery, which enormously add to trade, commerce and business, and lowering costs.
But once constructed roads only require relatively minor costs to maintain and repair. This can be done well by the state, or by the state planning with private contractors.
By privatising roads, roads are no longer a free public good at the point of delivery, and the private fees will raise costs not only for businesses but also for ordinary members of the public. The latter would face much higher living costs if they had to pay to use dozens of private roads every day, just to go to and from work. This would raise the cost of living and put pressure on businesses to pay higher wages. This would in turn raise the costs of export goods also given the higher transport costs as well, and a society privatising its roads would essentially be making its exports less competitive and possibly gutting its export sector if the rest of the world provides roads and transport infrastructure as a public good free at the point of delivery.
And, even domestically, those higher wages and the additional income would flow to a class of parasitic rentiers extracting profits over and above the money needed for maintenance and upkeep of the roads.
Privatised roads are exactly an instance of the worst type of parasitic rentier capitalism, in which rentier middlemen obtain an unearned income from mere ownership of an asset that would be more efficiently organised as a public good free at the point of delivery.
If you doubt the inefficient aspects of rentier capitalism, look at the worst areas of your country where slum-owning landlords extract profits and high rents for merely owning substandard and wretched houses, sometimes even houses unfit to live in.
All in all, the set of arguments above isn’t even particularly left-wing: given the long and successful history of public goods in the West, we could just as easily defend it as a conservative argument against lunatic radical libertarians and their fanatical pro-market theology.
Of course, there are some conservatives who do understand this, as we see below in this video of the idiosyncratic conservative Peter Hitchens, brother of the late Christopher Hitchens.
Note Hitchens’ Tory opponent in this video who says that the railways were built by private enterprise in the 19th century. That is true.
But the private-sector construction of them involved remarkable waste and inefficiencies in that railway overinvestment and oversupply occurred (Hutchison 1994: 225–226), and there were instances where this oversupply caused economic problems, especially when combined with railway stock becoming a speculative asset in stock market bubbles. When such bubbles burst, this affected the subsequent health of the railway sector and the economy at large.
Yet another problem illustrating the inefficiency of the private sector was that different companies built different railway gauges, and when they met this naturally caused a great deal of inconvenience. This problem was resolved by government regulation in the 1846 Gauge of Railways Act. Rational state planning of a standard railway network, even in the mid-19th century, would have been a much more efficient system, and subsidised railway fares would have decreased costs for businesses and the public at large. It would also have stopped destabilising speculative asset bubbles in railway stock.
Hutchison, Terence Wilmot. 1994. “Hayek, Mises and the Methodological Contradictions of ‘Modern Austrian’ Economics,” in T. W. Hutchison, The Uses and Abuses of Economics: Contentious Essays on History and Method. Routledge, London. 212–240.
Tuesday, April 19, 2016
The Stupidity of Libertarian Privatised Roads
Posted by Lord Keynes at 4:25 AM
Labels: libertarian privatised roads, stupidity
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It appears to me that there has been virtually no progress in the quality of road surfaces during my lifetime of more than 50 years. I may be wrong. But roads of all kinds, including those with unchanged traffic frequency, seem to deteriorate in unchanged intervals.ReplyDelete
If my observation is correct, could it be that there is not enough competition in that area?
Could there be an element of crony capitalism involved? But then, is it conceivable that even certain elements of mutual (crony?) accommodation between the government and the private sector may be inevitable and part of the best package, part of the (all in all) lower costs of not privatising road making compared to a more libertarian solution?
At any rate, in view of the fact that road making is such a ubiquitous phenomenon, involving citizens on innumerable levels (private, communal, municipal, regional, national), I suspect, it is the very freedom under which the involved live that makes the system tilt away from libertarian illusions toward the more reasonable practices that we generally observe. In short: free people choose state involvement in the building of roads.
Sigh. I agree with the conclusion: we don't want to privatize all roads. But some of your arguments are dreadful. Just one exampleReplyDelete
"By privatising roads, roads are no longer a free public good at the point of delivery"
They aren't free ever and the "point of delivery" is both irrelevant and actually wrong, since gas taxes are ostensibly for this and gas is consumed at the "point of delivery".
Further many public roads DO charge at "the point of delivery". Topll roads and bridges, congestion charges (Red Ken's greatest achievement).
(1) "They aren't free ever and the "point of delivery" is both irrelevant and actually wrong, since gas taxes are ostensibly for thisDelete
Read the phrase carefully, Ken B: "a free public good **at the point of delivery".
It's free at the point of delivery, when you use it, NOT free in the sense that it did not require real resources to build. Of course it required real resources and if paid for by the state required $for$ taxes or borrowing. But this is another point about how superior state provision of roads is: it is a positive form of wealth redistribution, when you have an effective progressive tax system.
(2) "Further many public roads DO charge at "the point of delivery"."
Yes, Ken B, I'm perfectly well aware of that, thanks. Doesn't refute my argument.
In fact, the privatisation craze is one of the stupid elements of the neoliberal delusions we have endured over the past 35 years.
Road tolls on traffic roads are just another regressive tax measure hurting the poor and even middle class and raising business costs.
Unnecessary, stupid and precisely the sort of free market theological nonsense Peter Hitchens is talking about above.
Congestion charges or pollution taxes are a different issue, since they have different and socially useful aims.
1. You are wrong since gas is consumed at the point of delivery so that is when the cost is incurred.Delete
Consider the 407 in Toronto. It has an electronic toll. Charges are incurred "at the point of delivery" but billed for later payment, usually a charge at the end of a billing period. So physically paid at some other time, incurred at point of delivery. Your claim is just factually wrong.
Nor is the toll on the 407 regressive. It is paid by the affluent, who use the road, and those who do not want to pay use the 401. You never need to take the 407. ANd its rates reflect congestion charging.
The justification for private roads these days, and in the case of the 407 which was a joint project, is to raise funds to get the thing built in the first place, and get good technology (via incentives). None of those reasons seem a compelling argument to sell off an existing road.
Lk absoloutly right about that is funded by progressive taxes.Delete
Btw ken b are you right wing post keynesian?
I don't follow Daniel. Lk is right to say progressive taxes when he actually said regressive? In that case he's right to say Searle is full of shit! So, what are you actually saying?Delete
Post Keyensian? I was born after Keynes died, yes. I identify as post-Darwinian though.
You two need to look at some facts on the ground. The 407 is heavily used, and I will bet a great deal that its regular users are *more* affluent than average, making its charges (which are not taxes) progressive. Consider the longer term. When the 407 was proposed one reason advanced for tolls was to make sure that the users of the road *who live in the richest part of Ontario* pay the costs not those in Sudbury. Not a regressive tax at all.Delete
Tax incidence is much more complicated than you make out.
The more cogent argument LK is this. It is important not to confuse private ownership and a market. Private ownership is not ipso facto more efficient of honest than public. What matters is the the incentives. If there is a functioning competitive market then the market can impose costs and incentives and private ownership will be the best choice. But there is usually no competitive market for roads.Delete
"Btw ken b are you right wing post keynesian?"Delete
No, no, Daniel, Ken B is a centrist with libertarian leanings.
He's not a Post Keynesian or even left wing.
"It is important not to confuse private ownership and a market. etc. ... But there is usually no competitive market for roads."Delete
But even highways are unlikely to have competitive markets.
@ken B - Although economically that sounds like a sound proposition, isnt this a solution of our inequality era? How do the roads perform as compared to each other? I am interested to know more about this project.Delete
Also, road building on the frontier is one thing. In modern society there are serious transaction costs and free rider problems. It's a collective action problem to build a subway or a highway. You need eminent domain sometimes etc.Delete
I think paying more for better service goes back a long way. And it helps everyone by amortizing the cost of exploring the options over those able and willing to pay.
This is why LK's point about the "waste" of railroads is misdirected. You won't get everything right the first time, and you don't always have the knowledge before hand.
(1) “You are wrong since gas is consumed at the point of delivery so that is when the cost is incurred.”ReplyDelete
What are you even talking about, Ken B? Your original comment was that roads need to paid for by taxes, e.g., on petrol. Correct.
Nobody is disputing that gas is consumed and paid for at the point of delivery.
(2) “Consider the 407 in Toronto. It has an electronic toll. Charges are incurred "at the point of delivery" but billed for later payment, usually a charge at the end of a billing period. So physically paid at some other time, incurred at point of delivery. Your claim is just factually wrong.”
I never said we could not have a road whose use we pay for at the point of delivery. Why these pathetic straw man arguments, Ken B?
(3) As for the 407 in Toronto:
“When Mike Harris was elected Premier in 1995 on his platform of the Common Sense Revolution, the Ontario government faced a $11 billion annual deficit and a $100 billion debt. Seeking to balance the books, a number of publicly owned services were privatized over the following years. Although initially spared, Highway 407 was sold quickly in the year leading up to the 1999 provincial elections. The highway was leased to a conglomerate of private companies for $3.1 billion. The route was subsequently renamed the 407 ETR. The Ontario corporation, known as 407 International Inc., is jointly owned by the Spanish multinational Cintra Infraestructuras (43.23%), as well as various subsidiaries of the Canada Pension Plan Investment Board (40%) and the Montreal-based engineering firm SNC-Lavalin (16.77%). The deal included a 99-year lease agreement with unlimited control over the highway and its tolls, dependent on traffic volume; however, the government maintains the right to build a transport system within the highway right-of-way”
lol… so in other words, this was just another in a long line of disgusting privatisations of public property for a quick buck, just because some federal government was too stupid to provide financial resources for its state/provincial governments. Another example of handing over public property to rentiers who take unearned income from owning an asset that is being paid for by the public anyway.
(4) “Nor is the toll on the 407 regressive. It is paid by the affluent, who use the road, and those who do not want to pay use the 401.”
Even if true, it does not refute my general argument above. Since the rich or ultra-rich are hardly likely to be only users of privatised roads.
Maybe by “affluent” you just mean middle class people, who generally speaking are not the people were would call the rich. Your argument doesn’t cut any ice with me.
And what about the sequel:
“The Ontario provincial government has quarrelled with 407 ETR over toll rates and customer service, but is largely tied down by the lease contract. On February 2, 2004, the government delivered notice to 407 ETR that they are considered to be in default of their contract because of 407 ETR's decision to raise toll rates without first obtaining provincial clearance etc.”
I was unclear . You DO pay at the point of service because that is when you incur the cost, by burning gasoline. It matter not that you fork over for the gas at a differnt time. Consider the 407. You consume the mileage charge (like the gas) at the point of service but pay later (monthly bill). The separate point of forking over does not mean you aren't incurring the cost as you sue the road (like gas).Delete
You have the facts wrong on 407. It was NOT publicly owned prior to 1999. It was JOINTLY owned because it was jointly paid for. The government (wisely or foolishly) sold its interest. But the jointly held 407 company already had the rights to tolls.Delete
But lets assume the sell off was a bad idea (probably right). That supports MY position not yours. MY position is that there is no legitimate case for selling existing roads. Your is that there is no legitimate case for private road building in the first place. That the 407 is a boon is clear refutation of your position. That is less of a boon that it might be is vindication of mine.
Drive the 407. Look at the cars. Tell me it's the poor driving. I'd like to believe the poor drive Lexuses!
Lk spoke about if i understand it well against a situation where all the roads privatised and built exclusively by private companies.Delete
Not against a case where private companies build side by side provate roads.
For example in my country private company built a parallel private road to public roads which the government helped to the private company to plan it well by a b.o.t (buy own transfer so basically they will own it for 30 years and will return it to to the people as public road).
Anyway the government also imposed price controls on the toll charged.
So the situation is fine but the problem begins when all the roads totally privatised without any normal central planing and regulations.
(and even if there is a situation like that i still prefer public roads there is things that government better with).
"Your is that there is no legitimate case for private road building in the first place."Delete
No, no, Ken B. We're talking past one another.
I don't care if people build private roads on their own private property. Or if companies or private entities build roads for pure commercial use (say, in out of the way places) by themselves or their employees that nobody else wants or has any use for.
The issue is: we need a general system of roads planned by the state and all these roads when they are useful to the public and private business should be public goods.
As for this 407, if it was some road built purely for some rich people that nobody else wants to use, they should have paid for it privately and not had any public funds.Delete
Right. That's a good case for "private roads". The capacity is increased and the increase is paid for by those who use that extra capacity. This provide a (smaller) benefit also for those not using the extra capacity in the form of (some) less congestion. It's like paying for a private room in a hospital. Fine if private rooms are built for the purpose but iffy if wards are demolished to be converted.Delete
You'd think a social democrat would be for such things!
"The issue is: we need a general system of roads planned by the state and all these roads when they are useful to the public and private business should be public goods."Delete
Public goods does not mean publicly owned. Maybe roads should be publicly owned, but that's not what "public goods" means.
LK I would like to contact you personally about something. Is there an email where I may reach you?ReplyDelete
Depends on what it's about. If it's to argue over some Marxist/libertarian/Postmodernist issue dear to your heart or abuse me, I no longer find these types of debates productive.Delete
Maybe leave a comment (which I will not publish) and tell me what it is about with your email.
What are your thoughts on high speed trains? Carbon emissions? Drunk driving? Traffic jams? Pot holes? Repaving roads that aren't damaged or worn? Empty super-highways?ReplyDelete