The Privatization of Roads and Highways - Ludwig von Mises Institute

176 The Privatization of Roads and Highways
constitutes a very detailed examination of a rather minute institutional
detail. But this concern is more apparent than real, as
indicated by their failure to take into account the statist institutional
arrangements which now earmark the nation’s highway
system.
They note that, “a few cities like Philadelphia and Miami
have nearly forty percent of their drivers uninsured.” 19 Under
present institutional arrangements, there is of course no automatic
feedback mechanism to penalize those managers who
allowed the situation to get so far out of hand. Under a competitive
street industry, of course, there is little doubt that firms
which stood by idly under such a state of affairs would long ago
have gone bankrupt, and their places taken by those with more
competence. 20
3. The SW analysis fails to take cognizance of the social functions
of a freely functioning insurance industry. By discriminating
amongst customers, and charging more for those more likely
to file for claims (e.g., people who smoke, drive carelessly—or
whose age, sex, race or other characteristics are correlated with
dangerous actions), they tend to reduce the incidence of such
anti-social behavior. In the present context, the uninsured drivers
18 See also Douglass C. North, Structure and Change in Economic History
(New York: Norton, 1981); Oliver Williamson, The Economic Institutions of
Capitalism (New York: Free Press, 1985), Joseph A. Schumpeter, Capitalism,
Socialism, and Democracy (New York: Harper, 1950), p. 198.
19Smith and Wright, “Why is Automobile Insurance in Philadelphia So
Damn Expensive,” p. 760.
20One would have thought that even a reasonably competent bureaucracy
would have been able to avoid such extremes of lawlessness. And, to
a degree, this is true. That is, some governmental bodies have done far better
at this than others. The problem, though, is that the failures are not automatically
penalized, nor the (relative) successes automatically rewarded.
But the same results obtain under all Sovietized economic systems. It is no
accident, for example, that on the 97 percent of agricultural land under collectivization
only 75 percent of the crops were grown, while the three percent
of the land in private hands accounted for 25 percent of farm products.