Presented by Terry Markman of the Free Market Foundation at a Transport Forum Special Interest Group meeting in South Africa.

1. A free market view on road funding
Transport Forum 18th April 2019
Terry Markman

2. The Theory
• What is a free market?
• How the market operates
• Myths about the market
• Brief summary - my book
Transport Policy discusses
the theory in more detail

3. What is a free market?
• Moral basis – human relationships are
voluntary/contractual eg- trade vs coercion
• Most efficient system AND moral
• Based on individual rights and property rights
• Private ownership of property
• Government’s main role
– to protect individual rights
– uphold the rule of law

4. How the market operates
• Anyone (entrepreneurs) free to enter the market
i.e. no govt restrictions
• If entrepreneurs satisfy consumers they prosper –
it not they fail
• Prices free to rise and fall
• Supply and demand
– shortages result in prices rising which discourages
consumption and encourages new entrepreneurs to
enter the market
– surpluses process reversed

5. Myths about the market
• Perfect prices
• Perfect competition
• Destructive competition

6. The allocation of limited resources
• The BIG QUESTION for Society
• Societies major problem
• Always a spin off – more of A means less of B
• Robinson Crusoe
• How to decide?
o Govt decree (e.g. communist countries) –
‘command’ economy
o Free Markets – prices, property rights, voluntary
association

7. Where are these photos of congestion?

10. Where? – anywhere and everywhere

11. Why is there congestion?
• Too many cars
• Too little roads
• Economics 101 - Classic case of
• demand > supply or
• supply < demand
• Refers to all ‘queues’
• Congestion = Road shedding
• ‘Problem NY is it so congested that no one ever
comes here anymore’ Mayor of NY

12. Solution
• Reduce cars and/or provide more roads
• How?
• Swop roles of govt and private sector
• Govt to produce cars and private sector to
provide roads
• Shortage of cars
• Surplus of roads

13. Shortages
• The problem with ALL shortages:
• prices too low
• production by govt
• no competition
• Example: Energy
o Load Shedding
o black outs

14. Surpluses
• Examples: Offices
• prices market related
• production by private sector
• competition

15. Shortages vs Surpluses
Prices
regulated
Production by Competition Shortages
Offices NO PRIVATE SECTOR YES NO
Freight NO PRIVATE SECTOR YES NO
Energy YES GOVT NO YES
Rail YES GOVT NO YES
Airlines NO PRIVATE SECTOR
& GOVT
YES NO
Roads YES GOVT NO YES

16. Gravity comparable to Prices
Ignore gravity…
buildings collapse
Ignore prices……
..economic ’collapse’
• less immediate
but more serious
• Congestion – no prices
or prices too low

17. Regulated Prices
• Generally cost +
• encourages wasteful expenditure

18. Tragedy of the Commons
Commons owned by government
• Overgrazing
• Solution – quotas
• Better solution – privatise the commons

19. Tragedy of the Commons Roads
Commons Roads owned by government
• Overgrazing congestion
• Solution – quotas
• Better solution – privatise the commons
roads

20. Policy
• Engineers generally concerned with technical
matters - not economic policy
• Hong Kong –major buildings on the island and
not the main land because full property
rights under British control
• Economic Freedom of the World – growth
depends on policy
• Habits of Highly Effective Countries

21. Road Funding
Theory Practice
Ownership Private Govt
Prices free to rise and fall Yes No
Competition Yes No
Freedom of entry Yes No
Unlikely! Hence congestion

22. Road Funding (cont)
• Govt must ‘act’ as a private owner
e.g. Road space – parking price too low –
increase till ± 5 to 10% spare bays
• User must pay
• Direct payment (tolls) informs govt and
users
• better than indirect (fuel levy)

23. Road Funding - Tolls
• best solution but politically dynamite
• higher charges in the peak (encourages
car pools, public transport)
• Fair tenders / Collection costs???
• Mindset - roads are ‘free’ (TANSTAFEL)
• Problem to charge for something that has
been ‘free’
• Strategically the initial price should be
extremely low

24. Road Funding - Fuel levy
• easy & cheaper to collect but……..
- Busy urban roads price too low
- Goes into general revenue
- Treasury will NOT ring fence for roads
- Cross subsidisation (low traffic to high traffic)
- What about electric cars?

25. Road Funding (cont)
• Neither tolls nor fuel levy reflect true
competitive prices
• But the existing model (govt roads &
congestion) is NOT a success
• Simulate the market
• Remember competition includes other modes
of transport - air travel

26. Case Studies
Singapore
• Area License Scheme (1975) - replaced
by Electronic Road Pricing (1998)
• Vehicle quota system in 1990 & tax on
cars very high– reduces cars
• Excellent public transport
–Fully automatic heavy rail Mass Rapid
Transit system (2003)

27. Case Studies (cont)
• Houston freeway & airport – privately funded
by ‘adjacent’ property developers
• Congestion pricing
oLondon 2003 (was $8 now $15 per day)
oNew York to enter the heart of Manhattan,
first city in USA (2021)
oLos Angeles and Philadelphia considering
the idea.
• Sun City – park n ride then sky train

28. The case for toll-financed Interstate
Replacement
• USA Transportation Research Board 2018
report
- re need to replace Interstate Highway System
- recommends funding by increase in federal fuel
taxes
- concern about the decline of fuel taxation as
increased use of electric vehicles

29. The case for toll-financed Interstate
Replacement (cont)
• Reason Foundation Study
- Fuel taxes highly unlikely and inadvisable
- Recommends tolls rather than fuel taxes
- Some states planning to use tolls to finance
Interstate reconstruction
- Suggests how to make tolls politically
feasible and customer-friendly
https://reason.org/policy-study/the-case-for-toll-financed-interstate-
replacement/

30. Quo Vadis – What next
• Simulate the market
• Allow the private sector to BOO (Build, Own and
Operate) – e.g. Houston
• Get rich – roads are expensive!
- Growth Growth Growth
- EFW (Economic Freedom of the World)
- Educate everyone on the importance of roads &
that they should be funded by users (TANTAFEL)
- Start with academics, journalists, engineers, road
users, freight companies, etc.
- This is a long term project!

31. Thank you
terry.markman@arup.com