Managing Roads in a Free Society

1. Tomorrow's Way
Managing roads in free society
By
John Hibbs and Gabriel Roth
Adam Smith Institute
London
1992

2. CONTENTS
1. Introduction
2. Improving highway administration and ownership
3. Charging for highway use and investing for improvement
4. Private provision of roads
5. The role of government
6. Recommendations for action: short term
7. Recommendations for action: long term
8. Conclusions and summary
BIBLIOGRAPHICAL INFORMATION
Published in the UK in 1992 by ASI (Research) Ltd, 23 Great Smith Street,
London SW1P 3BL (071-2224995).
(c) ASI (Research) Ltd
ISBN: 1 873712 06 5
All rights reserved. Apart from fair dealing for the purposes of private study,
research, criticism or review, no part of this publication may be reproduced,
stored in a retrieval system, photocopied or transmitted in any form or by any
means, without the permission of the publisher.
The views expressed in this publication are those of the authors and do not
necessarily reflect any views of the publisher. They have been selected for their
intellectual vigour and are presented as a contribution to public debate.
Printed in the UK by Imediacopy Limited.

3. Good roads ... by diminishing the expense of carriage, put the remote parts of the
country more nearly upon a level with those in the neighbourhood of the town.
They are upon that account the greatest of all improvements. They encourage the
cultivation of remote ... They are advantageous to the town, by breaking down
the monopoly of the country in its neighbourhood. They are advantageous even
to the part of the country. Though they introduce some rival commodities into
the old market, they open many new markets to its produce. . Monopoly, besides
is a great enemy to good management.
Adam Smith
Wealth of Nations (Book 1, Chapter XI, Part 1)

4. ABOUT THE AUTHORS
JOHN HIBBS is Emeritus Professor of Transport Management at Birmingham
Polytechnic Business School, and has specialized in the economics and
organization of road passenger transport since he was Rees Jeffreys Research
Student at the LSE in 1954-55. His monographs Transport for Passengers (1963,
2nd. Edition) People and Transport (1973) and Transport without Politics...?
(1982) played a significant part in the deregulation and privatization of the
British bus and coach industries in 1980 and 1985. In the latter work he
emphasized the need for a market in the road infrastructure as a sine qua non for
a market in transport operation. He is a member of the Chartered Institute of
Transport working party on road-use pricing.
GABRIEL ROTH is a consulting civil engineer and transport economist who has
specialized in the economics of highways since 1956 when, as Rees Jeffreys
Fellow, he studied the economic benefits of highway improvement at the UK
Road Research Laboratory (now the Transport and Road Research Laboratory).
In 1962-63 he served on the UK Ministry of Transport panel on road pricing, and
in 1967 moved to Washington DC to serve in the World Bank, which he left in
1986 on the publication of his World Bank book The Private Provision of Public
Services in Developing Countries. His earlier publications include A Self-
Financing Road System (1966), Paying for Roads: The Economics of Traffic
Congestion (1967), and (with Eamonn Butler) Private Road Ahead: Ways of
Providing Better Roads Sooner (1982).
ACKNOWLEDGEMENTS
The authors gladly acknowledge the comments of David Starkie on an earlier
draft of - the paper, while stressing that its arguments and conclusions are
entirely their own.
Thanks are due to the Reason Foundation of Santa Monica, California, for
permission to use material previously published in Policy Insight No 125
(November 1990), 'Perestroika for US Highways'.

5. 1. INTRODUCTION
The present system and its problems
There are 356,518 kilometres of surfaced roads in Great Britain, amounting to a
substantial area of land which stands at no value in any books, and is thus quite
outside the Property market.
The country has been well served by its highways since the turnpike system
developed them in the 18th century, making them the envy of Europe and
America. The past thirty years have seen the construction of motorways and the
improvement of trunk roads, on a scale comparable to the building of the main
line railways, and over much the same length of time. Yet the system as we now
have it is beset with major problems.
* Congestion now affects the arterial routes as much as it does the use of urban
and suburban roads. The volume of traffic on motorways has more than doubled
over the ten years to 1989; on other interurban roads it has increased by more
than two-thirds; and on urban roads - where congestion was already most severe
- it has gone up by a quarter. The waste of resources must make the
dispassionate observer despair; and yet it is tolerated by commuters crawling
through rush-hour queues, and by the freight transport and distribution
industry, where firms simply pass on to their customers the costs of motorway
overcrowding.
* Road transport is widely seen as anti-social, despite the advances in personal
liberty conferred by the private car on people of all social levels, and the fact that
the British industrial economy is ill-suited to the carriage of goods by rail. The
problem of lorries and cars shattering the peace of quiet towns and villages has
been reinforced in recent years by wider environmental concerns about the effect
of vehicle emissions on the global environment. The resultant controversy is
further fuelled by poor management in the rail-freight sector and by years of
reduced investment in commuter rail services, leaving the impression that
government transport policy is ‘pro road’. Yet in the absence of any market
discipline, no objective measurement of what 'ought' to be the optimum use of
funds is available.
* Politicization makes transport investment even less rational. As it is, all funds
for investment in the infrastructure, whether road or rail, are allocated by the
political process, so that everyone concerned has a strong incentive to exaggerate
their 'needs' in order to get bigger slices of the available resource. This must tend
to magnify the problem as it is presented, in the press and by the various
interested parties, but the fact remains that there is a wide public perception, no

6. doubt supported by readers in the light of their own experience, that conditions
on the British highway system are, in a word, unacceptable.
Four approaches to improvement
Those who advocate improvements usually take one or more of the following
positions:
* raise more money, just to keep the present system going - 'we know what
needs to be done, just give us more funding';
* improve the administration of the system - change the organization and/or
the staff;
* use better charging systems and investment criteria - apply to the roads the
principles of pricing and investment that are used to allocate scarce resources
elsewhere in the economy;
* change the ownership structure - allow the private sector to provide highways.
This paper will explore the latter three approaches. It will investigate the
potential for market-style solutions and suggest changes in
administra1ion, financing and ownership so as to increase the productivity of the
existing highway system and enable it to develop in response to the demands of
its customers - the road users.
The first approach- that of seeking new sources of public funds to keep the
existing system going -- will not be addressed, because the highway problem is
essentially institutional, and institutional problems cannot be solved simply by
throwing money at them. Further, in periods of pressure on government funds,
the potential for raising new investment money must be limited.

7. 2. IMPROVING HIGHWAY ADMINISTRATION AND
OWNERSHIP
The present situation
The division of responsibility for the British road system is shown in Tables 1
and 2. A substantial proportion of local authority expenditure comes in practice
out of central government grants, and technical standards are laid down by
ministerial circular, so that the extent of local freedom of decision-making is
limited.
Table 1. Public road length, 1 April 1989
Responsibility and type of road Kilometres
The national system 15,618
The local system –
Classified, principal 35,126
Classified, non-principal 110,230
Unclassified 195,544
The total system 356,518
Source: Transport Statistics Great Britain 1979-1989, HMSO, September 1990.
Table 2.48.
Notes: The national system consists of the network of motorways and trunk roads that are the
responsibility of the Secretary of State for Transport (in England) and the Secretaries of State for
Scotland and Wales. The local system consists of roads that are the responsibility of local
authorities. Classified principal roads, which include local authority motorways, are roads of
urban or regional strategic importance. Non-principal roads (subdivided into 'B' and 'C' classes -
though 'C' roads are not designated as such on maps and signposts) are those which distribute
traffic to urban and rural localities. Unclassified roads are side roads in towns and local access
roads in rural areas.
Conventional wisdom has seen to it that the provision of road services has been
unquestioningly assumed to be a proper function for government, whether
central or local. Private sector companies have been involved only by way of
bidding for construction or maintenance and repair contracts. In recent years
there have been examples where developers have agreed to build lengths of
road, usually quite short, as a condition for the grant of planning consent, and
they have been involved in constructing minor roads in housing projects since
the 1920s at least; but the idea of mixed funding has not been an acceptable
proposition in the UK.
Only with the announcement, in May 1989, that private contractors would be
invited to build new highways (on an alignments previously determined by the
Department of Transport) has there been a serious shift in government policy -

8. and even then, the idea that prospective investors might identify demand for a
highway, and back their judgment by offering to build and run it, is yet to be
implemented.
Possibilities for improvement
For any facility to be operated in an orderly and efficient manner, its ownership
has to be assigned unequivocally to a clearly defined entity, be it public or
private. The owner of a facility has an obligation to maintain it to relevant
standards, and a right to charge for its use, possibly in accordance with an
agreed scale. Ownership also carries with it the right to sell or lease the facility
or, if there are no buyers, the right to close it down or abandon it. This has
always been recognised in the case of public transport systems, whether road-or
rail, with the further proviso that a tax-funded authority may contract for an
'unwanted' facility to be continued by way of subsidy. But in the case of a
railway, abandonment may include the track as well as the service, whereas for
road transport, generally including urban tramways, the road itself invariably
remains - for, as we have seen, it is in no meaningful situation as to its
‘ownership'.
In the case of highways, then, the important objective is to ensure that each
highway, or segment of highway, has one owner, and one only, responsible for
its maintenance and operation, and clear funding sources (such as axle-weight
charges, congestion charges, a share of users' taxation, or even of local property
taxes). It might be that central government should initially remain in ownership
of the motorways and trunk roads (the 'national' system), with the remaining
loads being vested in the appropriate organ of local government. Bridge and
tunnel authorities would similarly retain their property rights. But whatever the
starting arrangements might be, the ability to transfer ownership, especially of
revenue-earning assets, would lead to far-reaching changes in the system, as less
suitable owners were replaced by more suitable ones.
At the same time that the ownership of public roads is clarified, and all loads are
under the management of clearly identified entities, it would be desirable to
improve the accounting and administration systems of these road entities to
ensure that their performance and costs are made known to road users and other
interested parties. To enable comparisons to be made, there might be a case for
introducing standard accounting and reporting formats so that the performance
of road entities could be monitored and compared with one another. In addition
to financial reports of the entities' incomes and expenditures, information should
be published on such key factors as pavement condition, accident statistics,
traffic speeds and volumes on major roads. In brief, this information would keep
road managers and others aware of how their systems perform, and at what cost.
Where appropriate, performance reports should enable comparisons to be made
with railways.

9. 3. CHARGING FOR HIGHWAY USE AND INVESTING FOR
IMPROVEMENT
A brief history of the Road Fund
At no time in the history of England has Parliament succeeded in discovering
and establishing a sound system of financing the construction and maintenance
of roads and bridges. An attempt to set up such a system was made in 1909, and
it is worthy of mention here, because the lessons from it are still valid.
Lloyd George's 'People's Budget' of 1909 provided for a vehicle tax, based on
engine power, and a fuel tax, which was initially 3d per gallon. The revenue from
these sources was intended to be used for improving the road system and to
transfer the costs of roads from the rates (local property taxes) to the actual road
users. While some road improvement was done, no relief whatsoever was
provided for the rates. A ‘Road Improvement Fund' (which later became the
'Road Fund') was set up, as a sub-account in the Treasury. According to Sir
Edgar Harper, economist and Chief Valuer to the Inland Revenue, the purpose of
the Fund was to provide 'machinery by which the owners of motor vehicles in
combination and under State guidance are enabled to spend money on roads for
their mutual benefits'. [1]
That radical solution to the problem of road finance was a total failure. The
semiautonomous Road Board, which had been set up to administer the Road
Fund, was wound up in 1919 and the responsibility was transferred to the
newly-formed Ministry of Transport (which for many years was markedly biased
in favour.of railways). Nothing was done with the increasing balance in the
Fund, until in 1926 the government repudiated the principle of linking road
taxation to road finance, and raided the Road Fund to increase the general
revenue of the state. Ten years later the road user taxes were diverted directly to
the Exchequer, and the Road Fund became a mere convention in the
government's accounts; it was eventually wound up in 1955. , Yet the successor
to the 'car tax' of 1909 is still often called the 'Road Fund tax'; such is the tenacity
of an idea.
Reasons for failure
The reasons for the failure of the original Road Fund were:
* First, both Parliament and the Treasury were hostile to the idea of having no
control over monies raised by taxation;
* Second, members of the Road Board, who were appointed by the Treasury and
were not accountable to road users, had no clear mandate for action, and allowed
the Fund balances to accumulate unspent;

10. * Third, as the funds were raised on a national basis, and were to be spent
nationwide, there were linkages between payments by specific road-users and
the expenditures made on their behalf; and
* Fourth, unlike the toll roads and canals of the eighteenth century, the railways
and ports of the nineteenth, there was no private sector entrepreneurship in the
selection of investments, in the maintenance of assets or in the pricing of their
use. The Road Fund system was an attempt to improve a governmental
operation with the private sector providing the funding.
Britain's roads have remained largely a governmental operation ever since. Road
provision is driven not by commercial markets but by politics and, as may be
expected, road users get poor value for their money. Table 2 shows the latest
available data on road expenditures compared to payments by road users.
Table 2. Public expenditure on roads and payments by road users, 1989/90
(£million)
EXPENDITURE INCOME
Responsible Capital Current Vehicle taxes Petrol taxes
National 1,573 134
3,000 9,700
Local 904 1,913
£4,525 £12,700
Notes: 'Capital' includes new construction, improvements, reconstruction, new road surface,
maintenance of bridges and other road structures, and some VAT later reclaimed. 'Current'
includes minor repairs, routine and winter maintenance.
Source: Transport Statistics Grftlt Britain 19791989, HMSO, September 1990. Table
1.17.
The British fiscal system makes it difficult if not impossible to identify the extent
to which these funds come from national or local taxation, but a substantial
proportion of current as well as most capital expenditure comes by way of grant
allocations by central government.
That there are powerful interests opposed to the use of dedicated funds for
highway construction and maintenance does not in any way weaken the case for
a radical reform of the existing system. Richard Marsh, a former British Minister
of Transport, suggested the creation of a corporation to be called ‘British Roads'
[2] and some of the implications of this idea will be examined later in this report.
What is plain is that the present system is a mess. In Britain, too, highway funds
have been diverted into the subsidy of public transport. In the city of Sheffield it
was expected that total-subsidy (‘fares-free') bus services would so reduce car
use as to make equivalent savings on road maintenance: bus travel rose as it
became cheaper, but road expenditure did not fall so as to balance the budget.

11. (The ‘fares-free' situation was never reached, but the underlying assumption was
shown to be unfounded).
But it is not the purpose of this paper to argue that total expenditures on roads
should equal the amounts paid in road-use taxes, or that government has no
right to tax road users. The case we wish to make is that the payments for road
provision should be separated from the taxation of road users and that,
irrespective of Parliament's prerogatives to tax, mechanisms should be
developed to enable road users to efficiently ‘spend money on roads for their
mutual benefits.' What is needed is a clear accounting for the sources of funds
used to support expenditures on roads...'.[3]
PRESENT DEFICIENCIES
Average pricing
An efficient system of highway charging would require users to pay the costs
that they themselves cause. But present systems of paying for roads are far from
efficient, since users are not required to pay the costs that arise from their own
choices. Instead of individuals paying the costs arising out of their own use of
highways, total costs are divided among groups of road users, with individuals
paying through road taxes a weighted average of the total costs incurred. In this
way, there is only a weak link between those who impose heavy costs and those
who have to pay the resulting bills. The point was put as follows by Thomas B
Deen, currently Executive Director of the US Transportation Research Board:
When all users of both high-cost and low-cost facilities pay the same tax, the result is
equivalent to the situation of an electric company which decided to eliminate individual
electric meters and to bill customers not on the basis of individual consumption, but by
measuring total power usage and charging each consumer an equal part of the total bill.
Not only is this inequitable; more importantly, it will eliminate incentive for conserving
electricity. Many new houses would be heated with electricity, since an individual's cost
would not be increased by a decision to install electric heating. Demand for power would
soar, and new investment would be needed for new generating facilities. There would be
no real basis for determining the proportion of total resources that should be devoted to
power generation. [4]
Under the present system there are of course some differences between
payments made by individuals; owners of trucks pay more than owners of cars,
and those who consume large amounts of fuel pay more than those who use
little. But these differences are too small to influence the behaviour of those who
impose particularly heavy costs on the highways, especially in the categories of:
(a) owners of heavy-axle trucks, and (b) users of congested roads.

12. Profitless investment
The application of 'average pricing', whereby the total costs of highways are
decided politically and then divided 'fairly' among users, logically leads to the
result that highways should make neither profits nor losses. How then are road
investment decisions made?
In the absence of market criteria of profit and loss, these decisions are made by
civil servants in the light of advice on highway 'needs' received from professional
staff. The assessment of highways 'needs' in all countries today is based on
mechanistic investment planning processes that are essentially the same as those
used with disastrous results in the Soviet Union and Third World countries.
Decisions on where to invest highway monies are not taken in response to the
needs of road users as expressed by their willingness to pay, but as a result of
administrative allocations often governed by political priorities.
In the UK, as elsewhere, traffic forecasting is used to determine investment
requirements, depending in its turn upon sophisticated model-building
techniques. The process has come under severe criticism from users, trade
associations, and pressure groups, especially since the notorious example of the
London orbital road (the M25), which was grossly overcrowded within weeks of
its completion. To the layman, it might seem that the forecasters' models fail to
recognize the highway version of Parkinson's Law - that traffic will expand to fill
the roads available. This law would seem to hold in the absence of any form of
point-of-use pricing.
Even when there is no question of impropriety, investment decisions made on
the basis of official assessment of needs cannot adequately reflect the preferences
of road users. Thus, writes Alan Pisarski, 'the process of investment in the road
system can become independent of demand... In a process not governed by
economic criteria, the roles of financial aid from other levels of government can
be very seductive and deleterious, reducing the effective costs of money and,
thereby, distorting investment decisions'. [5]

13. POSSIBILITIES FOR IMPROVEMENT
Vehicles with heavy axles
In their recent book, Road Work: A New Highway Pricing and Investment Policy,
authors Kenneth Small, Clifford Winston, and Carol Evans re-examine the costs
imposed on US roads by heavy axle loads and by users of congested roads. [6]
They conclude that the recovery of these costs from the individuals in those
groups would raise sufficient funds not only to maintain all heavily used roads
in good condition but also to finance the costs of expansion to the extent desired
by the users.
It is well known that the damage caused by vehicles to highway pavements is a
function of axle weight. The American Association of State Highway Officials
(AASHO - the predecessor of the present American Association of State
Highway and Transportation Officials - AASHTO) evaluated the effects of axle
loadings on pavement life in the 1940s and 1950s. While the precise relationship
between damage and axle weight varies with circumstances, the research
indicates that damage increases approximately in proportion to the fourth power
of axle weight. This 'fourth power rule' means that a doubling of a vehicle's axle
weight can increase the damage it inflicts on the highway by 2 x 2 x 2 x 2 =16
times. Thus, an 80,000 lb truck with its weight equally distributed over five axles
does as much damage to a highway pavement as about 10,000 automobiles with
two 2,000lb axle loads (5/2 x 8 x 8 x 8 x 8= 10,240).
A rational charging system for heavy vehicles would take account of this, in
order to encourage operators to reduce road damage by equipping their vehicles
with more axles. For example, a two-axle vehicle weighing 24 tons would cause
over three times as much damage as a similar vehicle equipped with three axles.
New Zealand does in fact tax its heavy vehicles in a manner that encourages
hauliers to minimize axle weights (rather than vehicle weights) but the UK does
not.
A policy of taxing heavy vehicles in rough proportion to damage caused,
coupled with a road-strengthening programme, would produce substantial
benefits to the economy without imposing corresponding costs on most hauliers,
who could benefit from reduced fuel taxes and registration fees. Some (for
example, those using two-axle vehicles) could become worse off, but even their
loss could be mitigated by giving them time to replace their equipment or by
aiding them financially to do so.
Vehicles causing congestion
The direct costs imposed by users of congested roads are perceived to be the
slowing down of other users. The sole user of a motorway can safely travel on it
at a high speed, but congested conditions can bring all traffic to a stop. This
congestion can only occur because the road is almost freely open to users to
crowd onto it and degrade the quality of its service.

14. In this sense congestion can be seen as arising out of the absence of pricing
which, in a market economy, serves the purpose of reducing demand and
increasing supply.
The levels of tolls required to maximize the output of a road system can be found
only by trial and error, but payments in the range of £1-£5 per day would be
likely in most cities. Calculations made for the San Francisco Bay area suggested
that, under the conditions prevailing in 1972, 'optimal tolls charged to
expressway users... would range from below 1 cent per vehicle-mile for off-peak
periods up to rush-hour tolls of 1-7 cents on rural roads, 2-9 cents on suburban
and 6-35 cents on downtown roads'. In Singapore a fee equivalent of £1.50 has
abolished city-centre congestion in the morning and evening peak periods. It is
levied by requiring those who drive cars into the central area in the morning and
afternoon peaks to purchase in advance daily or monthly windshield stickers,
which are observed by police at the entrances to the restricted zone.
To be efficient and effective, charges for the use of congested roads should be
applied selectively, with the prices charged reflecting congestion levels on
different road links, and at different times of the day, as is done in the case of
telephone charges. For this reason alone, collection at conventional toll booths
would be impracticable. It would also be sub-optimal because an efficient
charging system should enable charges to be levied without vehicles having to
stop. Electronic charging systems can perform these tasks, and one, utilizing
automatic vehicle identification (AVI), is already in successful operation in the
United States and elsewhere.
Some cities round the world already charge for the use of congested roads, even
without AVI. Singapore's area licensing system has already been mentioned. It
was introduced in 1975 and was almost identical to one proposed for Caracas in
1972 in a World Bank study. Caracas did not accept the proposal; Singapore did
and has been operating it without a hitch ever since, and is now planning to
upgrade to electronic AVI. Since 1986 the Norwegian city of Bergen has been
levying a charge of 5 Krone (about 44p) for cars entering the business district; the
revenues are used for road improvement. Oslo has implemented an 18-gate 'toll
ring' around the central core of the city. Each toll booth has one or two AVI lanes.
Congestion pricing has also been considered in the Netherlands, but has been
postponed. The United Kingdom Chartered Institute of Transport recommended
in 1990 the early introduction of AVI in London. 18]
Automatic Vehicle Identification (AVI)
AVI methods depend on vehicles being equipped with electronic identifiers,
known as transponders, which reflect unique identification signals when passing
through radio beams emitted by 'readers'. This equipment is routinely used to
identify aircraft, railcars, and containers, and has been tested on vehicles for
more than twenty years. In the 1970s, for example, Los Angeles buses were
equipped with transponders for management control purposes. In the same
period the New York Port Authority was testing transponders with a view to
using them for non-stop toll collection. In the 1980s, around 3,000 vehicles in

15. Hong Kong were equipped with transponders. In all these systems the
transponders were fixed securely to the underside of the vehicles, and the
readers were located under the surface of the highway.
Since 1989, some 14,000 users of the Crescent City Connection 12-lane bridge in
New Orleans have had the option of paying their tolls without having to stop,
thanks to AVI equipment designed, manufactured and operated by the Amtech
Corporation of Dallas, Texas. Unlike the systems tested earlier, the Amtech
transponders, which are called Tolltags, are credit-card sized portable units
displayed on the windshields of users' vehicles. The readers are on overhead
gantries. Tolltag holders make deposits to their Amtech accounts - $40 being a
typical payment - and their accounts are drawn down as the Tolltags signal the
vehicles' passage along the tolled facility. When the amounts deposited are
almost drawn down, Tolltag holders are invited to deposit the next installment.
As Tolltags reduce toll collection costs, New Orleans offers users a 30 per cent
discount on the regular toll rate.
Following the successful introduction of their system in New Orleans, Amtech
took on a more ambitious assignment in their hometown of Dallas: offering
Tolltags to users of the 62 toll-collection points of the 17 mile Dallas North
Tollway. As the Tollway Authority does not provide Tolltags without charge, the
21,000 or so Tolltag users in Dallas have to pay $2 per month rental, and a five
cent toll surcharge to cover the costs of the equipment. Despite this, over 24,000
Tolltags were issued in Dallas in the first ten months of the system's operation,
and over 36,000 transactions a day are recorded there. Eighty per cent of users
arrange for the transfer to the toll authority's account to be made automatically
by credit card, so that once their accounts are set up, Tolltag holders need do
nothing to keep them open, except to pay their credit card bills. The Amtech
Tolltags have performed well, with no misreadings reported.
An AVI system named Fastoll is to be introduced in the Washington DC area, on
the DuIles Toll Road, in 1992. As in the case of the Dallas North Tollway, use of
the system will be voluntary, but a high response will be encouraged because the
Virginia Department of Transportation, which operates the Dulles Toll Road,
expects to make substantial savings in operating costs from automated non-stop
toll collection. Therefore, Fastoll users will be offered dedicated lanes to
maximize time savings and are not to be charged for the use of transponders.
Other electronic systems have been proposed. In Cambridge, a system is
proposed that would work like phonecards which lose value as they are used up,
without being linked ,to particular individuals or automobiles. This is not the
place to go further into the technica1details of automatic toll collection. Suffice to
say that both theory and practice indicate that the collection of payment for road
use without toll plazas is today as technically feasible as paying for telephone
use without coin-operated call-boxes.

16. Dedicated road funds
Less radical than toll systems, but still an improvement on the present situation,
is the idea of a dedicated road fund. Thirty-one US states already have dedicated
highway funds, and as we have already seen, there once was such a fund in the
United Kingdom.
However, both fairness and efficiency require that such funds do not
discriminate against the private sector, so that privately provided public
highways can get their fair share of revenues generated by their traffic. The idea
of paying private road providers in proportion to the traffic generated on their
roads was discussed in Britain in the 1980s; these payments were dubbed
'shadow tolls', as the road providers were to receive funds without the traffic
having to make additional payments. [9]
Even if congestion and axle-load taxes were introduced, other revenue sources
would still be necessary to cover the costs of highway management - costs such
as policing, signposting and administration. These costs could conveniently be
covered by a modest fuel tax. A fuel tax might also be used to cover the costs of
maintaining underutilized rural roads. Dedicated road funds that do not
discriminate against privately provided roads might provide the best
mechanisms for funnelling payments from road users to road providers - public
or private - in areas in which congestion, and heavy axle loadings do not pose
significant problems. A modem Road Fund in the UK might work along the
following lines.
Re-establishing the Road Fund
Purpose of Road Funds. The purpose of the Fund(s) would be exactly that
expressed by Sir Edgar Harper seventy years ago as we have already noted,
namely, 'to provide machinery by which the owners of motor vehicles in
combination are enabled to spend money on roads for their mutual benefits'.
How the Fund might work. Road users would pay into a U.K. national fund (or,
preferably, into separate funds for England, Scotland, Wales and Northern
Ireland) by means of special charges on fuel, and (for heavy lorries) amounts
equivalent to the damage caused by their axles, as proposed above. The revenues
thus raised would be distributed, motorway by motorway, county by county,
city by city, in proportion to traffic, due regard being paid to the proportions of
'heavies'. The revenues would not be paid to a government department but
lodged in private banks under the care of trustees appointed by representatives
of road uses. The trustees would have one function only: To organize national
traffic counts and distribute the funds in accordance with the agreed formulae.
Payments into the Fund(s). The total amounts paid into the Fund by road users
would initially equal the total governmental expenditures on roads, so that the
change-over - from the present to the new system would be 'fiscally neutral' - the
contribution of road users to general revenues would remain the same. However,
once the new system gets going, only the amounts payable into general revenues

17. would be determined by Parliament. The amounts payable into the Road Fund(s)
would be determined by associations of road users, in the light of proposed
expenditures. The involvement of road users in the determination of road user
charges is well-established in New Zealand: 'User groups - trucking, agriculture,
bus and car associations - are consulted when charges are set and are quick to
mobilize when attempts are made to undertake inessential expenditures, or to
divert funds'. [10]
Payments out of the Fund(s). On the basis of traffic counts, the trustees would
pay out the funds to the organizations owning the roads, in proportion to traffic.
Thus, each road would have an earning power, and the earnings would accrue to
its owner, which might be a motorway, a city, a county or a private company.
This arrangement would not necessarily involve the privatization of the roads, as
the vast majority of road owners in Britain would be public-sector entities - the
local authorities. But their roads would become revenue-generating assets. Some
could be organized as self-financing publicly-owned 'roads utilities'; some might
become suitable for privatization.
Options of the road owners. While the Road Fund trustees would have no
option but to disburse the funds they collect, the road owners would have
alternative options within a general requirement to cater efficiently to the needs
of road users. They could, for example, as is the case with existing highway
authorities, raise or reduce maintenance and/or safety standards; they could
build new roads; they could close down or sell off roads; they could (as was
intended in the original road fund) reduce local rates; they could (which existing
local authorities cannot easily do) vote themselves large salaries. The extent of
the freedoms to be enjoyed by road-owning organizations is a question that
needs further attention.
Payment by property owners
In the case of lightly used roads, such as are to be found in many rural areas,
there may not be enough traffic to generate the funds required for maintenance.
[11] In some cases, payments by property owners, either through voluntary
associations or through property taxes, could be the best way to keep such roads
open. In others, specific subsidies would be appropriate.
Vehicles causing pollution
This paper cannot deal with the problems caused by pollution-emitting vehicles
because so little is known about the magnitude of the costs involved. But it is
clear that pollution charges, equal to the costs caused by pollutants, would be a
much more efficient solution to this problem than Europe-wide regulations of
the kind being discussed. To the extent that pollution problems are serious in
certain places at certain times, policies should be designed to discourage the use
of polluting vehicles in those specific areas, rather than to prohibit them in rural
and urban areas alike.

18. Donald Stedman, a chemistry professor at the University of Denver, has
developed a device for assessing pollution charges, by measuring the carbon
monoxide emissions of vehicles as they pass a sensor. This device can enable
road authorities to detect precisely which vehicles pollute. A programme to
identify the worst polluters and deal with them could cost £25 per ton of carbon
monoxide removed. (12]
Investment criteria
If road use were to be charged for on a market basis - that is, users being required
to pay for costs imposed, including congestion and pollution costs - the
investment criterion of profitability could be used as a yardstick for investment
decisions. This would have two obvious advantages: (a) investments made on
this basis could be compared with other revenue-earning ones, including
especially railways, and (b) such investments could be carried out by both the
public and private sectors. By definition, use of the profitability criterion would
result in a self-financing highway system, independent of general revenues. Self-
financing is now taken for granted in the electricity, gas and telephone services.
Under conditions of congestion, the price of road use would be determined by
congestion levels, in the same way that office rents are determined by occupancy
levels. Additional investment would increase highway capacity, and hence
reduce congestion and the appropriate congestion charges. If highways were
supplied by competitive markets, the equilibrium prices on different road links
would be those that generated the funds required to operate the highway system
and increase its capacity to the point at which congestion was reduced to levels
acceptable to users.
It may be objected that this statement is merely utopian, and plainly we shall not
see the introduction of competitive road prices for a long time to come. But the
installation of property rights in highways, even though such rights remained in
public ownership for the time being, would enable a start to be made at assessing
equilibrium prices, and improving the criteria for new investment.
The road not taken
The idea of charging for the use of congested roads is not new. Sir Alan Walters
discussed the subject in 1954 [13], while Milton Friedman and Daniel Boorstin
were working on a similar proposal at the same time, apparently without
knowledge of the work being done here. [14] In 1959 William Vickrey of
Columbia University proposed electronic road pricing in evidence to a
committee of the US Congress. [15] Following a Ministry of Transport report in
1964 [16], the subject received intense investigation in the UK, with the Road
Research Laboratory (now the Transport and Road Research Laboratory)
assessing the contemporary technical devices and modeling their likely effects on
traffic movement. Hong Kong tested the equipment in the early 1980s and
concluded that there were no technical problems in identifying road users in
congested areas and in billing them at their homes or workplaces on a regular
basis.

19. Proposals for market-based solutions to the urban transportation crisis were
developed in 1990 for the San Francisco Bay Area by the Bay Area Economic
Forum (BAEF), a partnership of the Association of Bay Area Governments and
the Bay Area Council. Taking as their starting point the need to reduce traffic
levels in order to improve air quality, BAEF published a two-part report which
examined some of the economic, technical, and public policy ramifications of (a)
requiring road users to pay the costs they impose and (b) linking the payments to
specific corridor improvements. [17]
Nevertheless, the idea of charging for the use of congested roads is still
hypersensitive, and many politicians avoid the subject studiously. One reason for
this might be that many advocates of 'road pricing' discuss the notion only as a
way of restricting demand: the other effect of price - that of stimulating the
supply - is forgotten. Road users facing new charges can hardly be blamed for
seeing themselves as net losers from such a process. Those who depend on road
use will of course fear that they are threatened with exploitation by the
government, as the monopoly provider of road space today. Yet it is significant
that the Bergen scheme, whose revenues are dedicated to road improvements,
was found acceptable by motorists.
But if the public resists the charging of economic road prices by a public
monopoly, would it accept such a system if operated by competitive private
suppliers? This question cannot even be considered without exploring the
possibilities of the private provision of highways.

20. 4. PRIVATE PROVISION OF ROADS
WORLDWIDE EXPERIENCE OF PRIVATE PROVISION
Historical examples
In the beginning of the nineteenth century, hundreds of turnpike companies
operated in the UK and US. In Great Britain there were in 1830 1,116,tumpike
trusts maintaining 22,000 miles of toll roads, which accounted for about one-fifth
of the total road system. [18] These companies were financed almost entirely by
private capital and received tolls from road users. The British example was
followed by toll road companies in the US; in the eastern states alone turnpike
companies built and maintained 10,000 miles of road. Relative to the size of the
economy at that time, such investments in highways, were very large; in their
comparative magnitude exceeded the post-World War II public sector
investments in the Interstate Highway System. [19]
However, road development in the United Kingdom, as in the US, was
interrupted by the rise of the railways, which put most turnpikes out of business.
There was some development of private toll roads in the twentieth century, but
they, in their turn, were superseded by public-sector roadbuilding - though even
as late as 1933 there were in the United States over 200 private companies
operating toll bridges. [20] The demise of the turnpikes is often used to illustrate
the weakness of the private provision of public services, but the contrary is the
case: unlike public sector operations, private operations cease when demand
becomes inadequate. [21]
In Britain, the Turnpike Trusts had discriminated in their tolls against the use of ,
mechanical traction, and the development of the steam railway seems to have
been hastened by this. In consequence the traffic deserted them, and enabling
legislation was passed to facilitate their winding up. They did not, however,
actually own any roads, being responsible only for improvement (including
some re-alignment) and subsequent maintenance. They were unpopular, since
their tolls conflicted with the ancient definition of the highway as a 'right of
passage', and this attitude remains a barrier to radical reform in the United
Kingdom to the present day. [22]
Examples in modern Europe
In twentieth-century Europe, governments have been willing to rely on toll
highways, many of which had significant private-sector inputs.
In 1989 the United Kingdom reaffirmed its intention to involve the private sector
in the provision of toll roads.

21. In 1986 the government awarded a contract to Dartford River Crossing Ltd. (a
company jointly owned by Trafalgar House Plc and three financial institutions)
to construct a £225 million toll river crossing across the Thames at Dartford. The
1.7 mile crossing includes a 1,476-foot-cable-stayed centre-span bridge, the
longest in Europe. The crossing is to be transferred to the government free of
debt as soon as sufficient tolls have been collected.
In Italy, the toll motorway network was established in 1924 with the
commissioning of - the 30-mile Milan Lakes route, probably the first toll
motorway in the world. By 1990 the Italian toll network was more than 3,600
miles long. These toll highways are operated by 22 concessionaires, the largest of
which is the Autostrade Company, in which the state has a holding, and which is
responsible for the management of over 1,600 miles of toll motorways. The
Italian concession companies work closely with the government; they benefit
from government guarantees and, in return, are obligated to give the highways
to the state at the end of the concession periods.
Similarly, postwar France has relied on a system of private concessionaires to
provide over 4,000 miles of toll expressways. In 1982, the government
'harmonized' the toll rates with cross-subsidies to ensure that the financially
stronger concessions supported the weaker ones.
Public/private partnerships for the provision of toll roads are also to be found in
Spain, where over 1,200 miles of expressway were built by private
concessionaires. The government decides on the routes and specifications of the
expressways and invites companies to construct and operate them for periods
not exceeding fifty years. The government gave certain guarantees to the private
investors, and had to take over three of the eleven concessions when revenues
failed to cover costs. [23]
In Sweden, parliament has already passed a bill enabling new privately owned
toll roads and bridges to be built, and consideration is being given to a proposal
by the private sector to replace the existing Svindersund bridge between Sweden
and Norway. A consortium including road builders has offered to complete
Stockholm's orbital expressway with a privately funded link (which would
include six miles in tunnel) to connect Stockholm to the island of Nacka, and thus
reduce congestion in the capital city.
Developments in the United States
Until recently, US development of private sector roads was confined to suburban
areas, in conjunction with property development, and to private commercial
estates. The suburban roads are generally taken over by local authorities upon
completion but many of them, including facilities owned and operated by
shopping and commercial centres, are privately managed and maintained. In the
area of St Louis (Missouri), over 400 streets are owned and operated by
associations of local property owners.
However, a number of new toll projects are now under way, marking the rebirth
of private tollways here.

22. In the vicinity of Phoenix, Arizona, landowners wishing to enhance the value of
their property had a 28-mile public highway built at their own expense to local
authority specification. The construction was financed by loans taken out on the
security of the land adjacent to the highway. As the landowners expected to be
repaid by the increase in the value of their land, this privately provided highway
is toll-free.
In 1988 The Bridge Company, a private partnership, completed construction of a
private toll-bridge between Fargo (North Dakota) and Moorhead (Minnesota)
after voters rejected a proposal for public funding. Ownership of the bridge,
which cost $1.9 million, will revert to the two cities after the bonds are paid off.
In July 1990, Virginia gave final state approval for a 15-mile highway, which the
Toll Road Corporation of Virginia is planning to build, own and operate in the
vicinity of Washington DC, from Dulles Airport to the town of Leesburg. The
highway is to be privately financed, all the costs are to be recovered from tolls. It
is to meet expected demand in a rapidly developing area and has the backing of
the local authorities and of the state governor. The state approval process took
almost four years, but construction is now expected to be completed in 1993.
In the Summer of 1989 the California legislature passed a bill (AB 680) that
enabled the California Department of Transportation (Caltrans) to develop
partnerships with private entities to design, build, and operate toll highways
under 35 year leases on state-owned rights-of-way. Caltrans promptly
established a Department of Privatisation charged with the task of arranging four
demonstration projects, of which one has to be in northern California and one in
the south. Ten consortia submitted proposals, and the four winning teams were
selected in September 1990. Implementation was delayed in 1991 by
environmental and other political opponents.
Private roads elsewhere
To relieve congestion on the existing airport road, a private-sector group is to
begin construction in Bangkok of an expressway over the existing highway,
which is already often operating at full capacity. The overhead highway is to be
toll-financed, and the existing one to remain toll-free.
Private projects also are underway in Malaysia, where a consortium is building a
major , north-south tollway for $770 million. The Malaysian government also
requested proposals for a second highway/bridge link to Singapore.
In Latin America, the Salinas government in Mexico announced plans in 1989 for
at least 2,500 miles of private tollways, with the first two projects already under
way. In September 1989, a private consortium began constructing a 164-mile
tollway from Cuemavaca to Acapulco, and the first private toll bridge is under
construction linking Juarez with EI Paso, Texas, across the Rio Grande. Improved
highway connections to the Texas border are also being built between Monterey
and Laredo, to enable traffic from Monterey to by-pass the delays at Nuevo
Laredo. A consortium of five Monterey companies has raised $200 million for the

23. project, and they received a franchise to operate the roads for eight years - or
longer if needed - to earn a 15 per cent annual return.
Types of private involvement
Looking at the various examples from around the world shows that the private
sector is flexible and can serve in a variety of ways to improve highway services,
for example:
* Unencumbered ownership. In this role the private sector takes full
responsibility for the project and all financial risks and is entitled to all the
rewards. While common in the competitive sectors of the economy,
unencumbered ownership is rare in the provision of highways because of the
public-sector interest in regulating tolls and other aspects of highway projects.
* Franchises. In this role the public sector contracts with a private entity to
provide and operate a highway. Under ‘Build-Operate-Transfer' agreements,
private investors raise the money and build highways at their own risk, operate
them for an agreed period, and then transfer ownership of the highway to the
public. California has decided to use the B-T-O ('Build-Transfer-Operate') variant
on-this theme and will take formal title to privately built highways before leasing
them out for private operation, in order to relieve private operators of the need
to insure against public liability claims.
* Management contracts. In these cases the Public sector undertakes the initial
investment and contracts with the private sector to manage its operation. It is
common in the United States for highway maintenance to be contracted on this
problem in urban areas.
It is relevant to note that railway-building in the nineteenth century was
sometimes undertaken in this way. The French government, for example,
divided the country up into areas and invited franchisees to tender to build and
operate on 99-year leases.
Obstacles to private provision
In view of the failure of governments the world over to meet the needs of road
users, why are not more highways provided by the private sector? Roads are not
'public goods' in the sense that those who do not pay for their use cannot be
excluded. On the contrary, payments for road use can be heavy and difficult to
avoid. Six obstacles to the private provision of roads are often cited: difficulty in
getting necessary rights-of-way; difficulty in road providers getting paid;
competition from public-sector 'free' roads; uncertainty about legal liability;
concern about equity and the fear that poor people will be unable to travel; and
the potential for private owners to extract monopoly rents on their routes.

24. Getting the right-of-way
The private provision of roads is often dismissed as a serious possibility on the
ground that only by the use of the powers of eminent domain - the power of
government to appropriate private property for public use - can the required
rights-of-way be assembled. This problem, through serious, may be addressed in
at least three ways:
(a) There are numerous cases in which rights-of-way suitable for highways are
readily available in existing transport corridors. The Dulles Toll Road in the
Washington DC area, for example, was built alongside the existing Dulles
Airport Access Road. Underutilized railways can also provide opportunities for
new highways.
(b) The options available to the private sector to purchase land are often
underestimated. For one thing, the private sector - unlike many governments -
can carry out quick deals with landowners without having to go through time-
consuming statutory procedures that, inter alia, limit the amounts payable.
Furthermore, private entrepreneurs often have the choice of more than one route.
Pipeline builders, for example, regularly consider alternative routes, negotiate
with different groups of owners, and settle with the first group that comes up
with an acceptable arrangement.
(c) Finally, there.is the possibility of government using its powers of compulsory
acquisition to enable private investors to purchase land. This was generally done
in the railway age without the private sector giving up the rewards of successful
investment nor the risks of unsuccessful ones.
Getting paid
If simple institutional arrangements are in place, such as have been outlined
above, there is no reason why payments made by road users cannot be routed to
private road providers as easily as to public providers. Indeed, private providers
are more likely to ensure that monies payable are actually paid. (In the UK,
evasion of excise duty is sufficiently large that a special 'blitz' was deemed
necessary in early 1991).
As we have seen, there are many ways in which private road providers can be
paid, even where the levying of tolls in the traditional way may be inappropriate.
At its simplest, highway trust funds that do not discriminate against privately
provided roads can be made to allocate to any road owner the amounts due on
the basis of traffic counts. Alternatively, the development of AVI and other
modem methods of payment enables highway providers to levy appropriate
charges where costs are particularly high, as on congested roads.
Competition from 'free' motorways
Even a brief review of the history of toll roads indicates that competition from
free roads is a major obstacle to the private provision of roads. To expect private

25. investors to risk their funds on a road that requires payments from users, when
alternative routes do not require additional payments, is to expect a great deal.
This argument has been used against privately built toll by-passes, for example -
the problem being that some drivers would prefer to go through the town centre
for nothing rather than pay £1 or more to use a new by-pass.
Some of the disincentive could be mitigated to a considerable extent by the use of
dedicated highway funds that do not discriminate against the private sector. In
some situations the funds generated in this way on a privately provided road
might be sufficient to recover all its costs; but even where they were not, the
existence of earnings from a highway fund would enable a lower toll to be
charged by the private provider than would be the case if he were deprived of
the revenues from road user charges earned on his road. A lower toll - or zero
toll - would also reduce the amount of traffic diverted from the privately
provided road to the free, publicly provided one.
Uncertainty about legal liability
This is regarded as an especially serious problem in the US and, for this reason,
the private firms that are to receive franchises in California will lease, rather than
own, the highways they are to operate.
However, it is hard to see this as a really serious problem, even in the US. Private
owners of local roads associated with shopping centres have Jived with this issue
for years and have no difficulty in obtaining liability insurance. Toll highways,
such as the New Jersey Turnpike, obtain insurance without difficulty and the
claims experience is wide enough to enable the insurance industry to set rates.
And so it seems quite probable that in other countries legal liability would not be
much of an obstacle.
Equity arguments
One of the standard objections to the private provision of any public service is
that it would be unfair, especially to the poor. However, in reply it must be said
that the present system discriminates against low-income people and that the
revision proposed would help many of such people, for the following reasons.
(a) First, as road space is currently not used economically, an important class of
gainers would be those who do economize in its use, namely; the users of public
transport, in which the poor, the very old, the very young, and the disabled are
heavily represented. Public transport operators’ costs would be considerably
reduced, even after paying a toll.
(b) Second, there would be important gains to those who live in urban centres,
who tend to be heavily disadvantaged. One of the main causes of distress in city
centres is the poor accessibility that prevents low-income people from travelling
for work, shopping, and other important activities. All these would benefit from
increased economic activity that would arise from the more efficient use of
congested city-centre roads.

26. (c) Third, to the extent that low-income workers live in city centres, they are less
likely to be affected by congestion charges imposed on traffic travelling in peak
directions.
(d) Fourth, to the extent that the measures would reduce air pollution in inner
cities, the main beneficiaries would be the poor. (24]
(e) In addition, there could be substantial gains to local authorities that allowed
their congested roads to be operated at a profit: rents and taxes payable for
profitable road space would allow them to reduce taxes and/or increase services
to low-income people. It is difficult to see how, on balance, the provision of
highways in accordance with market criteria can be considered 'inequitable'
when compared to the present situation.
The monopoly problem
A common objection to the private provision of public roads is that road owners
would be monopolists and thus in a position to exploit their customers. Before
dealing with this issue a preliminary point should be made. Monopolies are not
new to road users. We confront them almost everywhere: when we find
ourselves held up in a long tailback on the way in to London or when our shock-
absorbers are broken by pot-holes in Liverpool, we do not have the option of
choosing another road supplier.
And where our road taxes are not even dedicated to road provision, the outrage
is compounded. In countries as diverse as Britain and India, road users are
forced to pay high road-use charges that serve to augment the general revenues
of their governments. In most countries, in fact, none of the highway taxes
collected are dedicated to road improvement. So the issue is not monopoly
versus competition but whether private highway suppliers can improve the
workings of existing systems dominated by government monopolies.
In the case of local roads, we have some relevant experience by which to assess
the monopoly question. Private ownership of streets is accepted in St Louis
(Missouri) and in commercial and residential new developments. While
dissatisfaction with maintenance on privately owned streets occurs from time to
time, no cases have been reported of homeowners or businesses being denied
access to their premises by street owners.
In any event, the remedy against monopoly is obvious: so long as private
investors are permitted to add competitive links to the network and to charge
competitive prices, road users would enjoy some protection from exploitation
from monopolists. Users would be protected from excessive charges by
competition or even by the threat of competition. But where users have no
alternative routes, regulations, comparable to those governing bridges and
tunnels across or beneath waterways, would be required to prevent the
exploitation of a monopoly.

27. Advantages of private provision
In the same way that most telephone users in countries such as India and the
Soviet Union have great difficulty in appreciating the advantages of private
telephone companies, so most road users in the UK have difficulty in imagining
any advantages from private road provision. Yet these could be very significant
on many fronts, as follows.
* Depoliticization. Privately provided highways are more likely to be provided
in response to users' needs than government programmes that respond to
political priorities.
* Pricing and investment. Highways that have to cover their costs are more
likely to be built where they are most needed and to standards for which users
are prepared to pay; and to charge fees that correspond to costs imposed. The
profitability criterion used by the private sector may not be perfect, but it is likely
to be preferable to the non-profit investment methodologies currently used for
highway planning, whose weaknesses we have already seen.
*Speed of response. Hallowed by the local planning processes, private providers
can get highways financed and built more quickly than governmental
institutions.
* Benefits to local authorities. As private commercial projects pay rents and
property taxes, privately provided highways can convert local authority roads –
especially congested ones - from money losers to money-makers.
* Revelation of costs. The accounting requirements governing the private sector
would ensure that privately provided highways would be properly depreciated
and would provide information on total highway costs, which is currently
difficult to get. Furthermore, the competitive pressure on private providers
would exert a constant downward pressure on costs and, for example, force
highway operators to take serious measures to protect their roads from damage
by overloading.

28. 5. THE ROLE OF GOVERNMENT
All levels of government have a legitimate interest in the existence of safe
highways, built to standards responsive to the economic demands of users. But it
does not follow from this that government has to provide the roads, or even
determine their standards. Government has a legitimate interest in a well-fed
population, but many would argue that it does not have to tell people what to eat
and most would agree that it does not have to operate food shops.
The argument advanced in this report implies a substantial adjustment of the
roles of central and local government. If, for example, monies that are distributed
in accordance with traffic flows, or some other agreed formula, are to be used for
highway finance, then central and local responsibilities must follow the funding.
The UK’s (rather centralized government structure would suggest that the role of
the state is to deal, with safety and economic regulation, both in terms of its own
highway responsibilities (the national system) and in setting standards for local
authorities - and private road operators, To ensure a proper division of function,
a new supervisory body, the Inspectors of Roads (similar to the Inspectors of
Railways, but with fiscal regulation as well as that of safety) might be set up
within the Department of Trade and Industry.
The Roads Inspectorate would have responsibilities for the standards of
construction and maintenance of roads comparable with those of the Railway
Inspectorate for rail track and signaling. If their fiscal responsibilities - advising
as to investment policy, for example - were to be given similarly to the Railway
Inspectorate, and the two bodies were to be responsible to a single branch of the
Department of Transport, a considerable step would be taken toward the
achievement of a level playing field for road and rail policy.
Certainly the present system, whereby road users pay taxes to the government
which, in its turn, remits funds to the counties, cannot be justified, because of the
politicization it inevitably produces.
Trade and defence
Even though the government has vital interests in defence and in encouraging
commerce, it is not necessary for it to finance all major highways for these
reasons. If, for example, experts find that certain bridges are too weak to carry
tanks or missiles that are necessary to UK defence, there should be nothing to
stop the authorities putting the necessary work in hand, preferably with funds
appropriated to the MoD.

29. Safety in design and management
Safety concerns can require intervention both in the design of roads (for example,
to ensure that the geometry, surfacing, and signing of roads minimize accident
risks) and in their management (for example, to ensure that motor vehicles are
not driven in a manner that poses danger to others).
Administration
Central government and the local authorities also have the responsibility of
collecting some payment from road users., and ensuring that it is allocated,
according to law, to road funds or to general revenue.
A further role, discussed above, is to provide appropriate economic regulation to
ensure that private highway owners do not take advantage of any monopoly
situations they may have.
Congestion and underutilization
The local government level is particularly important in dealing with the extremes
of congestion and (at the other end) underutilization of roads.
Congestion can be addressed by the pricing methods discussed above, the same
principles being applied whether the roads are privately or publicly owned.
Congestion pricing, if the prices are of the right order, would not only relieve
congestion but also earn substantial revenues to hard-pressed municipalities and
enable them to reduce local taxes.
Underutilized roads in rural areas pose much more difficult problems, as they
cannot generally be financed by economic user charges. Unless such roads can be
financed by property owners (either through local charges or through owners'
associations), they would have to be subsidized or abandoned.

30. 6. RECOMMENDATIONS FOR ACTION IN THE SHORT TERM
Despite a continuing increase in highway receipts, the UK still faces an
infrastructure crisis in which expenditures have failed to keep pace with
maintenance and construction needs. Political considerations have guided
decision making on infrastructure expenditures, with the result that basic
maintenance has often been neglected. Administrative costs soar, leaving a
smaller proportion of revenues for actual maintenance and construction work.
But with politics, rather than economics, driving the decision making, it is not
surprising that we have an infrastructure crisis.
In this context, the principles of ownership, pricing and investment used in other
sectors of the market economy offer valuable policy tools both for improving the
efficiency of existing road operations and maintenance as well as for providing
resources to expand infrastructure capacity. This programme for reform contains
several key elements, as follows.
Clarify the ownership of roads
Before these assets can be transferred to private owners or operators, so that the
benefits of competition can be introduced, it is important to clarify who owns
roads now. In the United Kingdom this is not always obvious, and it would seem
logical to make the central government (the Secretary of State for Transport and
the Secretaries of State for Northern Ireland Scotland and Wales) the beneficial
owners of the national road system, with the remaining roads being vested in the
local authorities, after their proposed re-organization. The New Roads and
Streetworks Act of 1991 has gone some way to meet this requirement, but a more
radical change is still required if an equity is to be created. It might be necessary
first to purchase any property rights of frontagers, which probably exist where
roads remain on medieval alignments. The actual ownership of roads built by
developers and then 'adopted' by local authorities under general or special
legislation would require further examination.
Design standard performance and accounting systems
To enable the performance of roads and their managements to be assessed,
standard performance reporting formats should be designed, covering the
condition of roads, the quantity of traffic carried at different speeds, safety and
environmental measures, and financial data on monies received and expended.
Select an AVI technology
Although the introduction of AVI would in general be decided locally, it would
clearly be advantageous if transponders could be recognized on any part of the
highway network, in the same way that mobile telephones can be. Appropriate
national standards could be prepared by an industry group, perhaps with agreed

31. international status.
Use axle-load charges
While their novelty might excuse delay in introducing charges for the use of
congested highways, one an see no justification for allowing heavy axles to
destroy the nation's roads without the users being required to pay the
appropriate compensation. The charges could be levied by means of annual
licence fees, based on expected mileage, with hauliers being given the option of
having their vehicles fitted with metering devices to enable charges to be
assessed on the basis of actual loaded miles travelled. Within the European
Community the mileage data would be assessable from the tachograph disk,
which would bring into the system all heavy goods vehicles and public
passenger vehicles other than buses operating on local services. .Such charges
would: (a) encourage hauliers to spread heavy loads over more axles and (b)
raise the requisite amounts for road resurfacing from those who cause the
damage.
Establish dedicated road funds
To separate the payments made by road users for road use from payments made
for taxes, establish road funds for England, Scotland, Wales and Northern
Ireland. These funds would be held in private banks under the care of trustees
responsible to road users, and distributed by them to road entities within their
areas, on the basis of traffic counts, without discrimination against privately
provided roads. Initially, the amounts paid into road funds would equal the
amounts currently spent on roads.
Allow the provision of private roads
At the moment it is the government - or county planners - who decide whether
new roads will be built, and efforts to provide infrastructure privately face long
odds. Even where permission is given, the statutory conditions are so difficult to
meet that freedom to build is in practice denied. But if there is a shortage of road
capacity, why not allow newcomers to provide it? What is the point of allowing
the private sector to provide vehicles but not road space? (The American wit Will
Rogers is reported to have suggested that the way to end traffic congestion
would be to have the roads provided by the private sector and the vehicles by
the public sector.)
The statutory procedure in Great Britain today is clumsy and obsolete. It is
already recognised that change is desirable, in the case of light rapid transport
investment, and what is necessary there is equally essential for highways.
The law needs to be clarified, so that prospective highway providers know
clearly, in advance, what is, and what is not, permitted, and to eliminate any
discrimination against the private sector.

32. Start with bottlenecks
Once the legal background and the ownership of highways is clarified, and
financing mechanisms established that do not discriminate against the private
sector, the way would be open for the private provision of highways. A start
could be made with the construction of private for-profit roads to .relieve
existing urban or suburban bottlenecks. These would give road users immediate
choices of getting, for extra payment, better facilities. [25] Additional facilities
could be provided alongside existing motorways, as in the case of the Dulles Toll
Road or above them, as over Bangkok's airport road; congested roads such as the
Ml and M25 are obvious candidates for such new facilities.
Where the private sector shows that it can build and operate new highways
satisfactorily, some authorities are likely to find it to their advantage to transfer
existing roads to private owners or operators. There are a number of reasons for
this. First, a private operator would relieve the public authority of the costs
involved in highway operation; indeed, the public authority would receive rent
and rates for the use of its land, thus turning a financial liability into an asset.
Second, if private operators were allowed to impose economic charges to reduce
congestion the area would become attractive to individuals who place high
values on their time, and these individuals are likely to increase the prosperity of
the area.
Privatize bridges
Many road bridges need repair or replacement. Currently available funds are
inadequate to cover the cost of this work. Privatization could provide an
alternative means of rehabilitating or replacing high-volume bridges, with costs
being recovered through tolls or other means.

33. 7. RECOMMENDATIONS FOR ACTION IN THE LONG TERM
In the previous chapter a number of courses of action were outlined, such as
could be pursued immediately, and to the advantage of road users and
government agencies, central or local, alike. They would have a further
attraction, in that they would also be steps towards a new dispensation for the
provision maintenance, and use of the highway system. The point has already
been made that the fundamental weakness of the existing system is the lack of
any equity in the roads themselves. There is no balance sheet that indicates, in
cash terms, what are the costs and benefits of their provision and of their use. It
happens that, in the UK, this is true for the land owned by the British Railways
Board, but this is no reason why the same should apply to British roads. In recent
years, the privatization of the major utilities - gas, electricity, and water - has
brought them back into the market: the market for land.
In 1965 the Allais Report on transport tariff policy {26] recognized that the price
of using a congested road or railway, while reflecting the appropriate 'impact'
cost (wear and tear), should then be, in economic terms, a ‘quasi rent'. It
recommended that tolls should be set so as to even out the flows of traffic so that
the indifferent user moved to the less congested trade. This remains a compelling
argument, but underlying it there is the issue of who should own the
infrastructure system.
Privatize the roads
By creating an equity in. the highway system, albeit one that remained in the
ownership of central and local government, the first step would have been taken
towards the desirable end of moving roads fully into the market sector, through
the vesting of their ownership in privately owned and financed corporations -
public limited companies, in UK law. And were the infrastructure of the railways
to be privatized, the creation of companies owning both road and rail track, and
able to apply the Allais principle of charging, would become a reality.
Such companies would no doubt be active in new construction, financed from
their earnings and their future cash flow, but in the market thus developing, new
investment would be able to enter, and there would be constant pressure to
update and rationalize the whole system.
In urban areas, where land is inescapably in short supply, the local companies
would need to operate under the oversight of a 'watchdog'. All transport
infrastructure could be privately owned, with the new owners recovering costs
from road users, and from railway and light rapid transport operators alike, in
accordance with similar general charging principles.
As a final consideration, it could well be that some vertical integration would
develop, as substantial hauliers and coach companies bought shares in the track

34. companies, to try to influence their policies; motorists’ associations might seek to
do the same. And at the local level, residents' associations might seek similar
access - not least if they were themselves to take responsibility for local access
roads in their own areas.
These are the outlines of some potential advantages that can be foreseen; others
too may be expected. But the real argument for an extended policy of this kind is
(a) to restore the financial decision-making to the discipline of the market, and
(b) to move away from the monolithic and politicized administration of today,
towards a user-oriented range of firms with both the opportunity and the
incentive to innovate.

35. 8. CONCLUSION AND SUMMARY
Commands without order
While the UK relies on a market economy for most of its goods and services, it
still has a significant communal economy in which scarce resources are allocated,
not by the wishes of consumers and producers interacting through markets, but
by the decisions of politicians and administrators motivated by what they
consider to be the common good. Most UK roads are fairly and squarely in the
command economy, in which prices play minor roles and in which investments
do not have to pass the market tests of profit or loss. The results are the same as
those produced by command economies in Eastern Europe, Africa, and
elsewhere: overcrowding and queuing in some parts of the system,
underutilization of others, and physical deterioration.
The gradual transfer of roads from the command economy to the market
economy would result in more economic use of the existing system and in its
expansion in response to the wishes of its users. Significant economic gains can
be expected.
Those who have learned in recent years that taxes discourage economic growth
might have difficulty in understanding why increases in charges for the use of
congested roads can produce benefits. The essential point is that the pricing
system provides the best method we know to allocate scarce resources to urgent
and important uses. 'Free' or underpriced roadspace (like metered parking
charges that are too low to equate the supply and demand for onstreet parking)
leads to waste in the use of an important resource, and it is the elimination of this
waste that is the basis for the gains from market pricing. Furthermore, the
application of market pricing to highways need not result in road users paying
more in total; reductions in fuel and other road use taxes could result in lower
charges for the use of uncongested roads, while freer movement would reduce
costs too.
It is inevitable that, as in any transformation, there would be losers as well as
gainers. Losers would include motorists who would be induced by congestion
pricing to share their cars, or travel outside peak hours, or to transfer their travel
to less-congested roads. There could be losses to those who operate lorries with
heavy axle loads, and who would be forced by higher charges to switch to
vehicles with more axles. If the charge were to be spread over a number of years,
the costs to haulage companies could be minimal, but the railways may make
some gains at their expense. Other losers could be those, especially in rural areas,
who depend on little-used roads to maintain their accessibility, though as a
practical matter, existing roads would generally be 'grandfathered' for a period
to facilitate reform, as the savings made in public road budgets would, in most
cases, be more than sufficient to compensate the losers.
Of all the activities undertaken by government, few are worse managed than
highways. Traffic congestion in cities, the most glaring and ubiquitous example

36. of waste, is so taken for granted that it is regarded by many as some kind of
disease inherent in civilization. However, underused roads outside cities also
involve substantial waste, as does the tendency of politicians to prefer new
projects over the maintenance of existing ones.
The scourge of politicization
The attraction of new projects in this field was noted by Adam Smith in 1776, and
his words then still ring true today;
The proud minister of an ostentatious court may frequently take pleasure in executing a
work of splendour and magnificence, such as a great highway, which is frequently seen
by the principal nobility, whose applause not only flatter his vanity, but also contribute
to support his interest at court. But to execute a great number of little works, in which
nothing that can be done can make any great appearance, or excite the smallest degree of
admiration in any traveller, and which, in short, have nothing to recommend them but
their extreme utility, is a business which appears in every respect too mean and paltry to
merit the attention of so great a magistrate. Under such an administration, therefore,
such works are almost always entirely neglected. [27]
The inadequacy of the political system has been shown in many examples, and
most recently in the problems arising in Birmingham, where the completion of
the M40 motorway to London has not been matched by any action to link it with
the city centre, so that those whose homes or businesses lie in the southern
suburbs have to suffer the consequent congestion of their streets. In contrast to
the 'proud minister', the humble entrepreneur has every incentive to spend
money where a gain can be foreseen from improved utility.
The road to reform
Some improvement can be obtained by unravelling overlapping responsibilities
for highway management and by introducing business-oriented procedures to
road financing, but major improvements cannot be expected until road pricing
relates to costs imposed, and investment criteria to profits and losses. Provision
by the private sector should be allowed where the public sector is unlikely to
undertake the necessary expenditures in the near future.
Highways need better management, on a businesslike foundation. But a business
can be managed effectively because its ownership is clearly defined, with a duty
to the shareholders as the constant concern of management. It is the equity in a
business that counts: there is no equity in the roads, and, over most of their
mileage in the UK, they are not even a property. If we are to seek a market
solution to the highway problem, steps must be taken to clarify their ownership.
In the UK, as in most countries, there are problems of overlapping responsibility.
For example, the roads have been available to any utility company or board to
dig up at any time - we all have seen roads resurfaced, and then broken up again
within a matter of weeks. Legislation now provides powers for highway
authorities to control their 'customers', but it can at best be an ad hoc solution to

37. the problem, and it is a rather bureaucratic one at that. . There is need for a
radical solution.
The logic is inescapable: property rights must be created in roads. Without them,
electronic road pricing (now being examined by the UK Department of Transport
as a possible solution to the congestion problem) will be a hybrid and not a
market activity - and worse, will be seen by many as a means to extract
monopoly rents from road users.
There is no need for a nationwide monopoly to be created; comprehensive road
companies of various kinds would react to market pressures to provide
continuing improvement to the benefit of road users and all those who depend
upon an effective road system to supply their needs. And that means everyone.
Finding the right route
If the objective is, as it must be, to serve the interests of road users, ways must be
found to empower independent bodies to operate and maintain roads, and to
undertake improvements and new construction. In a market system, such
empowerment follows from ownership, but in the absence of a market for roads,
an ingenious government could create one. Highway companies could be set up,
initially as arms-length entities whose duties it would be to undertake such
responsibilities, but with the legal status of registration under company law. A
precedent for this is to be found in the former municipal bus companies and
airports, whose boards must take responsibility to ensure the solvency of the
business.
A precedent also exists for the funding of such companies by 'shadow tolls', such
as those provided for in the privately constructed motorways now being built in
the UK. Revenue flowing from designated charges- fuel tax, and an axle-weight
tax are but two examples - could be allocated to a central account, not unlike the
‘Road Fund' which was so badly misused, but outside the control of the
Treasury. The trustees of this fund would have the single function of distributing
monies in accordance with an agreed formula to the highway companies.
Electronic data sources would enable the formula to reflect the actual use of the
road or roads within each company's domain. The companies would then
possess commercial decision-making powers, and would balance their income
with their expenditure (which would of course include the payment of the
business rate or its equivalent to the local authorities in whose areas the roads
lay).
It is, of course, road pricing that makes the creation of such entities attractive. But
where it is not in place (and it is unlikely to be justified everywhere), the example
of the water companies shows that revenue can come from other sources. Roads
in rural areas might be financed solely from a property tax, as the water
companies are, while highway companies in congested districts might have a
two-part tariff, combining road pricing with a similar tax. (A further attraction of
this could be the ability of highway companies to deal with the problems of
tourist demand - a Lake District Highways Plc would be in a position to deal

38. with the problem of severe overcrowding in a way that the existing highway
authority can not)
Meanwhile, inter-urban companies could own parts of the motorways and trunk
roads, making the M1 competitive with the A1, and opening the way to funding
the East Coast Motorway from the private sector. Meanwhile, the roads of
Birmingham or Sheffield, along with other cities and the larger towns, could be
vested in similar public limited companies. The motoring associations might buy
shares in them, as might various commercial road users. The relevant functions
of the Department of Transport would no doubt be transferred to a regulatory
body, which might also prescribe minimum standards for design and
maintenance.
New thinking
The attraction of such a radical reform is reinforced by the new thinking about
the organization of railways that has recently emerged from Brussels; with the
endorsement of the House of Lords [28] This envisages the separation of
ownership of track and train operation, and the encouragement of a competitive
regime for the movement of passengers and freight. The present UK government
has committed itself to competition in the railway industry, and the implication
of this is to strengthen the case for the EC proposals. Economists have long
recognized the fundamental issues of track costs, and the opportunity exists now
for an extensive rationalization of the way in which the road and rail transport
infrastructure is financed. Then at last, the East Coast Main Line would also be
able to compete for traffic on equal terms with the M1 and the Great North Road.
The extent to which such disaggregation should be taken is a matter for debate,
but in the UK at any rate it would seem a rational course for the major
motorways and trunk roads, with their feeders, to be the responsibility of
highway companies. In some urban areas, and subject to guarantees about safety,
it may prove desirable to transfer the ownership or management of the main
roads into the hands of one or more private companies, while leaving local roads
in local ownership. [29]
Many other innovative arrangements may also be possible. The important point
is to establish a transport infrastructure framework that is based on the
customary rules of private property- and thus to enable road users everywhere
to obtain, through the market mechanisms of choice, competition, and pricing
that work so uncontroversially elsewhere, the road services which they are
prepared to pay for.

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40. 15 William Vickrey, statement to the US Congress Joint Committee on
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28 House of Lords Select Committee on the European Communities, Session
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29 On private management of local roads in urban centres, see Nicholas Elliott,
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