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VII. A SKETCH OF THE HAYEKIAN ARGUMENT FOR URBAN TRANSIT

Owners tend to be mindful of the satisfaction of patrons, and visitors tend to be mindful of the norms and expectations of their hosts. Current practice at hotels gives us a clue as to what to expect. The hotel operates its own little transit station where cabs, shuttle vans, and gratis hotel minibuses constantly pick up and let off passengers. The hotel enters into agreements with certain carrier companies or associations, and permits only those to take passengers. Contractual relations and private property guard against "interloping" -- or trespassing. Privately established procedures and reputational incentives work against disorderly conduct at the hotel drive-up.

Imagine the city streets and roads divided up into segments or small districts. Each separate unit would be under the control and management of a private entity. We can begin to think of the entire city as a continuous patchwork of shopping-mall roads and hotel drive-ups. Just as shopping malls allow free parking, street owners might make road access one of the gratis attractions to visitors, residents and businesses. Just as proprietary communities often provide minibus service gratis, the road-owner might provide free bus service. Alternatively, the road-owners might implement electronic road pricing.

If the owner of a piece of road were insane, he could foul things up in his neighborhood and beyond. He could write his street names in ancient Sanskrit. He could program the traffic lights to be green in all directions. He could refuse to participate in a regional billing service for electronic toll collection, and instead make every car stop and pay a toll. He might invite a bus company to establish a route and then encourage interlopers to steal the customers.

But very few road-owners would be insane, and few of those who were would also be wealthy enough to carry on for long in such a manner. The natural incentive is for the road owner to work with associations and agents that coordinate the interdependent parts of the road and transit system. In private industry, such standards for matters of technology, product design, product safety, and insurance emerge from voluntary machinations -- both competitive and cooperative. We could expect the same for transit coordination. The natural incentive is for the road-owner to form contracts that will enhance his road as a place to shop, work, and reside.

Road-owners might permit only certain transit operators to serve their road, and only at properly designated places. These services would span numerous private districts. The road-owners would jointly form their own association to confer over matters of common interest, such as security, sanitation, special events, and so on. The association would be an institution to reduce the transaction costs of coordinating collective action that spans several districts. It might happen that the owner of a particular piece of road would try to hold out for special terms in a transit arrangement, analogous to a holdout in a highway development project, but the road-owner would be engaged in extended, repeated dealings with adjoining road-owners, and most likely such behavior would be checked by norms against demanding special treatment for oneself (Ellickson 1991). Reputation and norms are part of the glue of private agreement, and all are part of the voluntary process of metacoordination.

It may be contended that a road-owners’ association is a re-creation of local government, and in many respects that is right. Yet in the case of actual municipal government, many types of service are bundled together over a very large geographic area. Choice and competition within the geographic unit has been supplanted by "the democratic process." Residents and businesses cannot exit the bundle except by departing the city altogether. The bundling of many services -- libraries, museums, schools, parks, athletic fields, conference centers, hospitals, water, sanitation, power, homeless shelters, fire protection, security, streets, and transportation -- all carried out by large municipal governments -- might well reflect past conditions of technology and mobility, path-dependent government, and public-choice forces, rather than limitations of voluntary action, whether commercial, mutual, or charitable.

In the case of proprietary governance, services would tend to be broken down into separate and independent offerings, based on smaller geographic units. A private road which belonged to an association of roads could simply discontinue its participation in the association. If the association failed to satisfy its members, some would pull out and perhaps form a new, competing association. Like simply selling off one's shares in a declining corporation, this exit option generates powerful incentives to keep up performance. Proprietary governance would tend to de-bundle services, expand the number of nearby alternatives, and refine the variety of final packages one could create for oneself. Relatively easy exit by residents and businesses would discipline road-owners, and easy exit by road-owners would discipline associations, agents, and service providers (Hayek 1960, 351f). These considerations point in the direction of James Buchanan's rarified "club" model (1965), in which government is best left to the market. The historian David Beito (1990) shows how nongovernmental planning built the private residential streets (known as "Places") of St. Louis, with complete infrastructure services. The economist Fred Foldvary (1994) presents numerous case studies and argues that private "government" delivers the goods (MacCallum 1970). Let me be clear in saying, however, that even in my preferred semantics, there are gray, ambiguous regions between local, coercive government and private, voluntary agreement.

The role of competition in proprietary governance certainly falls short of the economist’s notion of perfect competition, but it will be much more prominent than it is in the case of municipal government. The debundling of social services and the reduction of geographic size would make it easier for residents and businesses to shop with their feet. Road-owners would have to compete with other roads and districts. And they would be led to utilize competition themselves to improve service and reduce cost. If transit services are granted on exclusive contracts, the road-owners would naturally invite competitive bids for the contract. Also, road-owners might permit multiple, competing carriers to operate on their roads, but manage the particulars of that process.

A Hayekian will readily admit that certain restrictions are probably necessary. The one obviously necessary limitation on real-property rights is that road owners must let others cross their road. This limitation has historically been placed on railroads, private toll roads, gas and oil pipelines and so on (Tullock 1993). Without such a limitation, road owners could prevent "trespass" by those wishing merely to cross their road. They could enclose or cut-off vast areas and extract outrageous payment just for crossing, bridging over, or tunnelling under the road. The road owners surrounding the residence of Bill Gates would be capable of extracting his millions. The obvious solution is easements that permit free crossing at a sufficient number of locations. In similar fashion, it might be that limitations on real-property rights would be necessary to cope with the lately mentioned hold-out problem, and perhaps for natural monopoly problems (Coase [1960], 155; Tullock 1993).

We may now revisit Christopher Nash's criticism (1988) of free-market urban transit. He says that piecemeal operators will not take into account systemwide benefits, in particular consumer surpluses arising from density economies and smooth interchange. Once we put road-owners into the equation, however, we can see how they may be attentive to the consumers’ demand for frequent and reliable service and smooth transfers. In fact, the road-owners might be transit consumers, in that roads might be owned in joint-property arrangements by residents. With private, competitive road-owners now part of the process, we can see that the decision- making process may not be terribly piecemeal at all. Rather than thinking of small transit operators roaming independently like myopic termites, we must think of transit within a responsive body of contract and private agreement, a nexus of voluntary planning between different road-owners and service providers.

The workings of a proprietary metropolis are impossible to foretell. The contracts that are agreed to at any point in time may permit wide latitude in the action of piecemeal transit providers. But what is especially frustrating to researchers who have a strong will to know is that the agreed contracts themselves -- the rules of the transit game -- too are evolving and somewhat piecemeal. They too are, as the model-builders put it, "endogenous." Pretending to model this system would bound to be highly misleading. Hayek (1988, 62) says that "the most important task of science might be to discover ... [the] limits to our knowledge or reason."

Yet we may nonetheless invoke the general principle that each part of the proprietary system strives for a more profitable local coordination, and in the process advances metacoordination. Freedom of contract gives authority and great flexibility in managing resources, and private ownership gives great motivation; together they make for a system that evokes and prospers the activities, practices, and institutions that bring joy, and weeds out those that don’t. These claims may sound to some like hackneyed precepts, but economic scholarship bears out their depth and power. There are no guarantees here, but it seems foolhardy to me to suppose that we could expect better from "the democratic process" and government officials, even ones with Ph.D.s in civil engineering or urban planning (or economics). (5)

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