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The Mirage of Free-Market Roads

Timothy B. Lee -- Writer with Ars Technica and the Cato Institute

If you're driving through certain West African countries, you'll be stopped every few miles by armed men--often in police uniforms--who will demand payment in exchange for letting you pass.

I have a somewhat similar experience every time I drive from my home in Philadelphia to Washington, DC. As I'm driving up Interstate 95, I'll periodically be stopped by people in uniforms (thankfully not armed) who will demand money in exchange for letting me through.

Obviously, there are important differences between these cases. In Africa, the roadblocks are mostly illegal and the payments are generally described as "bribes." In the United States, the practice is known as "collecting tolls" and is government-sanctioned. While no single payment in Africa is prohibitively expensive, the accumulation of charges over a long trip sometimes exceeds the value of the cargo being transported, stifling the flow of goods across Africa. In contrast, tolls in the US are mostly low enough to avoid signficantly hampering trade.

These two stories illustrate two different ways to think about tolls. One way is as a "user fee" to cover the cost of constructing the road. The other is as a tax on mobility. There's no clear line between the two, but as tolls go up, they begin to look less like a user fee and more like a tax.

The dual character of tolls has important implications for the current debate over road privatization. A variety of metropolitan areas have undertaken ambitious projects to allow private firms to build and/or operate either entire roads or individual lanes, charging motorists tolls to use the land. This trend has been particularly cheered on by libertarians, who see it as a step toward a more general free market in roads.

While I'm generally sympathetic to the idea of privately-managed roads, I've become convinced that the broader vision of "free-market roads" is a conceptual confusion. In the abstract, the idea of competing, privately-owned roads has a lot of appeal. But the more I think about it, the less sense it makes. Roads are deeply intertwined with governments. They always have been and as far as I can see they always will be. This means that they'll never be truly private in the sense that other private companies like restaurants or shoe factors can be.

Assembling the land needed for a long-distance road is prohibitively expensive without government assistance. Unsurprisingly, private roads almost never come into existence without extensive government assistance. And that means that the profitability of a "private" road depends crucially on how many competing roads the government allows to exist.

It's unsurprising, then, that real-world privatization schemes are often explicitly protectionist. A 2004 GAO survey found that four of the five privately-funded toll road projects started or completed in the preceding 15 years included non-compete clauses that restricted the creation of competing freeways nearby. It's much easier to turn a profit when would-be competitors are barred from entering the market.

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Megan McArdle is a columnist at Bloomberg View and a former senior editor at The Atlantic. Her new book is The Up Side of Down.

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