A Spontaneous Order, Politics/Economics

A Spontaneous Order: The Roads

Consider purchasing a copy of A Spontaneous Order: The Capitalist Case For A Stateless Society


Introduction

In discussing the operations and economics of a stateless society, specific attention must be paid to transportation networks, including their infrastructure, environment, management, and more. Because networks that connect people are so valuable, many people consider them (or at least parts of them) to be “public.” They regard everyone as having “share” in the network, and that, therefore, the State, being allegedly “impartial,” should be its steward. This is the popular opinion regarding the maintenance and upkeep of roadways, highways, waterways, and airspace.

The Economics of Public Roads

Today, the vast majority of roads and other such networks are funded through means of expropriation: taxation. Taxation is simply the confiscation of the property of others enforced through the threat or application of initiatory violence against dissenters. Predictably, this constitutes a clear violation of libertarian non-aggression. Many believe that only by such shakedowns are roads and such able to be financed. Unlike all other goods, narrow strips of painted land are supposedly unable to be produced in adequate quantity or quality by market interactions emerging from freely consenting adults.

In reality, roads may be sufficiently financed through voluntary means. These funds may come from any number of sources: the businesses they connect, individual drivers themselves, and others. Various charitable organizations may offer travel credits to rehabilitated or impoverished members of society. In any case, payment would fall only on those who assume it – never on uninvolved third-parties – and use of the road would be subject to the discretion of its legitimate owner(s). This is in contradistinction to State provision where taxpayers are mandated to fund all roads, including those some will never use. It should be clear that this Statist arrangement does not require one’s prior consent; it is an imposition, not a purchase. In addition to the injustice of their provision, State roads are economically wasteful and dangerous.[1]

The socialization of roads carries many economic disadvantages. (Often times, advocates of the State will make critiques of free markets, which inevitably apply to the State as well. Such folly will be avoided here.) In the first place, as roads provided by States are treated as “public goods,” typical consequences related to the tragedy of the commons emerge. Because nobody can exercise private ownership claims over public roads, there is a comparatively lesser incentive to maintain their quality. As no individual can reap the capital value of the resource in question, the incentive emerges for each individual to consume as much and as quickly as possible. Public roads will be regarded as “free for all” and massive over-consumption in the forms of traffic jams and rush hours will be the result. Similarly, one may see that an individual is more likely to keep his own yard landscaped than he is to take over the landscaping duties of a public park. It is a fact of economics that people are more willing to take care of their own property than they are to take care of common property.

In the second place, by monopolizing the road network, the State ensures there is no authority higher than itself through which to hold its own agents accountable. Naturally, this creates a moral hazard in the State’s provision of any service. Moreover, the State offers itself no quantitative standard by which others may hold it accountable, such as levels of traffic congestion, road serviceability, or the number of road fatalities…etc.  Additionally, State agencies lack a profit/loss incentive due to their power to externalize costs onto the general public through taxation. There is no relation between improved road infrastructure and State revenue. As the State lacks a profit incentive to improve its services, it is left to take by force whatever amount it deems necessary in order to maintain and grow said service. The State is actually incentivized to provide lower quality service and charge greater prices. This is a result of the disutility of labor, which simply states that leisure is preferred to labor, and that people prefer to exert the least amount of energy required to achieve a particular end. The influence of the disutility of labor is evidenced by the increased expenditures on roads and highways every year by the State: an increase in cost which is borne by the taxpayer. Because State agents do not personally bear the cost for public services, they will generally favor and promote increased expenditures in various bureaus and departments as a means to secure their own livelihoods.

In the third place, the State lacks a pricing mechanism. Even supposing the State has every intention to provide the most desired road service to the greatest number of people, without a resource-allocation mechanism like the price system, it cannot possibly hope to discover the most economic manner in which to do so. This sort of optimization is only possible when dealing with numbers derived from voluntary transactions. The demand for a good or service is represented by how much, and at what price, people as a whole are willing to purchase it. Thus, the price system takes into account to what degree consumers desire a given good or service. It is superior to pure voting, which cannot capture the relative intensities of the desires of each individual for a given plan. Perhaps some prefer roads to be managed one way as opposed to another, but many may prefer more for those resources used to be employed for an entirely different end. The pricing mechanism, untainted by government interference, guides entrepreneurs into making those economic decisions which yield the lowest opportunity costs, and encourages them to concentrate their energies on tasks for which they are well-suited. For the entrepreneur to optimize the allocation of his resources, he must offer them at the market clearing price. This is the price at which consumers are willing to purchase the same number of units of a given product or service as those being offered. Generally, this clearing price will yield the entrepreneur the greatest amount of profit as, by definition, there are no mutually-agreeable exchanges left to complete. Efficiency in economics refers to the number of people whose desires are being satisfied with a scarce amount of resources, and to what degree, in relation to the available set of alternatives. In order for one to get an accurate picture of what people want, where they want it, and how much of it they want, he must first have access to profit and loss figures – accounting – generated on the market through voluntary transactions. In contrast with entrepreneurs on the market, the revenue the State accrues is through involuntary means. Thus, it must necessarily have an inaccurate picture regarding how best to economize the resources it commands. Consequently, there will be an over production of roads in some areas and an underproduction in others.

It may be the case that many politicians are motivated and influenced by the aim of providing safer and less congested roads and highways, but it would be naive for one to assume that is their only motivation or influence. Political factors and special interests have a considerable effect on decisions regarding where to allocate resources for the production or maintenance of various roads. Unfortunately, these outside influences are seldom in line with consumer interest.

Some critics may object that private roads are perfectly legal, yet rather uncommon. Though this statement may be true, it fails to identify a few key considerations. In order to be a patron of a private road service, one is not simply purchasing it instead of supporting public roads. He is paying twice – once for a private subscription and again when he bears the taxes for public roads. The fact that one’s payment for the usage of public roads is legally required of him and therefore a sunk cost greatly deters him from choosing to purchase additional road services. Moreover, the State has usurped much of the prime real estate for road building through the use of eminent domain. This is land theft through legal privilege, which its private counterparts are not able to commit with impunity. Private roads are not as prevalent as one might expect because the State grants itself illegitimate legal privileges over this industry via its exclusive powers to coercively assert its will over others.

In the fourth place, the costs of building and maintaining roads are externalized to the taxpayers. This serves to artificially increase the demand for those industries affected by road travel, namely the oil, automobile, and rubber industries. This is why many of the special interests beckoning for the expansion of the highway system tend to come from one of the three aforementioned business sectors. The result of such an expansion is a greater amount of profits and resources directed towards these industries than there would otherwise be in a free market system. These industries are often times criticized for being exploitative and monopolistic – rightfully so. However, this has nothing to do with their greed and everything to do with having access to the coercively empowered institution known as the State. Just as mafia families have connections in various industries relevant to their power, so too does the State. It cultivates and distorts firms in many industries: banking, entertainment, mass media, education, etc. Naturally, those industries related to movement of persons and materials become captured by States. This relationship is absolutely not representative or consistent with free markets, as they are inherently absent of State interference.

Privatization and Desocialization

Many interpretations exist regarding the concept of privatization. Some see privatization as government agencies doing business with their own market-like imitations [2], while others see it as a pure gift to any “private” actor whatsoever.[3] In reality, privatization simply refers to the change in management from a public entity to a private one, whether in charitable or commercial pursuits. As with many things to do with State administration, the Devil is in the details. After all, it would be a violation of libertarian norms if the federal government were to one day claim the Jones family owns the entire state of New York.  The government should not, then, “privatize” in this manner. A preferable solution is desocialization; return the land and property to those who provided the funds for their purchase/production: the taxpayers.[4] The free transfer of equity from previously State-managed industries would quickly create markets and entrepreneurs eager to earn business.

Private road providers have a vested interest in the flourishing of the businesses, cities, and residential communities they connect as their abounding value will increase the demand for the roads which connect them. Naturally, the self-interest of the road provider is aligned with those of his customers. As road providers realize that their customers desire assurances regarding safety and liability, they may, in response, require all their patrons to obtain insurance. The premiums the insurance agencies charge will serve to regulate their clients’ driving habits. These agencies will be permitted to take into account all factors or demographics that indicate one’s actuarial risks in the determination of his premiums.  A list of some factors that may be used when determining the premiums for various clients include:

[1] Driver safety courses taken
[2] Frequency of driving
[3] Time of day typically driven
[4] Driving history
[5] Installation of safety features (e.g., automatic braking, etc.)

The auto insurance agency may verify some of this data by offering their clients GPS devices which track driving habits in exchange for lower monthly premiums. These insurance agencies may also encourage or insist clients wear seat belts, drive soberly, and practice other risk mitigating behavior as conditions for maintaining coverage. Alternatively, the road providers themselves may require their prospective patrons to adhere to such safe driving behavior as a condition to using their roads. Insurance agencies do not expect their customers to take all of these steps simply out of the kindness of their hearts. Rather, it is in the best financial interest of both the auto insurance agency and road provider alike to ensure that neither you nor your car are harmed during your trip.

Another valuable benefit of complete road privatization is the presence of uninhibited competition. Such competition need not necessarily be between two roads going to the same destination. Rather, it could be between various road provider companies. In order to secure future contracts or venture capital from investors, these companies will have to demonstrate a reputable and competent ability to manage roads that are safe, open, and profitable. It is this reputation which will influence any potential investor or patron to choose road provider X as opposed to provider Y. From the consumer’s perspective, many more factors than price alone may be considered in his decision. For instance, he may value the speed and responsiveness of a given road company’s towing and ambulatory services. Moreover, this prospective patron may evaluate the quantitative standards by which various road companies hold themselves accountable (e.g., the speed of rush hour traffic). Such promised standards could be supported by the road providers’ contractual obligations to compensate any individuals affected by conditions that fall outside of said standards. For example, if someone misses a flight due to excessive road congestion, the road provider may offer to pay for the customer’s next plane ticket or simply compensate him for his troubles.

In contrast to the State provision of road services, a privatized system would yield a greater level of diversity in road planning amongst the competing road companies. The allure of larger profits will incentivize these road companies to continually refine the efficiency and safety of their road systems. It is, however, unlikely that this competition would result in a severe mismatching of road rules, as each road provider would understand that such awkward and tedious transitions would serve to deter and discourage customers from using their roads. Compatibility is important in protocols, principles, and rules. Take, for example, the private railroad companies of the 1800’s and the cell phone companies today. Each implemented a high degree of interoperability in their services so as to maximize their respective customer’s satisfaction, which ultimately translated into profits. Imagine, for example, owning a Sprint phone and being unable to call someone with Verizon. Finally, entrepreneurs have access to an unadulterated pricing mechanism which allows them the ability to make rational economic calculations – i.e., whether a particular aspect of their current service should be altered, retained or scrapped.

Environmental Considerations

A completely privatized road system may also be better for the environment in that it would encourage people to use lighter and more fuel efficient cars. Cars that contribute less wear and tear on the road will cost their drivers less in subscriptions, since such factors will likely be factored into the price of using a given road service. Likewise, people may be more incentivized to car pool or travel via bus or some other form of mass transit. This, of course, would result in less harmful pollutants emanated per traveler. Furthermore, because people have a choice of whether to contribute funds toward road services, cheaper and more efficient alternatives may arise such as maglev trains or flying vehicles. A privatized road system would be more judicious in its distribution of costs as road providers strive to charge each customer in proportion to the degree of services used. Private road providers may also charge higher rates during peak hours as a means to increase road safety by decreasing traffic congestion. In other words, with peak pricing, the timing of transportation can be staggered and road consumption can be smoothed out over the course of a day. Due to this, one’s employer may take into account the additional costs of using the road during certain peak hours when creating his employees’ work schedule. Scheduling employees around peak hours would save them money and/or prevent the employer from having to increase their wages as a means to compensate for additional transportation fees.

Security Considerations

The desire for safety is a universal trait. Few people desire to shop at a store where they are likely to be robbed, or to travel through a neighborhood where their car may be stolen, or to drive on a road where dangerous road racing, daredevils, and drunkards abound. This is an obvious concern, and as such will be addressed by the owners. The owner(s) of a given road will have a great financial incentive to provide reliable measures of security, as this will directly impact the value of their services and property. The means by which they can address these issues may include video surveillance, hired police services, speed detecting sensors, etc. A rule might be stipulated that drunk drivers involved with any collision automatically assume the liability. Other conditions and terms of use will exist on other roads, and the constant desire to attract customers will incentivize a continual exploration and experimentation into various rules aimed at discovering their optimal configuration. Perhaps speed limits may be rejected and individual sets of rules for each lane of traffic will emerge. These road providers, as legitimate business owners, can set the terms of use for their property just as any restaurant, shopping mall, or amusement park owner(s) can specify accepted behaviors and demand adherence to regular norms. Customers unwilling or unable to abide by such specified rules will be prevented from using this particular road service, and must arrange for alternative transport.

Possible Payment Methods

Entrepreneurial road providers would realize that frequent stops to throw change in a bucket would congest their roads and deter future customers from using them. The installation of digital readers on customer cars may be a possible payment alternative as they can communicate with sensors on the road that track how far a person has traveled and the weight of his vehicle. With this information, the road provider may send the customer a bill in the mail, directly charge his bank account, or send invoices to a digital currency wallet. Some road providers may offer fixed rates for those who do not want to be tracked in such ways. These rates will likely be higher than those determined by actual usage, but may be seen as a worthy value to consumers who place a high premium on maintaining anonymity.

Capital Considerations

As road networks need to interface and connect with networks of competitive providers, constructing the foundations of such a network can quickly become cost prohibitive. To finance early stages of construction, road providers may seek out venture capital. Alternatively, some expanding businesses or residential developers may offer to help finance such an operation as they have interests in areas not currently serviced by roads. Finally, there is nothing written in stone demanding that one company has to own a road as extensive as a cross country interstate. Different sections of a conjoined road could be managed and owned by different road companies. In this way, the costs of starting up or maintaining a vast highway can be spread out amongst many companies.

Price Gouging

As the real estate and physical road improvements are goods owned by road providers, they are free to charge any amount for their services.  Any individual road provider who dramatically increased his rates would be met with desertion. A price hike encourages his customers to patronize competing road services. Additionally, such a hike in prices would encourage his customers to increase their level of carpooling, thereby cutting into his profits. Such carpooling, once embraced on a mass scale, may not revert back to its original levels even if the road prices return to their original rates. This is because many customers may have become accustomed to their new arrangements, or would simply not trust the company not to raise rates so drastically again in the future. Additionally, such capricious price swings would damage the road provider’s future business prospects with other businesses or customers. Such actions may also incite economic ostracizing as a means to pressure this road provider to reduce rates or suffer major losses of lucrative business relations with other members of the community.

If none of these aforementioned consequences hold sway, the businesses which are currently serviced by his highway may campaign to raise funds in order to bring in an alternative road provider. This sequence of events will be the market’s way of weeding out such disruptive price hikes, and leaving behind, in its wake, entrepreneurs whose primary aims are to satisfy their customers. One’s ability to satisfy his customer base is what ultimately determines the prosperity or failure of his business.


Resolving Difficult Situations

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In the event critical geographic regions are already owned, road companies may implement any number of solutions including: offering to pay the owner of the obstructing property for passage through his property; building, over, under and around the individual’s property; organizing public campaigns to encourage road construction, and more.

Moreover, hypothetical consumer fears – like a single encompassing road holding a residential community hostage – are often unfounded. It is in the road provider’s economic best interest to not breach contract or capriciously raise prices to exorbitant levels as doing so would only cause ostracism and losses in future business. For instance, future prospective residents may be deterred from moving into this community due to the high travel rates. With fewer residents, there would be fewer paying customers for the road provider. Additionally, the issue may be circumvented by building an alternate road above or below the road which surrounds the community. Moreover, people would likely acquire contractual assurances regarding access to their homes prior to sale. The terms of this road access may be discussed as a condition to purchasing a home. For instance, one may only offer to buy a given house if the road provider servicing it agrees to certain fixed payment, service, or quality conditions. Finally, this issue would most likely be addressed by a residential developer prior to construction. Either the real estate agency or the building developer may understand that people want assurances that there are dependable and predictable means to travel from their houses on a reliable pricing schedule. Accordingly, the developer may require such concerns to be addressed in his contract with the corresponding road service provider prior to commencing construction of the residential community.

Conclusion

The exact shape and nature of transportation networks in a free market system cannot, of course, be predicted. However, considering the more closely aligned economic incentives, one may conclude with confidence that whatever form they take will correspond far more closely with the ever changing consumer preferences.


References

[1] A study conducted by Infrastructure Report Card.org in 2008 showed that “Americans spend 4.2 billion hours a year stuck in traffic (about 40 hours a year per motorist) at a cost of $78.2 billion a year – $710 per motorist. Roadway conditions are a significant factor in about one-third of traffic fatalities. Poor road conditions cost U.S. motorists $67 billion a year in repairs and operating costs – $333 per motorist; 33% of America’s major roads are in poor or mediocre condition and 36% of the nation’s major urban highways are congested.” http://www.infrastructurereportcard.org/fact-sheet/roads. According to statistics provided by the National Highway Traffic Safety Administration, between 1995 and 2010, there was an average of 37,000 fatal crashes on highways per year. http://www-fars.nhtsa.dot.gov/Main/index.aspx

The renowned Austrian Economist Walter Block projects that under a completely privatized road system one may expect closer to 8,000 casualties per year as opposed to the State’s 37,000. Walter Block, “Road Privatization: Rejoinder to Mohring” in The Privatization of Roads and Highways: Human and Economic Factors (Lewiston: Edwin Mellen, 2006).

[2] Examples of this include Fannie Mae and Sallie Mae.

[3] Privileged contracts given to specific construction companies come to mind.

[4] Murray N. Rothbard, “How and How Not to Desocialize” in The Review of Austrian Economics 6.1 (1992): 65-77

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