LOW COSTS
. Contrary to popular belief road privatisation is not intrinsically problematic. First of all its not subject to the problem of huge increases in personal spending simply because the amounts spent are so small and the user group is so large. The cost of roads in 1996 in Britain was just under £4 billion and there are 21 million cars. So the total cost per car owner per year is £200 per year ,just £18 per month. All the costs we will talk about later are included in this figure .So when privatisation comes there is not going to be sudden large bills to pay( as with health, for example.)
. National statistics tell us that vehicle flows in thousands of vehicles ,per day ,per km of road are as follows: motorway 56, trunk 16, principal 15, non built up trunk 14, principal 7 , all major roads 14. That is to say if we look at any average stretch of 1 km of motorway on an average day there will be 56,000 cars traveling past a given point.
. Major roads (trunk and motorway- about 11,000 miles in UK ) take about half the roads budget and cost £199.3 mil per 1000 km pa which is £199.300 per km of motorway per year and there are 56,000 vehicles per day per km . That means it cost about £4 per vehicle per year ( or about a penny for a daily use of the motorway)
. Trunk roads at £199 mil per 1000km £199,000 per km take 16,000 vehicles per day per km therefore cost £12 per vehicle per year or 3p per day.
. And for principle roads the figures are £8.4 million per 1000 km pa ,£8400 per km per year, density 7000 vehicles per day per km = £1.20 per vehicle per year or 0.3p per day. Local roads are 300,000 km = and cost 8,500 per km = £2 billion = £100 per household per year. Road density figures are not available.
. Clearly then the costs to the individual of using the road system need not be high and certainly wouldn't be expected to produce a political storm if privatised.
. In France and Spain such roads are toll roads and charge about 10p per km in Spain and 6p in France. In the UK at Spanish charges and at 56000 vehicles/ km / day that would be £5600 *365 days *3302 km of British motorway which would be £6.74 billion pa in motorway revenue alone, add the trunk roads £1600 *365*13100 km of trunk road and we get another £7.6 billion per year. Principle roads would at only 2p per mile would raise per mile, raise £140*365 *37000 miles of road = £1890 million per year. Local roads are do not gain revenue since they are to be maintained by the inhabitants of the roads themselves. Altogether then the total revenue that could be gained from roads, given our assumptions is around £16.2 billion per year, 4 times the current roads budget. UNDER SUPPLY
. With each journey costing less than a penny a day on motorways and with modern man willing to pay high prices to save time in other areas , it is likely that if we had had a private system earlier we would have had far more roads. Entrepreneurs could have built roads for less than the government is doing and if they charged anything like what Spain charges then they would have made large profits. Because the cost per use is so low there would be every reason for them to get large amounts of traffic if they had picked a good location. This would have left us , and may leave us in the future, with far more competing roads than we have and with travel times greatly reduced for many people, increasing their productivity and the wealth of society.
. The government recognises the problem : their current £23 billion program (£12 bil motorways) at current rates will take over 20 years to finish. Being a government project there is no correlation between the demand for roads from the population and the supply of the resources. The free market transmits the wishes of individuals more effectively than representative government ever can !
. COMPETITION
. Nor is creating competition as large a problem as one might think. Road owners compete not only with other road owners but with trains ,planes, walking and not making journeys. There are plenty of incentives to keep costs down.
. PROBLEMS WITH STATE OWNERSHIP
. The central problem with state ownership of anything is the greatly reduced options that are available. Instead of the opportunity for anyone to exploit an opportunity there is the government's plan which can only include all options government knows about and no entrepreneur had any incentive to make his creativity known, since in a public system he can't build it and profit from it. This constraining of creative talent is one of the larger costs of state ownership. Example of what might have happened in a free society abound. In is interesting that Henry Ford's Model T was initially very rugged overcoming the absence of roads. Without the state the market may have evolved with harder wearing suspensions instead of roads. Given the relative cheapness of roads it may not have but the point is that we'll never know because the markets function of discovering the most economical way to do things was not the way that things were done and what we've lost from not having been through that process is now known only to God.
. In the future the market may well find solutions to problems that we are now encountering like traffic congestion in the cities for example. The states answer is that we need to drive less but this is a huge social cost in terms of lost time and lost convenience. Government is having difficulty keeping up with 2% pa increase in traffic volume and a doubling of motorway use in the last ten years
. Once everyone has a car this will rate will surely slow however , it can't continue for ever. At 21 million cars at the moment, we haven't got that far to go before every adult has one. . Privatising eliminates the need for the car restricting measures currently popular ( or unpopular, in actual fact). State rationing is surely a little passe now that the Berlin wall is down ,no ?
. PRIVATE INOVATION vs CONGESTION
In a private system congestion is lost profits for the company as the flow is not so fast and some people may choose other modes of transport to avoid it. Road companies would do some or all of the following depending on the local economics and the engineering situation.
If roads were private in the cities then they would have every incentive to increase the flow of traffic through their tolls and there are a number of ways they could do this. Its quite possible that road companies could build up or down if road widening is not possible. Roads may become multiple story or may run under the city to the suburbs as well as on the surface. Technically speaking such feats are well within our ability (Diaphragm wall technology),.The Swiss have a massive underground carpark under Lake Leman and in Singapore the proposed new ringroad is to be underground. Tokyo has many roads underground and also has double and triple decker roads where you may be driving quite a distance above the ground with two other roads directly beneath. A privatised road network gives the necessary incentives to clear up our congestion problems Using contraflow where an 8 lane road will become 6 lanes into the city in the morning and 6 lanes out at night.( If the 4 lanes that change are kept separate from the ones that don't then you only have to change the situation at junctions rather than right along the road- in some situations)
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. Queuing is a natural feature of a state run organisation from queuing on the streets of Moscow, for telephone installations before BT was privatised or for hip operations on the NHS. The clearing of backlogs is one of the first effects of privatisation and this would be no different in the case of roads.
. These forces would ensure an uncongested road network expanding at the same rate as the number of cars. While it would be technically possible for the state to do this governments departments work under a different set of incentives- so maximise their budget and career rather than to maximise number of customers who are happy with the roads as a private system would do.
.
LOCAL ROADS
The total government expenditure on non- main roads is : £838mil construction and £1443mil on public lighting etc. The total cost / 1000 km is £8.50 mil ( £24.2 mil in London, £5.20 mil in West Midlands)( includes principal roads and minor roads). Local roads are 300,000 km = and cost 8,500 per km = £2 billion = £100 per car per year.
This can be derived a second way :an average street of 120 houses needs resurfaced once every ten years and costs £120,000 . This again works out at £100 per car owning person per year. This may come down with increased competition. There are several ways this could be financed. First of all it could be in the deeds of the house that there was an obligation to maintain the road- but obligations in the deeds of the house are a feudal legacy- not very free market. An alternative strategy is that the road is not owned by the house owners but by a third party that maintains it and charges people accordingly ( either per house or per car or by usage using electronic tagging). Without electronics there may be an externality problem in that people passing through the road (not living there) would only be charged under this scheme and not under the other two (per house or per car). If so its an externality that we can live with. Its possible that special savings schemes would arise to meet these obligations
. Many countries oblige builders to build roads to houses ( i.e. government doesn't build them).
Rural roads are more of an issue but in Sweden (of all places) many rural access roads are owned by local property owners associations. While costs are clearly higher than in urban situations, road costs are related to road use and the latter is lower in rural areas than in urban. Four wheel drives could be as much part of the solution as improving roads.
. "In Spain, the apartment block or urbanization is completely private to the owners and it is therefore the responsibility of the owners themselves to deal with the upkeep" p39 Failure to pay can result in your property being embargoed by the community ,auctioning off the property to recover the outstanding debt. (2)
.Fees can be as much as £1000-£1500 per year depending what is included but this does include painting of your house every 3 years, green areas, street lighting, etc. as well as road maintenance
. In major cities like Madrid the more common annual cost is about £200 per year but in Madrid this doesn't include the roads which are dealt with by the municipal.
. .
The other possible problem is barriers to entry problems with competition in the market place - there is little to stop the local road owner continually upping the price and its very difficult for house owners to buy another road to compete. This may lead some or all of the house owners to choose to buy the road from the initial developer ( who would almost certainly need to build it to start with if he wanted to sell the houses ). If fact its possible because of this foreseeable problem that most buyers of houses would want to own the road or sell it with a strict contract not to increase prices annually by more than a certain real amount. If the road owners were the householders there would be nothing to stop them charging third parties for using the road ( or of closing it off to make it a safer place for their children) .There are obviously several positive ways the market could develop.
. MAIN ROADS IN TOWNS
. These generally have sufficient traffic flow to justify pay for use and to make it unfair for those that stay along the road to pay for maintenance. It may be best to privatise these in the same way as the motorways and trunk roads- sales to the highest bidders with different routes within a city being sold initially to different suppliers. Competition would be affected by the high price inelasticity of demands for roads due to their low absolute price. If each journey is costing less than a penny then few drivers are going to take a longer route to avoid a toll or to use one rather than another. Since to be worthwhile operating most tolls would be worth far more than the cost currently spent maintaining the road there would be a huge incentive to build new roads both within a city and between cities. The utility of roads is worth far more to people than their long term costs, this is a relationship that state control has not allowed to be expressed. Those streets which could be classified as residential but have considerable traffic flow could be tolled for the sake of the residents or they could be sold and the residents released from any obligation to maintain the road.
. The statistics show us the cost is 8.4 million per km pa for principle roads, £8400 per km per year, density 7000 vehicles per day per km = £1.20 per vehicle per year for that kilometer.
. IMPLICATIONS OF LOW COST PER USE
. One of the implications of this is that roads could be sold for rates well in excess of their current costs. At 10p per mile for the trunk and motorway network and 2p for the principle roads, the total system is worth £16.2 billion per year , the current road costs are around £4 billion and these would drop to an estimated £3 billion with the efficiency of privatisation. That leaves £12 billion which at a capital return rate of 7.5% (which would be sufficient to attract funds) would yield £176 billion which at 58% of expenditure is almost double the social security budget and far exceeds the approximately 6% that is the annual typical revenue from privatisation. Its also a saving of £4 bn a year in expenditure.
. And theres nothing to say that 10p a mile is all that roads are worth to people, its quite possible that new roads would be able to charge more for roads that are particularly convenient. If old roads would sustain a higher toll then they should be privatised for more as we'll discuss below.
. INCIDENCE OF TOLLS
. Visions of a private road system generate pictures of tolls on every corner, private sector queuing instead of public sector congestion. There are a number of reasons why this wouldn't necessarily be the case. First of all, private residential roads would be the property and responsibility of the houses that adjoin them., so there are no tolls there.
. Secondly the success of motorway tolls in other parts of the world tells us that they can work successfully, privatisation of trunk roads would help here too as there is then less incentive for traffic to move off motorways and onto trunk roads although there is a possibility some trunk roads would be improved to compete with them.This is important as the recent green paper estimates 1.5 p per mile motorway pricing would result in 10% of drivers using alternative routes ( they didn't seem to consider charging for the alternative routes)
. Not is it wasteful to have two good roads going in the same direction. There already are at least two alternatives on most routes as the motorways was not built on the original route)
. Its unlikely that many companies would choose to have many, irksome ,tolls in order to prevent any evasion by people coming off the road before the toll. They would simply place their tolls where evasion would cause the maximum inconvenience and since the toll charges are reasonable small most people would prefer just to pay and save themselves the hastle. It costs less for companies to have fewer tolls which cost less to staff and maintain than a lot of smaller tolls costing more and each collecting less money. They also have a customer service goal to encourage us to use their road and for that reason want to be stopping us as little as possible.
. Singapore's road pricing system shows that it doesn't have to be intrusive -there you can buy a road pricing ticket in advance (monthly , yearly or daily) and display it on your windscreen. This means that there are no tolls, just inspectors who take down your registration if they see you don't have a ticket and fine you. In this set up you could buy tickets for your own city and for particular motorways you use a lot and stop at the tolls on the rest. When you go on holiday ,if you are driving far, you can buy tickets in advance for the motorways along the way and not have to stop at all. Singapore's system used to charge only for rush hours and this helped reduce congestion, but then they decided to charge for the whole day and raise more revenue and congestion increased in the city again. This is a good example of how far even an enlightened government like Singapore's seldom does efficiently what a private sector company would do automatically. Profit seeking businesses would probably charge more for rush hours - selling different colours of tickets for the two zones.
. This is primarily for main roads in cities though it would work for trunk roads and motorways as well. I've endevoured to show the feasibility of private roads without recourse to talking about electronic pricing which is not a necessary condition for privatisation. It does of course make things much easier and when it becomes economical do to so, the road companies would take it on ( the Dartford crossing is using it now)
. PRIVATISATION
. It might seem that the best way to privatise roads is to impose a maximum price by regulation to avoid vast increases in the % GDP spent on roads but I don't believe that's the way forward for an industry without the monopoly problems of ,say, telecoms or water. If people want to spend more on roads in return for quicker journeys- and at less than 1p a day at present , I think they would, then that's where we should go. A national increase in time saved is national productivity gained and incomes increased. Rather attempts should be made to gauge at what point competition becomes effective 20p a mile or whatever and then privatise at that price. This could then be used to reduce other taxes , perhaps petroleum tax. All privatisations where costs are saved , should result in a tax savings , that's the point. Also privatisations work best when they reward those involved.
. Since the government is no longer involved in maintenance of public roads, the vehicle license can be abolished.
. A general principle of privatisation would seem to be to ensure every second road is sold to a different buyer initially to ensure competition. This would not seem present any practical problems. Most cities have at least 8 or 9 radials emanating from the city centre which could be easily sold. Where possible it would be best to make most streets residentially maintained to cut down on the number of tolls. In the event of road pricing the number of roads that can be practically priced may shift. In most city centers there would be a number of road that could be priced , in this case the ticket system would be especially practical as opposed to physical tolls. The most practical way to charge for the roads in this area would probably be to charge people entering a leaving the city centre rather than in the city itself.
. One way to get an accurate price for road privatisations is to allow private companies to build any new roads they felt like for the first few years before privatisation. Give them freedom to charge whatever they wish and see how the pricing changes over the period. This would give a good idea of how much the existing roads could be privatised for.
MAKING SURE THE ROADS ARE MAINTAINED
. In the case of main roads into cities , trunk roads and motorways there is an obvious incentive to keep the roads in good condition in order to encourage people to continue to use them as an additional incentive we could make road companies liable for accidents due to bad road surfacing.
Residential roads are an interesting point, should we like the Spanish enable others who dwell on the road to force those who don't want a road improvement to pay for it if it has been voted on. Should there be a reduced or zero rate for house owners who don't have a car. Multiple arrangement could be allowed to develop in order that the most effective arrangement could be found. Initially at privatisation it would probably be prudent to give everyone a legal obligation to maintain the road jointly.
. THE DEVELOPING WORLD
. Before the road system is well developed is as good a time as any to put it in private hands so that private capital can expand the system vastly more effectively than the state ever has. In Africa, potentially marketable crops often cannot get to market due to poor infrastructure. It is essential that the private sector is allowed to build roads and charge tolls and that their property rights are rigorously enforced.. Building the initial infrastructure is an important step, in the 1950s when the US decided to build national highway , infrastructure took 6% of the nations non-military federal budget i.e. almost 4% of GDP till the end of 60s. In 1980s it was 3% . In 1989 the estimates to repair all 240,000 bridges in America is $50 bil and to repair the highways $315 billion. The Third World could not afford to build up the maintenance problems that state ownership has produced in the States . Similar problems have occurred when the state has been involved with underinvestment in water, rail and indeed in most formerly nationalised companies). Indonesia has moved forward and now has toll roads. (8) In many cases deregulation of town planning and zoning is necessary or at least helpful for effective road privatisation
. ROAD HAULAGE
. Multiple axle vehicles are responsible for most of the damage done to the roads. Much is transported by road (1658 million tonnes) rather than rail (a paltry 95.4 million tonnes) for the simple reason that road transport is effectively free to the user, a distortion in the market. In may be that privatisation will take more haulage off the roads and onto the railways.
. Appendix : Roundabouts and other benefits The Economist Oct 4 1997 featured an article on how roundabouts are now starting to be built in the US ( with the appropriate advice from roundabout consultants). The reason its strange is that its only happening now . Each traffic light/ traffic signal intersection costs $13,000 a year for signals, electricity and maintenance. A private system would have moved to cheaper roundabouts much sooner , which also ease traffic congestion considerably, so much so in fact that Vail, Colorado rate them higher than any public service except the firemen ! Another advantage is in the area of rubbish and refuse .There is some possibility that the amount of refuse people drop in roads is in some way related to the incidence of bins ! Private road companies would have much more incentive to reduce their sweeping costs by providing bins and to prosecute those that dropped litter in the first place. The benefits of privatisation are large and many are unforeseen . Citations ,Sources and interesting facts
. (1) APPENDIX ROAD LENGTHS IN BRITAIN Lengths of Road : Motorway 3302 km Built up major-Trunk: 1581 km Principal 12,976 km Non built up Trunk 11680 Principal 24,062 All major roads : 53,600 km Minor roads : 337,691 km: ( b roads 30,286, c roads 82,540, unclass 202,918) All roads: 391,292km (2) The Complete Guide to Buying a Property in Spain (3) Average person travels 6,440 miles per year (42% for leisure, 18% commuting, 12% shopping) (4) Total accidents: 234,101 on all roads (5) England expenditure on roads: Motorways and trunk roads: £1377 new construction/improvement £697.6 public lighting and maintenance : expenditure per 1000 km = £199.3 in 1994 ( £530 in Greater London, £90.4 in the North)( in Yorkshire maintenance higher than new construction ) Local roads : £838 new construct, £1443 public lighting etc. total xp/ 1000 km is £8.50 mil ( £24.2 in London, £5.20 in West Midlands)( includes principal roads and minor roads) All figures in Millions Eng and Wales only Total cost of roads in 1996 : £3923 mil ( gradually up from 2,033 in 1985) ( cost of cars £22,000) (6) Number for inquiries: trunk/ principal. 0171 271 3782 (7) Motorways make up 25% of total miles driven (8) Ec July 26th,97 p10 (9) Number of cars : 21 million ( 10% company) (10)Spain : 300km (186 miles) from Barcelona to Zaragoza costs private motorist £13.38 and a lorry £20.57. juggernaut £29.68 (10p per km). Sitges to Barcelona costs£2.62 for a car for only 25 km because its a maze of tunnels and viaducts . Italy £5.34 per 100 miles Source AA magazine France: charges are about 6p per mile on average (varies between 4p a mile and 9 p a mile) (11)( Gabriel Roth in Economic Affairs Winter 96) (12)Germany has privatised its autobahns and imposed an annual fee.
electronic pricing now used at Dartford river crossing
(13)In rainy, cold countries like UK roads need attention once per year or two, in deserts far less road depth and last far longer.
(14)Economic Affairs June 93 (15) Transport costs overall are 3% of GDP, for goods like chalk, milk, clay , coal, confectionery, sugar, drinks, bricks and animals they can be over 20% of output. (16) Roads which do not allow HGVs can be built to a cheaper design specification (17) Halving bus fares would reduce car use by about 1% and £2 urban road charge would lead to a 20% reduction in traffic in city centers. Ec Aug 23 97 Expansion : why alternatives are so ridiculous, what happens with local roads when people disagree, the problem of knowing when people are allowed to toll for a local road. (18) Pollution: Royal Commission on environment says 10,000 deaths annually from vehicle exhausts Ec Aug 23 97 (19) The US has more than 15 times the roads of the UK but only 5 times the people so Roads would be 3 times more expensive per person there (though still very cheap).France and Belgium have almost double the roads per person., Japan 150% Spain, Italy and Germany all have roughly the same ratio as the UK (world in figure 1997 Economist )