The Privatization of Roads and Highways - Ludwig von Mises Institute

Private Roads, Competition, Automobile Insurance,
and Price Controls 175
1. SW sees “market failure” as the underlying cause of the
problem, and government control as the solution. They state,
“Concerning efficiency in laissez-faire, our model demonstrates
the possibility of market failure in the market for automobile
insurance.” 14 “In this paper, we have demonstrated the possibility
of market failure in the automobile insurance market.” 15
But how can they coherently talk of a failure of markets, or,
even more extremely, of laissez-faire capitalism, in the context of
state-owned and managed roads and streets? Their charge is
almost akin to the claim that our welfare system, or social security,
represents a market failure. This is clearly government failure,
not market failure.
The plain fact of the matter is that the U.S. now suffers under
a Sovietized highway system. Although here and there can be
found a private street or bridge, the overwhelming majority of
our country’s vehicular transportation arteries are under state
authority. 16 So if there were any failure in this sector of the economy,
it would be amazing if it were due to “markets.” To characterize
the present state of affairs as one of “laissez-faire” is very
wide of the mark indeed.
2. SW seems to have taken the advice of Coase with regard to
the importance of institutions. 17,18 Their footnote 5, for example,
14Ibid., p. 770.
15Ibid., p. 771.
16Under Soviet agriculture, 97 percent of the arable land was communalized;
only 3 percent was in private holdings, mostly in the form of garden
surrounding the hovels of the farm workers. Of all U.S. streets and
highways, an amount greatly in excess of 97 percent is held by the state; far
less that 3 percent are privately owned.
17The latter appears, coincidentally, in the very same volume as their
own paper under discussion. See Ronald Coase: “The Nature of the Firm,”
Economica 4 (November 1937): 386–406; “The Problem of Social Cost,” Journal
of Law and Economics 3 (October 1960): 1–44; “The Institutional Structure
of Production,” American Economic Review 82, no. 4 (September 1992):
713–19.