Monday, February 13, 2006

Indiana's road to freedom

In a surprising move by the Indiana state government to make their principality more efficient, the State seems poised to sell the 157-mile Indiana Toll Roll to a Spanish/Australian partnership. Under the proposed deal, Cintra (Madrid) and the Macquarie Infrastructure Group (Sydney) would pay $3.85 billion for the rights to maintain, operate, and profit from the highway. Senate approval awaits; the House has already given the go-ahead.

Indiana, by the way, is rated at number 10 in Fraser's Economic Freedom of North America, a ranking of American states and Canadian provinces.

The privatization of the roads is starting to gain steam. Here's a list of non-interstate toll roads in the U.S.; a handful of them are privately held.

Since we here at TPS believe in the vitality of a wide spectrum of ideas, here's an enjoyable post that does not support the Indiana toll road proposal. A personal favorite: "...the very fact that the privatization of state roads in on the table is a troubling development that only encourages other enclosures of the commons." It is unclear whether the author believes that roads should be provided by those according to ability to those according to need. Nonetheless, objections to toll roads are usually along these lines.

Governments have no incentive to maintain roads to any level of respectability because they will receive payment (in the form of taxes) regardless of their actions. A state-run toll road is no solution either. Government-run toll roads simply impose an additional cost on top of taxes proportionate to those who use the road; while the matching of use with payment is a step in the right direction, the government can ultimately use the power of taxation in order to support any road, toll or otherwise, it so chooses. The government just doesn't have the incentive to run a road well.

The important aspect of privatizing roads is that the new owners become residual claimants on their recently acquired asset. Cintra and Macquarie have every incentive to make sure that their road runs flawlessly; after all, they can not resort to John Q. Public to compensate for their mistakes. The road will be better maintained. Improvements will be done in a more expeditious manner. Those that do not derive benefit from the road will not be coerced into paying for it.

There is no doubt that privatizing the Indiana Toll Road is a move away from the red tape of state road management and a move towards a better, more efficient roadway system. Congratulations to the Indiana State Legislature for seeing the road from the potholes.


Nog said...

Now all that the road owners have to do is fear nationalization for the rest of eternity.

pinetorum said...

You see Matt, it's a problem of motivation. If the government busts their ass to fix those potholes, they don't see another dime. So where's the motivation?

It would be interesting to see some sort of "satisfaction index" for those privately owned roads compared to public roads to see if privatization is really better. In theory it is, but if a given road is really the only viable option in an area, then the motivation to maintain upkeep would be much less.