Roads in a Market Economy.

Over the past 30 years, the federal government alone has spent some $79 billion subsidizing mass transit in a vain attempt to get Americans out of their cars. Yet we have more drivers than ever, and those drivers are driving more miles on average. And despite the large sums spent on carpooling propaganda and facilities over the past decade, the fraction of Americans driving alone to work increased from 65 percent in 1980 to 74 percent in 1990, while carpooling, transit use, walking, and bicycling all declined.

Americans prize personal mobility, but we pretty much take our roads for granted - except when they fail to meet our needs. Unfortunately, they are meeting our needs less and less well. According to the latest tally by the Texas Transportation Institute, Americans wasted $48 billion in 1992 stuck in urban traffic congestion. Potholes and rough pavements take a toll on our cars and trucks that is likely to get worse instead of better. As cars use less gas, the principal sources of highway funding - federal and state taxes of a fixed amount per gallon - are failing to keep pace with our increased driving and the resulting wear and tear on the roads.

All of which suggests that the time is ripe to fundamentally rethink how we provide roads. Longtime transport economist Gabriel Roth has done just that in this provocative new book, published on both sides of the Atlantic. Roth contrasts the management and operation of highway systems with those of the U.S. telecommunication system. In both cases, users employ their own equipment in a network made available by a variety of interconnected providers. As Roth notes, "Both roads and telecommunications are subject to congestion at specific times and places. However, the telecommunications sector - unlike the roads sector - has learned how to avoid the extremes of congestion and over-investment. It does this by adopting pricing rules and investment criteria developed in market economies to make the best use of scarce resources. In a nutshell: those who provide telecommunications services raise prices at periods of peak demand, and the increased revenues generated thereby attract the required additional investment to expand peak-period capacity."

Roth's premise is that we would have much more user-friendly roads if the road system were set up on commercial principles more like the telecommunications system's. Specifically, this would mean that, like telecom companies, road providers should have owners; be financially self-supporting; be treated the same by government, whether investor-owned or government-owned; receive their revenue directly from users (rather than through the government); and operate to common standards, to make interconnection simpler.

Roth explains what we know about the costs of road use, both direct and indirect (accidents, congestion, pollution, etc.), and how to understand these costs in an economically literate manner. He looks at arguments for and against various ways of pricing road use, including the politically contentious issue of how to charge trucks for the greater wear and tear they impose on most roads. He provides an excellent overview of the rapid growth over the past decade of privately financed toll roads in several dozen countries, including the United States.

Roth also reviews the world's experience to date with direct road pricing and is realistic about the political difficulties of introducing pricing where people have become accustomed to thinking of road use as "free." Road pricing generally means charging road users at the time and place of use - in other words, charging tolls. Singapore is the only major city that has attempted "congestion pricing" - a form of road pricing whose aim is to control traffic congestion. Under Singapore's relatively crude system, drivers wishing to enter the central business district during the morning rush hour must buy and display a sticker on the car's window. Drivers of cars without valid stickers are fined.

Today's electronic toll collection technology makes it possible to charge people in real time. A small electronic tag affixed to the car can be "read" by a radio signal as the car passes a toll collection point at normal speed. Depending on the type of account, the fee is charged either to the user's credit card or to the user's account with the toll company. This system makes it easy to charge prices which vary by time of day, permitting more sophisticated forms of road pricing, including congestion pricing. Such fully electronic congestion pricing is now in use on the (private) 91 Express Lanes on the Riverside Freeway in Southern California.

After providing all of this background information, the book's real task is to figure out how to get from where we are now to where Roth thinks we should go. Roth proposes several major reforms to effect this transition. First, states should convert their road systems, on a geographically sensible basis, into user-funded road corporations which, as owners, would have full responsibility for their operation, maintenance, and expansion. Roth envisions a government corporation that would be granted ownership of specific road assets (e.g., all freeways in Los Angeles County) and be fully responsible for operation, maintenance, expansion, and rebuilding (as the roads wear out). The point is to create owners where none really exist today - owners who would obtain revenue from the users (and presumably be held accountable by those users to meet the demand for good service). He envisions those companies operating at arm's length from government, much as do the turnpike authorities that exist in a number of states. Making roads the responsibility of an organization with its own funding sources would make it easier to eventually fully privatize the roads.

Second, Roth recommends that states create dedicated road funds to collect the various road-user charges - some of which might still be gasoline taxes and registration fees - and disburse funds to the road corporations. The money would no longer leak to general funds for transit or other government operations, as occurs today with our highway "trust funds."

Third, because tolls are practical only on high-traffic routes and are difficult to introduce on existing roads, Roth proposes the use of "shadow tolls" - per-vehicle fees paid by the road funds based on actual traffic counts. Fourth, he urges that there be no discrimination between investor-owned and government-owned road corporations. Both would have equal access to shadow tolls, and both would be able to charge actual tolls in addition to the shadow tolls, where congestion warrants direct pricing.

These transition measures are both imaginative and possibly workable. Roth has made a valuable contribution by getting specific about how we could actually move toward a commercial road system. But as always, we face the dilemmas of bringing about radical, long-term change: Will the transition measures become the new status quo that proves even harder to change than our present situation? Will partway measures generate negative reactions that turn people against the underlying principles and block getting to where we really want to be?

Take the conversion of state and county highway departments into government corporations. While this could be a net improvement (especially if there are incentives to privatize the corporations), the closest existing equivalents - state and county turnpike authorities - are not exactly models of entrepreneurial management. Some of them have become notorious political fiefdoms, offering cushy jobs to cronies and major temptations to siphon off cash. I also do not share Roth's enthusiasm for shadow tolls, now being implemented on a set of privately financed highway projects in Britain. Shadow tolls don't provide incentives for better use of roads via pricing. Users never see or feel a shadow toll - it's purely a financial mechanism.

But those are minor points. This is an important and thought-provoking book. It is bizarre that Americans have so uncritically accepted a central-planning model for our transportation infrastructure, while developing the world's best telecommunication infrastructure using a (largely) free market model. Indeed, one of the unexpected delights of this book is a heretofore unpublished essay, included as an epilogue, by Milton Friedman and Daniel Boorstin, dating from the early 1950s, proposing both private ownership and market pricing for roads. As usual, Friedman was way ahead of most of the rest of us. Fortunately, with the publication of Gabriel Roth's book, these ideas will gain the kind of hearing they have long deserved.

Publisher Robert W. Poole Jr. ([e-mail]) is president of the Reason Foundation and a transportation policy adviser and consultant.