Tomorrows Way


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Managing Roads in a Free Society

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Tomorrows Way

  1. 1. Tomorrow's Way Managing roads in free society By John Hibbs and Gabriel Roth Adam Smith Institute London 1992
  2. 2. CONTENTS 1. Introduction 2. Improving highway administration and ownership 3. Charging for highway use and investing for improvement 4. Private provision of roads 5. The role of government 6. Recommendations for action: short term 7. Recommendations for action: long term 8. Conclusions and summary BIBLIOGRAPHICAL INFORMATION Published in the UK in 1992 by ASI (Research) Ltd, 23 Great Smith Street, London SW1P 3BL (071-2224995). (c) ASI (Research) Ltd ISBN: 1 873712 06 5 All rights reserved. Apart from fair dealing for the purposes of private study, research, criticism or review, no part of this publication may be reproduced, stored in a retrieval system, photocopied or transmitted in any form or by any means, without the permission of the publisher. The views expressed in this publication are those of the authors and do not necessarily reflect any views of the publisher. They have been selected for their intellectual vigour and are presented as a contribution to public debate. Printed in the UK by Imediacopy Limited.
  3. 3. Good roads ... by diminishing the expense of carriage, put the remote parts of the country more nearly upon a level with those in the neighbourhood of the town. They are upon that account the greatest of all improvements. They encourage the cultivation of remote ... They are advantageous to the town, by breaking down the monopoly of the country in its neighbourhood. They are advantageous even to the part of the country. Though they introduce some rival commodities into the old market, they open many new markets to its produce. . Monopoly, besides is a great enemy to good management. Adam Smith Wealth of Nations (Book 1, Chapter XI, Part 1)
  4. 4. ABOUT THE AUTHORS JOHN HIBBS is Emeritus Professor of Transport Management at Birmingham Polytechnic Business School, and has specialized in the economics and organization of road passenger transport since he was Rees Jeffreys Research Student at the LSE in 1954-55. His monographs Transport for Passengers (1963, 2nd. Edition) People and Transport (1973) and Transport without Politics...? (1982) played a significant part in the deregulation and privatization of the British bus and coach industries in 1980 and 1985. In the latter work he emphasized the need for a market in the road infrastructure as a sine qua non for a market in transport operation. He is a member of the Chartered Institute of Transport working party on road-use pricing. GABRIEL ROTH is a consulting civil engineer and transport economist who has specialized in the economics of highways since 1956 when, as Rees Jeffreys Fellow, he studied the economic benefits of highway improvement at the UK Road Research Laboratory (now the Transport and Road Research Laboratory). In 1962-63 he served on the UK Ministry of Transport panel on road pricing, and in 1967 moved to Washington DC to serve in the World Bank, which he left in 1986 on the publication of his World Bank book The Private Provision of Public Services in Developing Countries. His earlier publications include A Self- Financing Road System (1966), Paying for Roads: The Economics of Traffic Congestion (1967), and (with Eamonn Butler) Private Road Ahead: Ways of Providing Better Roads Sooner (1982). ACKNOWLEDGEMENTS The authors gladly acknowledge the comments of David Starkie on an earlier draft of - the paper, while stressing that its arguments and conclusions are entirely their own. Thanks are due to the Reason Foundation of Santa Monica, California, for permission to use material previously published in Policy Insight No 125 (November 1990), 'Perestroika for US Highways'.
  5. 5. 1. INTRODUCTION The present system and its problems There are 356,518 kilometres of surfaced roads in Great Britain, amounting to a substantial area of land which stands at no value in any books, and is thus quite outside the Property market. The country has been well served by its highways since the turnpike system developed them in the 18th century, making them the envy of Europe and America. The past thirty years have seen the construction of motorways and the improvement of trunk roads, on a scale comparable to the building of the main line railways, and over much the same length of time. Yet the system as we now have it is beset with major problems. * Congestion now affects the arterial routes as much as it does the use of urban and suburban roads. The volume of traffic on motorways has more than doubled over the ten years to 1989; on other interurban roads it has increased by more than two-thirds; and on urban roads - where congestion was already most severe - it has gone up by a quarter. The waste of resources must make the dispassionate observer despair; and yet it is tolerated by commuters crawling through rush-hour queues, and by the freight transport and distribution industry, where firms simply pass on to their customers the costs of motorway overcrowding. * Road transport is widely seen as anti-social, despite the advances in personal liberty conferred by the private car on people of all social levels, and the fact that the British industrial economy is ill-suited to the carriage of goods by rail. The problem of lorries and cars shattering the peace of quiet towns and villages has been reinforced in recent years by wider environmental concerns about the effect of vehicle emissions on the global environment. The resultant controversy is further fuelled by poor management in the rail-freight sector and by years of reduced investment in commuter rail services, leaving the impression that government transport policy is ‘pro road’. Yet in the absence of any market discipline, no objective measurement of what 'ought' to be the optimum use of funds is available. * Politicization makes transport investment even less rational. As it is, all funds for investment in the infrastructure, whether road or rail, are allocated by the political process, so that everyone concerned has a strong incentive to exaggerate their 'needs' in order to get bigger slices of the available resource. This must tend to magnify the problem as it is presented, in the press and by the various interested parties, but the fact remains that there is a wide public perception, no
  6. 6. doubt supported by readers in the light of their own experience, that conditions on the British highway system are, in a word, unacceptable. Four approaches to improvement Those who advocate improvements usually take one or more of the following positions: * raise more money, just to keep the present system going - 'we know what needs to be done, just give us more funding'; * improve the administration of the system - change the organization and/or the staff; * use better charging systems and investment criteria - apply to the roads the principles of pricing and investment that are used to allocate scarce resources elsewhere in the economy; * change the ownership structure - allow the private sector to provide highways. This paper will explore the latter three approaches. It will investigate the potential for market-style solutions and suggest changes in administra1ion, financing and ownership so as to increase the productivity of the existing highway system and enable it to develop in response to the demands of its customers - the road users. The first approach- that of seeking new sources of public funds to keep the existing system going -- will not be addressed, because the highway problem is essentially institutional, and institutional problems cannot be solved simply by throwing money at them. Further, in periods of pressure on government funds, the potential for raising new investment money must be limited.
  7. 7. 2. IMPROVING HIGHWAY ADMINISTRATION AND OWNERSHIP The present situation The division of responsibility for the British road system is shown in Tables 1 and 2. A substantial proportion of local authority expenditure comes in practice out of central government grants, and technical standards are laid down by ministerial circular, so that the extent of local freedom of decision-making is limited. Table 1. Public road length, 1 April 1989 Responsibility and type of road Kilometres The national system 15,618 The local system – Classified, principal 35,126 Classified, non-principal 110,230 Unclassified 195,544 The total system 356,518 Source: Transport Statistics Great Britain 1979-1989, HMSO, September 1990. Table 2.48. Notes: The national system consists of the network of motorways and trunk roads that are the responsibility of the Secretary of State for Transport (in England) and the Secretaries of State for Scotland and Wales. The local system consists of roads that are the responsibility of local authorities. Classified principal roads, which include local authority motorways, are roads of urban or regional strategic importance. Non-principal roads (subdivided into 'B' and 'C' classes - though 'C' roads are not designated as such on maps and signposts) are those which distribute traffic to urban and rural localities. Unclassified roads are side roads in towns and local access roads in rural areas. Conventional wisdom has seen to it that the provision of road services has been unquestioningly assumed to be a proper function for government, whether central or local. Private sector companies have been involved only by way of bidding for construction or maintenance and repair contracts. In recent years there have been examples where developers have agreed to build lengths of road, usually quite short, as a condition for the grant of planning consent, and they have been involved in constructing minor roads in housing projects since the 1920s at least; but the idea of mixed funding has not been an acceptable proposition in the UK. Only with the announcement, in May 1989, that private contractors would be invited to build new highways (on an alignments previously determined by the Department of Transport) has there been a serious shift in government policy -
  8. 8. and even then, the idea that prospective investors might identify demand for a highway, and back their judgment by offering to build and run it, is yet to be implemented. Possibilities for improvement For any facility to be operated in an orderly and efficient manner, its ownership has to be assigned unequivocally to a clearly defined entity, be it public or private. The owner of a facility has an obligation to maintain it to relevant standards, and a right to charge for its use, possibly in accordance with an agreed scale. Ownership also carries with it the right to sell or lease the facility or, if there are no buyers, the right to close it down or abandon it. This has always been recognised in the case of public transport systems, whether road-or rail, with the further proviso that a tax-funded authority may contract for an 'unwanted' facility to be continued by way of subsidy. But in the case of a railway, abandonment may include the track as well as the service, whereas for road transport, generally including urban tramways, the road itself invariably remains - for, as we have seen, it is in no meaningful situation as to its ‘ownership'. In the case of highways, then, the important objective is to ensure that each highway, or segment of highway, has one owner, and one only, responsible for its maintenance and operation, and clear funding sources (such as axle-weight charges, congestion charges, a share of users' taxation, or even of local property taxes). It might be that central government should initially remain in ownership of the motorways and trunk roads (the 'national' system), with the remaining loads being vested in the appropriate organ of local government. Bridge and tunnel authorities would similarly retain their property rights. But whatever the starting arrangements might be, the ability to transfer ownership, especially of revenue-earning assets, would lead to far-reaching changes in the system, as less suitable owners were replaced by more suitable ones. At the same time that the ownership of public roads is clarified, and all loads are under the management of clearly identified entities, it would be desirable to improve the accounting and administration systems of these road entities to ensure that their performance and costs are made known to road users and other interested parties. To enable comparisons to be made, there might be a case for introducing standard accounting and reporting formats so that the performance of road entities could be monitored and compared with one another. In addition to financial reports of the entities' incomes and expenditures, information should be published on such key factors as pavement condition, accident statistics, traffic speeds and volumes on major roads. In brief, this information would keep road managers and others aware of how their systems perform, and at what cost. Where appropriate, performance reports should enable comparisons to be made with railways.
  9. 9. 3. CHARGING FOR HIGHWAY USE AND INVESTING FOR IMPROVEMENT A brief history of the Road Fund At no time in the history of England has Parliament succeeded in discovering and establishing a sound system of financing the construction and maintenance of roads and bridges. An attempt to set up such a system was made in 1909, and it is worthy of mention here, because the lessons from it are still valid. Lloyd George's 'People's Budget' of 1909 provided for a vehicle tax, based on engine power, and a fuel tax, which was initially 3d per gallon. The revenue from these sources was intended to be used for improving the road system and to transfer the costs of roads from the rates (local property taxes) to the actual road users. While some road improvement was done, no relief whatsoever was provided for the rates. A ‘Road Improvement Fund' (which later became the 'Road Fund') was set up, as a sub-account in the Treasury. According to Sir Edgar Harper, economist and Chief Valuer to the Inland Revenue, the purpose of the Fund was to provide 'machinery by which the owners of motor vehicles in combination and under State guidance are enabled to spend money on roads for their mutual benefits'. [1] That radical solution to the problem of road finance was a total failure. The semiautonomous Road Board, which had been set up to administer the Road Fund, was wound up in 1919 and the responsibility was transferred to the newly-formed Ministry of Transport (which for many years was markedly biased in favour.of railways). Nothing was done with the increasing balance in the Fund, until in 1926 the government repudiated the principle of linking road taxation to road finance, and raided the Road Fund to increase the general revenue of the state. Ten years later the road user taxes were diverted directly to the Exchequer, and the Road Fund became a mere convention in the government's accounts; it was eventually wound up in 1955. , Yet the successor to the 'car tax' of 1909 is still often called the 'Road Fund tax'; such is the tenacity of an idea. Reasons for failure The reasons for the failure of the original Road Fund were: * First, both Parliament and the Treasury were hostile to the idea of having no control over monies raised by taxation; * Second, members of the Road Board, who were appointed by the Treasury and were not accountable to road users, had no clear mandate for action, and allowed the Fund balances to accumulate unspent;
  10. 10. * Third, as the funds were raised on a national basis, and were to be spent nationwide, there were linkages between payments by specific road-users and the expenditures made on their behalf; and * Fourth, unlike the toll roads and canals of the eighteenth century, the railways and ports of the nineteenth, there was no private sector entrepreneurship in the selection of investments, in the maintenance of assets or in the pricing of their use. The Road Fund system was an attempt to improve a governmental operation with the private sector providing the funding. Britain's roads have remained largely a governmental operation ever since. Road provision is driven not by commercial markets but by politics and, as may be expected, road users get poor value for their money. Table 2 shows the latest available data on road expenditures compared to payments by road users. Table 2. Public expenditure on roads and payments by road users, 1989/90 (£million) EXPENDITURE INCOME Responsible Capital Current Vehicle taxes Petrol taxes National 1,573 134 3,000 9,700 Local 904 1,913 £4,525 £12,700 Notes: 'Capital' includes new construction, improvements, reconstruction, new road surface, maintenance of bridges and other road structures, and some VAT later reclaimed. 'Current' includes minor repairs, routine and winter maintenance. Source: Transport Statistics Grftlt Britain 19791989, HMSO, September 1990. Table 1.17. The British fiscal system makes it difficult if not impossible to identify the extent to which these funds come from national or local taxation, but a substantial proportion of current as well as most capital expenditure comes by way of grant allocations by central government. That there are powerful interests opposed to the use of dedicated funds for highway construction and maintenance does not in any way weaken the case for a radical reform of the existing system. Richard Marsh, a former British Minister of Transport, suggested the creation of a corporation to be called ‘British Roads' [2] and some of the implications of this idea will be examined later in this report. What is plain is that the present system is a mess. In Britain, too, highway funds have been diverted into the subsidy of public transport. In the city of Sheffield it was expected that total-subsidy (‘fares-free') bus services would so reduce car use as to make equivalent savings on road maintenance: bus travel rose as it became cheaper, but road expenditure did not fall so as to balance the budget.
  11. 11. (The ‘fares-free' situation was never reached, but the underlying assumption was shown to be unfounded). But it is not the purpose of this paper to argue that total expenditures on roads should equal the amounts paid in road-use taxes, or that government has no right to tax road users. The case we wish to make is that the payments for road provision should be separated from the taxation of road users and that, irrespective of Parliament's prerogatives to tax, mechanisms should be developed to enable road users to efficiently ‘spend money on roads for their mutual benefits.' What is needed is a clear accounting for the sources of funds used to support expenditures on roads...'.[3] PRESENT DEFICIENCIES Average pricing An efficient system of highway charging would require users to pay the costs that they themselves cause. But present systems of paying for roads are far from efficient, since users are not required to pay the costs that arise from their own choices. Instead of individuals paying the costs arising out of their own use of highways, total costs are divided among groups of road users, with individuals paying through road taxes a weighted average of the total costs incurred. In this way, there is only a weak link between those who impose heavy costs and those who have to pay the resulting bills. The point was put as follows by Thomas B Deen, currently Executive Director of the US Transportation Research Board: When all users of both high-cost and low-cost facilities pay the same tax, the result is equivalent to the situation of an electric company which decided to eliminate individual electric meters and to bill customers not on the basis of individual consumption, but by measuring total power usage and charging each consumer an equal part of the total bill. Not only is this inequitable; more importantly, it will eliminate incentive for conserving electricity. Many new houses would be heated with electricity, since an individual's cost would not be increased by a decision to install electric heating. Demand for power would soar, and new investment would be needed for new generating facilities. There would be no real basis for determining the proportion of total resources that should be devoted to power generation. [4] Under the present system there are of course some differences between payments made by individuals; owners of trucks pay more than owners of cars, and those who consume large amounts of fuel pay more than those who use little. But these differences are too small to influence the behaviour of those who impose particularly heavy costs on the highways, especially in the categories of: (a) owners of heavy-axle trucks, and (b) users of congested roads.
  12. 12. Profitless investment The application of 'average pricing', whereby the total costs of highways are decided politically and then divided 'fairly' among users, logically leads to the result that highways should make neither profits nor losses. How then are road investment decisions made? In the absence of market criteria of profit and loss, these decisions are made by civil servants in the light of advice on highway 'needs' received from professional staff. The assessment of highways 'needs' in all countries today is based on mechanistic investment planning processes that are essentially the same as those used with disastrous results in the Soviet Union and Third World countries. Decisions on where to invest highway monies are not taken in response to the needs of road users as expressed by their willingness to pay, but as a result of administrative allocations often governed by political priorities. In the UK, as elsewhere, traffic forecasting is used to determine investment requirements, depending in its turn upon sophisticated model-building techniques. The process has come under severe criticism from users, trade associations, and pressure groups, especially since the notorious example of the London orbital road (the M25), which was grossly overcrowded within weeks of its completion. To the layman, it might seem that the forecasters' models fail to recognize the highway version of Parkinson's Law - that traffic will expand to fill the roads available. This law would seem to hold in the absence of any form of point-of-use pricing. Even when there is no question of impropriety, investment decisions made on the basis of official assessment of needs cannot adequately reflect the preferences of road users. Thus, writes Alan Pisarski, 'the process of investment in the road system can become independent of demand... In a process not governed by economic criteria, the roles of financial aid from other levels of government can be very seductive and deleterious, reducing the effective costs of money and, thereby, distorting investment decisions'. [5]
  13. 13. POSSIBILITIES FOR IMPROVEMENT Vehicles with heavy axles In their recent book, Road Work: A New Highway Pricing and Investment Policy, authors Kenneth Small, Clifford Winston, and Carol Evans re-examine the costs imposed on US roads by heavy axle loads and by users of congested roads. [6] They conclude that the recovery of these costs from the individuals in those groups would raise sufficient funds not only to maintain all heavily used roads in good condition but also to finance the costs of expansion to the extent desired by the users. It is well known that the damage caused by vehicles to highway pavements is a function of axle weight. The American Association of State Highway Officials (AASHO - the predecessor of the present American Association of State Highway and Transportation Officials - AASHTO) evaluated the effects of axle loadings on pavement life in the 1940s and 1950s. While the precise relationship between damage and axle weight varies with circumstances, the research indicates that damage increases approximately in proportion to the fourth power of axle weight. This 'fourth power rule' means that a doubling of a vehicle's axle weight can increase the damage it inflicts on the highway by 2 x 2 x 2 x 2 =16 times. Thus, an 80,000 lb truck with its weight equally distributed over five axles does as much damage to a highway pavement as about 10,000 automobiles with two 2,000lb axle loads (5/2 x 8 x 8 x 8 x 8= 10,240). A rational charging system for heavy vehicles would take account of this, in order to encourage operators to reduce road damage by equipping their vehicles with more axles. For example, a two-axle vehicle weighing 24 tons would cause over three times as much damage as a similar vehicle equipped with three axles. New Zealand does in fact tax its heavy vehicles in a manner that encourages hauliers to minimize axle weights (rather than vehicle weights) but the UK does not. A policy of taxing heavy vehicles in rough proportion to damage caused, coupled with a road-strengthening programme, would produce substantial benefits to the economy without imposing corresponding costs on most hauliers, who could benefit from reduced fuel taxes and registration fees. Some (for example, those using two-axle vehicles) could become worse off, but even their loss could be mitigated by giving them time to replace their equipment or by aiding them financially to do so. Vehicles causing congestion The direct costs imposed by users of congested roads are perceived to be the slowing down of other users. The sole user of a motorway can safely travel on it at a high speed, but congested conditions can bring all traffic to a stop. This congestion can only occur because the road is almost freely open to users to crowd onto it and degrade the quality of its service.
  14. 14. In this sense congestion can be seen as arising out of the absence of pricing which, in a market economy, serves the purpose of reducing demand and increasing supply. The levels of tolls required to maximize the output of a road system can be found only by trial and error, but payments in the range of £1-£5 per day would be likely in most cities. Calculations made for the San Francisco Bay area suggested that, under the conditions prevailing in 1972, 'optimal tolls charged to expressway users... would range from below 1 cent per vehicle-mile for off-peak periods up to rush-hour tolls of 1-7 cents on rural roads, 2-9 cents on suburban and 6-35 cents on downtown roads'. In Singapore a fee equivalent of £1.50 has abolished city-centre congestion in the morning and evening peak periods. It is levied by requiring those who drive cars into the central area in the morning and afternoon peaks to purchase in advance daily or monthly windshield stickers, which are observed by police at the entrances to the restricted zone. To be efficient and effective, charges for the use of congested roads should be applied selectively, with the prices charged reflecting congestion levels on different road links, and at different times of the day, as is done in the case of telephone charges. For this reason alone, collection at conventional toll booths would be impracticable. It would also be sub-optimal because an efficient charging system should enable charges to be levied without vehicles having to stop. Electronic charging systems can perform these tasks, and one, utilizing automatic vehicle identification (AVI), is already in successful operation in the United States and elsewhere. Some cities round the world already charge for the use of congested roads, even without AVI. Singapore's area licensing system has already been mentioned. It was introduced in 1975 and was almost identical to one proposed for Caracas in 1972 in a World Bank study. Caracas did not accept the proposal; Singapore did and has been operating it without a hitch ever since, and is now planning to upgrade to electronic AVI. Since 1986 the Norwegian city of Bergen has been levying a charge of 5 Krone (about 44p) for cars entering the business district; the revenues are used for road improvement. Oslo has implemented an 18-gate 'toll ring' around the central core of the city. Each toll booth has one or two AVI lanes. Congestion pricing has also been considered in the Netherlands, but has been postponed. The United Kingdom Chartered Institute of Transport recommended in 1990 the early introduction of AVI in London. 18] Automatic Vehicle Identification (AVI) AVI methods depend on vehicles being equipped with electronic identifiers, known as transponders, which reflect unique identification signals when passing through radio beams emitted by 'readers'. This equipment is routinely used to identify aircraft, railcars, and containers, and has been tested on vehicles for more than twenty years. In the 1970s, for example, Los Angeles buses were equipped with transponders for management control purposes. In the same period the New York Port Authority was testing transponders with a view to using them for non-stop toll collection. In the 1980s, around 3,000 vehicles in
  15. 15. Hong Kong were equipped with transponders. In all these systems the transponders were fixed securely to the underside of the vehicles, and the readers were located under the surface of the highway. Since 1989, some 14,000 users of the Crescent City Connection 12-lane bridge in New Orleans have had the option of paying their tolls without having to stop, thanks to AVI equipment designed, manufactured and operated by the Amtech Corporation of Dallas, Texas. Unlike the systems tested earlier, the Amtech transponders, which are called Tolltags, are credit-card sized portable units displayed on the windshields of users' vehicles. The readers are on overhead gantries. Tolltag holders make deposits to their Amtech accounts - $40 being a typical payment - and their accounts are drawn down as the Tolltags signal the vehicles' passage along the tolled facility. When the amounts deposited are almost drawn down, Tolltag holders are invited to deposit the next installment. As Tolltags reduce toll collection costs, New Orleans offers users a 30 per cent discount on the regular toll rate. Following the successful introduction of their system in New Orleans, Amtech took on a more ambitious assignment in their hometown of Dallas: offering Tolltags to users of the 62 toll-collection points of the 17 mile Dallas North Tollway. As the Tollway Authority does not provide Tolltags without charge, the 21,000 or so Tolltag users in Dallas have to pay $2 per month rental, and a five cent toll surcharge to cover the costs of the equipment. Despite this, over 24,000 Tolltags were issued in Dallas in the first ten months of the system's operation, and over 36,000 transactions a day are recorded there. Eighty per cent of users arrange for the transfer to the toll authority's account to be made automatically by credit card, so that once their accounts are set up, Tolltag holders need do nothing to keep them open, except to pay their credit card bills. The Amtech Tolltags have performed well, with no misreadings reported. An AVI system named Fastoll is to be introduced in the Washington DC area, on the DuIles Toll Road, in 1992. As in the case of the Dallas North Tollway, use of the system will be voluntary, but a high response will be encouraged because the Virginia Department of Transportation, which operates the Dulles Toll Road, expects to make substantial savings in operating costs from automated non-stop toll collection. Therefore, Fastoll users will be offered dedicated lanes to maximize time savings and are not to be charged for the use of transponders. Other electronic systems have been proposed. In Cambridge, a system is proposed that would work like phonecards which lose value as they are used up, without being linked ,to particular individuals or automobiles. This is not the place to go further into the technica1details of automatic toll collection. Suffice to say that both theory and practice indicate that the collection of payment for road use without toll plazas is today as technically feasible as paying for telephone use without coin-operated call-boxes.
  16. 16. Dedicated road funds Less radical than toll systems, but still an improvement on the present situation, is the idea of a dedicated road fund. Thirty-one US states already have dedicated highway funds, and as we have already seen, there once was such a fund in the United Kingdom. However, both fairness and efficiency require that such funds do not discriminate against the private sector, so that privately provided public highways can get their fair share of revenues generated by their traffic. The idea of paying private road providers in proportion to the traffic generated on their roads was discussed in Britain in the 1980s; these payments were dubbed 'shadow tolls', as the road providers were to receive funds without the traffic having to make additional payments. [9] Even if congestion and axle-load taxes were introduced, other revenue sources would still be necessary to cover the costs of highway management - costs such as policing, signposting and administration. These costs could conveniently be covered by a modest fuel tax. A fuel tax might also be used to cover the costs of maintaining underutilized rural roads. Dedicated road funds that do not discriminate against privately provided roads might provide the best mechanisms for funnelling payments from road users to road providers - public or private - in areas in which congestion, and heavy axle loadings do not pose significant problems. A modem Road Fund in the UK might work along the following lines. Re-establishing the Road Fund Purpose of Road Funds. The purpose of the Fund(s) would be exactly that expressed by Sir Edgar Harper seventy years ago as we have already noted, namely, 'to provide machinery by which the owners of motor vehicles in combination are enabled to spend money on roads for their mutual benefits'. How the Fund might work. Road users would pay into a U.K. national fund (or, preferably, into separate funds for England, Scotland, Wales and Northern Ireland) by means of special charges on fuel, and (for heavy lorries) amounts equivalent to the damage caused by their axles, as proposed above. The revenues thus raised would be distributed, motorway by motorway, county by county, city by city, in proportion to traffic, due regard being paid to the proportions of 'heavies'. The revenues would not be paid to a government department but lodged in private banks under the care of trustees appointed by representatives of road uses. The trustees would have one function only: To organize national traffic counts and distribute the funds in accordance with the agreed formulae. Payments into the Fund(s). The total amounts paid into the Fund by road users would initially equal the total governmental expenditures on roads, so that the change-over - from the present to the new system would be 'fiscally neutral' - the contribution of road users to general revenues would remain the same. However, once the new system gets going, only the amounts payable into general revenues
  17. 17. would be determined by Parliament. The amounts payable into the Road Fund(s) would be determined by associations of road users, in the light of proposed expenditures. The involvement of road users in the determination of road user charges is well-established in New Zealand: 'User groups - trucking, agriculture, bus and car associations - are consulted when charges are set and are quick to mobilize when attempts are made to undertake inessential expenditures, or to divert funds'. [10] Payments out of the Fund(s). On the basis of traffic counts, the trustees would pay out the funds to the organizations owning the roads, in proportion to traffic. Thus, each road would have an earning power, and the earnings would accrue to its owner, which might be a motorway, a city, a county or a private company. This arrangement would not necessarily involve the privatization of the roads, as the vast majority of road owners in Britain would be public-sector entities - the local authorities. But their roads would become revenue-generating assets. Some could be organized as self-financing publicly-owned 'roads utilities'; some might become suitable for privatization. Options of the road owners. While the Road Fund trustees would have no option but to disburse the funds they collect, the road owners would have alternative options within a general requirement to cater efficiently to the needs of road users. They could, for example, as is the case with existing highway authorities, raise or reduce maintenance and/or safety standards; they could build new roads; they could close down or sell off roads; they could (as was intended in the original road fund) reduce local rates; they could (which existing local authorities cannot easily do) vote themselves large salaries. The extent of the freedoms to be enjoyed by road-owning organizations is a question that needs further attention. Payment by property owners In the case of lightly used roads, such as are to be found in many rural areas, there may not be enough traffic to generate the funds required for maintenance. [11] In some cases, payments by property owners, either through voluntary associations or through property taxes, could be the best way to keep such roads open. In others, specific subsidies would be appropriate. Vehicles causing pollution This paper cannot deal with the problems caused by pollution-emitting vehicles because so little is known about the magnitude of the costs involved. But it is clear that pollution charges, equal to the costs caused by pollutants, would be a much more efficient solution to this problem than Europe-wide regulations of the kind being discussed. To the extent that pollution problems are serious in certain places at certain times, policies should be designed to discourage the use of polluting vehicles in those specific areas, rather than to prohibit them in rural and urban areas alike.
  18. 18. Donald Stedman, a chemistry professor at the University of Denver, has developed a device for assessing pollution charges, by measuring the carbon monoxide emissions of vehicles as they pass a sensor. This device can enable road authorities to detect precisely which vehicles pollute. A programme to identify the worst polluters and deal with them could cost £25 per ton of carbon monoxide removed. (12] Investment criteria If road use were to be charged for on a market basis - that is, users being required to pay for costs imposed, including congestion and pollution costs - the investment criterion of profitability could be used as a yardstick for investment decisions. This would have two obvious advantages: (a) investments made on this basis could be compared with other revenue-earning ones, including especially railways, and (b) such investments could be carried out by both the public and private sectors. By definition, use of the profitability criterion would result in a self-financing highway system, independent of general revenues. Self- financing is now taken for granted in the electricity, gas and telephone services. Under conditions of congestion, the price of road use would be determined by congestion levels, in the same way that office rents are determined by occupancy levels. Additional investment would increase highway capacity, and hence reduce congestion and the appropriate congestion charges. If highways were supplied by competitive markets, the equilibrium prices on different road links would be those that generated the funds required to operate the highway system and increase its capacity to the point at which congestion was reduced to levels acceptable to users. It may be objected that this statement is merely utopian, and plainly we shall not see the introduction of competitive road prices for a long time to come. But the installation of property rights in highways, even though such rights remained in public ownership for the time being, would enable a start to be made at assessing equilibrium prices, and improving the criteria for new investment. The road not taken The idea of charging for the use of congested roads is not new. Sir Alan Walters discussed the subject in 1954 [13], while Milton Friedman and Daniel Boorstin were working on a similar proposal at the same time, apparently without knowledge of the work being done here. [14] In 1959 William Vickrey of Columbia University proposed electronic road pricing in evidence to a committee of the US Congress. [15] Following a Ministry of Transport report in 1964 [16], the subject received intense investigation in the UK, with the Road Research Laboratory (now the Transport and Road Research Laboratory) assessing the contemporary technical devices and modeling their likely effects on traffic movement. Hong Kong tested the equipment in the early 1980s and concluded that there were no technical problems in identifying road users in congested areas and in billing them at their homes or workplaces on a regular basis.
  19. 19. Proposals for market-based solutions to the urban transportation crisis were developed in 1990 for the San Francisco Bay Area by the Bay Area Economic Forum (BAEF), a partnership of the Association of Bay Area Governments and the Bay Area Council. Taking as their starting point the need to reduce traffic levels in order to improve air quality, BAEF published a two-part report which examined some of the economic, technical, and public policy ramifications of (a) requiring road users to pay the costs they impose and (b) linking the payments to specific corridor improvements. [17] Nevertheless, the idea of charging for the use of congested roads is still hypersensitive, and many politicians avoid the subject studiously. One reason for this might be that many advocates of 'road pricing' discuss the notion only as a way of restricting demand: the other effect of price - that of stimulating the supply - is forgotten. Road users facing new charges can hardly be blamed for seeing themselves as net losers from such a process. Those who depend on road use will of course fear that they are threatened with exploitation by the government, as the monopoly provider of road space today. Yet it is significant that the Bergen scheme, whose revenues are dedicated to road improvements, was found acceptable by motorists. But if the public resists the charging of economic road prices by a public monopoly, would it accept such a system if operated by competitive private suppliers? This question cannot even be considered without exploring the possibilities of the private provision of highways.
  20. 20. 4. PRIVATE PROVISION OF ROADS WORLDWIDE EXPERIENCE OF PRIVATE PROVISION Historical examples In the beginning of the nineteenth century, hundreds of turnpike companies operated in the UK and US. In Great Britain there were in 1830 1,116,tumpike trusts maintaining 22,000 miles of toll roads, which accounted for about one-fifth of the total road system. [18] These companies were financed almost entirely by private capital and received tolls from road users. The British example was followed by toll road companies in the US; in the eastern states alone turnpike companies built and maintained 10,000 miles of road. Relative to the size of the economy at that time, such investments in highways, were very large; in their comparative magnitude exceeded the post-World War II public sector investments in the Interstate Highway System. [19] However, road development in the United Kingdom, as in the US, was interrupted by the rise of the railways, which put most turnpikes out of business. There was some development of private toll roads in the twentieth century, but they, in their turn, were superseded by public-sector roadbuilding - though even as late as 1933 there were in the United States over 200 private companies operating toll bridges. [20] The demise of the turnpikes is often used to illustrate the weakness of the private provision of public services, but the contrary is the case: unlike public sector operations, private operations cease when demand becomes inadequate. [21] In Britain, the Turnpike Trusts had discriminated in their tolls against the use of , mechanical traction, and the development of the steam railway seems to have been hastened by this. In consequence the traffic deserted them, and enabling legislation was passed to facilitate their winding up. They did not, however, actually own any roads, being responsible only for improvement (including some re-alignment) and subsequent maintenance. They were unpopular, since their tolls conflicted with the ancient definition of the highway as a 'right of passage', and this attitude remains a barrier to radical reform in the United Kingdom to the present day. [22] Examples in modern Europe In twentieth-century Europe, governments have been willing to rely on toll highways, many of which had significant private-sector inputs. In 1989 the United Kingdom reaffirmed its intention to involve the private sector in the provision of toll roads.
  21. 21. In 1986 the government awarded a contract to Dartford River Crossing Ltd. (a company jointly owned by Trafalgar House Plc and three financial institutions) to construct a £225 million toll river crossing across the Thames at Dartford. The 1.7 mile crossing includes a 1,476-foot-cable-stayed centre-span bridge, the longest in Europe. The crossing is to be transferred to the government free of debt as soon as sufficient tolls have been collected. In Italy, the toll motorway network was established in 1924 with the commissioning of - the 30-mile Milan Lakes route, probably the first toll motorway in the world. By 1990 the Italian toll network was more than 3,600 miles long. These toll highways are operated by 22 concessionaires, the largest of which is the Autostrade Company, in which the state has a holding, and which is responsible for the management of over 1,600 miles of toll motorways. The Italian concession companies work closely with the government; they benefit from government guarantees and, in return, are obligated to give the highways to the state at the end of the concession periods. Similarly, postwar France has relied on a system of private concessionaires to provide over 4,000 miles of toll expressways. In 1982, the government 'harmonized' the toll rates with cross-subsidies to ensure that the financially stronger concessions supported the weaker ones. Public/private partnerships for the provision of toll roads are also to be found in Spain, where over 1,200 miles of expressway were built by private concessionaires. The government decides on the routes and specifications of the expressways and invites companies to construct and operate them for periods not exceeding fifty years. The government gave certain guarantees to the private investors, and had to take over three of the eleven concessions when revenues failed to cover costs. [23] In Sweden, parliament has already passed a bill enabling new privately owned toll roads and bridges to be built, and consideration is being given to a proposal by the private sector to replace the existing Svindersund bridge between Sweden and Norway. A consortium including road builders has offered to complete Stockholm's orbital expressway with a privately funded link (which would include six miles in tunnel) to connect Stockholm to the island of Nacka, and thus reduce congestion in the capital city. Developments in the United States Until recently, US development of private sector roads was confined to suburban areas, in conjunction with property development, and to private commercial estates. The suburban roads are generally taken over by local authorities upon completion but many of them, including facilities owned and operated by shopping and commercial centres, are privately managed and maintained. In the area of St Louis (Missouri), over 400 streets are owned and operated by associations of local property owners. However, a number of new toll projects are now under way, marking the rebirth of private tollways here.
  22. 22. In the vicinity of Phoenix, Arizona, landowners wishing to enhance the value of their property had a 28-mile public highway built at their own expense to local authority specification. The construction was financed by loans taken out on the security of the land adjacent to the highway. As the landowners expected to be repaid by the increase in the value of their land, this privately provided highway is toll-free. In 1988 The Bridge Company, a private partnership, completed construction of a private toll-bridge between Fargo (North Dakota) and Moorhead (Minnesota) after voters rejected a proposal for public funding. Ownership of the bridge, which cost $1.9 million, will revert to the two cities after the bonds are paid off. In July 1990, Virginia gave final state approval for a 15-mile highway, which the Toll Road Corporation of Virginia is planning to build, own and operate in the vicinity of Washington DC, from Dulles Airport to the town of Leesburg. The highway is to be privately financed, all the costs are to be recovered from tolls. It is to meet expected demand in a rapidly developing area and has the backing of the local authorities and of the state governor. The state approval process took almost four years, but construction is now expected to be completed in 1993. In the Summer of 1989 the California legislature passed a bill (AB 680) that enabled the California Department of Transportation (Caltrans) to develop partnerships with private entities to design, build, and operate toll highways under 35 year leases on state-owned rights-of-way. Caltrans promptly established a Department of Privatisation charged with the task of arranging four demonstration projects, of which one has to be in northern California and one in the south. Ten consortia submitted proposals, and the four winning teams were selected in September 1990. Implementation was delayed in 1991 by environmental and other political opponents. Private roads elsewhere To relieve congestion on the existing airport road, a private-sector group is to begin construction in Bangkok of an expressway over the existing highway, which is already often operating at full capacity. The overhead highway is to be toll-financed, and the existing one to remain toll-free. Private projects also are underway in Malaysia, where a consortium is building a major , north-south tollway for $770 million. The Malaysian government also requested proposals for a second highway/bridge link to Singapore. In Latin America, the Salinas government in Mexico announced plans in 1989 for at least 2,500 miles of private tollways, with the first two projects already under way. In September 1989, a private consortium began constructing a 164-mile tollway from Cuemavaca to Acapulco, and the first private toll bridge is under construction linking Juarez with EI Paso, Texas, across the Rio Grande. Improved highway connections to the Texas border are also being built between Monterey and Laredo, to enable traffic from Monterey to by-pass the delays at Nuevo Laredo. A consortium of five Monterey companies has raised $200 million for the
  23. 23. project, and they received a franchise to operate the roads for eight years - or longer if needed - to earn a 15 per cent annual return. Types of private involvement Looking at the various examples from around the world shows that the private sector is flexible and can serve in a variety of ways to improve highway services, for example: * Unencumbered ownership. In this role the private sector takes full responsibility for the project and all financial risks and is entitled to all the rewards. While common in the competitive sectors of the economy, unencumbered ownership is rare in the provision of highways because of the public-sector interest in regulating tolls and other aspects of highway projects. * Franchises. In this role the public sector contracts with a private entity to provide and operate a highway. Under ‘Build-Operate-Transfer' agreements, private investors raise the money and build highways at their own risk, operate them for an agreed period, and then transfer ownership of the highway to the public. California has decided to use the B-T-O ('Build-Transfer-Operate') variant on-this theme and will take formal title to privately built highways before leasing them out for private operation, in order to relieve private operators of the need to insure against public liability claims. * Management contracts. In these cases the Public sector undertakes the initial investment and contracts with the private sector to manage its operation. It is common in the United States for highway maintenance to be contracted on this problem in urban areas. It is relevant to note that railway-building in the nineteenth century was sometimes undertaken in this way. The French government, for example, divided the country up into areas and invited franchisees to tender to build and operate on 99-year leases. Obstacles to private provision In view of the failure of governments the world over to meet the needs of road users, why are not more highways provided by the private sector? Roads are not 'public goods' in the sense that those who do not pay for their use cannot be excluded. On the contrary, payments for road use can be heavy and difficult to avoid. Six obstacles to the private provision of roads are often cited: difficulty in getting necessary rights-of-way; difficulty in road providers getting paid; competition from public-sector 'free' roads; uncertainty about legal liability; concern about equity and the fear that poor people will be unable to travel; and the potential for private owners to extract monopoly rents on their routes.
  24. 24. Getting the right-of-way The private provision of roads is often dismissed as a serious possibility on the ground that only by the use of the powers of eminent domain - the power of government to appropriate private property for public use - can the required rights-of-way be assembled. This problem, through serious, may be addressed in at least three ways: (a) There are numerous cases in which rights-of-way suitable for highways are readily available in existing transport corridors. The Dulles Toll Road in the Washington DC area, for example, was built alongside the existing Dulles Airport Access Road. Underutilized railways can also provide opportunities for new highways. (b) The options available to the private sector to purchase land are often underestimated. For one thing, the private sector - unlike many governments - can carry out quick deals with landowners without having to go through time- consuming statutory procedures that, inter alia, limit the amounts payable. Furthermore, private entrepreneurs often have the choice of more than one route. Pipeline builders, for example, regularly consider alternative routes, negotiate with different groups of owners, and settle with the first group that comes up with an acceptable arrangement. (c) Finally, the possibility of government using its powers of compulsory acquisition to enable private investors to purchase land. This was generally done in the railway age without the private sector giving up the rewards of successful investment nor the risks of unsuccessful ones. Getting paid If simple institutional arrangements are in place, such as have been outlined above, there is no reason why payments made by road users cannot be routed to private road providers as easily as to public providers. Indeed, private providers are more likely to ensure that monies payable are actually paid. (In the UK, evasion of excise duty is sufficiently large that a special 'blitz' was deemed necessary in early 1991). As we have seen, there are many ways in which private road providers can be paid, even where the levying of tolls in the traditional way may be inappropriate. At its simplest, highway trust funds that do not discriminate against privately provided roads can be made to allocate to any road owner the amounts due on the basis of traffic counts. Alternatively, the development of AVI and other modem methods of payment enables highway providers to levy appropriate charges where costs are particularly high, as on congested roads. Competition from 'free' motorways Even a brief review of the history of toll roads indicates that competition from free roads is a major obstacle to the private provision of roads. To expect private
  25. 25. investors to risk their funds on a road that requires payments from users, when alternative routes do not require additional payments, is to expect a great deal. This argument has been used against privately built toll by-passes, for example - the problem being that some drivers would prefer to go through the town centre for nothing rather than pay £1 or more to use a new by-pass. Some of the disincentive could be mitigated to a considerable extent by the use of dedicated highway funds that do not discriminate against the private sector. In some situations the funds generated in this way on a privately provided road might be sufficient to recover all its costs; but even where they were not, the existence of earnings from a highway fund would enable a lower toll to be charged by the private provider than would be the case if he were deprived of the revenues from road user charges earned on his road. A lower toll - or zero toll - would also reduce the amount of traffic diverted from the privately provided road to the free, publicly provided one. Uncertainty about legal liability This is regarded as an especially serious problem in the US and, for this reason, the private firms that are to receive franchises in California will lease, rather than own, the highways they are to operate. However, it is hard to see this as a really serious problem, even in the US. Private owners of local roads associated with shopping centres have Jived with this issue for years and have no difficulty in obtaining liability insurance. Toll highways, such as the New Jersey Turnpike, obtain insurance without difficulty and the claims experience is wide enough to enable the insurance industry to set rates. And so it seems quite probable that in other countries legal liability would not be much of an obstacle. Equity arguments One of the standard objections to the private provision of any public service is that it would be unfair, especially to the poor. However, in reply it must be said that the present system discriminates against low-income people and that the revision proposed would help many of such people, for the following reasons. (a) First, as road space is currently not used economically, an important class of gainers would be those who do economize in its use, namely; the users of public transport, in which the poor, the very old, the very young, and the disabled are heavily represented. Public transport operators’ costs would be considerably reduced, even after paying a toll. (b) Second, there would be important gains to those who live in urban centres, who tend to be heavily disadvantaged. One of the main causes of distress in city centres is the poor accessibility that prevents low-income people from travelling for work, shopping, and other important activities. All these would benefit from increased economic activity that would arise from the more efficient use of congested city-centre roads.
  26. 26. (c) Third, to the extent that low-income workers live in city centres, they are less likely to be affected by congestion charges imposed on traffic travelling in peak directions. (d) Fourth, to the extent that the measures would reduce air pollution in inner cities, the main beneficiaries would be the poor. (24] (e) In addition, there could be substantial gains to local authorities that allowed their congested roads to be operated at a profit: rents and taxes payable for profitable road space would allow them to reduce taxes and/or increase services to low-income people. It is difficult to see how, on balance, the provision of highways in accordance with market criteria can be considered 'inequitable' when compared to the present situation. The monopoly problem A common objection to the private provision of public roads is that road owners would be monopolists and thus in a position to exploit their customers. Before dealing with this issue a preliminary point should be made. Monopolies are not new to road users. We confront them almost everywhere: when we find ourselves held up in a long tailback on the way in to London or when our shock- absorbers are broken by pot-holes in Liverpool, we do not have the option of choosing another road supplier. And where our road taxes are not even dedicated to road provision, the outrage is compounded. In countries as diverse as Britain and India, road users are forced to pay high road-use charges that serve to augment the general revenues of their governments. In most countries, in fact, none of the highway taxes collected are dedicated to road improvement. So the issue is not monopoly versus competition but whether private highway suppliers can improve the workings of existing systems dominated by government monopolies. In the case of local roads, we have some relevant experience by which to assess the monopoly question. Private ownership of streets is accepted in St Louis (Missouri) and in commercial and residential new developments. While dissatisfaction with maintenance on privately owned streets occurs from time to time, no cases have been reported of homeowners or businesses being denied access to their premises by street owners. In any event, the remedy against monopoly is obvious: so long as private investors are permitted to add competitive links to the network and to charge competitive prices, road users would enjoy some protection from exploitation from monopolists. Users would be protected from excessive charges by competition or even by the threat of competition. But where users have no alternative routes, regulations, comparable to those governing bridges and tunnels across or beneath waterways, would be required to prevent the exploitation of a monopoly.
  27. 27. Advantages of private provision In the same way that most telephone users in countries such as India and the Soviet Union have great difficulty in appreciating the advantages of private telephone companies, so most road users in the UK have difficulty in imagining any advantages from private road provision. Yet these could be very significant on many fronts, as follows. * Depoliticization. Privately provided highways are more likely to be provided in response to users' needs than government programmes that respond to political priorities. * Pricing and investment. Highways that have to cover their costs are more likely to be built where they are most needed and to standards for which users are prepared to pay; and to charge fees that correspond to costs imposed. The profitability criterion used by the private sector may not be perfect, but it is likely to be preferable to the non-profit investment methodologies currently used for highway planning, whose weaknesses we have already seen. *Speed of response. Hallowed by the local planning processes, private providers can get highways financed and built more quickly than governmental institutions. * Benefits to local authorities. As private commercial projects pay rents and property taxes, privately provided highways can convert local authority roads – especially congested ones - from money losers to money-makers. * Revelation of costs. The accounting requirements governing the private sector would ensure that privately provided highways would be properly depreciated and would provide information on total highway costs, which is currently difficult to get. Furthermore, the competitive pressure on private providers would exert a constant downward pressure on costs and, for example, force highway operators to take serious measures to protect their roads from damage by overloading.
  28. 28. 5. THE ROLE OF GOVERNMENT All levels of government have a legitimate interest in the existence of safe highways, built to standards responsive to the economic demands of users. But it does not follow from this that government has to provide the roads, or even determine their standards. Government has a legitimate interest in a well-fed population, but many would argue that it does not have to tell people what to eat and most would agree that it does not have to operate food shops. The argument advanced in this report implies a substantial adjustment of the roles of central and local government. If, for example, monies that are distributed in accordance with traffic flows, or some other agreed formula, are to be used for highway finance, then central and local responsibilities must follow the funding. The UK’s (rather centralized government structure would suggest that the role of the state is to deal, with safety and economic regulation, both in terms of its own highway responsibilities (the national system) and in setting standards for local authorities - and private road operators, To ensure a proper division of function, a new supervisory body, the Inspectors of Roads (similar to the Inspectors of Railways, but with fiscal regulation as well as that of safety) might be set up within the Department of Trade and Industry. The Roads Inspectorate would have responsibilities for the standards of construction and maintenance of roads comparable with those of the Railway Inspectorate for rail track and signaling. If their fiscal responsibilities - advising as to investment policy, for example - were to be given similarly to the Railway Inspectorate, and the two bodies were to be responsible to a single branch of the Department of Transport, a considerable step would be taken toward the achievement of a level playing field for road and rail policy. Certainly the present system, whereby road users pay taxes to the government which, in its turn, remits funds to the counties, cannot be justified, because of the politicization it inevitably produces. Trade and defence Even though the government has vital interests in defence and in encouraging commerce, it is not necessary for it to finance all major highways for these reasons. If, for example, experts find that certain bridges are too weak to carry tanks or missiles that are necessary to UK defence, there should be nothing to stop the authorities putting the necessary work in hand, preferably with funds appropriated to the MoD.
  29. 29. Safety in design and management Safety concerns can require intervention both in the design of roads (for example, to ensure that the geometry, surfacing, and signing of roads minimize accident risks) and in their management (for example, to ensure that motor vehicles are not driven in a manner that poses danger to others). Administration Central government and the local authorities also have the responsibility of collecting some payment from road users., and ensuring that it is allocated, according to law, to road funds or to general revenue. A further role, discussed above, is to provide appropriate economic regulation to ensure that private highway owners do not take advantage of any monopoly situations they may have. Congestion and underutilization The local government level is particularly important in dealing with the extremes of congestion and (at the other end) underutilization of roads. Congestion can be addressed by the pricing methods discussed above, the same principles being applied whether the roads are privately or publicly owned. Congestion pricing, if the prices are of the right order, would not only relieve congestion but also earn substantial revenues to hard-pressed municipalities and enable them to reduce local taxes. Underutilized roads in rural areas pose much more difficult problems, as they cannot generally be financed by economic user charges. Unless such roads can be financed by property owners (either through local charges or through owners' associations), they would have to be subsidized or abandoned.
  30. 30. 6. RECOMMENDATIONS FOR ACTION IN THE SHORT TERM Despite a continuing increase in highway receipts, the UK still faces an infrastructure crisis in which expenditures have failed to keep pace with maintenance and construction needs. Political considerations have guided decision making on infrastructure expenditures, with the result that basic maintenance has often been neglected. Administrative costs soar, leaving a smaller proportion of revenues for actual maintenance and construction work. But with politics, rather than economics, driving the decision making, it is not surprising that we have an infrastructure crisis. In this context, the principles of ownership, pricing and investment used in other sectors of the market economy offer valuable policy tools both for improving the efficiency of existing road operations and maintenance as well as for providing resources to expand infrastructure capacity. This programme for reform contains several key elements, as follows. Clarify the ownership of roads Before these assets can be transferred to private owners or operators, so that the benefits of competition can be introduced, it is important to clarify who owns roads now. In the United Kingdom this is not always obvious, and it would seem logical to make the central government (the Secretary of State for Transport and the Secretaries of State for Northern Ireland Scotland and Wales) the beneficial owners of the national road system, with the remaining roads being vested in the local authorities, after their proposed re-organization. The New Roads and Streetworks Act of 1991 has gone some way to meet this requirement, but a more radical change is still required if an equity is to be created. It might be necessary first to purchase any property rights of frontagers, which probably exist where roads remain on medieval alignments. The actual ownership of roads built by developers and then 'adopted' by local authorities under general or special legislation would require further examination. Design standard performance and accounting systems To enable the performance of roads and their managements to be assessed, standard performance reporting formats should be designed, covering the condition of roads, the quantity of traffic carried at different speeds, safety and environmental measures, and financial data on monies received and expended. Select an AVI technology Although the introduction of AVI would in general be decided locally, it would clearly be advantageous if transponders could be recognized on any part of the highway network, in the same way that mobile telephones can be. Appropriate national standards could be prepared by an industry group, perhaps with agreed
  31. 31. international status. Use axle-load charges While their novelty might excuse delay in introducing charges for the use of congested highways, one an see no justification for allowing heavy axles to destroy the nation's roads without the users being required to pay the appropriate compensation. The charges could be levied by means of annual licence fees, based on expected mileage, with hauliers being given the option of having their vehicles fitted with metering devices to enable charges to be assessed on the basis of actual loaded miles travelled. Within the European Community the mileage data would be assessable from the tachograph disk, which would bring into the system all heavy goods vehicles and public passenger vehicles other than buses operating on local services. .Such charges would: (a) encourage hauliers to spread heavy loads over more axles and (b) raise the requisite amounts for road resurfacing from those who cause the damage. Establish dedicated road funds To separate the payments made by road users for road use from payments made for taxes, establish road funds for England, Scotland, Wales and Northern Ireland. These funds would be held in private banks under the care of trustees responsible to road users, and distributed by them to road entities within their areas, on the basis of traffic counts, without discrimination against privately provided roads. Initially, the amounts paid into road funds would equal the amounts currently spent on roads. Allow the provision of private roads At the moment it is the government - or county planners - who decide whether new roads will be built, and efforts to provide infrastructure privately face long odds. Even where permission is given, the statutory conditions are so difficult to meet that freedom to build is in practice denied. But if there is a shortage of road capacity, why not allow newcomers to provide it? What is the point of allowing the private sector to provide vehicles but not road space? (The American wit Will Rogers is reported to have suggested that the way to end traffic congestion would be to have the roads provided by the private sector and the vehicles by the public sector.) The statutory procedure in Great Britain today is clumsy and obsolete. It is already recognised that change is desirable, in the case of light rapid transport investment, and what is necessary there is equally essential for highways. The law needs to be clarified, so that prospective highway providers know clearly, in advance, what is, and what is not, permitted, and to eliminate any discrimination against the private sector.
  32. 32. Start with bottlenecks Once the legal background and the ownership of highways is clarified, and financing mechanisms established that do not discriminate against the private sector, the way would be open for the private provision of highways. A start could be made with the construction of private for-profit roads to .relieve existing urban or suburban bottlenecks. These would give road users immediate choices of getting, for extra payment, better facilities. [25] Additional facilities could be provided alongside existing motorways, as in the case of the Dulles Toll Road or above them, as over Bangkok's airport road; congested roads such as the Ml and M25 are obvious candidates for such new facilities. Where the private sector shows that it can build and operate new highways satisfactorily, some authorities are likely to find it to their advantage to transfer existing roads to private owners or operators. There are a number of reasons for this. First, a private operator would relieve the public authority of the costs involved in highway operation; indeed, the public authority would receive rent and rates for the use of its land, thus turning a financial liability into an asset. Second, if private operators were allowed to impose economic charges to reduce congestion the area would become attractive to individuals who place high values on their time, and these individuals are likely to increase the prosperity of the area. Privatize bridges Many road bridges need repair or replacement. Currently available funds are inadequate to cover the cost of this work. Privatization could provide an alternative means of rehabilitating or replacing high-volume bridges, with costs being recovered through tolls or other means.
  33. 33. 7. RECOMMENDATIONS FOR ACTION IN THE LONG TERM In the previous chapter a number of courses of action were outlined, such as could be pursued immediately, and to the advantage of road users and government agencies, central or local, alike. They would have a further attraction, in that they would also be steps towards a new dispensation for the provision maintenance, and use of the highway system. The point has already been made that the fundamental weakness of the existing system is the lack of any equity in the roads themselves. There is no balance sheet that indicates, in cash terms, what are the costs and benefits of their provision and of their use. It happens that, in the UK, this is true for the land owned by the British Railways Board, but this is no reason why the same should apply to British roads. In recent years, the privatization of the major utilities - gas, electricity, and water - has brought them back into the market: the market for land. In 1965 the Allais Report on transport tariff policy {26] recognized that the price of using a congested road or railway, while reflecting the appropriate 'impact' cost (wear and tear), should then be, in economic terms, a ‘quasi rent'. It recommended that tolls should be set so as to even out the flows of traffic so that the indifferent user moved to the less congested trade. This remains a compelling argument, but underlying it there is the issue of who should own the infrastructure system. Privatize the roads By creating an equity in. the highway system, albeit one that remained in the ownership of central and local government, the first step would have been taken towards the desirable end of moving roads fully into the market sector, through the vesting of their ownership in privately owned and financed corporations - public limited companies, in UK law. And were the infrastructure of the railways to be privatized, the creation of companies owning both road and rail track, and able to apply the Allais principle of charging, would become a reality. Such companies would no doubt be active in new construction, financed from their earnings and their future cash flow, but in the market thus developing, new investment would be able to enter, and there would be constant pressure to update and rationalize the whole system. In urban areas, where land is inescapably in short supply, the local companies would need to operate under the oversight of a 'watchdog'. All transport infrastructure could be privately owned, with the new owners recovering costs from road users, and from railway and light rapid transport operators alike, in accordance with similar general charging principles. As a final consideration, it could well be that some vertical integration would develop, as substantial hauliers and coach companies bought shares in the track
  34. 34. companies, to try to influence their policies; motorists’ associations might seek to do the same. And at the local level, residents' associations might seek similar access - not least if they were themselves to take responsibility for local access roads in their own areas. These are the outlines of some potential advantages that can be foreseen; others too may be expected. But the real argument for an extended policy of this kind is (a) to restore the financial decision-making to the discipline of the market, and (b) to move away from the monolithic and politicized administration of today, towards a user-oriented range of firms with both the opportunity and the incentive to innovate.
  35. 35. 8. CONCLUSION AND SUMMARY Commands without order While the UK relies on a market economy for most of its goods and services, it still has a significant communal economy in which scarce resources are allocated, not by the wishes of consumers and producers interacting through markets, but by the decisions of politicians and administrators motivated by what they consider to be the common good. Most UK roads are fairly and squarely in the command economy, in which prices play minor roles and in which investments do not have to pass the market tests of profit or loss. The results are the same as those produced by command economies in Eastern Europe, Africa, and elsewhere: overcrowding and queuing in some parts of the system, underutilization of others, and physical deterioration. The gradual transfer of roads from the command economy to the market economy would result in more economic use of the existing system and in its expansion in response to the wishes of its users. Significant economic gains can be expected. Those who have learned in recent years that taxes discourage economic growth might have difficulty in understanding why increases in charges for the use of congested roads can produce benefits. The essential point is that the pricing system provides the best method we know to allocate scarce resources to urgent and important uses. 'Free' or underpriced roadspace (like metered parking charges that are too low to equate the supply and demand for onstreet parking) leads to waste in the use of an important resource, and it is the elimination of this waste that is the basis for the gains from market pricing. Furthermore, the application of market pricing to highways need not result in road users paying more in total; reductions in fuel and other road use taxes could result in lower charges for the use of uncongested roads, while freer movement would reduce costs too. It is inevitable that, as in any transformation, there would be losers as well as gainers. Losers would include motorists who would be induced by congestion pricing to share their cars, or travel outside peak hours, or to transfer their travel to less-congested roads. There could be losses to those who operate lorries with heavy axle loads, and who would be forced by higher charges to switch to vehicles with more axles. If the charge were to be spread over a number of years, the costs to haulage companies could be minimal, but the railways may make some gains at their expense. Other losers could be those, especially in rural areas, who depend on little-used roads to maintain their accessibility, though as a practical matter, existing roads would generally be 'grandfathered' for a period to facilitate reform, as the savings made in public road budgets would, in most cases, be more than sufficient to compensate the losers. Of all the activities undertaken by government, few are worse managed than highways. Traffic congestion in cities, the most glaring and ubiquitous example
  36. 36. of waste, is so taken for granted that it is regarded by many as some kind of disease inherent in civilization. However, underused roads outside cities also involve substantial waste, as does the tendency of politicians to prefer new projects over the maintenance of existing ones. The scourge of politicization The attraction of new projects in this field was noted by Adam Smith in 1776, and his words then still ring true today; The proud minister of an ostentatious court may frequently take pleasure in executing a work of splendour and magnificence, such as a great highway, which is frequently seen by the principal nobility, whose applause not only flatter his vanity, but also contribute to support his interest at court. But to execute a great number of little works, in which nothing that can be done can make any great appearance, or excite the smallest degree of admiration in any traveller, and which, in short, have nothing to recommend them but their extreme utility, is a business which appears in every respect too mean and paltry to merit the attention of so great a magistrate. Under such an administration, therefore, such works are almost always entirely neglected. [27] The inadequacy of the political system has been shown in many examples, and most recently in the problems arising in Birmingham, where the completion of the M40 motorway to London has not been matched by any action to link it with the city centre, so that those whose homes or businesses lie in the southern suburbs have to suffer the consequent congestion of their streets. In contrast to the 'proud minister', the humble entrepreneur has every incentive to spend money where a gain can be foreseen from improved utility. The road to reform Some improvement can be obtained by unravelling overlapping responsibilities for highway management and by introducing business-oriented procedures to road financing, but major improvements cannot be expected until road pricing relates to costs imposed, and investment criteria to profits and losses. Provision by the private sector should be allowed where the public sector is unlikely to undertake the necessary expenditures in the near future. Highways need better management, on a businesslike foundation. But a business can be managed effectively because its ownership is clearly defined, with a duty to the shareholders as the constant concern of management. It is the equity in a business that counts: there is no equity in the roads, and, over most of their mileage in the UK, they are not even a property. If we are to seek a market solution to the highway problem, steps must be taken to clarify their ownership. In the UK, as in most countries, there are problems of overlapping responsibility. For example, the roads have been available to any utility company or board to dig up at any time - we all have seen roads resurfaced, and then broken up again within a matter of weeks. Legislation now provides powers for highway authorities to control their 'customers', but it can at best be an ad hoc solution to
  37. 37. the problem, and it is a rather bureaucratic one at that. . There is need for a radical solution. The logic is inescapable: property rights must be created in roads. Without them, electronic road pricing (now being examined by the UK Department of Transport as a possible solution to the congestion problem) will be a hybrid and not a market activity - and worse, will be seen by many as a means to extract monopoly rents from road users. There is no need for a nationwide monopoly to be created; comprehensive road companies of various kinds would react to market pressures to provide continuing improvement to the benefit of road users and all those who depend upon an effective road system to supply their needs. And that means everyone. Finding the right route If the objective is, as it must be, to serve the interests of road users, ways must be found to empower independent bodies to operate and maintain roads, and to undertake improvements and new construction. In a market system, such empowerment follows from ownership, but in the absence of a market for roads, an ingenious government could create one. Highway companies could be set up, initially as arms-length entities whose duties it would be to undertake such responsibilities, but with the legal status of registration under company law. A precedent for this is to be found in the former municipal bus companies and airports, whose boards must take responsibility to ensure the solvency of the business. A precedent also exists for the funding of such companies by 'shadow tolls', such as those provided for in the privately constructed motorways now being built in the UK. Revenue flowing from designated charges- fuel tax, and an axle-weight tax are but two examples - could be allocated to a central account, not unlike the ‘Road Fund' which was so badly misused, but outside the control of the Treasury. The trustees of this fund would have the single function of distributing monies in accordance with an agreed formula to the highway companies. Electronic data sources would enable the formula to reflect the actual use of the road or roads within each company's domain. The companies would then possess commercial decision-making powers, and would balance their income with their expenditure (which would of course include the payment of the business rate or its equivalent to the local authorities in whose areas the roads lay). It is, of course, road pricing that makes the creation of such entities attractive. But where it is not in place (and it is unlikely to be justified everywhere), the example of the water companies shows that revenue can come from other sources. Roads in rural areas might be financed solely from a property tax, as the water companies are, while highway companies in congested districts might have a two-part tariff, combining road pricing with a similar tax. (A further attraction of this could be the ability of highway companies to deal with the problems of tourist demand - a Lake District Highways Plc would be in a position to deal
  38. 38. with the problem of severe overcrowding in a way that the existing highway authority can not) Meanwhile, inter-urban companies could own parts of the motorways and trunk roads, making the M1 competitive with the A1, and opening the way to funding the East Coast Motorway from the private sector. Meanwhile, the roads of Birmingham or Sheffield, along with other cities and the larger towns, could be vested in similar public limited companies. The motoring associations might buy shares in them, as might various commercial road users. The relevant functions of the Department of Transport would no doubt be transferred to a regulatory body, which might also prescribe minimum standards for design and maintenance. New thinking The attraction of such a radical reform is reinforced by the new thinking about the organization of railways that has recently emerged from Brussels; with the endorsement of the House of Lords [28] This envisages the separation of ownership of track and train operation, and the encouragement of a competitive regime for the movement of passengers and freight. The present UK government has committed itself to competition in the railway industry, and the implication of this is to strengthen the case for the EC proposals. Economists have long recognized the fundamental issues of track costs, and the opportunity exists now for an extensive rationalization of the way in which the road and rail transport infrastructure is financed. Then at last, the East Coast Main Line would also be able to compete for traffic on equal terms with the M1 and the Great North Road. The extent to which such disaggregation should be taken is a matter for debate, but in the UK at any rate it would seem a rational course for the major motorways and trunk roads, with their feeders, to be the responsibility of highway companies. In some urban areas, and subject to guarantees about safety, it may prove desirable to transfer the ownership or management of the main roads into the hands of one or more private companies, while leaving local roads in local ownership. [29] Many other innovative arrangements may also be possible. The important point is to establish a transport infrastructure framework that is based on the customary rules of private property- and thus to enable road users everywhere to obtain, through the market mechanisms of choice, competition, and pricing that work so uncontroversially elsewhere, the road services which they are prepared to pay for.
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  40. 40. 15 William Vickrey, statement to the US Congress Joint Committee on Washington Metropolitan Problem (Washington OC: US Government Printing Office, 1960), pp.454-91. 16 Road Pricing: The Economic and Technical Possibilities (London: HMSO, 1964). 17 Bay Area Economic Forum: Market-Based Solutions to the Transportation Crisis: The Theory. (San Francisco: BAEF, February 1990). 18 W Rees Jeffreys: The King's Highway (London: Batchworth, 1949) 19 Gerland Gunderson: 'Privatization and the 19th Century Turnpike', Cato Journal, 9, 1, Spring/Summer 1989. 20 Intemational Bridge, Tunnel and Toll Privte (verbal) communication from IBTTA (Maureen Gallagher), Washington DC. 21 Gerland Gunderson: 'Privatization and the 19th Century Turnpike'. Cato Journal, 9, Spring/Summer 1989. 22 T C Barker and C I Savage: An Economic History of Transport in Britain. (London: Hutchinson, 1974). 23 Organization of Economic Co-operation and Development: Toll Financing and Private Sector Involvement in Road Infrastructure Development.(Paris: OECD, 1987). 24 Bay Area Economic Forum: Market-Based Solutions to the Transportation Crisis: The Theory. (San Francisco; BAEF, February 1990). 25 Robert Poole Jr: 'Resolving Gridlock in Southern California'. Transportation Quarterly, 42, October 1988. 26 Options in Transport Tariff Policy. (Brussels: BEC, 1965). 27 Adam Smith: The Wealth of Nations (Book V. Chapter 1). 28 House of Lords Select Committee on the European Communities, Session 1990-91, 3rd Report: A New Structure for Community Railways. (London: HMSO, 1990). 29 On private management of local roads in urban centres, see Nicholas Elliott, Streets Ahetui (London: Adam Smith Institute, 1989).