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On Sunday we asserted here that there has not been much innovation in “roads” over the past four decades or so. The post provoked some interesting responses so I thought it made sense to revisit the topic. The focus was on innovation on not generally on the history of road provision, the “publicness” of roads, the major public choice issues with the financing and operation of government roads including project labor agreements, pseudo-competitive bidding, misstaement of construction and maintenance costs, production of roads to places not needed, and whether they can or should be produced and maintained privately. Those are all worth considering, and evidence bears out that it is not at all unreasonable to expect successful private alternatives here. I do not write this to incite people into anarchy, it again seems to me that if we can demonstrate that it is reasonable for private agency to build, maintain and operate roadways, then that frees up the arms of coercion to do other things that are more in its “public goods” realm – such as funding basic scientific research and expanding certain public health initiatives.

Thruway and Binghamton

 

When I asked folks to consider innovation in roads, I did not solely mean what can easily be gleaned from the video above – that it appears that the design and construction of roads today resembles that from the 1950s. (For fun, go to the halfway point of this promotional video to see what proponents were saying about funding and costs to local taxpayers). I certainly DO mean that to some extent, but that was not at all the most important point implied by that post. Here, briefly, are my observations.

 

The Low Hanging Fruit 

One commenter made a nice point that perhaps we leave to government the things where innovation is slowing down or maxed out. In other words, we allow the private sector to develop products when the products seem easy to innovate with, and when they are “mature” then we leave it to government to handle the clunky product. I think that sounds good, but leaves a little to be desired. Both of us have difficulty with analyzing this argument however, just as we would a macro-economic argument, because of the counter-factual problem, so I admit we are tossing out educated guesses right now. But, my educated guess is that this still makes my point. Let me use oil as an example. The low hanging fruit in Titusville required simple drilling of no more than 100 feet into soft rock to get highly profitable gushers. That was very much the low-hanging fruit, especially as compared to the unleashing of tight oil from deep shale formations, some of which may be beneath the surface of the ocean thousands of feet deep. If the government had in fact taken over oil production in the US (it’s a miracle it hasn’t, almost every major industrialized nation has government owned oil companies) when it first employed USGS scientists to see how much oil was left and how easy it would be to extract what was left, back in the 1920s, we probably would have walked away from oil entirely at that time. And a brief look at the level of technology and innovation employed by Pemex, or the Venezuelan oil company or the Nigerian oil company does seem to jive with this fact. Of course, I’d counter argue with Norway, though as far as I understand it they rely on contracting to get the oil, and do not have many “unconventional” sources outside the North Sea.

The point as it pertains to roads is that if we do not see innovation in roads, we cannot distinguish the two different outcomes. It may be the case that truly the low-hanging fruit was picked, upon which we would not expect to see much innovation today. Or it might just as well be the case that government is not very good at innovation in some sectors. In either case the outcome we’d observe is in fact the one we see today. We can both be right and both be wrong. But the possibility is worth thinking about in my view.

 

Feedback

The key point that I would like to have made is not the distinction between “government” versus “private” production of roads, but rather to consider the sectors of the economy, or our lives in general, where feedback is more prevalent. Regardless of WHO is doing the producing, what matters is how much feedback there is between the people being served and the people doing the serving. It is possible that one mechanism for this feedback is robust private competition in the production of the good, but that need not be the case. For example, when my daughter sets up a lemonade stand on the Erie Canal, she may be the only supplier of that service. But she certainly still faces competition in all manner of ways – potential customers do have options, even if they are not other lemonade stands. The structure of our current road system is that there is not as much feedback as one would hope to see – and this is also because there may be fewer rail, air, water, etc. and other road options in many places that a consumer might want. Even if a private company operated roads in that environment there would likely be less innovation. I think a lot of this stuff overlaps – there could be in my view a lot more competition in the transportation market despite the high fixed costs of providing it. Even virtual alternatives to commuting to work and traveling would make feedback-prone road suppliers innovate to make their product more attractive.

 

 

Just What is Road Innovation?

“Innovation” means not just double decker roads, but in the cleaning, maintenance, painting, shut down, installation where needed and removal where not, and not building them where not needed, and so on. Innovation means better information about roads, in communicating with cars, keeping animals such as oppossum, deer, squirrels, off roads, better prevention of impaired driving, etc. more services or better services on roads, travel planning services, different night driving conditions, better paint and reflective devices, better crash proofing, and so on. It means innovations in communicating information about traffic and danger and better road signs and the like. It also means some innovative ways to get ice off roads – I always imagined I’d see solar powered roads right now that would use latent and stored energy to melt the ice and snow off of roads to make them safer and reduce the impact of salt and other chemicals and sand in our waterways. I know all of this is expensive, but see my point the other day about oil. The ridiculous technology to drill for oil today would seem off-the-charts expensive to the Titusville prospector, but today we are able to drill a barrel of tight oil for less than it cost to stick a pipe in a ground 150 years ago.

In general, when we talk of road innovation, it may not even have to be about the road itself, but all of the services that are associated with roads. I may be arguing from authority here, but surely there is little evidence of entrepreneurial innovation on this front right now. And surely a greedy profit-seeking entity that had to compete for our business would do a seriously large amount more to attract customers than merely to assume they need to use their road to get from point A to B.

 

When is a Road a Road?

The argument is perhaps best put forth if we would have discussed “ways of getting around.” I don’t have a flying car right now. Or a jetpack. It’s not government’s fault of course. But remember that getting rid of roads is as much an innovation as building them. How often have you seen roads decommissioned in places that no longer need them? In cities that are shrinking and evolving?

 

Briefly, to Conclude

I am still fairly baffled by the lack of innovation we see in road provision in America right now. My sense is that the same is true around the world. There may be all kinds of reasons for such a lack of innovation, but indeed there seems to be a halt to progress. Maybe it’s because little kids don’t grow up dreaming about all of the cool things we can do with a road. But little kids also do not growing up dreaming about all of the cool nano-materials that can be fabricated in a lab, yet we seem to be getting plenty of those.

To be continued. Ironically, I’m on the road for the rest of the week.

10 Responses to “A Road Worth Walking Down”

  1. RIT_Rich says:

    Given the way you have defined innovation in roads, there has been plenty of innovation in roads in the US over the past 40 years. Sorry. There has been. You may not recognize it, but the material the highways are made out of today is not the same as 40 years ago. The cameras and traffic monitoring centers that keep an eye on the roads, are not the same as 40 years ago. The motion sensors that turn on/off traffic lights today are not the same as 40 years ago. The concrete mixing plants that provide materials for the road are not the same as 40 years ago. The paving and scraping machines are not the same as 40 years ago. And on and on. There have been as many innovations in this field, as there have been in the construction of private residences.

    Also, this assertion “that if we can demonstrate that it is reasonable for private agency to build, maintain and operate roadways”…doesn’t need to be determined. Everyone knows what private companies can build, maintain and operate roads. Private companies DO build, maintain and operate roads in the US; at least the build and maintain part is almost always exclusively done by private contractors, not government agencies (and the operate part is becoming more frequent).

    The issue, of course, is who pays for them. There is necessarily only 1 customer. While I fully agree that there has been too much “investment” in roads, too much construction…this doesn’t tell us whether this situation is better than too little investment and too little construction. It doesn’t tell us if there is a system where we can get “just the right amount” of roads, given that we can’t figure out a system for figuring out what the “right amount” is?

    You say that private alternatives would emerge to provide “just the right amount”, but this begs the question: can you provide an example in history where this has happened? Why , or why not?

    Also, this brings up another issue: is the cost of trying to figure out the right amount of road, higher than the cost of simply over-investing in roads? Is it worth it? I think we can all agree that it is more “beneficial”, in the case of roads, to over-invest, than to under-invest. Under-invest can impose a lot more costs on the economy than the alternative (where the cost is simply the cost of an additional road), but the attempt to do this in the private sector and figure out the “right amount”…is itself not costless.

    These are, after all, “public goods”. Unless we can provide a reason why roads are not “public goods”, which so far I don’t think any libertarian economist has done to my satisfaction, we’ve got a problem. Because while I think a private company may be willing to finance a highway in the Boston-NYC corridor, I’m not so sure a private company would be willing to finance a highway in the Oklahoma City-Wichita corridor and wait 30 years for break even.

  2. RIT_Rich says:

    “But remember that getting rid of roads is as much an innovation as building them. How often have you seen roads decommissioned in places that no longer need them? In cities that are shrinking and evolving?”

    Happens quite often at the local level (i.e. neighborhood streets). The shifting demographics are not as “severe” as they seem when one only looks at city populations. People that leave cities go live 10 miles out in the suburbs. The actual long-distance shifts in populations from, say Ohio to Texas, are actually relatively small and very recent. So you may not see “highways” being decommissioned because usually the demand is still there in the general vicinity.

    To take an extreme example: Detroit. Detroit as a city has been experiencing population decline since the 1950s, but its metro area (MSA, CSA) has been experiencing increases steadily except for the last decade. Of course, Rochester NY is a good example of this as well.

    • Wintercow20 says:

      A road is almost surely NOT a public good, at least not driving on it. A public good is one for which owners cannot exclude people from enjoying its benefits. Clearly it is rather easy to have direct users of roads pay for their use. Whether you and I benefit from others’ use of roads AND do not pay for it is an entirely different matter.

      As for whether a private road would ever be built between Podunk and Tiddlytown again suffers from the counter factual problem. The 19th century railroad of JJ Hill would be supporting evidence and the history of private roads and turnpikes, particularly in the UK is further evidence. As is the early history in the US.

      • RIT_Rich says:

        Surely there is a difference between railroads and roads. Railroads are truly not “public goods” because they have pre-detremined entry and exit points, require specialized equipment to operate, and prevent others from using the railroad while you are using it. Roads have these features too, but to a far small degree; i.e. you’re right that one CAN prevent non-payers from using the road, but that is not cost-less. While this may be doable in highways…and is…can one do so in a neighborhood road? Can one do so in a city boulevard?

        So while I agree that the problem of the provision of roads through private financing (and I think we’re really only talking about financing; i.e. ownership, rather than building, maintaining or operating) for highways is already a solved problem…this doesn’t provide us with good solutions for all the other road infrastructure.

        So the “libertarian” solution only provides a possible solution to only part of the road infrastructure: highways.

        But even then, it still doesn’t provide an answer as to whether trying to provide the financing/ownership of highways through private means is…worth the costs…over simply over-investing. Not only is the cost associated with figuring out the feedback from all the transactions in the market etc., which is probably not too cheap…but also in responding to this market feedback. I.e., roads take a lot of time to build. Even if we assume that a private company sees a profitable investment opportunity in some corridor…how long will it take to respond? If this road had been provided instead through a public “over-investment” in roads, at a prior time, what sort of positive externalitites could have been produced?

        I.e….is there no such time when the problem of transaction costs can actually force a “sub-optimal” solution (in terms of sub-optimal production) which over-invests in a certain activity, rather than attempt to adequately determine the level of the activity? Is this not in a round-about way…a “public good”?

      • RIT_Rich says:

        The experience of roads in England and in the US has been precisely one where it was very difficult to control their use by non-payers, which is why they transferred into public ownership. The same was not true for railroads or canals, for obvious reasons.

        Furthermore, is this really an issue for libertarians to worry about? The cost of road infrastructure in the US is relatively minuscule. The benefits are incalculable. Trying to figure out at the margin whether we need more or less roads…just doesn’t seem worth it.

        Of course, I’m starting off from the assumption that the road infrastructure in the US is…very good. I.e., there are no problems I can see that need addressing in terms of technical provisions. If one has the assumption that somehow the government is screwing up on roads, then yes, this becomes a problem worth tackling. But I don’t think one needs to have such an assumption. The US road network is #1 in the world…and trying to change a system that costs peanuts (relatively), for no particularly clear benefits, doesn’t seem…politically…worth it to me.

        • Wintercow20 says:

          RIT Rich makes several excellent observations worth highlighting again.

          (1) Whether something is or is not a “true” public good is a matter of degree and not kind. Exclusion is a function of the technology available to exclude and collect payment and monitor use, and there is not really a fundamental reason why a particular good or service must be or must not be “public.”

          (2) The relevant point is what are the transactions costs of exclusion privately vs other arrangements and it is NOT a priori clear that private roads win on this count (ignoring public choice issues).

          (3) I personally view the net benefits of roads as it stands to be large and I am certainly in the camp that maintains they are in good condition.

          (4) Virtually all goods are provided by some combination of private actors and government actors.
          I’d still interject a couple of things however. First is that the best examples if private roads are NOT in fact highways but rather the cases where it was suggested they’d be harder to finance. But the experience of very many suburban and exurban developments and college campuses and resorts and private parks is that many, many miles of private roads can be financed and operated successfully. Were I not on a cell phone I’d pull up the data from DoT to illustrate this.

          Furthermore

          • Wintercow20 says:

            … furthermore we think often in too limited a way about financing and provision. A good many seemingly public goods can and are provided by bundling them with other services that ARE easy to exclude and do have lower transactions costs. This is in fact how suburban subdivisions do it – they don’t man toll booths or monitor traffic. Furthermore a more private world certainly does not imply that owners will charge for everything. Do movie theaters charge us to use the restrooms? Why not?

          • RIT_Rich says:

            I fully agree with what you have said, especially point 2. Coase (and later Williamson) provide an interesting observation, albeit in a completely different setting: what may appear as a sub-optimal production solution may actually be the optimal one, given transaction costs.

            I only wish more “libertarians” would recognize your point 2, instead of insisting that private is ALWAYS better (of course I am generalizing. It is mostly the anarchist types that do this. I just wish that they didn’t do this while at the same time pretending that “economics” is on their side…cough Mises.org cough…aghm)

            The provision of “private” roads for certain residential, business or educational uses is a well established phenomenon. But as you said, it is a matter of degree. It is easily recognizable where the rents from that road are appropriated and who the users are. As this becomes more muddled, costs of figuring out appropriation increase. So I’m not sure most people (or I) would make the argument that those are the cases where it would be “harder” to provide private financing. They would be much easier than highways. Rather, the provision of the main arteries of the road network, i.e. “main st.”, urban highways etc, are the one’s where private financing becomes difficult because the coordination costs must be massive.

            But also on the highway issue, it is still not evident whether over-investing is cheaper or not than worrying about rent appropriation.

  3. Harry says:

    Rereading WC’s post, he talks about how “we” allow the free people in the private sector to innovate, and leave the low-hanging fruit to the venture socialists.

    Who are the “we”? The combined economics faculties of Rochester and Princeton? Yes, there are Rizzo and Landsburg.

    Now, I know we are talking about roads, which to my mind are natural public goods that are supported by taxes that are roughly fair. But with so many other things to think about, I do not waste my time thinking about privatizing roads. Nor does WC.

  4. Harry says:

    Down here in the South (of Rochester, which is Major League snow removal country, unlike SE PA) our township has taken chances with coating roads with an anti-ice solution applied before forecasted snow and ice storms. It dries on the pavement. Then, when freezing rain, sleet, or light snow arrives, it melts slippery ice.

    I have no Idea whether this is cost-effective or even environmentally sound. I do assume we had to fit a few trucks with spray nozzle arrays and tanks to spray this stuff on the road. As long as you have idle people on the payroll who would otherwise be playing cards in the garage, I guess the marginal cost to rig the trucks is zero, as is to take off the sprayers to get the trucks with snow plows ready. Maybe the chemicals they spray are paid from a federal grant.

    Then, when the snow flies, the plows come by, sometimes within an hour of the falling of the first snowflake, or a day later.

    My point here is that spraying the roads, a new activity, may be “innovation” or something entirely wasteful, and, even worse, a show to make our elected officials look good by appearing innovative.

    If WC wants me to research the fine points of this entire process, I would be happy to do so before November.

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