Should Darling travel down Smith’s road pricing route?
07 Jul 2003
A version of this article by Tom Miers appeared in The Scotsman on 7th July
Should Darling travel down Smith’s road pricing route?
What do Adam Smith and Alistair Darling have in common? Not much, you might think. Both have obvious Edinburgh connections, though Smith was born in Kircaldy and Darling in London. But in fact Scotland’s great free market philosopher and its part time Secretary of State do share a passion – for road pricing.
Darling is, of course, also Secretary of State for Transport. Every so often stories appear in the media telling us that he is planning a mammoth road pricing exercise. Satellites will monitor our every motorised move, and we will be charged according to distance travelled. Prices might vary with the type of road and the level of congestion. In return, petrol and road taxes will be scrapped or reduced.
The idea is based on a sound principle. Everyone knows that if a valuable resource is free at the point of delivery, there will be a rush of demand for it. The outcome is that the resource is exhausted and then rationed, either by quotas or queuing. Britain has three industries run in this communist way – deep-sea fishing, health and roads. All are in crisis.
So it is good to see Darling thinking about introducing a pricing mechanism to normalise the supply and demand of road space. My only quibble is that he wants the government to stay in charge.
This is where Adam Smith comes in.
The Wealth of Nations agrees with Darling that there is no need for roads to be maintained out of public funds when they can be paid for by tolls. However, Smith warns against government management of the roads, pointing to three dangers.
First, governments would be tempted to increase tolls to augment their overall revenue, to the detriment of the economy. Second, such increases would effectively represent a regressive tax on the poor, since tolls could not take into account the value of the vehicle or the wealth of the driver. Third, the government would inevitably neglect the roads, cut costs and maintain them inefficiently, and it would be hard to bring it to account for this.
These objections remain valid today, and I would add in the civil liberties concern of having the state monitoring our movements on such a comprehensive scale.
However, Smith is also cautious about private companies running roads. He says that, because there are usually no alternative routes, private companies have no incentive to maintain the roads well. Instead, Smith recommends that they be placed in the hands of trustees or commissioners.
Today there are two major road pricing experiments in Britain. How do they match up to Smith’s philosophy, and what can we learn from them?
Ken Livingstone’s congestion charge in London is widely credited with reducing the traffic there, but where does the money go? This is an example of government levying tolls on road use, and it seems to me that the scheme falls foul of all of Smith’s concerns.
Livingstone is indeed appropriating the toll proceeds for his various public spending projects. Moreover, in so far as the charge is greater than the amount needed to maintain London’s roads, it represents a tax weighted against the poor. Finally, it is hard to believe that the Mayor is managing the roads as efficiently as he might. Stories about rigged traffic lights and endless roadworks infuriate Londoners.
The other current example of road pricing is the Birmingham relief road. This is run as a private concern, but I would argue that this project does not suffer from the weaknesses Smith identifies from privately run roads, for two reasons.
First, there are alternatives to using the road, in the form of the neighbouring M6, smaller roads, the railways and air travel. Modern technology has provided the competition to keep private operators on their toes. Second, a regulator can monitor the private operators if competition is not doing the job – effectively performing the role of Smith’s trustees.
Why not apply these lessons to Scotland? Two different companies could be given the important Edinburgh to Glasgow route to maximise competition – one the M8/A8 and the other the M9/A80. Scotland’s other trunk routes and roads could be similarly divided up.
Where direct competition is impossible, a regulator could set minimum standards and maximum prices. Road and petrol taxes could be scrapped.
Furthermore, private investors could be encouraged to invest in new roads and railways. The economic benefits of well-placed transport infrastructure far outweigh the cost of building it. Just look at the massive rises in property prices around new rail schemes.
If investors could be allowed to harness a proportion of that benefit, there would be no need for public money to build new roads and railways. Projects like the Waverley line and the airport links could be given an immediate green light.
The economic benefits of measures like this would be enormous for Scotland. Efficiently allocating the right resources to transport would save billions of pounds for businesses and individuals. But this can only be done through pricing mechanisms that encourage investment and regulate demand.
Adam Smith has been largely forgotten by his fellow countrymen. A solitary flower graced his tomb on his birthday last month. But his guiding hand on economic first principles is as relevant now as it ever was. Alistair Darling could learn much from his wisdom.
Tom Miers is Executive Director of the Policy Institute, an Edinburgh based think-tank.
tmiers@policyinstitute.info