For a number of years, there’s been a drumbeat of support for the free market, armed with the maxim that anything the public sector can do, the free market can do better. This tattoo continues even though every first-year Econ textbook has a section on market failures illustrating where free market solutions lead to an inefficient outcome. And one of those market failures is the underproduction of public goods in a pure market economic system.
Public goods have widespread benefits and concentrated costs: things like roads, bridges, ports, national defense, education, etc. These goods have non-rival consumption and are non-exclusive. This means that when one person accesses the good it is still available for another consumer, and that even those who do not access the good still benefit from its existence. This leads to the free rider problem, where those who benefit from a good don’t have to pay for it. Thus, businesses can’t maximize profit, and don’t produce many public goods.
Yet this “free market above all” conventional wisdom has lead to the privatization of many public goods including education, roads, even war — but is the free market always the most efficient and inexpensive means of production? Using roads as an example –specifically, a toll road in Orange County, California — we can examine just how much private roads would cost us. Highway 73 cuts through some of the most beautiful coastal hillsides in Southern California.
Construction on the first three miles of the highway began in the 1970s and was completed in 1978. It was a small extension of a public freeway known as the Corona del Mar Freeway. The last 12 miles was bitterly opposed by environmentalists and other locals who dreaded the road and the development that would certainly follow. It took nearly two decades of court battles and demonstrations before the road was completed. The promise was that this road would be a solution to the congestion along the 5 freeway and that the financing would be entirely private. When the road opened, the highest cash toll for an automobile was $2.00, now it is $5.50 (cash at peak times) to drive 12 miles. That is more that 45 cents per mile.
If all of the roads were private and cost 45 cents per mile, and if the average person drove 12,000 miles per year, that would amount to $5,400 per year paid in tolls. Just for the privilege of driving on the roads. Now think of the other government provided public goods we take for granted and imagine how much we would pay for private fire and police protection, border control, national defense, education, etc. What about the agencies that protect our health and safety like the FDA, FAA, EPA? For most people, government provided public goods are the cheapest, smartest way to go.
Teresa Laughlin is a professor of economics at Palomar College