Debating the Merits of Public-Private Partnerships

Reason transportation studies director Bob Poole and economist Walter Block recently sparred over the value of public-private parternships in a on-line debate sponsored by

Bob took the pragramatic libertarian approach, noting that since roads were already 100 percent owned by the government, public-private parternships were a valuable means for bringing private capital and management into providing these goods.

California motorists are stuck in endless traffic congestion because the state’s highway funding system has run out of gas. Since federal and state fuel tax rates have not been increased for nearly 20 years, these highway user taxes barely cover the cost of maintaining our existing highways. And because our population and driving have continued to grow, but highway capacity has not, the result is ever-worsening congestion.

The good news is that possible relief is in sight. Large amounts of private capital are available to be invested in new highway capacity . . . if Californians are willing to pay tolls to use that new capacity. Some $180 billion has been amassed over the past three years in global infrastructure investment funds. And some of that money has recently funded billion-dollar scale public-private toll road projects in Florida, Texas, and Virginia. Gov. Schwarzenegger finally succeeded in getting workable enabling legislation enacted for California, in February.

Without public-private partnerships, the chances of moving toward a more privatized system of roads and highways is practically non-existent.

Walter Block takes the pure libertarian view, arguing (as he does in his recent book The Privatization of Roads and Highways) that roads should be completely privatized now. Anything that accepts government provision and management of roads is both morally and practically unjustifiable.

Public — private partnerships (PPP) are thus part and parcel of both fascism and socialism; they constitute a partial state ownership of the means of production. As well, they are emblematic of fascism, and government is the senior partner, and its regulations still determine the actions of these public — private partnerships.
PPPs are thus a hybrid between socialism and fascism. How do they stack up against their more economically “pure” brethren? Not too well. They have the flaws of both. The problem with both socialism and fascism, as compared to free enterprise and private property rights, is both moral and economic. As far as ethics is concerned, PPPs, socialism and fascism, are all based on coercion. They are not based on the voluntary choices of property owners, none of the three. And, as economic efficiency is concerned, these three variants of totalitarianism do not pass muster either. Mises, in his classic critique of socialism, has demonstrated its difficulties, and the flaws in the regulatory (fascist) state are too legion, and too well known, to even deserve citation.

While I am ideologically sympathetic to Dr. Block’s point, I don’t see much practical application within the next generation or two. As Bob points out in his column, too many roads couldn’t support themselves under a fully privatized system. Thus, we would be forced to abandon large swaths of the road network, and the connectivity that makes the system work would be lost. Dr. Block’s perspective remains largely a theoretical exercise. High transactions costs and the problem of excludability continue to make a range of roads (most notably arterials and local roads) effectively public goods. Moreover, after centuries of public ownership and management, the transition to privately managed and provided roads is problematic at best.

Still, as Adrian Moore and I point out in the last chapter of our book Mobility First: A New Vision for Transportation in a Globally Competitive 21st Century, technology, innovation, and the increasing sophistication of capital markets are changing all these conditions. In principle, we could fully privatize large portions of the urban limited access highway system, and public-private partnership are the tool to achieve it while meeting public and private objectives. Moreover, as developing countries such as China and India are showing, even arterials can be tolled at levels that cover their costs.