More than a quarter-century of studying the American transportation system has led
Clifford Winston to the inescapable conclusion that “the evidence of government
failure has been overwhelming” (p. 125). His latest book attempts to summarize
decades of research findings in an effort to persuade policymakers to take the privatization
“exit ramp” out of the mess that government ownership and operation have
created.
Regardless of the mode of transportation under consideration, government’s
role has on balance been more harmful than helpful. Winston estimates that costs are
higher—by about $100 billion per year (p. 14)—and performance has been worse
than would have been the case without government intervention.
How can this be? Didn’t government have to step in to protect the public
interest? Didn’t government have to rescue travelers and shippers when the private
sector failed?
As one who spent more than thirty years working in a government transportation
agency, I can attest that government rarely acts out of a desire to protect the
public interest. Time after time, faced with mountains of data verifying the difference
between a good option and a bad one, government decision makers have repeatedly
chosen the worst course available. Some examples from Last Exit llustrate this phenomenon.
Consider how government funds transportation. Unlike private businesses,
which must earn money from customers who willingly pay for services rendered, government relies on taxation. This condition attenuates the connection between
payment and services rendered. Even though there is a Highway Trust Fund into
which highway-user taxes are deposited and from which they are disbursed, both the
way in which the taxes are assessed and the way in which the money is distributed
undermine efficiency and foster inequity.
The real need for highway expenditures is driven by two major factors. On the
one hand, roads must be strong enough to endure the traffic that passes over them.
On the other, roads must be built with enough capacity (that is, lane-miles) to handle
the number of vehicles that travel on them. Neither the highway-user tax structure
nor the disbursement of highway investment funds is directly related to either of these
major factors.
Heavy vehicles have been routinely undercharged for their use of the roadways.
This situation subjects roadways to excessive wear and tear as well as to premature
failure. Not only do roads incur unnecessary repair expenses—an estimated $10
billion per year (p. 50)—because of this mismatch, but freight traffic that can more
efficiently be hauled by rail is shifted onto the road, further aggravating traffic congestion,
increasing air pollution, and degrading traffic safety.
Except for providing a few so-called HOT (high occupancy/toll) lanes in limited
use across the country, no public highway agency has made a serious effort to adopt
congestion-based user charges—an option that virtually every economist agrees
would be the most cost-effective method for reducing the dead-weight loss of traffic
congestion. The result of this lack of effort is an avoidable waste of time and fuel
amounting to an estimated $40 billion per year (p. 47) for commuters stuck in
foreseeable daily “rush-hour” traffic jams.
These irrational user-tax policies are the inevitable outcome of a publicly owned
road system where politics overrides economics. Trucking firms have lobbied successfully
against the assessment of equitable and efficient user charges for their vehicles.
Meanwhile, congestion pricing is opposed by a highway bureaucracy that sees congestion
as a means for boosting gasoline tax revenues from gallons burned by idling
traffic and by a transit lobby that uses congestion as a rationale for spending more on
trains and buses. Of course, failure to adopt congestion pricing doesn’t hurt a road
construction industry that profits from every additional lane-mile of pavement that
is laid.
The disbursement side of the transportation funding equation undermines efficiency
in its own ways. Federal aid is focused on capital assistance. State and local
governments are thus encouraged to defer maintenance, which has to be born out of
state or local revenues. This condition results in more costly capital reconstruction
when a less expensive and timely maintenance outlay would have saved taxpayers
money (p. 51).
Perhaps even worse than the misallocation of funds among different roadway
investments is the diversion of highway-user revenues to pay for mass transit.
As inefficient as the publicly owned road system is, it still has a lower cost per person-mile of travel than does rail or bus transit (p. 69). Prior to being taken over by
the public sector in the 1960s, most privately owned and operated urban transit
systems were marginally unprofitable. Public ownership has ballooned the transit
operating deficits to the point that revenues cover only a small fraction of the costs—
about 8 percent for light rail transit, 22 percent for bus transit, and 30 percent for
heavy rail transit (American Public Transportation Association, 2011 Public Transportation
Fact Book [Washington, D.C.: American Public Transportation Association,
2011], tables 19 and 21).
Access to taxpayer-provided subsidies has eroded the incentive for efficiency and
customer service. Public-transit officials are satisfied to run largely empty buses and
trains because only a small part of their funding comes from paying customers.
Though the nominal rationales for heavily subsidizing public transit are to offer
transportation for the poor and to lure drivers out of their cars, the share of travel by
urban bus and train has been in decline for decades. The inconvenience of public
transit—average vehicle speeds of around fifteen to twenty miles per hour plus added
time for walking to boarding locations and waiting for buses and trains (American
Public Transportation Association, 2011 Public Transportation Fact Book, table 8)—
more than offsets the subsidy for the vast majority of would-be riders, who end up
preferring to drive themselves even in congested traffic.
Because the public sector has made a mess of transportation, Winston logically
recommends privatization. But how will the policymakers’ resistance to privatization
be overcome? Winston offers two lines of argument. First, he calls attention to the
successes of the wave of transportation deregulation that took place from 1978 to
1982. During those years, major deregulations of airlines, trucking, intercity buses,
and railroads were implemented. Decades of academic research illuminating the gross
inefficiencies of regulation combined with the energy crisis to produce salutary political
action. Democrats and Republicans, liberals and conservatives joined together to
enact the legislation deregulating these industries.
Evaluation of the effects of deregulation on transportation shows a pattern of
predominantly positive results. Capacity was more effectively utilized—there were
fewer empty seats on airlines and buses and fewer deadhead (empty) miles for trucks
and freight trains. Circuitous routing was eliminated. Competition increased, giving
90 percent of customers more options and lower fares (p. 119). Safety, one of the
purported reasons for government regulation, continued its long-term trend of
improvement after government’s role was lessened (p. 120). Winston suggests that
these beneficial consequences of deregulation should give current policymakers the
courage to take the next step toward privatization.
Rather than expecting policymakers to leap into privatization with both feet,
however, Winston tries to coax them along by urging them to carry out modest
experiments. A first step would be to reduce the federal government’s role. Instead
of having a centralized authority mandating that state and local government dance to
tunes played by the federal piper, Winston suggests, states and local government
should be granted permission to deviate from a uniform standard and be encouraged
to try new methods for meeting transportation needs (p. 156).
Although many state transportation departments are beginning to warm to a
public–private partnership concept, Winston believes that this course does not really
bring about the initiative and innovation that a true privatization would accomplish
(p. 130). True privatization requires that transportation assets currently owned by
governments be sold to private firms that will have the entrepreneurial freedom to
manage them for profit. The pursuit of profit in a competitive environment pushes
firms to improve the products and services they offer while simultaneously decreasing
the cost to the consumer.
Will policymakers heed Winston’s advice? It’s difficult to say. Academics armed
with reams of data and irrefutable logic rarely prevail in political contests. All they
have to offer is the generalized benefits of improved efficiency and greater equity.
Although politicians often give lip service to these goals, the gain from using power
to benefit oneself and to pay off one’s supporters is usually a more persuasive
motivator.
The “wild card” in this situation is the continuing economic crisis. The recession
and its accompanying decline in resources available to the government may
induce policymakers to seek rescue via privatization. After all, privatization does hold
out the prospect of tapping into new sources of capital at a time when voters are not
likely to approve of tax increases. When voters feel threatened by unemployment, a
decline in the values of their homes, and rising inflation, as they do now, they are
loathe to favor greater government spending. Privatization may also offer an escape
from customer complaints as ill-conceived public-sector ventures fail to deliver as
promised. The rise of the Tea Party movement, with its demands for smaller government,
indicates that the current economic crisis may open a window of opportunity
for achieving privatization.
It is also possible, though, that an economic crisis will be exploited to increase
the size and scope of government. The massive federal budget deficits incurred as
both the Bush administration and the Obama administration sought to spend the
country out of recession point away from privatization. In fact, in the field of transportation
the Obama administration is pushing for a major investment in high-speed
passenger rail—a program Winston declares likely to be a “considerable waste”
(p. 164).
Last Exit is not the only recent book to recommend privatization as a way to
improve transportation in the United States. Other worthy books on the topic
include Walter Block’s The Privatization of Roads and Highways (Auburn, Ala.:
Ludwig von Mises Institute, 2009), Sam Staley and Adrian Moore’s Mobility
First (New York: Rowman and Littlefield, 2009), Randal O’Toole’s Gridlock
(Washington, D.C.: Cato Institute, 2009), and the most comprehensive compilation
of the best research on the topic, Gabriel Roth’s Street Smart (Oakland,
Calif.: Independent Institute, 2006). As a product of the Brookings Institution, Last Exit has the advantage of being more acceptable in liberal circles. Readers
averse to “right-wing trash” may find the same message from one of their own
more palatable.
Buy Last Exit: Privatization and Deregulation of the U.S. Transportation System at Amazon.com for $24.95 (Paperback)
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