Fixing Transit Doesn't Need a Free App — It Needs a Free Market
Always bumper-to-bumper on the way to work? Are potholes cramping your style? Worry not, fair citizens — Uncle Sam has a tech-savvy solution for you! The cell phone app “I’m Stuck” was recently created for representatives to track constituent complaints about transportation issues. Former Pennsylvania governor Edward Rendell, an infrastructure spending enthusiast, has praised this latest Washington “innovation” as a “permission slip for Congress to do something about it.” Rendell, the co-chair of Building America’s Future, correctly claimed that failure to make necessary repairs to our ailing system will cost us even more money down the road. Rather than public planning and financing, though, Washington should tap into the innovative power of free markets to upgrade our roads.
Unfortunately, the government has little actual incentive to deal with our pressing infrastructure issues. The stimulus package shows us why. In the race to spend inordinate amounts of money, tax credits and rainy-day-fund bailouts took precedence over infrastructure repairs. At the end of the day, a measly $30 billion went to “highway and bridge construction and repair.” Congressmen and presidents, beholden to perennial elections, feel the need to spend on sexy programs that pack an immediate punch instead of thinking in the long term. For example, Cash For Clunkers, a practical giveaway to car manufacturers, shifted consumption from the future to the present and pleased constituents. Transportation spending simply cannot promise that immediate political payoff.
Even if Uncle Sam found his swagger bone, success is far from assured. Dollar allocation to different projects is more about political clout than actual need. To see this, just compare the stimulus’s transportation funding distribution with the Reason Foundation’s annual highway quality report. Despite Wyoming, North Dakota, and South Dakota receiving top marks for their paved stretches, they netted the highest per-capita transportation subsidies. Meanwhile, crumbling California was at the bottom of the funding barrel. Given the bizarre funding situation and paltry sum, it is no surprise that the government hasn’t improved matters. A USA Today analysis of 2011 Federal Highway Administration data logged an increase in the percentage of roads deemed poorly paved since the stimulus package was enacted.
But if government proves unreliable, what can we turn to? Calls to privatize roads are ridiculed, but maybe the market approach should get another look. I’m sure that you non-libertarian readers love trolling your libertarian friends with, “Who will build the roads?” Constructing a road comes with mammoth capital costs, and its difficult to predict how many customers you will have. Moreover, road corporations are often locked into short, fixed contracts by government. Thus, they may have a rough time recouping capital costs, and a limited amount of time to do so. Short-term contracts seem necessary, though, to keep road companies competitive by demanding results within a certain time period. A possible solution lies in the present-value-of-revenue contract, in which road companies compete for a contract by offering the lowest toll price. The resulting contract is flexible, and the company has ownership over the road for as long as it takes to recoup construction costs. This has seen successful implementation in England and Chile, responsible for wonders like the Queen Elizabeth II Bridge.
Since each company’s responsibility lies in its roads, there’s an immediate incentive to fix issues. Potholes, for instance, pose an immediate danger to profit. Angry customers may threaten to drive on adjacent roads or switch to train usage. Even if the road corporation were not bound to a low toll price by a contract, it still probably wouldn’t gouge its customers. Studies focusing on European toll roads conclude that drivers alter their travel habits in response to a toll hike. Moreover, detailed simulations undertaken by researchers have found hypothetical toll prices kept in check by consumer groups, as well as price differentiation (i.e. based on vehicle type).
Inevitably, many roads will remain in government hands. Privatization will work in some cases better than others, and different strategies will be put to the test. With widespread budget constraints and weak incentives to tackle road problems, governments ought to look to the private sector. IPhone apps are cool and all, but I’d rather go with a system of competition and profit to make sure I don’t wind up in a ditch.