Publicly Built Highways are Not an Expression of the Free Market

Publicly built highways are not an expression of the free market was originally posted to the Art of the Possible blog by Jackson.

My friend Alex Marshall, in his newest post up on Governing magazine, asks “What’s up with groups that argue for less government but see publicly built highways as an expression of the free market?” Alex is highly critical of right-wing libertarians whose policy preferences are a simple Rorschach test of their own personal biases – people who label their preferences with the language of freedom, individualism and happiness, whereas any policy they dislike is labeled “socialism” or “tyranny”. Thus, if these people like to drive big cars, then any government action that supports their ability to drive big cars is a bold stroke for glorious emancipation, whereas any policy that interferes with their ability to drive big cars is a form of Stalinism so black that even Stalin himself would have thought it excessive. I encourage you to read the whole post. This is how it starts:

Building a road is a manifestation of power, particularly state power. Carving a road across multiple jurisdictions and property lines — not to mention varying terrain — can be done only by an institution that can override the wishes of any one individual.

This was true in the days of the Roman Empire, when mighty roads were built so well that many of them still exist. And it’s true today. In the exercise of that authority, local, state and federal governments spent more than $150 billion on roads in 2005, according to the most recent federal Highway Statistics report. That’s comparable to what we spend annually on waging war in Iraq.

Given all this, I find it exceedingly strange that a group of conservative and libertarian-oriented think tanks — groups that argue for less government — have embraced highways and roads as a solution to traffic congestion and a general boon to living. In the same breath, they usually attack mass-transit spending, particularly on trains. They seem to see a highway as an expression of the free market and of American individualism, and a rail line as an example of government meddling and creeping socialism.

I should add, Alex is the author of “How Cities Work : Suburbs, Sprawl, and the Roads Not Taken“. Chapter Six of this book will have especial interest for anyone who reads Art Of The Possible. This chapter, titled “The Master Hand“, focuses on the role that government plays in shaping cities:

Americans tend to think of government as something outside themselves, a kind of regulatory body that interferes with the working of both an economy and the development of places. According to this view, the shapers of cities and the creators of wealth are the individual actors: the developer, the house builder, the company owner.

But government–that is, us–almost always lays down the concrete slab that economies and places are built upon. Government not only creates the laws, and operates the courts and the police, it then lays down the roads and builds the schools. In a modern economy, it then proceeds to set up a Federal Reserve System, a Securities and Exchange Commission, the International Monetary Fund, and other more elaborate financial infrastructure.

I sense that most people do not understand this, and the reason can be laid at the feet of an insidious idea called “the free market.” We tend to think that places and economies just happen, built by the invisible hand of Adam Smith if by anyone. In our mind’s eye, we tend to see supermarkets and subdivisions proliferating across the countryside, driven by consumer choice and the decisions of banks to finance them. We tend not to see the government’s prior decision to build an Interstate through the area that made the whole thing possible.

The intersection of place and economics is often in transportation. The decision of what transportation system to build, something almost always done by government, tends to create both an economy for an area or metropolis, and a particular physical framework organized around that infrastructure. So when Denver builds a big airport, it also creates the loose physical structure of warehouses, offices, and shopping centers that proliferates around airports. When New York City built its subway system (which was nominally private but steered and aided by government), it also created the possibility of the dense networks of skyscrapers that would follow. The Interstate Highway System created both a new economics of transportation and a new lifestyle organized around suburban living.

I should add, before I read this book I already had a keen understanding of the extent to which cities were shaped by their economies, and I appreciated the irony of the saying that all cities are similar yet each is historically unique and a product of circumstance. However, this book brought home to me the extent to which every era has its dominant modes of transportation, and how cities are very much shaped by the constraints and possibilities of those modes. Alex puts the issue well in the concluding chapter:

Of all the public decisions that go into place-making, the most important is what type of transportation systems to use. They will determine the character of the city and much of its economy. Do we pave roads or lay down tracks? Do we fund buses or subsidize cars? Do we lay down bike paths or more highway lanes? Do we build airports or high-speed train lines?

What is transportation for? That’s the essential question Lewis Mumford asked forty years ago.

In the first place, it’s for building the economy of a city. A city’s external links to the outside world, its freeways, train lines, airports, ports, and others, will determine the potential of its industry and people. The big links a city has to the outside world determine its economic potential, something most people do not grasp. Thus, people should think hard about, and usually be ready to fund, the new airport, the new train lines, the new port, and even the new Interstate if it actually travels somewhere new, though this is not likely these days.

As these external links are established, attention can be paid to the internal transportation network. We should recognize that the internal transportation serves a different purpose than the external transportation systems of a city. The layout of a region’s internal transportation will determine how people get to work, how they shop, how they recreate, how they live. The standard choice today of lacing a metropolitan area with big freeways for purely internal travel means we will have a sprawling, formless environment. Simply getting rid of the freeways–forget mass transit–would establish a more neighborhood-centered economy and dynamic. But we don’t have to forget mass transit. Laying out train lines, streetcar tracks, bus lanes, bike paths, and sidewalks–and forgoing freeways and big roads–will mean a more place-oriented form of living. Both the drawbacks and the benefits of such a style dwell in its more communal, group-oriented form of living. You will have the option of not using a car. But to get this option, you have to accept that using a car will be more difficult.

Transportation is not the only public decision. Policies on growth and development can help implement a transportation policy. Such policies are far less important than usually thought, however. The major transportation systems dictate the pattern and style of developments. Once those are established, ways will be found over and around zoning and land-use laws to build the type of development that fits with a big highway or train line.

In his post over at Governing magazine, Alex is critical of the Reason Foundation’s love affair with the automobile:

Some typical highway-oriented papers on Reason’s Web site include “How to Build Our Way Out of Congestion” and “Private Tollways: How States Can Leverage Federal Highway Funds.” Rail transit is taken on in papers with titles such as “Myths of Light Rail Transit,” and “Rethinking Transit ‘Dollars & Sense’: Unearthing the True Cost of Public Transit.” I didn’t see any papers about unearthing the true cost of our public highway network.

These are the “the autonomists”, that is, “libertarians who have embraced highway spending”. Of course, there is nothing fundamentally wrong with a group that calls itself “libertarian” trying to decipher the best of two competing policies. It is common, nowadays, to use the word “libertarian” to mean “someone loyal to the classical liberal tradition”, and there is a strain of thought in classical liberalism, going back to Jeremy Bentham’s work on social utility, that laws should do the greatest good for the greatest number. Put another way, government exists to serve the people. The construction of infrastructure, or the provision of a public service, is one of the ways in which government can be useful to the general public. But why would the Reason Foundation suggest that a system of transportation which revolves around cars involves less government support than a system of transportation that revolves around trains?

Alex, in his current post on Governing magazine, is critical of those libertarians who have a blind spot regarding their own dependence on government (or rather, those libertarians who have a blind spot about how much government is involved in the particular solution that they favor). They (those particular libertarians) sometimes sound as if their favored solution is individualistic, whereas everyone else’s solution is socialism. Isn’t there something juvenile about depending on someone (or some institution) yet denigrating their (its) value?

We might ask if there is even any truth to the basic premises from which the Reason Foundation seems to proceed when addressig transportation issues. Is it correct to suggest that mass transit forecludes private-sector competition, whereas solutions that favor automobiles foster competition? Is regional transportation systems even a type of activity in which private-sector competition will be more effective than government action? There are, of course, many instances where government action creates disutility (the War On Drugs destroys people’s lives), but there are also cases where government action offers clear benefits to the vast majority of a population. The point can be made more clear with a quote from Friedrich Hayek’s book, “The Road To Serfdom“. This is from pages 41-44:

It is important not to confuse opposition against this kind of [socialist] planning with a dogmatic laissez faire attitude. The liberal argument is in favor of making the best possible use of the forces of competition as a means of co-ordinating human efforts, not an argument for leaving things just as they are. It is based on the conviction that, where effective competition can be created, it is a better way of guiding individual efforts than any other. It does not deny, but even emphasizes, that, in order that competition should work beneficially, a carefully thought-out legal framework is required and that neither the existing nor the past legal rules are free from grave defects. Nor does it deny that, where it is impossible to create the conditions necessary to make competition effective, we must resort to other methods of guiding economic activity. Economic liberalism is opposed, however, to competition’s being supplanted by inferior methods of co-ordinating individual efforts. And it regards competition as superior not only because it is in most circumstances the most efficient method known but even more because it is the only method by which our activities can be adjusted to each other without coercive or arbitrary intervention of authority. Indeed, one of the main arguments in favor of competition is that it dispenses with the need for “conscious social control” and that it gives the individuals a chance to decide whether the prospects of a particular occupation are sufficient to compensate for the disadvantages and risks connected with it.

The successful use of competition as the principle of social organization precludes certain types of coercive interference with economic life, but it admits of others which sometimes may very considerably assist its work and even requires certain kinds of government action. But there is good reason why the negative requirements, the points where coercion must not be used, have been particularly stressed. It is necessary in the first instance that the parties in the market should be free to sell and buy at any prices at which they can find a partner to the transaction and that that anybody should be free to produce, sell and buy anything that may be produced at all. And it is essential that the entry into the different trades should be open to all on equal terms and the law should not tolerate any attempts by individuals or groups to restrict this entry by open or concealed force. Any attempt to control prices or quantities of particular commodities deprives competition of its power of bring about an effective co-ordination of individual efforts, because price changes then cease to register all the relevant changes in circumstances and no longer provide a reliable guide for the individual’s actions.

This is not necessarily true, however, of measures merely restricting the allowed methods of production, so long as these restrictions effect all potential producers equally and are not used as an indirect way of controlling prices and quantities. Though all such controls of the methods of production impose extra costs (i.e., make it necessary to use more resources to produce a given output), they may well be worthwhile. To prohibit the use of certain poisonous substances or to require special precautions in their use, to limit working hours or to require certain sanitary arrangements, is fully compatible with the preservation of competition. The only question here is whether in the particular instance the advantages gained are greater than social costs which they impose. Nor is the preservation of competition incompatible with an extensive system of social services – so long as the organization of these services is not designed in such a way as to make competition ineffective over wide fields.

…There are, finally, undoubted fields where no legal arrangements can create the main condition on which the usefulness of the system of competition and private property depends: namely, that the owner benefits from all the useful services rendered by his property and suffers for all the damages caused to others by its use. Where, for example, it is impracticable to make the enjoyment of certain services dependent on the payment of a price, competition will not produce the services; and the price system becomes similarly ineffective when the damage caused to others by certain uses of property cannot be effectively charged to the owner of that property. In all these instances there is a divergence between the items which enter into private calculation and those which affect social welfare; and, whenever this divergence becomes important, some method other than competition may have to be found to supply the services in question. Thus, neither the provision of signposts on the roads nor, in most circumstances, that of the roads themselves, can be paid for by every individual user. Nor can certain harmful effects of deforestation, of some methods of farming, or of the smoke and noise of factories be confined to the owner of the property in question or to those who are willing to submit to the damage for an agreed compensation. In such instances we must find some substitute for the regulation by the price mechanism. But the fact that we have to resort to the substitution of direct regulation by authority where the conditions for the proper working of competition cannot be created does not prove that we should suppress competition where it can be made to function.

To create conditions in which competition will be as effective as possible, to supplement it where it cannot be made effective, to provide the services which, in the words of Adam Smith, “though they may be in the highest degree advantageous to a great society, are, however, of such a nature, that the profit could never repay the expense to any individual or small number of individuals” – these tasks provide, indeed, a wide and unquestioned field for state activity. In no system that could be rationally defended would the state just do nothing. An effective competitive system needs an intelligently designed and continuously adjust legal framework as much as any other. Even the most essential prerequisite of its proper functioning, the prevention of fraud and deception (including exploitation of ignorance), provides a great and by no means yet fully accomplished object of legislative activity.

Do systems of regional transportation meet the requirements that Hayek sets out here for “conditions in which competition will be effective”?

I have to admit, I am puzzled by the intensity with which the crew at the Reason Foundation seems to want to see private-sector roads come into existence in the US. Hayek wrote that where “it is impracticable to make the enjoyment of certain services dependent on the payment of a price, competition will not produce the services”. The folks at the Reason Foundation seem to want to jump through a great many hoops so that America can have private sector roads. In my opinion, this is an area of policy where government action is clearly more practical than any attempt to arrange circumstances so as to allow private-sector actors to take control of the provisioning of services. For that matter, I can more easily imagine competing train services offering mass transit than I can imagine competing roads offering some benefit to those in a region who need to use that region’s system of transportation. The only purpose that I can see for allowing private-sector actors to gain control over the roads is to allow a few businesses to enrich themselves, in near monopoly conditions, at the general expense.

This entry was posted on Tuesday, April 8th, 2008.

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