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Wednesday, March 23, 2011

The Privatization of Roads & Highways: Human and Economic Factors

Loyola University economist Walter Block is among the most fearless advocates of freedom today. At a time when pundits widely believe the free market has failed, Block takes his case for truly free markets deep into unfriendly territory by arguing for the full privatization of all roads and highways.

In 2006 officials in Indiana leased 157 miles of the Indiana Toll Road to a private Spanish/Australian consortium. While this was called a “privatization,” Block would clearly dismiss it as nothing of the kind. The Indiana Toll Road remains owned by the state. Real privatization would mean completely private ownership of all streets, roadways, paths, and freeways. Only private roadway owners would determine regulations and prices.

In the current political climate it may seem Block has the cart before the horse. Arguing for free-market roads these days is a little like a starving person worrying about his dessert. Shouldn’t we first try to halt the current growth in the size and scope of government and deal with the almost Utopian idea of private streets and highways later? But anyone who has read Block’s provocative book, Defending the Undefendable, or has heard him discuss free-market ideas one on one, knows he does not blink in his support for freedom. Besides, if “we can establish that private property and the profit motive can function even in ‘hard cases’ such as roads, the better we can make the overall case on behalf of free enterprise,” he writes.

A big roadblock, so to speak, in arguing for private roads and highways is that practically everyone takes government ownership for granted. Even many economists, using “market failure” arguments such as the one about “externalities,” often cite roads as something only government can provide. Block carefully takes apart these arguments. For example, the “externalities” argument contends that private investors would underinvest in roads and highways. But who is to say, given a complete lack of market signals, a government agency would invest the correct amount? Indeed, this part is among the book’s best contributions.

In addition to giving readers a seminar in logical economic reasoning, Block’s book also reflects his passion for freedom. He believes firmly that government management of roads and highways is not only inefficient but also deadly. “Road socialism” causes the deaths of more than 40,000 people in the United States each year. And although many people blame highway deaths on alcohol, unsafe vehicles, or speeding, Block lays the blame on the government officials who manage the highway system. He explains his conclusion: “It may well be that speed and alcohol are deleterious to safe driving; but it is the road manager’s task to ascertain that the proper standards are maintained with regard to these aspects of safety. If unsafe conditions prevail in a private, multistory parking lot, or in a shopping mall, or in the aisles of a department store, the entrepreneur in question is held accountable.” The problem is that government officials are not accountable.

Much of the book, a collection of essays, involves answering practical questions, such as how private road owners might deal with intersections. Block answers this and other questions fully—maybe a little too fully for the casual reader. Still, Block is serious about this complex subject, and his book is not intended to be light reading. Fortunately, his writing style is clear and easy to follow.

An important assumption underlying the book is that a competitive free-market road system would necessarily be superior to one operated by government. In supporting that assumption Block presents a series of arguments familiar to students of the Austrian school of economics. For example, he notes the importance of market signals in directing entrepreneurial decisions. Block also addresses the neoclassical notion of “perfect competition.” This highly unrealistic model suggests roads require government management. Yet, as Block notes, “perfect competition” exists practically nowhere and, if that were truly our standard, nearly all markets would call for nationalization.

After making a strong case for road privatization, Block addresses the thorny matter of getting from here to there. After wrestling with several possible approaches, he admits that privatizing today’s system of public roads would be like trying to unscramble an egg. Yet even an “imperfect privatization will be far preferable to none at all. Government streets are an administrative and safety nightmare. It is inconceivable that private initiatives could do worse.”

The fall of the Soviet Union and other collectivized systems clearly showed the gigantic problems inherent in government ownership and management of any enterprise. This lesson has not yet been applied to our roads and highways. Thanks to Block’s comprehensive work, that may not always be the case.

  • Walter Edward Block is an American economist and anarcho-capitalist theorist who holds the Harold E. Wirth Eminent Scholar Endowed Chair in Economics at the J. A. Butt School of Business at Loyola University New Orleans. He is a member of the FEE Faculty Network.
  • Arthur Foulkes writes for a daily newspaper in Indiana.