Government Can’t Overcome Traffic: A Market Approach to Mobility - Law and Liberty

22 May 2018 - The framework for determining both transit spending and planning is often limited by the exclusion of consumer choice through open markets in transportation. Processes for transport planning and provision are confined to public sector decision-makers.

Garreth Bloor  

Transport planning is a contentious matter. It may be the most heavily subsidized consumer-based industry in the United States. Billions in public funds are spent by many local, state and federal authorities. However, the framework for determining both transit spending and planning is often limited by the exclusion of consumer choice through open markets in transportation. Processes for transport planning and provision are confined to public sector decision-makers.

The results are two-fold: over-expenditure on a fiscal front, by excluding private sector investment where funding and risk are borne by the private sector. Secondly, the situation means fewer choices for residents than could exist in the context of greater individual liberty at the local level.

Within much of transport planning, limited budgets mean one route is chosen over another, exercised by an effective monopoly run by authorities. While budgeting public funds is a matter of tradeoffs and binary outcomes, rules that exclude private capital from investing and providing mass transit are a different a matter altogether; an imposed limitation by governments that hinder choice for residents, while imposing higher than necessary fiscal burden.

Freedom for residents to choose one form of transport over another are limited when decision-making outcomes on mass transit are confined exclusively to public sector processes, incorporating only the ballot box and the finite resources of governments.

Avoiding urban planning methodology on transport that excludes the sum of everyday decisions which constitute markets is essential. If we do not do so, we will not enable choice for individuals and secure financial prudence on the part of local governments.

The dominant methodology for transport planning depicts on a map the state and form of a transport routes in an area at a future point in time, when the plan is ‘realized’. It is a top-down approach to planning. One that assumes the government is both referee and player. Firstly, by setting rules such as zoning and development requirements which constitute the regulatory environment (as is its proper duty). Then, going further, authorities proceed to provide and manage transit within the constraints of their own budgets and the boundaries of public sector participation.

In a recent report for the IRR, Rethinking Mobility, I argue mobility as a transport concept is closer to a Hayekian framework for transit planning. Rather than utilizing traditional notions of planning, I propose that we adopt a more general framework emphasizing mobility. A mobility framework is defined as a dynamic process by which basic infrastructure is set in place based on political will (and the private actors who choose to do so), while enabling broadly dispersed information to be incorporated dynamically into transit outcomes through markets. Thus, allowing the private sector to respond to shifting needs, demands and ideas over time, providing transport to consumers directly.

A conceptual move from traditional top-down transport planning to a focus on mobility broadens options to far more than traditional urban planning for transport. This process respects change, innovation and choice. Two Nobel Laureates in economics that offer important approaches relevant to the transit policy discussions are James Buchanan and Friedrich Hayek.

Considering (Local) Politics without Romance

Limiting choices to the ballot box crowds out other options. Referendums and voting produce binary outcomes, more closely resembling a zero-sum game (one option or person wins, because another proposal or candidate loses). Decision-making can be expressed more frequently, with more options, through consumer choice mechanisms that go beyond public-sector processes alone and into the realm of everyday decision-making for residents as consumers, not just voters.

As William F. Shughart II points out, writing of James Buchanan’s work, public and private choice processes differ. It not because the motivations of actors are necessarily different, but because of stark differences in the incentives and constraints that channel the pursuit of self-interest in the two settings. Buchanan’s approach to studying how public policy decisions go awry without the discipline of market incentives constitutes “politics without romance.” He shows how the motivations of public officials for self-interest do not necessarily differ from private actors. What then constitutes a just setting in which individual interests are channeled?

Such a setting enables transport planning and provisions that overcome the incentives and constraints identified in pubic choice theory, and instead opens additional options for commuters and those who seek to serve them on a daily basis, through private markets.

Friedrich Hayek reminds us planning is a task that should involve all members of society, not solely the government. No planner, be they public or private, can know everyone’s desires, predict the future, or possess the collective information that resides in people and the communities. That collective wisdom is constituted in markets, formed when all exercise their everyday choices, and this is a point that is often lost in government decisions at every level. Ensuring that choice is not crowded out by public process, that results in government action alone on transit, avoids challenges of misallocation of public funds and fewer options for residents in cities around the world.

Anti-Competitiveness in Traditional Transit Policy

Higher costs aren’t just in the fiscus. They directly affect consumers and business daily. In South Africa, for example, the country’s Competition Commission is undertaking an inquiry into the land-based public transport industry. The commission believes there may be features in the public passenger transport industry “that prevents, distorts or restricts competition”. Minibus taxi drivers defied apartheid planning, privately transporting millions of passengers in the face of government opposition. Both customers and service providers are mainly black, serving largely the poor. They continue to face constraints.

How many grants to developing countries encourage what amounts to anti-competitive behavior is a matter worth of further study.

In the United States, Randal O’ Toole explains that annual government subsidies of $50 billion account for 76 percent of the costs of public transit in U.S. cities – alongside very little responsiveness to changing consumer preferences. O’Toole’s findings show public transit may be the most heavily subsidized consumer-based industry in the country, with his research covering dozens of urban areas.

Private industry can rightfully complain of a distortion caused by the subsidy of some modes of transport, not others. As technology offers new choice and trends are changing in mobility, subsidies and government monopolies over transport options nevertheless remain.

A Solution: Being Mode Neutral

Just as Hayek said the job of government is to provide roads without telling us which road to take, so too can we have transport infrastructure from public authorities that don’t tell us which mode to take.

To be “mode neutral”, government would spend on infrastructure, and grant permits to various modes to use infrastructure such as transit stops and interchanges. It could grant concessions to commercial players to manage the interchanges where outdoor advertising and retail space make the risk of doing worthwhile for the private players, reducing costs for city budgets.

Transit data on a variety of routes, both public and private, have been mapped in cities of millions in as little as three weeks by private innovators; providing their apps and data to the open market, connecting otherwise unrelated modes of transit quickly. It demonstrates how rapidly different modes of transit can be incorporated into transit information systems for commuters that otherwise take years to plan and map out. Private minibuses, for example, can install trackers for mobile device apps where users track available transit options across a host of modes.

In the case of Seoul, private buses are granted licenses to operate off infrastructure originally created by the public sector. It connects to the existing subway system, the costs of which are funded in part by concessions to the private sector, who take the risks of commercial viability.

Subways and rail in general better serve dense cities but are expensive where there is too little density. Road-based routes where authorities set standards and allow licensed operators to use such public infrastructure can offer more modes of transport and competing prices daily in the majority of the world’s cities.

Land Banking

Once choice is enabled, how do cities from a fiscal perspective draw in the private sector, especially where large scale projects like subways are deemed necessary? They key is not only to provide transport, but to secure the capital and income required to cover expenditures and manage risk to the public fiscus.

Land banking is one way, where municipalities acquire land close to planned transport routes, thus increasing the value of the land when it is sold or leased. Seoul is an example.

Rentals and advertising fetch a high price in high density areas. Placing government departments in transport nodes also enhances citizen engagement, by making services more accessible and selling redundant property holdings in other areas.

Incentives for developing land in transport zones can include an undertaking by the municipality to perform environmental compliance studies prior to the sale of land. This removes a procedural requirement usually passed on to the private sector that can take years, while in turn increasing the value of the land, making it more immediately available for development.

Privatization

A more direct market-driven step on current transit networks includes outright privatization.

Existing modes, such as rail, have moved to private enterprise in the UK. Debate remains over the effectiveness of the privatization in the public, with the Labour Party leader calling for renationalization. Socialists have routinely asserted the government is better at providing for all, including the poor, because the government does not have a profit motive. However, profit has a legitimate role in showing consumer needs and desires have been met by people who freely choose. As Thomas E Woods points out, we can either allow consumer preferences to guide production, or let the personal preferences of a monopolist (i.e., government) dictate what should be produced and how.

Policy analyst Ben Southwood argues forcefully using a variety of data sets to argue the net benefits of rail privatization have exceeded anything previously seen under state control.

Richard Wellings, Head of Transport at the Institute of Economic Affairs, says issues with private providers relate to the fact that the Department for Transport sets the terms of service in a way that leaves train operators in “a pretty poor place with very little room for manoeuvre” when it comes to innovation. The challenge is less private sector space to serve deciding consumers due to regulation, post-privatization, and not the private market itself.

David Starkie, senior associate at competition consultancy Case Associates, has pointed out privately-run railways in Japan have been successful partly because property development has been used to help fund rail infrastructure. The country’s three metropolitan cities are home to arguably the most efficient rail systems in the world – all operating in the closest model of a free market in transportation.

According to Laura Bliss, a transport writer at the think tank CityLab, privately funded rail projects are one of two factors in getting new American rail connections and existing improvements up and running; all following a period where rail projects seemed to have stalled. Opposition to rail by fiscal conservatives has owed much to the immense costs to the public purse to date using purely government-built-and-run models.

Spatial Planning

The success of a market-driven Mobility approach is tied to an enabling regulatory environment. The private sector cannot be expected to operate effectively in the transport realm, if government rules make it impossible to do so.

Often spatial plans lay out transit routes and seek to incentivize the use of these routes by the private sector.

While incentives can be useful for existing infrastructure, demand-driven transit should also be enabled going forward. Allowing for investment into new mode-neutral infrastructure, such as rapid transit lanes and transport interchanges (or more expensive privately-funded capital costs, such as rail in the case of Japan).

Not everyone seeks to live close to the urban core or existing routes that lead to these urban centers. New transit routes can stimulate the development of new nodes, bringing options to those who live far from existing downtown cores.

Transport solutions often propose expenditures to solve challenges created by land-use rules. Unlike transport planning, mobility cannot just be about linking the poor closer to existing opportunity either. It must also create new nodes of opportunity that go beyond existing spatial patterns – bringing opportunity closer to the poor — as part of dynamic economic development.

In sum, a conception of mobility is not only about getting from A to B in a transport plan; but ensuring there are opportunities close to point A for those who desire it. Those choices arise when they can be exercised. Markets in transport as in other areas of life constitute the matrix of those choices by those who can freely make them.

Voucher Systems

Effective urban transit is usually disproportionally important for the poor. Transport vouchers to consumers as a form of public expenditure, are one tool which can be valid for all modes of transport licensed with the local authority; transport providers thus compete to provide services.

As Buchanan has argued, albeit in the context of education, the financing of vouchers from general tax revenue counteracts the tendency towards state monopolies. The issue is not a question of public expenditure per se to create an environment for mobility, but how it is spent and who is answerable.

Core principles from Buchanan and Hayek

Individual choice and financial prudence can be better enabled by mobility serving as the core component of a traditional liberal framework for transit policy.

An overall approach to transit defined by mobility at its heart, affords greater degrees of choice through private sector involvement; lowering the burden on what are often very expensive urban transit projects with monopolistic tendencies that curtail economic freedom and local liberties at the city level
Garreth Bloor
Garreth Bloor is Vice President for Transatlantic Affairs at the IRR, the oldest classical liberal think tank in South Africa. He served as a former executive politician in the country, is the founder of a venture capital firm and serves as a consultant on policy matters and risk analysis. Bloor currently resides in Toronto.

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