Transportation

The transportation policy of a government constrained by libertarian principles would aim to establish the institutional framework that would enable private entities to supply all the services that transportation users would be prepared to pay for, taking into account characteristics such as safety, frequency, and comfort. In some circumstances, government might have to assist in the provision of the services that users were not prepared to pay for—for example, roads that were specifically needed for national defense but have little other use—but these exceptions are almost certainly rare.

The movement of people and goods is critically important to interaction among individuals and to the development of social and commercial activities. It can take place on land, on water, and in the air. People have a propensity to travel. They may do so to obtain more suitable employment, better housing, and better shopping selections or to enjoy their leisure. As incomes rise, the proportion of income spent on transportation increases. In all countries, the rich tend to rely on motorized mobility—two-wheelers and automobiles—to travel more than the poor. Wealthy individuals only rarely use their increased income to reduce their own travel (e.g., by persuading others to travel to them). In all areas of the world, increases in wealth (or decreases in poverty) are associated with increased travel.

Travelers use their legs, animal power, wheeled vehicles, ships, or aircraft, all of which can be individually owned and controlled. But their movement is facilitated by infrastructure—roads, ports, and air traffic control—that is generally provided and controlled by government. The main transportation problems today arise out of the inadequacy or misuse of infrastructure. However, the safety and regulation of vehicles also pose intractable problems.

Safety on the world’s roads is so poor that over a million people a year are estimated to be killed on them. This huge toll is associated with poor management of roads, which, in turn, can be associated with a lack of effective property rights. Safety probably could be improved if—as in maritime transportation—insurers were responsible for the testing and licensing of the drivers and vehicles insured by them. But it is beyond the capability of most governments even to enforce laws requiring road users to be insured against claims from those they may injure.

Vehicle regulation impacts not only safety, but also the provision of public transportation. In Western countries, it has generally been accepted that public transportation must be supplied by a government-​supported monopoly and that it cannot be operated at a profit. Yet Robert Cervero has identified many profitable private systems outside the United States that provide frequent reliable service, among them those in Belfast, Buenos Aires, Manila, Singapore, and a few within the country, such as the legal jitney services in Atlantic City and the illegal ones in New York City. Many of these successful systems have the following characteristics: Their ownership is private, the vehicles and operating systems are small, and private “route associations” coordinate the operations of privately owned vehicles.

Unfortunately, the managers of public transport in most Western cities, which tend to be more responsive to labor unions than to users, prefer public ownership, large vehicles, large systems using fixed rails, and centralized management. The resulting services do not respond to the travel needs of modern, decentralized cities, and these public transport systems are generally unable to cover their operating costs out of revenues, much less their capital costs.

Land transportation involves the movement of people or goods by rail or road. Railroads are generally operated as commercial entities, but most roads are in the public sector and operate, like public parks, outside the market economy. This divergence makes it difficult to compare and coordinate road and rail services.

In the 19th century, before the advent of motorized road transportation, railroads were alleged to have substantial monopoly power and were economically regulated. At the beginning of the 21st century, railroads in most countries are subject to keen competition from road and air travel, and this competition should provide sufficient regulation. Railroads are particularly suitable for carrying freight over large distances and thus are particularly appropriate in Canada, China, India, Russia, and the United States. Railroads, however, are much less competitive for passenger transport, where their main strength is in dense urban areas and in linking large urban areas 100 to 300 miles apart. Inasmuch as railroads are commercially operated, they pose no significant policy problems to a government, which would expect them to pay their way or go out of business.

Most publicly owned roads are run socialistically by politically appointed officials with scant regard to costs, profit, or loss. Road users are not required to pay the costs arising out of their use of roads, and road providers spend taxpayers’ funds without regard to market criteria. As a result, road problems include excessive congestion, waste, and, in some countries, massive deterioration because providing new roads is politically more attractive than maintaining existing ones. The application of private ownership and commercial principles to roads would almost certainly make them more responsive to the wishes of road users. Only governments are in a position to establish the necessary institutional arrangements for such reforms, which could include regulations to protect the public from possible abuse by private owners.

However, governments do not willingly surrender the kind of power involved in the ownership and control of roads. When considering the transition to the free-​market provision of roads, it is useful to distinguish between local roads, giving access to properties, and long-​distance roads, designed to connect different areas.

Local roads are generally regarded as public goods that have to be provided by government to protect residents from being exploited by monopolistic road owners. But it is more useful to regard them as part of community infrastructure, like sewerage or street lighting. So long as these facilities are controlled by local residents, either by property associations or local government, the fears of exploitation seem far-​fetched. Building owners do not exploit guests or tenants who use the elevators. All in a community have an interest in the existence of high-​quality services if only to protect the value of their properties.

Users of long-​distance roads do not share these common interests, so the roads have to be provided by outside entities. Such roads were privately provided in the United Kingdom from the 17th to the 19th centuries and in the United States from the 18th to the 19th centuries. In Britain there were more than 1,100 “Turnpike Trusts” providing over 22,000 miles of road, whereas in the United States more than 3,000 companies financed, built, and operated more than 30,000 miles. All were toll roads. Many were put out of business in the 19th century by the superior performance of the railroads. The beginning of the 20th century coincided with the prevalence of “Progressivism,” a collectivist ideology based on European socialist movements. In that period, it seemed appropriate for governments to provide long-​distance “free” roads, and most road tolls were abolished in both the United Kingdom and the United States.

In 1909, the British government established a “Road Fund,” fed mainly by special duties on motor fuel, to enable “owners of motor vehicles in combination and under state guidance to spend money on roads for their mutual benefit.” This idea crossed the Atlantic; the first U.S. dedicated road fund was established in Oregon in 1919, and others quickly followed. It was believed then that these funds would enable road users to get, under state guidance, the roads for which they were prepared to pay. However, this goal did not happen in either the United Kingdom or the United States because these funds could not be targeted on specific roads, and their allocation to different projects became politicized.

In the 21st century, there are electronic means of charging for road use without vehicles even having to stop at toll booths. In the United States, road users are able to set up “EZPass” accounts with road providers and have these accounts automatically debited when passing electronic “readers.” Similar arrangements can be made in Australia, France, Spain, and other countries. In Singapore, motorists may purchase plastic “Cash Cards” that lose value as they pass designated “pricing points.” Special fees can be imposed to charge for the use of congested roads. These systems have been in operation in Singapore since 1975, in Scandinavia since 1986, and in London since 2003. There are no longer technical difficulties in charging for the use of most roads, which can be done by direct tolling, manual or electronic, or, in the case of government-​owned roads, by imposts on items associated with their use, such as motor fuel or tires.

There are other obstacles to the private provision of roads, but they are by no means insuperable. Among them is acquiring the necessary land—the right of way. This acquisition constitutes a special problem for those who are opposed to governments using their power of eminent domain to take land from private owners. However, these difficulties can be dealt with in a variety of ways. For example, it is often possible to find space for additional road lanes within existing road rights of way. Such surplus land has been recently used for road expansion in both Virginia and California. It also is sometimes possible to convert to road use underutilized railway rights of way, which exist in many areas. The Pennsylvania Turnpike and the Port-​of-​Spain “busway” in Trinidad were built on abandoned railway rights of way. Furthermore, private road providers do not have to advertise their intentions and can assemble rights of way in secret, as is done for the construction of pipelines.

Another obstacle to private ownership of the roads is the competition they must face from so-​called free roads. However, under a regime of shadow tolls, road providers can be reimbursed an agreed amount for each vehicle kilometer “produced” on their roads, the payments being based on traffic counts. This method of payment would require no toll booths. Such contracts between government and private road owners already exist in Britain, Finland, Portugal, and Uruguay. Payments can be out of the government’s general funds or out of dedicated road funds.

Thus, there is no problem in providing new toll roads by private owners, as is currently happening in Japan, France, Spain, and many other countries. Privatizing existing roads is much more difficult because of opposition to paying for the use of a facility that has appeared to have been free. However, privatization has been successfully done in Singapore, London, and Scandinavia. The politically easiest way to introduce private ownership to the road sector may be to allow the private sector to provide additional priced lanes, with the charges being varied electronically to ensure congestion-​free travel on these lanes at all times. Such lanes were first introduced on State Route 91 in California in 1995 and have since been successfully copied in San Diego (1996), Minneapolis (2005), and Denver (2006). But even roads remaining in the public sector could be substantially improved by applying to them the familiar principles used by commercial entities: accountability, charges that cover costs, and investment for profitability. These commercial principles are used in public utilities all over the world and in the operation of toll roads, such as the state-​owned New Jersey Turnpike.

As with railroads and some roads, shipping services have been privately provided since the dawn of the market economy. Indeed, Phoenician, Arab, and Dutch traders, among numerous others, provided a major impetus to their development. The design, construction, and operation of vessels can be carried out by private entities, which also can ensure vessels and their cargoes against the risks inherent in transportation on water.

The private sector may be less suited to protect trade routes against pirates and to facilitate services (such as lighting, marking, and dredging) that are required for safe passage, especially in coastal areas and in the vicinity of ports. These duties are often left to government agencies, which attempt to recover the costs by the imposition of port dues. However, there is nothing inherent in these services that prevents them from being supplied by private firms.

Government agencies, or government-​approved monopolies, operate most major ports despite the fact that ports have been privately operated throughout history. There are several factors that account for this government involvement in controlling port facilities. First, most governments have chosen to follow the Roman legal tradition of arrogating to themselves jurisdiction over the beaches and foreshores surrounding their territories, ostensibly to make these areas freely accessible to all. From this practice evolved the idea that port facilities should be available to all users on equal terms, which led to the concept of “Trust Ports” run by public bodies in the public interest. Second, the control of ports is generally regarded as important for purposes of defense. Third, governments throughout the ages have attempted to control trade entering and leaving their territories to enable tariffs to be levied and to control the importation of substances deemed dangerous. Finally, the control of ports permits government to impose port dues, which, it is argued, are necessary to keep the shipping channels safe.

Since 1910, the United States has developed the concept of the landlord port, which enables government to carry out public functions, such as dredging and import tariff collection, while leaving to the private sector such activities as warehousing and cargo handling, which can be carried out competitively, even within a single port.

A government that operated more in keeping with libertarian principles would encourage the private and competitive provision of port facilities, relying on competition and free entry to protect the interests of shippers and traders. Where a single port has a dominant influence over a small territory, as, say, in Singapore, government might possibly have to impose regulations to ensure that port users are not harmed by monopoly power exerted by port managers or labor unions.

Most of the discussion on shipping and ports applies equally to air transportation and to airports. There are no convincing reasons for aircraft to be operated by government agencies, for governmental control of fares and timetables, or even of safety, a matter that could probably be handled by the industry and private insurers, as is maritime safety. It might be thought that a possible problem could exist with respect to the licensing and approval of international service. But there is no reason that a government would not open its borders to all air carriers meeting the obligations imposed on local carriers.

Airports have been privately owned and operated since the early days of aviation. The Burbank airport was owned and operated by Lockheed at the time it served as the main airport for the Los Angeles area. Atlanta’s Hartsfield–Jackson Airport may be worth as much as $5.5 billion, and selling it to a private operator could benefit each Atlanta resident by as much as $13,500. London’s main airports are owned and commercially operated by the British Airport Authority, which now participates in the provision of airport services outside Britain, including the management of Indianapolis International Airport in the United States. Airport services also have been privatized in Canada, Africa, Asia, Australasia, and Latin America.

However, no airport, whether governmentally or privately owned, applies market principles to allocate landing and take-​off “slots.” The result is excessive delays at runways at many of the world’s largest airports. It is sensible to encourage airports to vary landing and take-​off charges to both dampen the demand for scarce slots and attract finance for commercial expansion.

Air traffic control (ATC) is another weak link in the air transportation systems of Europe and the United States, where it is regularly responsible for serious delays during peak travel periods and for an increasing numbers of near misses. ATC is already owned and operated by nonprofit corporations independent of government in Australia, Canada, Germany, New Zealand, Switzerland, and Great Britain. The Canadian system, Nav Canada, is controlled by major aviation stakeholders such as airlines, pilots, and air traffic controllers. It has been operating since 1996 and claims that its operations save airlines $100 million each year. However, unless a major accident brings home the urgency of reforming ATC in the United States, agreement on appropriate reform is unlikely in the foreseeable future.

Further Readings

Cervero, Robert. Paratransit in America: Redefining Mass Transportation. Westport, CT: Praeger, 1997.

Estache, Antonia, and José Carbajo. “Competing Private Ports—Lessons from Argentina.” The Private Sector in Infrastructure. Washington, DC: World Bank, 1997.

Hakim, Simon, Paul Seidenstat, and Gary W. Bowman, eds. Privatizing Transportation Systems. Westport, CT: Praeger, 1996.

Heggie, Ian, and Piers Vickers. Commercial Management and Financing of Roads. Technical Paper 409. Washington, DC: World Bank, 1998.

Klein, Dan B., Adrian T. Moore, and Binyam Reja. Curb Rights: A Foundation for Free Enterprise Urban Transit. Washington, DC: Brookings Institution Press, 1998.

Mohring, Herbert, and Mitchell Harwitz. Highway Benefits: An Analytical Framework. Evanston, IL: Northwestern University Press, 1962.

Poole, Robert W., Jr., and Viggo Butler. Reinventing Air Traffic Control: A New Blueprint for a Better System. Policy Study No. 206. Los Angeles: Reason Foundation, 1996.

Roth, Gabriel. Roads in a Market Economy. Aldershot, UK: Ashgate, 1996.

———, ed. Street Smart: Competition, Entrepreneurship and the Future of Roads. New Brunswick, NJ: Transaction, 2006.

Roth, Gabriel, and Anthony Shephard. Wheels within Cities—Private Alternatives to Public Transport. London: Adam Smith Institute, 1984.

Utt, Ron. “FAA Reauthorization: Time to Chart a Course for Privatizing Airports.” Heritage Backgrounder. No. 1289. Washington, DC: Heritage Foundation, June 1999.

World Business Council for Sustainable Development. Mobility 2001. Conches-​Geneva: Author, 2001. 2–6.

World Health Organization. World Report on Road Traffic Injury Prevention. Geneva: Author, 2004.