Commentary

Let the Market Free Up Transportation in U.S.

Examples from around the world show that government can use the power of the marketplace to improve transportation for citizens. In Britain, Heathrow Airport is privately owned and user fees cover all airport and air traffic control costs. In Chile, private franchises provide limited-access highways — smooth-flowing roads with user fees. Even in China, market forces are being used to improve transportation; the Guangzhou-Shenzen highway was financed and is being operated privately.

But in the United States, which in so many other sectors of the economy is the world leader in market innovation, market forces have been ignored in favor of a government subsidize-and-control approach to transportation that has harmed efficiency and financed many projects of dubious value.

With the expiration of longstanding federal legislation concerning aviation, Amtrak, highways and transit, Congress has a rare opportunity in 2003 to use market forces to free up America’s gridlocked roads and taxiways.

Market innovations such as user fees and roadway tolls benefit society by requiring potential users to consider costs when they decide whether to use a transportation system and by not using taxpayers’ money. Moreover, the involvement of private ownership and franchises in transportation operations can improve efficiency and reduce government financial risk. The more market forces are brought to bear on transportation, the more efficiently transportation systems will be utilized.

Historically, the United States used private enterprise heavily in the provision of transportation. In the 18th and 19th centuries, thousands of privately constructed and operated toll roads existed throughout the country. Even after World War II, turnpikes in New York, New Jersey, Connecticut, Massachusetts, Pennsylvania and Ohio were all user-financed toll roads before they were incorporated into the interstate highway system.

Like roads, transit systems in the United States were largely privately provided until the mid-20th century. The Boston and New York subway systems were privately constructed and operated, and the IRT and BMT sections of the New York system were privately operated until 1940. Even after government became heavily involved in transit in the mid-20th century, the norm was that fees for transit systems should finance both operating and capital expenses. But that norm began to dissolve in the 1960s, and today most transit systems operate with large government subsidies.

From an economic perspective, government involvement in the provision of transportation infrastructure and services should be limited to state and local unlimited-access roads for which the transaction costs of toll collection would be prohibitive. Nevertheless, the federal government collects taxes and funds infrastructure for limited-access roads, airports and air traffic control, and it subsidizes transit and Amtrak. How did that happen?

The 1956 Federal Highway Act, which authorized the federal gasoline tax and expenditures on the interstate highway system, was the product of a coalition of business, labor and urban leaders whose members saw massive expansion of highway capacity as essential for economic growth and congestion relief.

Spending on roads was the progressive thing to do. “Better schools, better hospitals, and better roads” was the slogan of the day.

The toll turnpikes of the Northeast were grandfathered under the 1956 act, but user fees were banned on all other interstate projects funded by the act. Two generations of Americans outside the Northeast have thus become accustomed to “free” interstate highways.

Subsidies for mass transit were the Republican response after 1968 to urban protests against interstate highways through existing urban neighborhoods. Although the activism threatened the politics of the highway coalition, subsidies for mass transit allowed the highway coalition to command continued political support through expansion of the coalition of beneficiaries. But the support that is purchased is largely from employees of transit agencies rather than customers, who would be better off with direct transfers that they could spend on transportation services that fit their needs at a lower cost than those provided by public transit authorities.

How have transit providers responded to the subsidies? As you would expect, they have lowered their productivity and expanded service so that suburban voters, who pay the taxes, now have service. From 1991 through 2000, transit capital expenditures amounted to $70 billion. But the number of people using transit to go to work was flat at about 6 million (4.7 percent of workers) from 1990 through 2000, even though the number of workers increased by 13 million during the decade.

Transit-worker productivity fell from 150,800 passenger-miles per full-time-equivalent employee in 1990 to 133,100 passenger miles per full-time-equivalent employee in 2000.

The private provision of passenger rail service without subsidies has been hopeless since the late 1950s. A report by an Interstate Commerce Commission examiner in 1958 stated:

“For more than a century the railroad passenger coach has occupied an interesting and useful place in American life, but at the present time the inescapable fact — and certainly to many people an unpleasant one — seems to be that in a decade or so this time-honored vehicle may take its place in the transportation museum along with the stagecoach, the side-wheeler and the steam locomotive. It is repetitious to add that this outcome will be due to the fact that the American public now is doing about 90 percent of its traveling by private automobile and prefers to do so.”

But for almost 50 years, rail lovers, passengers and unionized employees have convinced Congress to ignore economic reality and subsidize rail passenger service — always with the stated belief that it will be viable without subsidies at the end of the current reauthorization period.

Typically, other countries look to the United States for innovations in the market provision of goods and services. It is time for us to employ that innovation in transportation.

Peter VanDoren is editor of Cato’s Regulation magazine.