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Private roads

Asks David Cameron:

Why is it that other infrastructure – for example water – is funded by private sector capital through privately owned, independently regulated, utilities… but roads in Britain call on the public finances for funding?

It might work, too, if roads really were private, with no subsidies to road owning companies and no government meddling in their operations, though I would be surprised if it works like that. The article suggests that this thinking is motivated by tight government finances. I rather like the idea of the government being forced to privatise everything because it has run out of money.

The president of the Automobile Association is not impressed:

In the water industry we saw big companies make big profits initially, at the same time as water and sewage costs went up by 42% and 36%.

Big profits are not a problem in themselves. But why would end user costs go up after privatisation if private companies are so efficient and competitive? It could be that before water privatisation the real costs were hidden inside other taxes, or it could be that water privatisation, much like rail privatisation, was anything but.

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22 comments to Private roads

  • Dave Walker

    Hmm – so if we get a big drop in road tax and “OfRoad” (and there’s a pun, to begin with), would it be within their remit do decide how quickly we’re allowed to drive on these roads, and how free of potholes they must be?

    It sounds an interesting proposition, but of course it could go either way…

  • If fully privatised, roads would be far more expensive because they are natural monopolies* and so the owners are collecting rents far in excess of what it actually costs to build and maintain the road.

    * If you believe that new providers will magically enter the market and compete you’ve not reckoned with the Dead Hand of Landowner-Ism which trumps the Invisible Hand every time; you can’t build a new road until you have paid off all the NIMBYs, who hold the road builder to ransom in the same way as the toll bridge owner holds the motorists to ransom.

    In short, it is one of the shittest ideas I have ever heard.

  • Alsadius

    Or it’s possible that the new water companies are really just gouging the crap out of you. It’s not the only explanation, but it’s certainly a plausible one. They have a de facto monopoly, after all.

  • I’m not sure about monopolies. I’m inclined to think that everything competes with everything else. If roads were too expensive, people would take the train, fly, telecommute, or whatever. These forces would limit what road owners could charge.

  • I don’t believe it for a minute. You’ll still have to pay your “road fund tax” and a whole host of monopolies will gouge the hell out of you while simultaneously failing to fix any potholes whatsoever.
    just like the water companies who insist on metering your water and then presume to dictate what YOU do with YOUR WATER after it has left their pipes, because unlike a competitive company that increases supply in step with demand (to make money) they can simply increase the price and use the force of law to reduce demand (to make even more money!).

  • The trouble is that farming out a government function to the ‘private’ sector is actually not making that function not-a-government-function, it is just having a different bunch of people do the same thing the direct government employees did before.

    To truly make a difference, the government function needs to become not-a-government-function and the now private business needs to be allowed (indeed required) to act like a truly private business… and that included going bust and being open to competition to anyone with the capital do try and compete.

  • Grant Freedom

    If such a company were allowed to set their own speed limits – now we’re talking!

  • Alsadius

    Perry: Agreed, this is one thing that’s bothered me about a lot of privatizations I’ve seen. For example, where I live we privatized driver testing in the 90s. But by “privatized”, I mean “sold the monopoly to a single private company”, not anything that’s actually a good idea. Prices are still high and service is still crap, because it’s still a monopoly, but it’s private now. Whoop de doo. Politicians need to remember why they’re privatizing things, and not just think that moving it off the government’s books is the goal.

  • Simon

    A big part of the reason why the cost of water and sewage treatment has increased is because tighter environmental regulations have been introduced since privatisation. Water companies now have to treat potable water to a much higher standard than they did previously, and sewage also has to be treated more intensively so as to reduce the impact downstream of the sewage plant.

    That’s not to say that it isn’t a good thing that water companies are trying to reduce their impact on the environment; merely to point out that since privatisation the water companies have had to do much, much more, hence the rise in costs. Although it is worrying – if not surprising – how frequently these regulations are introduced with seemingly no consideration of the costs of complying with the regulation. This becomes quite entertaining when one considers that the tougher environmental regs have pushed up energy use, and have thereby pushed up CO2 emissions. The types of people who want us to reduce our impact on waterways are generally also the same types of people who are overly worried about the effect of CO2 upon climate change; it’s funny how infrequently they realise that the two goals are incompatible in this case, unless we start building nuclear plants everywhere. But I digress.

    As has been pointed out by other commenters, the fact that water companies have regional monopolies doesn’t really help matters either. But then if the government opened the market to competition by allowing customers to choose providers, that problem would go away, and I dare say prices would eventually drop.

    Oh, and FWIW, water companies currently aren’t allowed to gauge customers. Their prices are capped by Ofwat, and if a water company starts to make too much money, Ofwat will lower the price they are allowed to charge. Again, this sort of thing doesn’t really do much stimulate innovation; there’s less reason to do R&D into ways of doing things more efficiently because you won’t be allowed to keep the increased profits for very long (hence why R&D budgets for UK water companies are much lower than in many other parts of the developed world…)

    I realise that this isn’t directly relevant to the post, but I thought it’d be useful to explain how privatisation has worked in the water industry. The problems aren’t necessarily caused by privatisation, but – and try to contain your surprise here – by the government, by passing ill-conceived regulations and by trying to control the market. There are probably a few lessons to draw from this for any potential future privatisations.

  • 'Nuke' Gray

    I think that governments should own roads- including railroads. they should allow whoever pays licence fees to use both kinds of roads.

  • William H Stoddard

    I copy edit manuscripts for an organization involved in water conservation. One of the points I’ve seen made more than once—and this is, bear in mind, by a liberal environmentalist organization—is that local governments typically subsidize water, on the theory that it’s a necessity of life, and that this results in people overconsuming it and underconserving it, compared to what they would do if they paid the full market cost of the water. That might be relevant.

  • Regional

    Look to how they worked in Sydney, it would have been a lot cheaper for the government just to borrow and build, but a Labor Premier got a very nice jobe at a million dollars a year with the Merchant bank who arranged the finance.

  • Jaded Voluntaryist (formerly Libertarian)

    And yet the failings of the private companies to act as functionaries of the state is time and again used by smelly leftists living in “Occupy” camps in town centres to illustrate the evils of “Capitalism Innit”.

    Never mind that graciously allowing one company, without competitors, to sell the citizenry water at a fixed rate is not capitalism. I don’t know what it is – corporate communism?

    One almost wonders if this small injection of private companies into government isn’t designed to undermine the credibility of capitalism – which of course it is nothing to do with.

  • Simon: no, that’s very relevant and very useful. Thanks.

  • Snag

    I think Christopher Booker quoted the cost of applying additional EU regulations to the water industry at £85 billion.

  • llamas

    Two comments:

    In the US, toll roads (operated by semi-sort-of-governmental authorities) are consistently the best-engineered and best-maintained roadways anywhere. I don’t care how deep the snow is, you can always get from Toledo to Cleveland safely on the Ohio Turnpike, when the ‘free’ state and federal roads are impassable for hours or days.

    In the US, many – I dare say most – people get their drinking water from their own, private wells. Good-quality drinking water is remarkably-easy to get, despite the scare tactics of water providers (whether public or private) that want you to believe that drinking water can only be had from their complicated system of treatment and distribution. Where there is no natural monopoly, the market takes care of the customer so much better. The one shining jewel in the cesspit of corruption that is the City of Detroit is its public water department, which supplies water on a commercial basis far outside the city limits and which provides a superb product at low cost. Maybe a blended system with some competition might be better.



  • John McVey

    When the economy is free enough such that barriers to entry consist entirely of economic obstacles rather than political ones, complaints about natural monopolies amount to nothing more than whines about rates of profit being higher than the bare minimum required to disincline investors from saying “eff that!” and liquidating the physical assets. I hold this view of marginal-social-benefit-marginal-social-cost, and all whiners whether they know of that economic precept or not, in contempt.

    The actual evil in monoplies was and only ever is politically-provided privileges, not “natural monopolies”. The actual direct victim of political monopolies is NOT customers through higher prices and lower-than-feasible quality but would-be competitors who are threatened with dire legal consequences for daring to upset the privileged. That customers might benefit through lower prices and better quality if would-bes are allowed to try their hand at being actuals is only a fringe-benefit of liberty garnered by customers, not the justification for liberty. The primary moral and political concern in this issue is the liberty of businessmen qua competitors, with concern for effects on customers being just specification of why customers qua voters should care about the law through appreciation of the benefits to them of liberty as an instance of the moral being practical.

    “Natural monopolies,” arising entirely through the circumstance of economic practicality, are no problem whatsoever for proper morality and do not in any way shape or form give anything even remotely approaching a green light to the slightest hint of political intervention, even in the face of all technically-valid complaints about how higher quality products and lower prices would still leave room for the natural-monopolist’s healthy profit. Such complaints may well be technically valid, but they are also morally impudent and are to be dismissed accordingly irrespective of what the incumbent’s state of profitability is. In short: leave natural monopolies the hell alone, and let freedom take its course where-ever that might lead. As it happens, under liberty natural monopolies don’t last as long as the holders think they do, but that is properly speaking secondary to the critical point: morality and libery first, *THEN* let details of practicality take care of themselves because that practicality will turn out as an inevitable consequence of said liberty in due time.

    Whosoever is ignorant of or forgets the above and instead focusses on customers as though they were of *primary* concern, whosoever tries to make a moral issue in any way about “too much profit”, and whosoever gives the slightest hint of compromise on liberty of both incumbents and would-be-competitors in deference to the well-being of any third parties whatsoever, is making the mistake of treating “society” as the primary focus of moral concern and in turn the primary beneficiary of all political action. This utterly wrong-headed attitude then sanctions the core moral premises of socialism, and will leave said whosoever being mind-bogglingly puzzled as to why socialism *STILL* wont die and why pro-capitalist economists are never heeded to even though the practical benefits of capitalism have been proven over and over and over and over and over and over and…

    Anyone who believes they have technically valid complaints about what higher qualities and lower prices are profitable is – or at least should be – at liberty to put their own or voluntarily-obtained investors’ money where their mouths are. If there is not sufficient liberty then let *that* lack be the target of your ire rather than “monopolies” per se. If there *is* sufficient liberty to compete and you still wont risk your own economic neck, by all means give suggestions (directly or en-galerie) to those who might become investors but also remind yourself to just STFU should you feel the urge to *whine*.


  • Alisa

    Politicians need to remember why they’re privatizing things, and not just think that moving it off the government’s books is the goal.

    Actually, the real goal of these “privatizations” is to shed responsibility, while retaining control.

  • Alisa

    John McVey: that comment should be framed and hung on every possible wall everywhere. Indeed.

  • Laird

    I second Alisa’s motion concerning John McVey’s comment. Good work, sir!

  • Private operation carries extra costs that public operation does not. Thus at any point in time, socializing something can give you instant savings by doing away with marketing expenses and like matters that public monopolies do not need. But that extra expense buys you something like an extra point on service delivery productivity increase per year. Thus over time costs drop, all other things being equal.

    It thus makes sense to privatize if you want to minimize your lifetime costs even though you may get a temporary bump in expenses at the front end. If you’re going to kick the bucket in the next few years and you hate the next generation (perhaps because they just will not get off your lawn), the short term view is perfectly logical, if morally odious.