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Sunday, June 1, 1986

Privatization Further Down the Road

Daniel Klein is a fellow of the Austrian Economics Program at New York University.

A new era of private roads may be close at hand.

Private ownership of “public” resources may be an idea whose time has come. There are proposals for the privatization of Grand Coulee Dam, National and Dulles airports, Conrail, and Amtrak. State and local governments are studying private urban transit, garbage collection, and prisons. If privatization maintains its momentum, we will have to consider a logical candidate: the roads.

The best way to understand the notion of private roads is to examine the literature on America’s own era of private turnpikes. In 1821 there were over 4,000 miles of private roadway in the state of New York. Between 1792 and 1840, some 230 New England turnpike companies built and operated 3,800 miles of road. It was private enterprise that really got the show on the road in America.

In early America, routes had not been beaten through the wilderness, and roads were sorely needed. People wanted to move westward, and commercial interests in the coastal cities sought to tap the trade of distant areas. State and local governments instituted feeble systems of mandatory labor and taxation to provide roads, but their failures were manifest.

In the 1790s, the road business was opened up to private enterprises throughout New England and the mid-Atlantic region. Private turnpike companies constructed and operated their own roads. They were equity financed and operated for profit. User payment was made at tollgates along the route. No government financial assistance was made, except in Pennsylvania (where 30 per cent of total turnpike stock was held by the state) and in New Jersey (where a small amount of aid was given to the Newark Turnpike Company).

Between 1795 and 1830 turnpike construction was brisk, crisscrossing the Northeast with private roads. During the same period, public construction virtually ceased. In New York between 1790 and 1821, for example, the state’s expenditure of $622,000 on the construction of roads and bridges is dwarfed by the investment in similar private concerns: $11 million in turnpike companies and $850,000 in bridge companies. A mixed system of private and public roads emerged.

Not only did private enterprise boost road mileage in America, it greatly improved the qualities of the country’s roads as well. As the leading transportation historian B. H. Meyer stated, “It is evident that the turnpike movement resulted in a very general and decided betterment of roads.”

Although the turnpikes were private, the government maintained tight control through heavy regulation. Most important were the limits on tollrates and the restrictions on the placement of tollgates. These regulations made turnpike profits practically nonexistent. It wasn’t long before everyone knew that there was no money to be had by way of turnpike dividends.

Despite the poor direct returns that resulted from government interference, turnpikes still found enthusiastic support for the indirect benefits they conferred. Local merchants, farmers, and landowners bought turnpike stock because the turnpike would make their businesses, produce, and holdings more valuable through improved transportation.

During the mid-1800s the state governments brought the era of private roads to a close by gradually reclaiming control of the roads, although a few private turnpikes survived into the 20th century.

Technological Advances

What lessons can we draw from America’s experience with private roads? Clearly, with today’s technology, road provision through private enterprise could be even more successful. Electronic metering devices could make stopping at tollbooths obsolete. In Hong Kong, Japan, and elsewhere authorities are experimenting with tamper-proof electronic plates, the size of cassette tapes, which are placed on cars. The plates interact with equipment built into the road surface to register the driver’s toll, which he pays through the mail. If this system is feasible, private enterprise could provide roads as easily as it does movie theaters.

Think about recent advances in technology: personal computers are quickly becoming household items, as are laser compact disc units; supermarket cash registers now speak to us; automatic teller machines handle our banking; innovation in motion pictures and television is rampant; Blue Cross now issues credit card-sized “Lifecards” that can contain the equivalent of 800 pages of medical information; air travel has become a casual matter for the middle class; new automotive dashboards look like something from outer space.

Now think about the roads you drive on: How much improvement have you seen in the past fifteen years? How much do you expect to see in the next fifteen? Nil, in both cases. The reason: government control.

Private roads may sound far-fetched, but a familiarity with American history casts the idea in a different light, There was a period when private enterprise was able to provide such “public goods.” Private turnpikes engendered important social benefits even though returns on investment were small, primarily due to legal restrictions on toll rates and on the placement of toll houses.

The idea of privatizing the roads is beginning to be taken seriously. Even the federal government’s National Research Council is holding a conference this summer on “Roles of Private Enterprise and Market Processes in the Financing and Provision of Road Services.” The future may be closer than we think.

  • Daniel Klein is professor of economics and JIN Chair at the Mercatus Center at George Mason University, and associate fellow at the Ratio Institute (Stockholm). At GMU he leads a program in Adam Smith. He is the author of Knowledge and Coordination: A Liberal Interpretation and editor of Econ Journal Watch.