WEBVTT NOTE Moving Toward a Private Transportation System 1 00:00:00.000 --> 00:00:07.860 What motivated this research is actually some other work I've done, but my becoming aware 2 00:00:07.860 --> 00:00:13.540 that there's a fairly widespread view out there in the state of Pennsylvania and elsewhere 3 00:00:13.540 --> 00:00:19.580 that we are facing a transportation funding crisis. 4 00:00:19.580 --> 00:00:26.140 And I think to the extent there is a transportation funding crisis, even if there isn't, it needs 5 00:00:26.140 --> 00:00:32.460 needs to be viewed as part of the broader government fiscal crisis as we see state governments 6 00:00:32.460 --> 00:00:39.740 and the federal government becoming something like insolvent. 7 00:00:39.740 --> 00:00:46.860 So in any case, my basic thesis is that in light of the transportation funding crisis 8 00:00:46.860 --> 00:00:50.700 and the broader government fiscal crisis, that the road and highway networks should 9 00:00:50.700 --> 00:00:53.460 to be sold to private entrepreneurs. 10 00:00:53.460 --> 00:00:58.980 And I'm not only arguing that it's a good idea, but that the current environment, particularly 11 00:00:58.980 --> 00:01:05.100 the financial crisis situation of the government at the federal and state level may provide 12 00:01:05.100 --> 00:01:11.860 an opportunity for a movement in this direction that in fact it may be easier to accomplish 13 00:01:11.860 --> 00:01:17.100 in the next 20 or 30 years than it would have been in the past. 14 00:01:17.100 --> 00:01:24.000 So just briefly, my paper is fairly broad, but I want to focus on really part of it. 15 00:01:24.000 --> 00:01:30.980 The first part of the paper I talk about the question in what way does government transportation 16 00:01:30.980 --> 00:01:40.980 funding fall short. And just a quick summary, I think if you think about the fact that almost 17 00:01:40.980 --> 00:01:47.220 All. And my focus really is roads and highways, although you can't completely understand 18 00:01:47.220 --> 00:01:52.700 the situation with roads and highways without understanding other competing forms of surface 19 00:01:52.700 --> 00:02:01.700 transportation. But the problem, if you think about congestion in particular, you see that 20 00:02:01.700 --> 00:02:05.820 when you have something that's not priced in the market, you've got a problem that 21 00:02:05.820 --> 00:02:35.820 that isn't going to be solved, that could be solved with market prices and it's not merely the problem of resource allocation of allocating highway space which leads to congestion but there's also the problem of the failure of government to build and maintain highways in a way that is consistent with driver preferences, with people's actual demand for mobility and so my basic argument is that private provision could 22 00:02:35.820 --> 00:02:42.820 So my focus today, at least what I want to focus on in my presentation to you, is how can the privatization of roads in the United States be reduced or eliminated. 23 00:03:05.820 --> 00:03:12.320 How do we get from here to there? 24 00:03:12.320 --> 00:03:16.220 And I want to start with some lessons from history. 25 00:03:16.220 --> 00:03:21.740 First of all, there's a number of interesting historical examples, and I'm going to focus 26 00:03:21.740 --> 00:03:24.260 on three. 27 00:03:24.260 --> 00:03:31.780 First, roads and highways were largely privately funded in Britain from the Middle Ages until 28 00:03:31.780 --> 00:03:32.780 the 19th century. 29 00:03:32.780 --> 00:03:41.020 Now, there was some variation over that time, but private funding was quite common, and 30 00:03:41.020 --> 00:03:47.760 at the same time, unfortunately, the government was often interfering with whatever mechanism 31 00:03:47.760 --> 00:03:56.140 or whatever organizations might have privately funded those roads and highways, and so it 32 00:03:56.140 --> 00:04:00.660 didn't always work all that well, whether it was the monasteries who played a very major 33 00:04:00.660 --> 00:04:29.660 The government was interfering in a variety of ways in terms of regulating tolls and of course in the battle between the church and the state which ultimately led to the government taking over the property of the monasteries and of course that didn't help in terms of their willingness to fund roads and highways. 34 00:04:29.660 --> 00:04:56.660 But in any case, there was a largely private system in Britain. And not only that, but as you may be aware, in the early U.S. history, particularly the early 19th century, privately funded turnpikes were quite extensive, and in spite of some conventional wisdom, that system actually worked fairly well for a number of years. 35 00:04:56.660 --> 00:05:11.660 And in fact, the evidence is that people continue to invest in private turnpikes in the U.S. in spite of the fact that they earned low rates of return. 36 00:05:11.660 --> 00:05:20.660 In many cases, the rates of return might have been negative, yet there were still businessmen willing to do so. 37 00:05:20.660 --> 00:05:32.660 In addition, and the reason, of course, is because they recognized that there were secondary benefits beyond the rate of return that they could have earned from those roads and highways. 38 00:05:32.660 --> 00:05:39.660 And by the way, a lot of this has been documented by the work of, I think, some worker, Bruce Benson and others. 39 00:05:39.660 --> 00:05:46.660 Also, the third example is, you know, it's fine to talk about roads and highways, but what about local streets? 40 00:05:46.660 --> 00:05:51.660 You can easily limit access to roads and highways, and you can charge tolls, but what about local streets? 41 00:05:51.660 --> 00:05:58.660 Well, at least in the U.S. during the 19th century, there is a good example in the city of St. Louis, 42 00:05:58.660 --> 00:06:05.660 where many of the streets for a number of years were privately constructed and maintained. 43 00:06:05.660 --> 00:06:14.660 Now, why did all these systems of private roads and highways, being so common as they were, decline in importance? 44 00:06:14.660 --> 00:06:19.860 I would argue for two main reasons. First of all, government regulations made it hard 45 00:06:19.860 --> 00:06:26.860 for turnpikes to be self-supporting. And secondly, as government started using tax money to subsidize 46 00:06:28.460 --> 00:06:34.380 competing modes of transportation in the US, it was canals and railways, I think there 47 00:06:34.380 --> 00:06:41.380 were similar things happening in Great Britain, and also sometimes paying for roads and highways 48 00:06:41.380 --> 00:06:46.980 in the Highways, partly due to the fact that they did have financial problems, so the government 49 00:06:46.980 --> 00:06:55.980 stepped in after usually being the cause of the financial problems in the first place. 50 00:06:55.980 --> 00:07:04.820 As more and more government funding happened, people didn't want to pay twice, so they used 51 00:07:04.820 --> 00:07:09.660 the government-funded highways instead of the private ones. 52 00:07:09.660 --> 00:07:14.180 At the same time, though, I think it's helpful to consider that specific historical conditions 53 00:07:14.180 --> 00:07:21.180 gave rise to private highways in the past. That is, there were periods of time when government 54 00:07:21.180 --> 00:07:27.280 supplied some roads and highways and then the private sector actually stepped in for 55 00:07:27.280 --> 00:07:33.300 reasons that you might be able to guess. For example, failure of government funding to 56 00:07:33.300 --> 00:07:38.620 result in good quality streets was a big factor in the city of St. Louis. Failure of government 57 00:07:38.620 --> 00:07:45.580 Funding, various government funding attempts in Great Britain prior to the 19th century, 58 00:07:45.580 --> 00:07:54.740 or central government attempts to coerce local governments into providing the roads and highways 59 00:07:54.740 --> 00:07:59.820 that went through that particular area also didn't work very well and that gave rise 60 00:07:59.820 --> 00:08:06.360 to private entrepreneurs stepping in when there was sufficient demand for a good road 61 00:08:06.360 --> 00:08:12.760 and Highway or Highway Between Locations. Secondly, an interesting case at least in 62 00:08:12.760 --> 00:08:19.360 the US was most people are familiar with the private turnpikes in the early 19th century 63 00:08:19.360 --> 00:08:24.960 but what you may be less familiar with, there was actually a period of time in the mid-19th 64 00:08:24.960 --> 00:08:34.400 century around 1850 or so when in a number of states or localities in states like New 65 00:08:34.400 --> 00:09:04.400 and New York again privately funded plank roads and that particular period of time I think reflected a debt crisis that is New York and other states had spent so much money on canals and I guess railroads but particularly on internal improvements, money which they didn't have in terms of taxes and suddenly they faced basically 66 00:09:04.400 --> 00:09:12.480 Debt Crises, and in response to that debt crisis, there was a decision, you know, not to fund 67 00:09:12.480 --> 00:09:20.000 further internal improvements, so if you wanted a decent road, and these were particularly 68 00:09:20.000 --> 00:09:26.640 communities that were far away from the canals, so they needed access to the canals, private 69 00:09:26.640 --> 00:09:33.640 Entrepreneurs again built a number of basically turnpikes made of planks. 70 00:09:36.560 --> 00:09:42.840 I think history reveals that private roads have been viable in the past. On the other 71 00:09:42.840 --> 00:09:49.840 hand, what about the present? We've seen in recent years a number of attempts to sell 72 00:09:49.840 --> 00:10:01.840 There have been a number of attempts to sell highways to private firms or to charge people to use existing highways, which is at least something like what you might see in a market. 73 00:10:01.840 --> 00:10:11.840 And most of those attempts have provoked political opposition, considerable political, or I would say intense political opposition. 74 00:10:11.840 --> 00:10:21.840 And so, we do have some examples today, as you know, of highways that are privately run or at least quasi-private. 75 00:10:21.840 --> 00:10:27.840 They are owned or leased to private firms. 76 00:10:27.840 --> 00:10:34.840 And I'm sure you're aware of some of the examples, the Chicago Skyway and the Indiana Toll Road. 77 00:10:34.840 --> 00:10:42.600 One of the more interesting examples is a private firm that built or constructed express 78 00:10:42.600 --> 00:10:49.960 lanes in a California freeway as well as the private firm that built a new expressway from 79 00:10:49.960 --> 00:10:55.520 Dulles Airport in the Virginia suburbs of Washington D.C. Those are the two most prominent 80 00:10:55.520 --> 00:10:59.640 examples that I'm aware of. There may be other ones. I know there are a couple of examples 81 00:10:59.640 --> 00:11:06.640 are one example of an attempted private highway that went bankrupt and didn't get built. 82 00:11:07.920 --> 00:11:14.400 But they've been few and far between and a lot of other proposed private highways have 83 00:11:14.400 --> 00:11:21.240 been shot down by the voters or by the political establishment. And in fact, one of the best 84 00:11:21.240 --> 00:11:28.120 examples I mentioned, the State Route 91 in California, which was actually funded or which 85 00:11:28.120 --> 00:11:34.840 which actually involved charging variable tolls based on congestion. That was actually bought back 86 00:11:34.840 --> 00:11:40.240 by the Orange County government from the private firm. So even that 87 00:11:40.240 --> 00:11:41.880 privately 88 00:11:41.880 --> 00:11:45.480 owned highway didn't stay private. 89 00:11:45.480 --> 00:11:49.360 The other thing we need to recognize is while we can talk about 90 00:11:49.360 --> 00:11:51.800 private highways, none of these 91 00:11:51.800 --> 00:11:55.840 so-called privately owned highways are fully private. 92 00:11:55.840 --> 00:12:01.920 are better described as public-private partnerships. Government regulates the tolls that may be 93 00:12:01.920 --> 00:12:08.120 charged and also regulates things like design and safety features to protect the public 94 00:12:08.120 --> 00:12:15.120 from entrepreneurs who would supposedly take advantage of them by building unsafe roads. 95 00:12:15.760 --> 00:12:21.540 So we don't really have, even in the limited number of examples, fully private highways. 96 00:12:21.540 --> 00:12:30.420 The question I want to ask though is, why do people oppose private highways? At least 97 00:12:30.420 --> 00:12:35.580 some of the reasons are not really inherent in the very nature of private highways, but 98 00:12:35.580 --> 00:12:46.220 they relate to the way the system works right now. Namely, if many private highway agreements, 99 00:12:46.220 --> 00:12:52.140 The best-made with local governments include non-compete agreements or perhaps even implicit 100 00:12:52.140 --> 00:13:02.700 non-complete agreements, not necessarily explicit, that the private highway, the government agrees 101 00:13:02.700 --> 00:13:09.200 not to expand capacity of nearby roads that would compete with the private highway. 102 00:13:09.200 --> 00:13:20.200 So clearly, you know, the public may gain from perhaps a better maintained highway, but then they lose from roads that might be expanded nearby. 103 00:13:20.200 --> 00:13:32.200 Secondly, piecemeal privatization results in traffic being diverted to adjacent secondary roads when a private entity takes over highway and charges tolls. 104 00:13:32.200 --> 00:13:38.800 Well, that means that since there are plenty of nearby roads that are free, that means, 105 00:13:38.800 --> 00:13:43.600 particularly if tolls are higher than they were in the past, that means traffic is going 106 00:13:43.600 --> 00:13:48.760 to be diverted, and that's often going to lead to too many trucks and other kinds of 107 00:13:48.760 --> 00:13:52.020 problems on those adjacent roads. 108 00:13:52.020 --> 00:13:58.340 And the third problem with private highways is that because anything that's been attempted 109 00:13:58.340 --> 00:14:05.340 has been piecemeal, people object to paying twice. That is, government proposes, for example, 110 00:14:05.900 --> 00:14:10.300 in the state of Pennsylvania there was a proposal to put tolls on Interstate 80, which again 111 00:14:10.300 --> 00:14:14.900 would make it sort of like a private highway, but you know, why just this highway? Why do 112 00:14:14.900 --> 00:14:21.420 we have to pay tolls and everybody else in the state doesn't? And we pay the same gas 113 00:14:21.420 --> 00:14:27.760 taxes that everybody else pays, so why do we have to pay for our highway when everybody 114 00:14:27.760 --> 00:14:57.760 Well, just a couple of ways that I would suggest that this opposition might be overcome. Again, I think one of the big reasons for the opposition is piecemeal privatization. If an entire road and highway network could be privatized, then you have a different situation. You have the possibility of substituting 115 00:14:57.760 --> 00:15:05.760 Tolls for gas taxes, so people could actually realize, you know, okay, you have to pay tolls, but you no longer have to pay gas taxes. 116 00:15:05.760 --> 00:15:16.760 Secondly, it seems to me, and you know, this is, this is arguable, but the fact that there are some public-private partnerships, 117 00:15:16.760 --> 00:15:40.760 and they have accomplished some things in terms of getting highways built more quickly than the government typically gets things done, might in fact provide a positive example for people to see, hey, private firms do things in some ways better, in many ways better than the government does and that might help change people's attitudes. 118 00:15:40.760 --> 00:15:46.820 Well, the last thing I want to talk about is what I see as some important trends and 119 00:15:46.820 --> 00:15:53.920 some institutional changes that I would hope might be considered that would actually facilitate 120 00:15:53.920 --> 00:15:59.360 privatization. The first trend, again, is the one that I emphasized at the beginning, 121 00:15:59.360 --> 00:16:04.720 the fact that we have this at the level of the state and federal governments, at least 122 00:16:04.720 --> 00:16:11.720 in many states, clearly financial crises, states that have commitments that they've 123 00:16:11.720 --> 00:16:17.720 made, that it's hard to imagine how they can possibly raise the tax revenue to meet 124 00:16:17.720 --> 00:16:24.240 those commitments, and yet one way, and just think in terms of pension obligations, even 125 00:16:24.240 --> 00:16:27.480 if states were to cut some of their other discretionary spending, they've got these 126 00:16:27.480 --> 00:16:34.240 obligations that they can't really get around, and the political reality that it's hard 127 00:16:34.240 --> 00:16:41.240 The Federal Government Bureau of Economic Analysis estimated that all the roads and highways in the U.S. have a market value of $2.4 trillion. 128 00:16:41.240 --> 00:16:48.240 But selling assets like roads and highways could actually play a significant role in helping states eliminate, or at least reduce, short-term budget shortfalls. 129 00:16:48.240 --> 00:16:55.240 The Federal Government Bureau of Economic Analysis estimated that all the roads and highways in the U.S. have a market value of $2.4 trillion. 130 00:16:55.240 --> 00:17:02.240 You could debate how accurate that number is, but I would argue that it's not a very high number. 131 00:17:02.240 --> 00:17:11.240 But I wouldn't doubt, I don't doubt that infrastructure is highly valuable. 132 00:17:11.240 --> 00:17:20.240 In fact, most of that, 2.3 trillion, is estimated to be for state and locally owned or operated roads and highways. 133 00:17:20.240 --> 00:17:29.240 So that's a tremendous amount of revenue that government could potentially gain from selling its roads to private firms. 134 00:17:29.240 --> 00:17:35.480 programs. Secondly, to the extent there is a financial crisis and I think you see clearly 135 00:17:35.480 --> 00:17:43.740 at the Federal level that when budget cutting starts or when inflation kicks in or some combination 136 00:17:43.740 --> 00:17:49.600 of those that the political reality is that they are going to be across the board cuts 137 00:17:49.600 --> 00:17:53.440 and those across the board cuts are going to mean that as long as roads and highways 138 00:17:53.440 --> 00:17:59.900 is continued to be funded by the state and federal government that they're going to not 139 00:17:59.900 --> 00:18:04.340 get enough funding for maintenance, not enough funding for construction, and as people see 140 00:18:04.340 --> 00:18:09.480 the road and highway system deteriorating, they're going to perhaps, I would like to 141 00:18:09.480 --> 00:18:16.940 think become more open to other alternatives such as private provision. 142 00:18:16.940 --> 00:18:25.100 The third trend that I think makes privatization promising, and this really has more to do 143 00:18:25.100 --> 00:18:32.460 with local streets, is the growing number of community associations that already pay 144 00:18:32.460 --> 00:18:36.260 the cost of constructing and maintaining streets. 145 00:18:36.260 --> 00:18:42.580 And some of you probably already live in neighborhoods like that where, in fact, the streets are 146 00:18:42.580 --> 00:18:47.500 are already paid for and provided basically by the community association. Now sometimes 147 00:18:47.500 --> 00:18:54.500 they do that even though you pay local taxes for the streets that are provided by the county 148 00:18:56.320 --> 00:19:03.320 or the city, but if you live in that association, your association pays. So from those trends 149 00:19:03.320 --> 00:19:16.320 From those trends, I want to talk about some things that I would suggest need to happen or at least if they happen would make the process easier. 150 00:19:16.320 --> 00:19:23.320 One is rules that would make it easier for existing neighborhoods and groups of neighborhoods to form associations. 151 00:19:23.320 --> 00:19:30.320 It's one thing for a new housing development to have a community association and build its own streets. 152 00:19:30.320 --> 00:19:35.000 It's much more difficult for an existing neighborhood in a town or city 153 00:19:35.000 --> 00:19:38.160 to form an association that 154 00:19:38.160 --> 00:19:41.920 pays for its roads and streets. And I'm not sure that 155 00:19:41.920 --> 00:19:45.480 it's theoretically possible, but 156 00:19:45.480 --> 00:19:50.040 practically, because I think it would require unanimity for that to happen, I'm 157 00:19:50.040 --> 00:19:50.880 not sure that 158 00:19:50.880 --> 00:19:54.400 that sort of thing has happened anywhere. Although 159 00:19:54.400 --> 00:19:58.160 there probably have been associations that have been formed to 160 00:19:58.160 --> 00:20:02.480 Fund to Other Things, so maybe it could happen that way too. So rules that would make it 161 00:20:02.480 --> 00:20:06.960 easier for neighborhoods and groups of neighborhoods to form associations would facilitate residents 162 00:20:06.960 --> 00:20:12.040 sharing the cost of maintaining streets in their communities. And I think it's important 163 00:20:12.040 --> 00:20:22.920 to recognize that tolls probably won't work very well for local streets, but contractually 164 00:20:22.920 --> 00:20:37.080 A third point that I think is important to recognize is that selling highways to the 165 00:20:37.080 --> 00:20:42.520 highest bidder, though you might think it would result in high tolls, need not do so 166 00:20:42.520 --> 00:20:47.680 if property owners likely to benefit from the highway are able to participate in the 167 00:20:47.680 --> 00:20:52.660 bidding, to form associations, because property owners who would benefit from the highway 168 00:20:52.660 --> 00:21:11.160 Lastly, harkening back to the U.S. situation in the 19th century, strengthening of community 169 00:21:11.160 --> 00:21:20.140 ties might be critical to making something like this work. Businessmen often invested 170 00:21:20.140 --> 00:21:25.240 invested in turnpikes in the 19th century not because they expected a decent financial 171 00:21:25.240 --> 00:21:32.500 return from the investment, but because they knew that it would benefit their community 172 00:21:32.500 --> 00:21:37.900 and they also knew that their contribution would benefit their reputation. So that kept 173 00:21:37.900 --> 00:21:44.060 them from free riding on the contributions of other people. So strong community ties 174 00:21:44.060 --> 00:21:49.860 is I think another factor which would be a determining factor in whether privatization 175 00:21:49.860 --> 00:21:56.860 is going to work. Thank you.