Building the Case for Privatization and Deregulation of Urban and Intercity Transportation Systems

1
Building the Case for Privatization and
Deregulation of Urban and Intercity
Transportation Systems

• Clifford Winston
• The Brookings Institution

2
Some Transportation Issues in the U.S.

• Costs and aggravation from airport and road
  congestion are rising
• More public investment in urban transit is needed
• Additional infrastructure is needed to handle the
  expected growth in freight traffic
• Trucks do not pay their fair share giving them an
  advantage over rail

3
The Issues Were Actually Taken From Australian
Newspaper Articles

• These issues and others raise a fundamental
  concern about governments pervasive role in
  transport
• The concern is vital because transport
  expenditures and users value of time account for
  a sizable fraction of GDP
• One approach is to recommend efficient policies
  and live in denial about governments track
  record
• An alternative is to understand the motivation
  for and potential benefits from institutional
  change that would curb government involvement

4
Government Involvement in U.S. Transport

• Providers of urban and rail transit
• Regulate taxis
• Provider of intercity rail passenger transport
• Owner and manager of most roads, airports, and
  bridges
• Residual regulator of intercity transport

5
Building the Case for Privatization and
Deregulation

• Lessons from regulatory reform
• Current inefficiencies created by the public
  sector
• Constraints on efficient reforms
• Designing experiments

6
Lessons from Deregulation

• Government failure in regulation
• Static benefits of deregulation
• Dynamic benefits of deregulation
• Most important lesson is what regulation
  suppressed

7
Costs of Residual Regulation

• Railroads and the Surface Transportation Board
• Airlines domestic
• Airlines international
• Greatest cost is that managers still have a
  regulatory mindset

8
Current Inefficiencies Air Transport
Infrastructure

• Airports
• Pricing
• Investment
• Terminal operations and security
• Air Traffic Control
• Allocation of funds
• Obsolete technology and operations

9
Implications of Current Inefficiencies

• Limit competition
• Compromise service
• Increase costs

10
Current Inefficiencies Highways

• Prices for cars and trucks
• Highway design
• Production
• Effects on land use

11
Implications of Current Inefficiencies

• Investments generate low rates of return
• Spending has small effects on users congestion
  costs
• Expenditures and earmarking continue to increase

12
Current Inefficiencies Public Transit

• Prices for bus and rail
• Service
• Production
• Network design

13
Implications of Current Inefficiencies

• Huge public deficits
• Low load factors
• Questionable social desirability of current
  services

14
Constraints on Efficient Reforms

• Agency Limitations
• Political forces
• Congress
• State and local governments
• Rail and truck interests
• General Aviation and commercial airlines
• Labor and suppliers of transit capital
• Users and supporters of urban transport

15
The Potential for Privatization and Deregulation
to Improve Efficiency

• Full deregulation of intercity (domestic and
  international) transport
• Competition among airports
• Privatization of air traffic control
• Competition in urban transit
• Private roads

16
Designing Experiments

• Airports
• Air traffic control
• Urban bus transit
• Urban rail transit
• Highways

17
Conclusions

• Large inefficiencies associated with public
  sector ownership, provision, and regulation of
  transportation
• Little evidence that government policies have
  improved over time
• Constraints on efficient reforms are powerful
• Deregulation and privatization offer the
  possibility of significant improvements in
  efficiencyespecially innovation and
  technological change that is suppressed
• Designing appropriate experiments is crucial to
  gain political support and indicate likely effects