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The State and Scarcity

July 18, 2010

Governments seem to use “market-like” solutions to obvious commons-problems. Consider the cases of Stockholm and Singapore, hardly the same kind of cities or cultures or problems. But the same sort of solutions.

Stockholm, Sweden’s capital city, supposedly has had problems with too much traffic in the city center. Government’s solution? Well, ask an economist! Obviously, he will tell you that the reason there is suboptimal traffic volumes in the city is because it is “too cheap” to drive there. The solution is therefore: enforce a “congestion fee” to enter by car within city limits. Then the political apparatus considers this congenial idea and starts drafting systems for realizing this solution.

Someone within the bureaucracy will then figure out (yes, some of them do think at times) that there are different kinds of traffic. Can we really have ambulances and police cars pay the fees? Obviously not. So an exception is entered into the drafting of the plan. The same type of exception is of course also added for “official” government vehicles – officials and bureaucrats shouldn’t have to pay for this, since they are there to plan the congestion and don’t add to it (?).

And what about those working with different kinds of necessary transportation? What about taxis? The postal service? Another exception is added to please government on all levels, its corporations, and not tick off the taxi drivers’ labor union.

Also, one cannot penalize voters and remain in power. So all people living within city limits in Stockholm are exempt from paying the fee. People have a right to go home, right?

But what about commuters living in the suburbs? Obviously, they are the problem and should pay for their contribution to the overall congestion. But surely one cannot ask them to pay every time they enter the city, since some people enter only once and keep their cars in the city while others go in and out several times every day. It wouldn’t be fair to ask the latter to pay the fee every time they drive into Stockholm, so a daily maximum is added to the rules.

It turns out employers in Stockholm are willing to pay to have their employees drive to work (and show up on time rather than spend hours on trains and buses). Well, we can’t have that – it would only hurt businesses while not affecting congestion much. So employers are prohibited from paying the congestion fees levied on their employees when going to work.

The “market-like” solution suddenly is a huge document of rules, amendments, and exceptions. And it turns out the infrastructure doesn’t support adding tollgates, which means some people traveling from one point in the suburbs to another point in the suburbs (even on the same side of town) need to go via the city center – and therefore pay the fee, while not really adding to the congestion. So official vehicles for county governments around the city are also exempt to avoid political difficulty due to this infrastructure problem; Average Joe is not exempt.

Now consider Singapore, a nation-state consisting only of a city. Surely many of these problems would be solved “automatically,” since everybody is always within city limits and affected by the congestion. But no, the government of Singapore still faces problems of extreme congestion even though there are basically no cars entering the city that weren’t already there.

Their solution? A fee. The government has introduced a hefty fee for permits to purchase a car. And after purchase, there are high taxes and fees and regulations to further make people not buy cars. The effect is that some people can’t afford cars, which intuitively should end the congestion problem. But it doesn’t; the problem still exists, but it is perhaps not as pervasive.

Traffic in Stockholm is also down a little. Apart from the (even more) poor state of public transportation, it seems the congestion fees have worked. Of course, government’s happy – they got more money, so they are planning on adding the same type of system to other Swedish cities.

But what are the real consequences of such congestion fees? Obviously, people will attempt to limit their driving into the city (if they are not already there). This means fewer customers for restaurants, theaters, museums and whatever. It also means fewer visits to grandmas and grandpas in the city by family members living in the suburbs – in a country where old people are already systematically institutionalized and cut off from their families.

The economists’ political solution to congestion was to make it more market-like through adding a cost through usage fees. But such fees cannot mimic the true cost to owners of property if there is no property and no owner. And the fees will not reflect people’s willingness and ability to pay for driving into Stockholm, since the fee structure is not in any sense subject to the profit and loss “system.” There is no property and therefore it is not possible to introduce true market incentives.

Political solutions cannot replace subjective valuations of real owners and users. They only make things worse: adding a politically negotiated fee for usage of politically enforced commons does not make it a market solution. Two wrongs don’t make a right – two wrongs only make it double-wrong.

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