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

Clifford WinstonThe Brookings Institution

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

The Issues Were Actually Taken From Australian Newspaper Articles

These issues and others raise a fundamental concern about government’s 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 government’s track record

An alternative is to understand the motivation for and potential benefits from institutional change that would curb government involvement

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

Building the Case for Privatization and Deregulation

Lessons from regulatory reform

Current inefficiencies created by the public sector

Constraints on efficient reforms

Designing experiments

Lessons from Deregulation

Government failure in regulation

Static benefits of deregulation

Dynamic benefits of deregulation

Most important lesson is what regulation suppressed

Costs of Residual Regulation

Railroads and the Surface Transportation Board

Airlines: domestic

Airlines: international

Greatest cost is that managers still have a regulatory mindset

Current Inefficiencies: Air Transport Infrastructure

Airports:

Pricing

Investment

Terminal operations and security

Air Traffic Control:

Allocation of funds

Obsolete technology and operations

Implications of Current Inefficiencies

Limit competition

Compromise service

Increase costs

Current Inefficiencies: Highways

Prices for cars and trucks

Highway design

Production

Effects on land use

Implications of Current Inefficiencies

Investments generate low rates of return

Spending has small effects on users’ congestion costs

Expenditures and earmarking continue to increase

Current Inefficiencies: Public Transit

Prices for bus and rail

Service

Production

Network design

Implications of Current Inefficiencies

Huge public deficits

Low load factors

Questionable social desirability of current services

Constraints on Efficient Reforms

Agency Limitations

Political forces:CongressState and local governmentsRail and truck interestsGeneral Aviation and commercial

airlinesLabor and suppliers of transit capitalUsers and supporters of urban transport

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

Designing Experiments

Airports

Air traffic control

Urban bus transit

Urban rail transit

Highways

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 efficiency—especially innovation and technological change that is suppressed

Designing appropriate experiments is crucial to gain political support and indicate likely effects