Clifford Winston on Privatization and Deregulation in the U.S. Transportation Sector

by Reihan Salam

Clifford Winston of the Brookings Institution has an ambitious new report on the U.S. transportation sector, and he recently discussed some of his findings with Russ Roberts of Econtalk

1. Broadly understood, annual pecuniary expenditures on transportation by consumers ($1.1 trillion), firms ($1 trillion), and the public sector ($260 billion) represented 17 percent of GDP in 2007, or $2.4 trillion; and when we factor in the value of the time individuals ($760 billion) and commodities shipped ($2.2 trillion) spend in transit, the total expenditure in money and time exceeds $5 trillion. Yet while the inefficiencies plaguing the U.S. health system attract a good deal of attention, the inefficiencies playing the U.S. transportation system receive short shrift. And to the extent we discuss transportation at all, we focus on the (alleged) need for more infrastructure spending rather than on how we might improve the performance of the system as a whole.

2. Though the public sector represents a relatively small share of total transportation expenditures (a point Josh Barro made in a 2012 article in City Journal), the public sector plays an outsized role in determining the performance of the transportation system as a whole through its “management of public infrastructure and services, regulation of private sector competition and externalities, and subsidies for travelers and private carriers,” and so Winston’s paper analyzes whether the U.S. has achieved the proper balance between public and private provision.

3. Winston surveys the scholarly literature on public and private provision of transportation, pointing to various ways the public sector has exacerbated or missed the opportunity to address market failures. One common pattern is that the public sector will impose stringent, expensive, and often counterproductive regulations on private providers (private highway companies in the 19th century, private bus and transit companies in the 20th) that might it difficult if not impossible for them to operate profitably, and then the public sector moves to either replace, subsidize, or acquire failing firms. 

4. The partial deregulation of most intercity transportation services from the 1970s on spurred innovation and entrepreneurship that has by and large benefited consumers and firms. Yet the public sector continues to play a substantial role through direct ownership and operation of important transportation assets, subsidized bus and air transportation services, regulation of the aviation sector, and the quasi-monopolistic public provision of intracity bus and transit services at the local level, which is generally backed by the federal and state governments, etc.

5. The chief problem with the U.S. transportation system, for Winston, is that the public sector has failed to properly price public facilities; this has led to congestion, and it has contributed to residential sprawl as the out-of-pocket cost of commuting has been underpriced. The net benefit of road pricing could be quite large, thanks largely to a reduction in the amount of time individuals (and commodities) spend in transit. Winston also references the high costs associated with sub-market prices for on-street parking, which greatly contributes to traffic congestion within cities. Better pricing would also reduce the costs associated with maintaining infrastructure in a variety of ways:

Congestion pricing would reduce the stress inflicted by the simultaneous and slow passage of heavy vehicles by spreading the traffic flow over time and place, and an effi- cient truck tax should include a bridge charge related to vehicle weight to encourage truckers to reduce their loads on trips that include bridge crossings or to take alternative routes to avoid higher-priced bridge crossings.

6. Winston also recommends embracing congestion charges at airports to reduce air travel delays, an idea championed by Tyler Duvall, as well as congestion charges for users of waterways and ports. Congestion charges all around! And he details the entry barriers created at U.S. airports, including the fact that many airports grant certain airlines the exclusive use of certain gates and “perimeter” rules that restrict certain airports to protect the market share of others.

7. The paper ends with a case for the privatization of transportation assets and the deregulation of transportation services, leaving open the question of how we might pursue both objectives.

The Agenda

NRO’s domestic-policy blog, by Reihan Salam.