Essays
Private Property Rights: A Radical Perspective i
By Professor Walter Block
Economics Department, University of Central Arkansas
I. Introduction
The intellectual case for private property rights is overwhelming. It consists, broadly, of two different elements.
First, the moral. When we buy and sell, rent and trade, barter and truck, with our own property, we do so on our own account, without forcing anyone else to do anything, either explicitly or implicitly. If we succeed in satisfying the customer, we ourselves, benefit. If we do not act in accord with consumer sovereignty, we lose our own money, not anyone else’s. Matters are very different in the public sector. Here, whether we succeed or fail, we are necessarily doing so with other people’s property. The government has nothing it did not first take from the people. And the only way the state can obtain funds from the public, is through force ii. When it engages in any economic activity, therefore, it is doing so at the point of a gun. Now many people think this is necessary in the case of armies, courts and police, the traditional roles of government, to keep the peace and maintain justice. This is the “necessary evil” doctrine. But when the public sector goes beyond these roles, and treads onto the economic sphere, it does so not to maintain civil order, but in competition with entrepreneurs who would otherwise take upon themselves these responsibilities.
Second, the economic. There are sound theoretical reasons for supposing that private enterprise will be more efficient than the bureaucracy, and a wealth of empirical data to support this contention. The explanation resides in the “weeding out” process of the market. Under laissez faire capitalism, whenever an entrepreneur fails to satisfy customers, who loses profits and/or increases losses to that extent. Eventually, if he persists in his misallocation of resources, he is forced into bankruptcy. So, over time, fewer and fewer decisions of this sort are made. In contrast, when he succeeds in pleasing consumers, the entrepreneur earns greater returns, which enable him to expand the base of his operations. Thus, over time, it is more likely that better economic decisions will be made. In contrast, there is no guarantee that the efficient bureaucrat who engages in cost savings will come to control more resources. On the contrary, he is often penalized; for if he comes in under budget, it may well be thought that he does not need as large a budget in the next time period.
There is of course no necessity to this process. At any given point, there might many brilliant public sector bureaucrats, and many poor businessmen, who are losing money. But it is illegal for the former to benefit personally iii (which reduces incentives) and the latter is on the way out in any case. If Bill Gates were a civil servant, it is extremely unlikely that we would have the computer industry we do today.
With the demise of the Soviet bloc, all of this has become apparant to most people (except for the Marxists in the pulpit and in western universities). Privatization has been applied to land, resources, factories, real estate, and many other goods and services. It has been advocated for the post office, and many other supposedly “public goods” heretofore provided by government such as libraries, schools, fire fighting, garbage collection, hospitals, museums, etc.
But these are all relatively “easy” cases. In the present case I argue for the privatization of the presumably “unprivatizable”: roads, highways, streets, sidewalks, and other vehicular and pedestrian thoroughfares.
Making the case for the “easy” privatization cases is almost like shooting fish in a barrel. To show that the principles which underly such examples apply also to the more difficult cases of roads is, in comparison, intellectually challenging. If we can establish that these principles apply even to the hard cases, moreover, we will have further strengthened their application to the easier ones.
II. Road Socialism
The world, specifically that part of it constituted by members of the economics profession, can be divided into two camps with regard to the issue of what are the best (or only possible) institutional arrangements for roads, streets, highways, sidewalks and other such thoroughfares for human and vehicular traffic.
On the one hand are the road socialists iv. Analysts who take this view comprise, perhaps, 99.44% of all of those who now write on the topic. In their view, it is an unquestioned, and unquestionable fact that roads must inevitably and necessarily be managed by government. That there is any possible alternative institutional arrangement seems never to have occurred to any of them. This perspective underlies every utterance made in their work. It is never explicit -- any more than we would expect a fish to remark about the fact that he is immersed in water -- but is rather implied by their whole mode of analysis.
What are the views of those who favor collectivization of the highways? Simple. Roads are a "public good." Privatizing them -- if the thought ever occurred in the first place -- is quickly brushed aside as preposterous. A private enterprise highway and street industry is viewed in much the same manner as was free market agriculture by the planners during the heyday of Soviet collectivized agriculture: it went straight down the memory hole.
What is the job of the economic analyst under such assumptions? It is to serve as a sort of managerial consultant, much in the same manner that the economist in the U.S.S.R. would advise the Minister of Agriculture about crop rotation, fertilizers, etc. v Only now the analysis concerns itself with such matters as road safety, congestion, planning for new openings, etc.
On the other hand there are the road capitalists, or road privatizers. In their view, streets and roads are no more a necessary part of the state apparatus than are cars, railroads, subways, lima beans or rubber bands. But for the utter dismissal of this view by the entire economics profession, these products could be analyzed along the lines appropriate for those which emanate any of these other industries. Given this opposition, however, the task becomes in large part one of criticizing the mainstream view.
The purpose of this present paper is to do just that
III. Traffic Safety
Suppose that a gunman shot a person with a rifle. Hauled into court, his "defense" was that the bullet killed the victim, not he, the defendant. True, this man would concede, he aimed the gun and pulled the trigger, but he was 200 hundred yards away from the victim when he died, so he couldn't have been responsible for his death.
Our reaction to this "defense" would properly be one of contemptible dismissal. We would mete out to this murderer whatever penalties were accorded such behavior. Our philosophical analysis would be that the murderer was confusing proximate cause with ultimate cause. Yes, the bullet was the proximate cause of the death. It, and it alone, killed the victim. Had there been no bullet, no murder would have occurred. Nevertheless, we would insist that the gunman, in aiming at the victim and pulling the trigger, was ultimately responsible for his demise, and therefore should pay for this crime to the full extent of the law.
Take another case. A restaurant goes out of business. The cause of its bankruptcy? It is due to a whole host of reasons: the cooking was inferior; hot food arrived cold, cold drinks arrived luke warm, all due to the dilatory efforts of the waitresses; the restaurant, moreover, was a mess -- the busboys failed to clean off the tables, and the people assigned to sweeping and mopping failed to follow through satisfactorily on their assigned tasks; in addition, the bouncers allowed loudmouthed drunks to insult the other patrons, the interior decor was displeasing, the external architecture was off putting, the tables were placed too close together to one another making them hard to reach for both customers and employees, and the color of the table cloths clashed with that of the walls.
Suppose now, that we called in a business consultant and he began conducting a series of studies on each one of these dimensions. That is to say, he ran a series of econometric regressions attempting to discern whether or not poor cooking was indeed responsible for consumer avoidance; to determine the relationship between a dirty dining room and customer dissatisfaction; to see if filthy bathrooms with no toilet paper and soap enhanced or destroyed business, and to probe the association between profits and surly waitress service. What would our reaction be? We would summarily fire this incompetent individual, and try to get our money back if at all possible.
For such a consultant would be guilty of making not one but two basic mistakes. First, he would be confusing ultimate and proximate causes, much as in our example of the gunman. Yes, poorly cooked, late and cold food is the proximate cause of the business failure, but the ultimate responsibility, surely, lay with the management. It was the management which failed to hire good cooks, to ensure that the waitresses, busboys, cleaners, bouncers, interior decorators, exterior architects, etc., did their assigned tasks in a satisfactory way. The failure was a failure of management, and any analysis which ignored this central point would be as inadequate as the running of the restaurant itself.
If the manager responsible for the mess in the first place were kept on, while the entire staff and other elements of the situation (the placing of the tables, the decor, etc.) were improved, the business prognostication would still be very poor. A manager responsible for running the business into the ground is one who for whatever reason does not know his job. He cannot discriminate between good and bad employees, between good and bad restaurant environments, between good and bad decisions in general. Unless he learns something from the changeover, and we have no reason to suppose that this, alone, will have the salutary effect, he will soon run the business aground as he did before.
On the other hand, if we but exchanged the manager for a competent one, while leaving everything else exactly as it was before, all would be well. The new manager would either get his employees to change their behavior, or he would fire them, and hire proficient ones in their places. This all stems from the fact that the good manager can recognize talent, and has the motivation to insist upon it.
Second, this so-called business consultant would be guilty of confining himself to the most obvious and elementary aspects of the problem, and ignoring the one crucial one. Of course, poor food, surly service, dirty conditions do not satisfy the restaurant going public. Establishing this fact, over and over again, ad nauseam, will not promote any important new knowledge.
To return to our previous example, the gunman is the analogue of the manager, and the bullet of the other restaurant employees. Get rid of the gunman and/or change his motivations, and the victim's life is safe. Keep the gunman intact, but change the bullet, and the murderer will find other implements to achieve his goal.
What is the point of all this discussion of restaurant failures and excuse making killers? What does it have to do with road safety under socialism?
Simply this. The way the most economists approach this issue is akin to the "defense" of the murderer, or the advice of the consultant who ignores the manager. Instead of focussing on the real cause of traffic fatalities -- government ownership and management of the nation's highway network -- the leaders of the profession have instead concentrated on a plethora of proximate causes, preeminently vehicle speed, driver alcoholism and safety regulations and inspections. This is totally unsatisfactory. It is as intellectually disappointing as what occurred in the two examples given above. Pragmatically, it is tragic, as those cases were merely made up ones, while thousands of people needlessly perish in automobile accidents under present institutional arrangements. And the analysts, who could be unearthing the true cause of all this bloodshed, instead focus on irrelevancies.
The theoretical analysis of highway safety rests on some principles which are quite elementary, indeed distressingly so. They are so obvious that one would feel the greatest reluctance to repeat them on the pages of a professional journal were it not that a great public policy (road socialism) has been erected upon either ignorance or a repudiation of them.
IV. A fair hearing
Before I explain how a fully free market in roads might function, it appears appropriate to discuss the reasons why such a treatment is likely not to receive a fair hearing.
A fully private market in roads, streets, and highways is likely to be rejected out of hand, first, because of psychological reasons. The initial response of most people goes something as follows: "Why, that's impossible. You just can't do it. There would be millions of people killed in traffic accidents; traffic jams the likes of which have never been seen would be an everyday occurrence; motorists would have to stop every twenty-five feet and put one-hundredth of a penny in each little old lady's toll box. Without eminent domain, there would be all sorts of obstructionists setting up roadblocks in the oddest places. Chaos, anarchy, would reign. Traffic would grind to a screeching halt, as the entire fabric of the economy fell about our ears." If we were to divide such a statement into its cognitive and psychological (or emotive) elements, it must be stated right at the outset that there is nothing at all reprehensible about the intellectual challenge. Far from it. Indeed, if these charges cannot be satisfactorily answered, the whole idea of private roads shall have to be considered a failure.
But there is also an emotive element which is responsible, perhaps, not for the content of the objection, but for the hysterical manner in which it is usually couched and the unwillingness, even, to consider the case. The psychological component stems from a feeling that government road management is inevitable and that any other alternative is therefore unthinkable. It is this emotional factor that must be flatly rejected.
We must realize that just because the government, at least in the modern era, has always built and managed the roadway network, this is not necessarily inevitable, the most efficient procedure, nor even justifiable. On the contrary, the state of affairs that has characterized the past is, logically, almost entirely irrelevant. Just because "we have 'always' exercised devils with broomsticks in order to cure disease" does not mean that this is the best way.
We must ever struggle to throw off the thralldom of the status quo.
In advocating a free -- market in roads. on one level, we shall be merely arguing that there is nothing unique about transportation: that the economic principles we accept as a matter of course in practically everv other arena of human experience are applicable here too. Or at the verv least. we cannot suppose that ordinary economic laws are not apropos in road transportation until after the matter has been considered in some detail.
Let us now turn to a consideration of how a free market in roads might operate. Along the way, we will note and counter the intellectual objections to such a system. All transport thoroughfares would be privately owned: not only the vehicles, buses, trains, automobiles, trolleys. etc., that travel upon them, but the very roads, highways, byways, streets, sidewalks, bridges, tunnels, crosswalks themselves upon which journeys take place. The transit corridors would be as privately owned as is our fast food industry.
As such, all the usual benefits and responsibilities that are incumbent upon private enterprise would affect roads. The reason a company or individual would want to build or buy an already existing road would be the same as in any other business -- to earn a profit. The necessary funds would be raised in a similar manner -- by floating an issue of stock, by borrowing, or from past savings of the owner. The risks would be the same -- attracting customers and prospering, or failing to do so and going bankrupt. Likewise for the pricing policy; just as private enterprise rarely gives burgers away for free, use of road space would require payments A road enterprise would face virtually all of the problems shared by other businesses: attracting a labor force, subcontracting, keeping customers satisfied, meeting the price of competitors, innovating. borrowing money, expanding, etc. Thus, a highway or street owner would be a businessman as any other, with much the same problems, opportunities, and risks.
In addition, just as in other businesses, there would be facets peculiar to this particular industry. The road entrepreneur would have to try to contain congestion, reduce traffic accidents. plan and design new facilities in coordination with already existing highways, as well as with the plans of others for new expansion. He would have to set up the "rules of the road" so as best to accomplish these and other goals. The road industry would be expected to carry on each and every one of the tasks now undertaken by public roads authorities: fill potholes, install road signs, guard rails. maintain lane markings, repair traffic signals, and so on for the myriad of "road furniture" that keeps traffic moving.
Applying the concepts of profit and loss to the road industry, we can see why privatization would almost certainly mean a gain compared to the present nationalized system of road management.
As far as safety is concerned, presently there is no road manager who loses financially if the accident rate on "his" turnpike increases, or is higher than other comparable avenues of transportation. A civil servant draws his annual salary regardless of the accident toll piled up under his domain. But if he were a private owner of the road in question, in competition with numerous other highway companies (as well as other modes of transit such as airlines, trains, boats, etc.), completely dependent for financial sustenance on the voluntary payments of satisfied customers, then he would indeed lose out if his road compiled a poor safety record (assumintzx! zxzx that customers desire, and are willing to pay for, safety). He would. then, have every incentive to try to reduce accidents, whether by technological innovations, better rules of the road, improved methods of selecting out drunken and other undesirable drivers, etc. If he failed, or did less well than his competition, he eventually would be removed from his position of responsibility. Just as we now expect better mousetraps from a private enterprise system which rewards success and penalizes failure, so could we count on a private ownership setup to improve highway safety. Thus, as a partial answer to the challenge that private ownership would mean the deaths of large numbers of people in traffic accidents, we reply, "There are, at present, large numbers of people who have been slaughtered on our nation's highways, a changeover to the enterprise system would lead to a precipitous decline in the death and injury rate, due to the forces of competition."
Another common objection to private roads is the spectre of having to halt every few feet and toss a coin into a tollbox. This simply would not occur on the market. To see why not, imagine a commercial golf course operating on a similar procedure: forcing the golfers to wait in line at every hole. or demanding pavment every time they took a swipe at the ball. It is easy to see what would happen to the cretinous management of such an enterprise: it would very rapidly lose customers and go broke.
If roads were privately owned, the same process would occur. Anv road with say, 500 toll booths per mile, would be avoided like the plague by customers, who would happily patronize a road with fewer obstructions. even at a higher money cost per mile. This would be a classical case of economies of scale, where it would pay entrepreneurs to buy the toll collection rights from the millions of holders, in order to rationalize the system into one in which fewer toll gates blocked the roads. Streets that could be so organized would prosper as thoroughfares; others would not. So even if the system somehow began in this patchwork manner, market forces would come to bear, mitigating the extreme inefficiency.
There is no reason, however, to begin the market experiment in this way. Instead of arbitrarily assigning each house on the block a share of the road equal to its frontage multiplied by one-half the width of the street in front of it (the way in which the previous example was presumably generated in someone's nightmare vision), there are other methods more in line with historical reality and with the libertarian theory of homesteading property rights.
One scenario would follow the shopping center model: a single owner-builder would buy a section of territory, build roads, and, fronting them, houses. Just as many shopping malls maintain control over parking lots, internal “streets”, and other "in common" areas. the entrepreneur would continue the operation of common areas such as the roads, sidewalks etc. Primarily residential streets might be built in a meandering, roundabout manner replete with cul-de-sacs, to discourage through travel. Tolls for residents, guests, and deliveries might be pegged at low levels, or be entirely lacking (as in the case of modern shopping centers), while through traffic might be charged at prohibitive rates. Standing in the wings, ensuring that the owner effectively discharges his responsibilities, would be the profit and loss system.
Consider now a road whose main function is to facilitate through traffic. If it is owned by one person or company, who either built it or bought the rights of passage from the previous owners, it would be foolish for him to install dozens of toll gates per mile. In fact, toll gates would probably not be the means of collection employed by a road owner at all. There now exist highly inexpensive electrical devices which can register the passage of an automobile past any fixed point on a road. Were suitable identifying electronic tapes attached to the surface of each road vehicle, there would be no need for a time-wasting, labor costly system of toll collection points. Rather, as the vehicle passes the check point. the electrical impulse set up can be transmitted to a computer which can produce one monthly bill for all roads used, and even mail it out automatically. Road payments could be facilitated in as unobtrusive a manner as utility bills are now. (Instead of toll booths, private enterprise would likely install these electronic censors. Governments are even now installing such devices on some highways, but decades after they were utilized for groceries, books, sundries, railroad box cars, etc.)
V. Eminent domain, or expropriation
Then there is the eminent domain challenge: the allegation that roads could not be efficiently constructed without the intermediation of government-imposed eminent domain laws which are not at the disposal of private enterprise. The argument is without merit.
We must first realize that even with expropriation, and under the system of government road construction, there are still limits as to where a new road may be placed. Not even a government could last long if it decided to tear down all the skyscrapers in Chicago's Loop in order to make way for yet another highway. The logic of this limitation is obvious: it would cost billions of dollars to replace these magnificent structures: a new highway near these buildings. but one which did not necessitate their destruction, might well be equally valuable, but at an infinitesimal fraction of the cost. With or without eminent domain, then, such a road could not be built. Private enterprise could not afford to do so. because the gains in siting the road over carcasses of valuable buildings would not be worthwhile; nor could the government accomplish this task, while there was still some modicum of common sense prohibiting it from operating completely outside of anv economic bounds.
It is true that owners of land generally thought worthless by other people would be able to ask otherwise exorbitant prices from a developer intent upon building a straight road. Some of these landowners would demand high prices because of psychic attachment (e.g., the treasured old homestead): others solely because they knew, that building plans called for their particular parcels, and thevy were determined to obtain the maximum income possible.
But the private road developer is not without defenses, all of which will tend to lower the price he must pay. First. there is no necessity for an absolutely straight road, nor even for one that follows the natural contours of the land. Although one may prefer, on technical grounds, path A, it is usually possible to utilize path B..... Z. all at variously higher costs. If so, then the cheapest of these alternatives provides an upper limit to what the owners along path A may charge for their properties. For example, it may be cheaper to blast through an uninhabited mountain rather than pay the exorbitant price of the farmer in the valley; this fact tends to put a limit upon the asking price of the valley farmer.
Secondly, the road developer, knowing that he will be satisfied with any of, say, five trajectories, can purchase options to buy the land along each site. If a recalcitrant holdout materializes on any one route, he can shift to his second. third, fourth or fifth choice. The competition between owners along each of these passageways will tend to keep the price down.
Thirdly, in the rare case of a holdout who possesses an absolutely essential plot, it is always possible to build a bridge over this land or to tunnel underneath. Ownership of land does not consist of property rights up to the sky or down to the core of the earth; the owner cannot forbid planes from passing overhead, nor can he prohibit a bridge over his land, as long as it does not interfere with the use of his land. Although vastly more expensive than a surface road, these options again put an upper bound on the price the holdout can insist upon.
There is also the fact that land values are usually influenced bv their neighborhood. What contributes to the value of a residence is the existence of neighboring homes, which supply neighbors, friends, companionship. Similarly, the value of a commercial enterprise is enhanced by the proximity of other businesses, customers, contacts, even competitors. In New York City, the juxtaposition of stock brokerage firms, flower wholesalers, a jewelry exchange, a garment district, etc., all attest to the value of being located near competitors. If a road 150 feet wide sweeps through, completely disrupting this "neighborliness," much of the value of the stubborn landowner's property is dissipated. The risk of being isolated again puts limitations upon the price which may be demanded.
In an out-of-the-way, rural setting, a projected road may not be expected to attract the large number of cash customers necessary to underwrite lavish expenditures on the property of holdouts. However, it will be easier to find alternative routes in a sparsely settled area. Urban locations present the opposite problem: it will be more difficult to find low-cost alternatives, but the expected gains from a road which is expected to carry millions of passengers may justify higher payments for the initial assemblage.
Of course, eminent domain is a great facilitator; it eases the process of land purchase. Seemingly, pieces of land are joined together at an exceedingly low cost. But the real costs of assemblage are thereby concealed. Landowners are forced to give up their property at prices determined to be "fair" by the federal bureaucracy, not at prices to which they voluntarily agree. While it appears that private enterprise would have to pay more than the government, this is incorrect. The market will have to pay the full, voluntary price, but this will, paradoxically, be less than the government's real payment (its money payments plus the values it has forcibly taken from the original owners). This is true because the profit incentive to reduce costs is completely lacking in state "enterprise." Furthermore, the extra costs undergone by the government in the form of bribes, rigged bidding, costplus contracts, etc., often would bloat even limited government money outlays past the full costs of private road developers.
VI. The blockade
Another objection against a system of private roads is the danger of being isolated. The typical nightmare vision runs somewhat as follows: "A man buys a piece of land. He builds a house on it. He stocks it with food, and then brings his family to join him. When they are all happily ensconced, they learn that the road fronting their little cottage has been purchased by an unscrupulous street owning corporation, which will not allow him or his family the use of the road at any but an indefinitely high price. The family may ‘live happily ever after', but only as long as they keep to their own house. Since the family is too poor to afford a helicopter, the scheming road owner has the family completely in his power. He may starve them into submission, if he so desires."
This does indeed appear frightening, but only because we are not accustomed to dealing with such a problem. It could not exist under the present system, so it is difficult to see how it could be solved by free market institutions. Yet, the answer is simple: no one would buy any plot of land without first insuring that he had the right to enter and leave at will.
Similar contracts are now commonplace on the market, and they give rise to no such blockade problems. Flea markets often rent out tables to separate merchandisers; gold and diamond exchanges usually sublet booths to individual, small merchants; desk space is sometimes available to people who cannot afford an entire office of their own. The suggestion that these contracts are unworkable or unfeasible, on the grounds that the owner of the property might prohibit access to his subtenant, could only be considered ludicrous. Any lawyer who allowed a client to sign a lease which did not specify the rights of access in advance would be summarily fired, if not disbarred. This is true in the present. and would also apply in an era of private roads.
VII. Market anticipation
It is virtually impossible to predict the exact future contour of an industry that does not presently exist. The task is roughly comparable to foretelling the makeup of the airline industry immediately after the Wright Brothers' experiments at Kitty Hawk. How many companies would there be? How many aircraft would each one own? Where would they land? Who would train the pilots? Where could tickets be purchased? Would food and movies be provided in flight? What kinds of uniforms would be worn by the stewardesses? Where would the financing come from? These are all questions not only impossible to have answered at that time, but ones that could hardly have arisen. Were an early advocate of a "private airline industry" pressed to point out, in minute detail, all the answers in order to defend the proposition that his idea was sound, he would have had to fail.
In like manner, advocates of free market roads are in no position to set up the blueprint for a future private market in transport. They cannot tell how many road owners there will be, what kind of rules of the road they will set up, how much it will cost per mile, how the entrepreneurs will seek to reduce traffic accidents, whether road shoulders will be wider or narrower, or which steps will be taken in order to reduce congestion. Nor can we answer many of the thousands of such questions that are likely to arise.
For one thing, these are not the kinds of questions that can be answered in advance with any degree of precision, and not only in transportation. The same limitations would have faced early attempts to specify industrial setups in computers, televisions, or any other industry. It is impossible to foretell the future of industrial events because, given a free market situation. they are the result of the actions of an entire cooperating economy, even though these actions may not be intended by any individual actor. Each person bases his actions on the limited knowledge at his disposal.
Nevertheless, we shall attempt a scenario, though not for the purpose of mapping out, forevermore, the shape of the road market of the future. We realize that such patterns must arise out of the actions of millions of market participants, and will be unknown to any of them in advance. Yet if we are to consider objections to a road market intelligently, we must present a general outline of how such a market might function. We will now consider some additional problems that might arise for a road market, and some possible solutions.
1. Who will determine the rules of the road?
This question seems important because we are accustomed to governments determining the rules of the road. Some people even go so far as to justify, the very existence of government on the ground that someone has to fashion highway rules, and that government seems to be the only candidate.
In the free market, each road owner will decide upon the rules his customers are to follow, just as nowadays rules for proper behavior in some locations are, to a great extent, determined by the owner of the property in question. Thus, roller and ice skating emporia decide when and where their patrons may wander, with or without skates. Bowling alleys usually require special bowling shoes, and prohibit going past a certain line in order to knock down the pins. Restaurants demand that diners communicate with their waiter and busboy, and not go marching into the kitchen to consult with the chef.
There are no "God-given" rules of the road. While it might have been convenient had Moses been given a list of the ten best rules for the road, he was not. Nor have legislators been given any special dispensations from on high. It is therefore man's lot to discover what rules can best minimize costs and accidents, and maximize speed and comfort. There is no better means of such discovery than the competitive process. Mr. Glumph of the Glumph Highway Company decides upon a set of rules. Each of his competitors decides upon a (slightly) different version. Then the consumer, by his choice to patronize or not, supports one or the other. To the extent that he patronizes Glumph and avoids his competitors, he underwrites and supports Glumph's original decisions. If Glumph loses too manv customers. he will be forced to change his rules (or other practices) or face bankruptcy. In this way the forces of the market will be unleashed to do their share in aiding the discovery process. We may never reach the all-perfect set of rules that maximizes the attainment of all conceivable goals, but the tendencv toward. this end will always operate.
2. If a free market in roads is allowed and bankruptcies occur, what will be done about the havoc created for the people dependent upon them?
Bankrupt road companies may well result from the operations of the market. There are insolvencies in every area of the economy, and it would beunlikely for this curse to pass by the road sector. Far from a calamity, however, bankruptcies are paradoxically a sign of a healthy economy.
Bankruptcies have a function. Stemming from managerial error in the face of changing circumstances, bankruptcies have several beneficial effects. They may be a signal that consumers can no longer achieve maximum benefit from a stretch of land used as a highway; there may be an alternative use that is ranked higher. Although the subject might never arise under public stewardship, surely sometime in the past ten centuries there were roads constructed which (from the vantage point of the present) should not have been built; or, even if they were worth building originally, have long since outlasted their usefulness. We want a capacity in our system to acknowledge mistakes, and then act so as to correct them. The system of public ownership is deficient, in comparison, precisely because bankruptcy and conversion to a more valuable use never exists as a serious alternative. The mistakes are, rather, "frozen in concrete," never to be changed.
Would we really want to apply the present non-bankruptcy system now prevailing in government road management to any other industry? Would it be more efficient to maintain every single grocery store, once built. forevermore'? Of course not. It is part of the health of the grocery industry that stores no longer needed are allowed to pass on, making room for those in greater demand. No less is true of the roadway industry. Just as it is important for the functioning of the body that dead cells be allowed to disappear, making way for new life, so is it necessary for the proper functioning of our roadway network that some roads be allowed to pass away.
Bankruptcy may serve a second purpose. A business may fail not because there is no longer any need for the road, but because private management is so inept that it cannot attract and hold enough passengers to meet all its costs. In this case, the function served by bankruptcy proceedings would be to relieve the ineffective owners of the road, put it into the hands of the creditors and, subsequently. into the hands of better management. How else are we to improve our awful safety record if those who cannot do better are not removed from road entrepreneurship?
3. How would traffic snarls be countered in thefree market."
If the roads in an entire section of town (e.g., the upper east side of Manhattan), or all of the streets in a small city were completely under the control of one company, traffic congestion would present no new problem. The only difference between this and the present arrangement would be that a private company, not the government road authority, would be in charge. As such, we could only expect the forces of competition to improve matters.
For example, one frequent blocker of traffic, and one which in no way aids the overall movement of motorists, is the automobile caught in an intersection when the light has changed. This can sometimes create gridlock.
Just as private universities, athletic stadiums, etc., now enforce rules whose purpose is the smooth functioning of the facility, so might road owners levy fines to ensure obedience to rules. For example, automobiles stuck in an intersection could be registered by the road's computer-monitoring system, and charged an extra amount for this driving infraction, on an itemized bill. In the extreme case, private road owners might have gigantic helicopters standing by, ready to hoist into the air these malefactoring motorists (and those, as well, who break down in intersections).
4. What problems would ensue were each street owned by a separate company, or individual?
It might appear that the problems are insoluble. For each owner would seem to have an incentive to encourage motorists on his own street to try as hard as he can to get to the next block, to the total disregard of traffic on the cross street. (The more vehicles passing through, the greater the charges that can be levied.) Main Street, in this scenario, would urge its patrons, traveling north, to get into the intersection between it and Side Street, so as to pass on when the next light changed. The Side Street management would do the same: embolden the drivers heading west to try to cross over Main Street, regardless whether there was room on the other side. Each street owner would, in this view, take an extremely narrow stance; he would try to maximize his own profits, and not overly concern himself with imposing costs on the others.
The answer to this dilemma is that it could never occur in a free market, based on specified individual private property rights. For in such a system. all aspects of the roadway are owned, including the intersection itself. In the nature of things, in a full private property system, the intersection must be owned either by the Main Street Company, the Side Street Company, or by some third party. As soon as the property rights to the intersection between the two streets are fully specified (in whichever of these three ways) all such problems and dilemmas cease.
Suppose the Main Street Company had been the first on the scene. It is then the full owner of an unbroken chain of property, known as Main Street. Soon after, the Side Street Company contemplates building. Now the latter company knows full well that all of Main Street is private property. Building a cross street to run over the property of Main Street cannot be justified. The Main Street Company, however, has every incentive to welcome a Side Street, if not to build one itself, for the new street will enhance its own property if patrons can use it to arrive at other places. A city street that has no cross street options does not really function as an access route, it would be more like a limited access highway in the middle of a city. The two companies shall have to arrive at a mutually satisfactory arrangement. Presumably, the Side Street Company will have to pay for the right to build a cross street. On the other hand, if the owners of Main Street intend to use it as a limited access highway, then the Side Street Company shall have to build over it, under it, or around it, but not across it. (As part of the contract between the two parties, there would have to be an agreement concerning automobiles getting stuck in the intersection. Presumablv this would be prohibited.)
Since original ownership by the Side Street Company would be the same analytically as the case we have just considered, but with the names of the companies reversed, we may pass on to a consideration of ownership bv a third party.
If the intersection of the two streets is owned bv an outsider, then it is he who decides conflicts between the two road companies. Since his interests would best be served by smoothly flowing traffic, the presumption is that the owner of the intersection would act so as to minimize the chances of motorists from either street being isolated in the intersection as the traffic light changed.
This analysis of the ownership situation concerning cross streets and their intersections will enable us to answer several other possibly perplexing problems.
5. How would green light time be parceled our under free enterprise?
Of course, most street owners, if they had their choice, would prefer the green light for their street 100% of the time. Yet, this would be tantamount to a limited access highway. If it is to be a city street, a road must content itself with less. What proportion of red and green lights shall be allotted to each street?
If all the streets in one neighborhood are owned by one company, then it decides this question, presumably with the intention of maximizing its profits. Again, and for the same reasons, we can expect a more effective job from such a "private" owner, than from a city government apparatus.
In the case of intersection ownership by a third party, the two cross street owners will bid for the green light time. Ceteris paribus, the presumption is that the owner of the street with the larger volume of street traffic will succeed in bidding for more of the green light time. If the owner of the larger volume street refused to bid for a high proportion of green light time, his customers would tend to patronize competitors--who could offer more green lights, and hence a faster trip.
A similar result would take place with two street owners. no matter what the property dispersal. It is easy to see this if the larger street companv owns the intersections. The larger company would simply keep a high proportion (2/'3, 3/4, or perhaps even 4/5) of green light time for itself, selling only the remaining small fraction to the intersecting side street. But much the same result would ensue if the smaller road owned the common intersections! Although the relatively lightly traveled road company might like to keep the lion's share of the green lights for itself, it will find that it cannot afford to do so. The more heavily traveled street, representing a clientele willing and able in the aggregate to pay far more for green light privileges, will make it extremely tempting for the small street owner to accept a heavy payment. in order to relinquish most of its green light time. In other words, the customers of the main street, through indirect payments via the main street owner, will bid time away from the smaller number of customers using the minor street. This principle is well established in business, and is illustrated every time a firm sublets space, which it could have used to satisfy its own customers, because it receives more income subletting than retaining the premises for its own use.
On the rare occasions when the feasibility of private road ownership has been considered by mainstream economists, it has been summarily rejected, based on the impossibility of competition among private road owners. Seeing this point as almost intuitively obvious, economists have not embarked on lengthy chains of reasoning in refutation. Thus, says Smerk, rather curtly, "Highways could not very well be supplied on a competitive basis, hence they are provided by the various levels of government."
Certainly, nothing like “perfect competition” could obtain in this industry. And for many economists, this is the end of the matter. They see roads as necessary “monopolistic.” But competition in the common sense notion of opposition, contention, rivalry, etc. would certainly occur. Street and highway owners, like railroad and shopping mall owners, have to attract customers to their premises. They cannot do this by treating them as a captive audience to be exploited. Again, although it is always impossible to fully anticipate the future course of a market, especially one that does not yet exist, the likelihood is that before locating a business or a residence on a road, the rational customer would contractually tie up the road owner so that no future “surprises” (e.g., radical and unanticipated price increases for access) could be imposed. It is in these contracts that the competition would take place.
References
Block, Walter, "Road Socialism," International Journal of Value-Based Management, 1996, Vol. 9, pp. 195-207
Block, Walter, "Free Market Transportation: Denationalizing the Roads," Journal of Libertarian Studies: An Interdisciplinary Review, Vol. III, No. 2, Summer 1979, pp. 209-238
All citations can be found in these two references, available upon request at Block@Istar.Ca, or wblock@mail.uca.edu
i. The present article is based on Block, 1979, 1996.
ii. If you do not believe this, refuse to pay your taxes, and sees what happens to you. Departments of revenue in the western democracies pride themselves on the claim that their tax systems are “voluntary.” But this is true only in the sense that they depend upon the initiative of the citizenry to declare their tax burdens, and to pay them. But there is always the threat that if the people do not carry out these activities, they shall be incarcerated.
iii. This is called “graft.”
iv.At first glance it might seem harsh to characterize such a position as "road socialism." For none of the people criticized below as falling into this category would embrace such an appellation. Given that we are used to considering people as socialists only if they purposefully adopt such a viewpoint, and that the "road socialists" slide into their stance seemingly oblivious to the fact that this is precisely what their position amounts to, perhaps they should instead be called "inadvertant road socialists." But this will not do, either. For these are professional scholars, for the most part sophisticated economists of the first order. To make excuses for them in this manner would therefore amount to a condescending paternalism. They have made their bed, let them lie in it. I shall therefore continue to characterize them as in the title of this paper above.
v. The analogy is a reasonably good one. For just as the Soviet agricultural planners knew that farming had once been conducted on a private basis, negating all arguments concerning the necessity of public ownership, so are their modern counterparts acquainted with the fact that initially roads were owned by private turnpike companies In each case, however, these historical antecedents play (played) no role in their analysis.