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III. Transactions Costs

It is impossible to reduce such negotiation problems to zero, for wherever automobiles may travel, there will always connections between one road owner and another under any system, free enterprise or socialistic.9 This certainly applies under government control, where the authorities in charge of city streets, bridges, tunnels, thruways, roads of contiguous states, etc., must all deal with one another. It might appear that transactions costs could be avoided if there were only one state authority, or one private road owner wherever highways or streets connect. But this is a mirage. The costs of coordination under such a system might be labeled management instead of transactions costs, but they would remain costs nonetheless.

It cannot be denied that such costs would still exist, even under a full free enterprise road system. But if we have learned anything from the fall of the Berlin Wall and the economic debacle that was the economic system of the U.S.S.R., it is that one of these systems is highly efficient, and not the other. The government system, after all, is the one that brings us the horse and buggy U.S. Post Office. Need any more be said?

But let us posit that management within one firm is cheaper, within the relevant range, than negotiation between different street companies. Taking this idea to its ultimate logical conclusion would imply a single firm, for example, in all of North and South America, since all roads on these two continents are connected to each other. (We pass over the "problem" of the discontinuity in Panama, given that there are bridges that enable cars to travel north and south over it.) If there were none, then, instead of only one owner, there would be two, one for each of the American continents. Does this present any particular problem or embarrassment for the theory? Not to those (Anderson, Block, DiLorenzo, Mercer, Snyman and Westley, 2001; Armentano, 1972, 1982, 1991; Armstrong, 1982; Block, 1977, 1982, 1994; Boudreaux and DiLorenzo, 1992; DiLorenzo, 1997; High, 1984-1985; McChesney, 1991; Rothbard, 1970; Shugart, 1987; Smith, 1983, 1995) who maintain that the success of One Big Firm is no threat as long as it arises from, and depends solely upon, market forces.

In one sense, privatizing roads is like attempting to unscramble an egg; it is very, very complicated, because what we are trying to do in effect is bring about a situation today, which would have ensued had streets always been private. Our goal is to determine how this market would have functioned in the past, and then to set up a situation, now, as close to what would have been, in this imaginary contrary to fact conditional.

The problem is that this is essentially an entrepreneurial, or managerial, not an economic or praxeological task. For economists, it is impossible to anticipate the market. Suppose, for example, that the shoe industry had always been run under government supervision, and that we were now contemplating moving it from the socialism to capitalism. A whole host of questions would quickly arise, the answers to which would lie outside the realm of economics. For example, how many shoe firms would there be? What color would be the footwear? What proportion would there be between black, brown, white, tan and other color shoes? Between shoes, runners, sneakers, slippers? How many lace holes would there be in a shoe? Who would stitch together the shoe and its sole? How many shoe stores would be located on each block? Would there be one in every mall? How would the poor afford shoes? Would someone like Michael Jordan become a pitchman for the product?

In like manner, it is difficult in the extreme to know, at this late date, the precise configurations of a private street and road industry, had one been allowed to be fully developed from day one. How much would the street vendors charge? Or would they provide road service for free, in a sort of super loss leader ploy, and earn their income through billboard advertising, or enhancement of real estate values (some companies are now giving away computers, gratis, which come replete with advertisements)? How would we obviate the possibility of surrounding a property owner with private roads, so that he had no means of access or egress? I speculated (Block, 1979) that no one in his right mind would ever purchase a property without clearly delineated access rights, spelled out for the present and the future, but what, precisely, would be specified in contracts intended to obviate this difficulty? If road providers did charge for their services, I articulated (Block, 1979) a scenario whereby this would be done by placing Universal Product Codes on the underbody of automobiles, so that their owners could be sent a monthly bill. This, of course, would set up privacy protection issues, which, in turn, have also been previously addressed (Block, 1979).

The point is though, that even if a contrary to fact conditional society such as ours but with continuous private road ownership, did indeed address and solve problems of this sort in this manner, it would still be a Herculean job to convert our present society into that one. Even worse, we have only our managerial-entrepreneurial speculation to buttress these suppositions, nothing more.

On the other hand, we need not be too pessimistic about this either. An imperfect privatization will be far preferable to none at all. Government streets are an administrative and safety nightmare.10 It is inconceivable that private initiatives could do worse. In any case, the same challenge faces the privatizer of all industries now in government hands. Even the post office and public education, the privatization of which are far easier on theoretical grounds (there are no linkages between them and virtually all other private property), present complicated problems of equity, transition, etc., as do streets.

Ordinarily, under laissez faire capitalism, the owner of a private enterprise could charge whatever price he wished for the goods or services he supplies. If you didn't like the pricing or any other policy of McDonalds, you are free to patronize Burger King or Wendy's, or any such other emporium, or buy your burgers from the supermarket and eat them at home. It would be a bit harsh, however, to allow the new private owners of the street to engage in such an exercise of "economic freedom." This is because in the world where all streets were privatized from day one, no one would have ever built a home or a business without first contractually preventing the road owner from such unilateral behavior. Rather, there would have been an agreement preventing this, either through contract, or by making the home or business owner a partner in the street enterprise. Were we now to allow the new road owners to impose their unilateral decisions on travelers, this would in effect make a gift of the entire economic value to them not only of the roads, but of virtually all property within a city. Some way must be found, then, to mimic the market in streets which would have existed under free enterprise from day one, but which did not.

One final caveat, whether for street privatization or any other: it is important to be thorough. In many of the Eastern European countries, even including Russia and other parts of the U.S.S.R., something along the lines advocated here has been followed. Shares of stock have been created for a number of properties, collectivized farms, factories, etc., and have been divided up widely among taxpayers, citizens, former employees, and other reasonable ownership candidates. Moreover, also much to the good, the law has allowed these shares to be traded on organized exchanges (Foreigners have been precluded from taking part, which is a shortcoming of the system), so that they naturally tend to flow toward those who value them the most. The problem is, in all too many cases, the direction in which they flow is right back toward the very people responsible for the communist debacle in the first place: ex apparitchiks, goons, thugs, banking authorities, former military officers, etc. As a result, Eastern European and former Soviet "capitalism" has come to resemble nothing so much as "free enterprise" mafia style.

It would be a shame and a pity were road privatization efforts in the U.S. to come to a similar sorry end. In order to obviate any such occurrence, steps must be taken to be thorough in the privatization effort, one, to ensure that vestiges of state control are eliminated, and, two, that those responsible for the present disarray do not succeed in taking any positions, let alone leadership ones, in the new regime. To wit, shares of road stock should not be given to those road managers responsible for our present astronomical level of traffic fatalities, nor should they be allowed to purchase any (in much the same manner that those convicted of certain crimes are not allowed to own gambling establishments). Indeed, the question should not be so much whether such persons should be allowed to regain control over street management as much as a debate over which criminal penalties should be imposed upon them.

As well, the state should keep its bloody hands off of the future private road, street and highway industry. Government police should be as scarce on traffic thoroughfares as they are now on the inside of Disneyland. In the latter case, if you act obstreperously, you are sooner rather than later surrounded by a group of mice and ducks, all packing heat, who will lead you away quietly from the scene of a confrontation. These private police are far better able to satisfy the requirements of consumer sovereignty than those in the public sector. After all, only the former, not the latter, can go bankrupt, because they are part of a market system. And the same holds true for bouncers in private drinking establishments. As for the "rent-a-cops" who serve on the Jerry Springer show, is there any doubt that they are far superior to any public alternatives when it comes to breaking up a fight at the exact point when the combatants are appropriately half undressed?

Similarly, if the death rate is to be reduced to optimal levels, and traffic to be increased past horse-and-buggy levels, then road entrepreneurs must be able to control all aspects of highway travel, certainly including policing, pot hole repair, street construction, penalties, etc.11 Under the present proposal could a street owner impose the death penalty on those who drove green automobiles? Not any more than he could charge whatever price he wished.

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