The Free Market 14, no. 2 (February 1996)
Want to hear what a scoff sounds like? The next time you’re talking to a political scientist, an economist, or a public employee, mention the possibility of a private road. Roads aren’t supposed to be private, right? They are supposed to be “public goods,” meaning that capitalists can’t or won’t build them so government has to.
But what if people need to get around and government doesn’t have the money to build the road? This is the scenario that is appearing more and more often, and private entrepreneurs are begging for a chance to give road enterprise a try.
Take Virginia’s just-completed “Dulles Greenway” toll road. Privately conceived, funded, and operated, this 14-mile extension of an existing limited access highway connects Northern Virginia suburbs with the Main Washington-D.C. area transportation arteries.
It is the first modern highway in America underwritten solely by private venture capital—and the first private toll road built in Virginia since 1816.
The impetus behind the construction was an exploding number of people who need to get from here to there. Travel demands and low-price road access have made the public roads a headache. A 15-mile trek in these suburbs can take up to 90 minutes. Ordinarily, the state would built more roads, but the money couldn’t be raised, thanks to the political priority of welfare demands.
Moreover, three fourths of Virginia’s road money already goes toward maintaining the existing ones. Virginia could have raised taxes. But that option is increasingly untenable given the already confiscatory rates faced by the state’s fed-up citizenry.
Seeing an opportunity, Cigna Corp., Prudential Power Funding, and John Hancock Mutual Life Insurance stepped in, formed a new corporation called TRIP, and made an offer. TRIP would build the road if it could reap the profits. Virginia agreed, and despite enormous bureaucratic obstacles and (still) potentially ruinous government barriers, the road has at last been completed.
Allowing the owners to run it like a business is another matter. The chief problem is the price structure. Before the road was finished, Virginia formed the State Corporation Commission to regulate road prices in the same way the government regulates utilities today. To change prices, TRIP has to ask permission, and the Commission can approve or reject any proposal.
Right now, tolls on the Greenway are set to remain at $2.10 one way until the year 2010. But that price doesn’t account for peak periods, off periods, commuter discounts, or other variables which would be part of a truly free-market system. Thanks to government intervention, TRIP lacks the ability to respond to changing market conditions and reduce shortages and surpluses of drivers on its own road.
Imagine a supermarket that couldn’t raise or lower the price of ground beef depending on availability and consumer demand. It had to keep beef at one price all the time. The resulting periods of shortages and surpluses would frustrate consumers. Any rigidity or inflexibility in pricing causes inefficiencies and waste.
The CEO of TRIP, Michael Crane, is extremely concerned about this problem. Today he says he would never undertake another private highway system—at least not under Greenway conditions. For example, TRIP spent $50 billion over seven years before ground was even broken. Merely obtaining the requisite easements from government was a bureaucratic nightmare.
There is another hidden difficulty. Private roads have to compete with public roads, which are either free to drivers (but not taxpayers) or heavily subsidized. The true costs of public roads are hidden and diffuse, while the costs of private roads are concentrated on the people who use them, just as they should be. The unfair competition of public roads has taken a heavy toll, and travel on Greenway has been sparser than expected, for now.
The project may yet succeed and turn a profit, especially as demands on the public roads grow and traffic becomes more and more congested. On the other hand, bureaucracy and unfair competition from government could strangle the project. That would be a tragedy.
In either case, we owe the people at TRIP gratitude for proving once again that free enterprise can do more than most political scientists and even economists give it credit for. Private enterprise can provide roads, and not just small ones, but also major highways for large population centers. Greenway shows us that there is no conflict between private highways and the authentic good of the public.
