Free to Prosper: Transportation

A Pro-Growth Agenda for the 116th Congress January 8, 2019

This article is republished with permission from our friends at the Competitive Enterprise Institute.

View the full chapter on transportation here

Mobility is one of our most important needs, one we often take for granted until it is threatened or lost. Reliable movement of both persons and goods depends upon adequate transportation infrastructure investments and management. In the United States, transportation now accounts for nearly 10 percent of U.S. gross domestic product. Four million miles of highways enable 3 trillion vehicle-miles traveled every year, according to the Bureau of Transportation Statistics. Nearly 20,000 airports enable nearly 10 million annual aircraft departures carrying more than 685 million passengers. More than $12 trillion worth of goods are moved every year in the United States by road, rail, air, and waterway.

Transportation networks vary greatly in terms of quality, financing, and management. For instance, roads generally are paid for out of user-tax or property-tax revenues, whereas freight rail is privately financed and operated. One important lesson is that the private sector is generally better than government at financing and operating high- quality transportation systems at lower costs. New technologies and management practices present serious challenges going forward, particularly to those networks that exist largely as government monopolies.

Even if privatization of existing networks were to prove politically unattainable, the starting point for sound transportation policy is adherence to the users-pay/users-benefit principle. Transportation infrastructure and operations should be paid for by the users who directly benefit from their use. Despite some spillover effects, the vast majority of benefits accrue to the network users. Compared with general revenue funding of government-owned infrastructure and services, users-pay offers the following advantages:

  • Transparency. Charges “follow” users, unlike tax dollars that wind through convoluted bureaucracies.
  • Fairness. Users pay and benefit directly from improvements generated from their payments; users who use the systems more pay more.
  • Signaling investment. Operating revenues generally track use, and popular systems can be identified for targeted improvements.

Unfortunately, many federal transportation programs do not adhere to the users-pay principle. In those cases, the programs should be reformed to meet the users-pay principle. If that proves not to be possible, that would suggest that the program is high cost and low value and should be ended.

The history of economic regulation of transportation systems in the United States shows that competitive markets benefit consumers more than top-down planning and control. In the late 1970s and early 1980s, airlines, motor carriers, and freight rail were partially deregulated, leading to lower prices and improved service. Today, rules aimed at promoting safety dominate many discussions of transportation regulation. However, although safety regulation was well intended, many of the resulting measures provide few, if any, benefits at very high costs. In a number of cases, safety regulation has become a way to impose backdoor economic regulation, even though explicit economic regulation is now greatly constrained or prohibited by law. That should concern policy makers.

To better promote high-value, low-cost mobility, Congress should critically examine current practices and work to remove government barriers to competition and innovation in the transportation sector. Congress passed a multiyear Federal Aviation Administration (FAA) reauthorization in October 2018. There is much to be done to reform the FAA and federal aviation law in a more pro-market direction. Congress should continue to examine the air traffic control governance and airport funding and financing reform proposals that were debated in the previous session, especially (a) an air traffic control model based on Canada’s successful corporatization and (b) lifting the federal cap on the local airport user fee known as the passenger facility charge. In the meantime, Congress should begin examining policy improvements for the next highway bill, as the current multiyear surface transportation reauthorization expires on September 30, 2020.

In this chapter:

  • Reform Surface Transportation

Read the full chapter on transportation here