Monday, March 18, 2013

Cork-Screwed?

Often, when one sees something incredibly absurd - one struggles to find a logical explanation. "The Dartford Crossing" is one such infuriatingly-stupid example that should make both economists and motorists weep.

To being with, the UK, has few toll roads. Road license fees and petrol taxes ostensibly are meant to fund the upkeep and maintenance of highways.  Outside of the M6, and a handful of bridges/tunnels, there are no additional usage fees outside the taxes/fee mentioned. This is both good and bad. No tolls certainly speeds traffic. But it also provides a hidden subsidy lowering transport costs, suffers from the tragedy of the commons where every stray beer-can and plastic shopping finds its way to roadside, and there is little incentive to maintain roads which are potholed and it seem chronically underfunded and poorly-maintained. There are also fairness issues associated with this. The French, by contrast,  have gone the private route for their major arteries, which delivers a large network of amazingly smooth, quiet, clean, safe roads, with excellent technological investment and adoption to further speed the flow, albeit at eye-wateringly expensive prices of something like EUR10 per hundred km.  One need only take the A6 out of Paris from the Porte d-Orleans in order to experience the difference between the public and private management. And though there are the occasional "bouchon"  (cork=traffic jam), price DOES keep people (and HGVs) off the motorways, and there is choice with the N-roads or "Route National" adjacent to most motorways that remain free, though subject to congestion, and vagaries of local traffic. Switzerland takes a somewhat middle ground, adopting a peculiarly Swiss-style solution: the Vignette. This is a CHF45 annual decal one must affix to their windscreen if they wish to use the (generally clean, safe and well-kept) motorways. Excepting those crossing the border into Switzerland via a motorway who are forced to buy one by commercially-minded border guards, it relies on the honor system, with harsh penalties for rule-breakers. The result is a hybrid pay-by-use with the efficiency gains that result from eliminating toll booths and collection bottlenecks. Their alternatives are typically more limited by the geography of Switzerland, and in any event HGVs (trucks) are often forced to traverse the nation via the rail network, or take a large and long detour through France or Austria.  

Now, back to Dartford. The day I am sitting for half-an-hour in a tailback caused by toll-collection, I read an article extolling transport pricing's positive externalities.   In it, Krugman is thankful for a VoxEU piece quantifying the benefits of investment in public transport, and road pricing in causing people to switch to public transport. All well and good. Dartford's tolls were kept ostensibly as a means to use pricing to discourage use, as much as they were kept to generate revenue for a threadbare Treasury. But Dartford is the ONLY passage to the east of London (that is not a boat), and it is the most critical and vital link in the ring-road around London, and the only way for HGVs to get to and from the Channel Tunnel. There are no rail links or alternative routes. In effect, the supply curve is completely inelastic, and so too, are the demand curves. The only result from toll collection is the cause of massive negative externalities in the form of endless traffic jams, pollution, inefficient lost output and waiting time, and increased consumption of fossil fuel. There is are no redeeming qualities to the imposition of tolls (the infrastructure has been paid for and then some) other than pecuniary short-term gain to the Treasury at the expense of massive negative externalities. It makes you want to rip your hair out. Worse still given the inelastic demand and supply curves, they charge during the busiest times yet waive the charge when its empty, when, the public interest would be served by the opposite: making it free and zooming everyone through when its busy and charging when it's empty, and the negative externalities are greatly diminished.

Am I missing something? Analysis by more competent economists would be appreciated....





2 comments:

David said...

I think you get it exactly right. As I see it you are discussing the merits of public and private capital allocation in the long run. From where I'm sitting (Denmark) I'd like to add another issue with public funding that these toll roads are supposed to fix. In the public investment paradigm, in order to upgrade existing highways to meet new and growing demand, new highways to nowhere are to be built first, as the necessary mandates are located in districts anxious not to be left behind in "development" however implausible the prospects. Hence major economic centers do not see the commensurate and necessary reinvestment to keep up with demand. Much the same is seen in other public investment areas. An aging population necessitates efficiency of scale in health care to keep cost under control hence the need to build a few major hospitals and health care centers, one in each region. As a result of compromises we ended up with hospitals located far from major cities with a need to build new highways and train tracks so that patients and personnel can show up.

Quite a few public corporations have been set up to manage infrastructure with less political interference, keep debt off the balance sheet of the state and perhaps most importantly solve the problem of ugly political compromise on initiation. This has been a success where demand has been quite inelastic (e.g. bridges vs. ferries) and geography has made alternative projects infeasible. The experience of metro and city development in the Copenhagen area is more of an open question. Expecting a modern metro to be paid off with passenger tariffs when public roads are free may simply be expecting too much. Of course investments of this nature have a long history of being paid off through default or inflation.

So success seems the result of a monopoly granted by geography or the state. Whether successful or not the owner of the monopoly asset sees no benefit from lowering prices or expanding capacity at adequate rates. I see no practical difference between public or private ownership in this regard and no economic market solution as the threat of a depreciated monopoly asset trumps competitive investment (unless the asset becomes truly depreciated and needs replacement or some rare disruption). Hence the quick political fix to get a necessary asset built ends up as a long term monopoly. I could be wrong.

Andrew said...

It's too easy to bamboozle us with accounting trickery.

The public always gets a worse deal with private toll roads. They are forever paying the monopoly asset owners a generous return on their investment, long after the asset has been depreciated. I consider that sending money to nowhere (useful). With public roads we are paying cost only....maintenance costs plus the so called cost of Government borrowing. No one "borrows" cheaper than the Government.

Private roads only look good because we pay excessively for them. With the same investment, public roads could be even better. There's so much propoganda trying to make us believe private investment is always more efficient, but it really defies logic. The same contractors, skills, methods and machinery available to the private sector are available to the public sector. A well managed public road program would trump a well managed private road program every time. Corrupt and self serving public servants can queer the pitch but this does not make private sector road systems intrinsically better. It will be more efficient to improve the standard of Governance.

With public toll roads, it's a simple matter of ideological taste. Do you prefer "user pays" taxation or income tax and universal benefits. Personally I prefer universal benefits and progressive income tax systems. User pays taxation widens the inequality gap.