Road user charging, the way to highway investment?

Tough political decisions have to be made to ensure highway investment - *Dr Max Lay reports

Our road systems and how we use them have changed dramatically over the last few centuries, and yet some problems persist and others reappear.

For most of human history roads have been used by foot traffic and by cumbersome wagons hauled at walking pace. Roads were built to provide some obvious advantage in commerce or conquest. They were then grudgingly maintained by those who might gain some advantage from the passing traffic.

The user-pays principle was widely applied via tolls levied at toll gates or bridge crossings.

We tend today to forget how widespread toll roads were - they were the norm rather than the exception. Most were in private hands and - once approved - were outside any government processes. The Industrial Revolution greatly increased trade and saw major increases in toll roads. However, it also caused some contrary effects.

First, when the new steam engines were applied to moving freight and people, the engines were far too heavy to be carried on the existing road pavements or to move on the existing road alignments. The railway system was invented early in the 19th century and soon captured both the travel market and the public imagination. Throughout the 19th century land transport expenditure was almost entirely on railways and canals. Toll roads went bankrupt and roads fell into ruinous decay. The only roads to be maintained were those feeding the railheads.

As if this were not enough, as things were worsening towards the end of the century, Karl Benz and Gottlieb Daimler pioneered the motor car. They were relatively cheap, easy to use, as fast as a train, and their high power-to-weight ratio meant that they could travel anywhere.

Well, almost anywhere, as even they found most of the appalling roads impassable. And they gave little hope to the toll industry, as they could circumnavigate or out-speed any attempts at toll collection.

If there was any thought that the horse and the ox would continue to be useful in transport, this was demolished by the success of motor transport in the First World War. So soon after that War ended, the world had motor vehicles being mass-produced at affordable prices, an insatiable market for them, a terrible road system whose condition had been further worsened by the War, nations in economic doldrums with the Great Depression looming, and just a few remnants of the earlier user-pays toll system.

Ironically, at this same time great economists and commentators such as Pigou and the Webbs were highlighting the soundness of users paying at least the marginal costs of their activities. Throughout the 20th century this view gradually pervaded all public utilities, so that in most countries today roads are the only public service which is provided free with no price signals to produce rational decisionmaking by users.

Another great economic move of the 20th century was to ensure that resources were properly used by ensuring that they provided an adequate return on investment, and indeed were all tradable commodities. This is now a widespread principle, but once again few roads are seen as economic assets - indeed, most road managers see their roads as liabilities producing ever-increasing costs and liabilities, and no income or enhanced valuations.

Of course, many toll roads have been built around the world but they are a small proportion of the world's major roads. Their development peaked in the mid-20th century and there is often a strong public reaction to them. Many of the current generation have been imbued with the idea that roads, alone amongst public and private utilities, should be free of any usage charge.

Public sector road managers often say that they have no money to maintain a piece of road and that its condition will only worsen with time. But in most jurisdictions, if directors of a public company allowed assets to deteriorate in value, they would face stockholder anger and severe legal penalties.

With some perception, the American cowboy-humourist, Will Rogers, once said: "There's a simple solution to this traffic problem. We'll have business build the roads. And government build the cars." So, after the road mire at the end of the 19th century, we have allowed roads to avoid all the economic and managerial lessons of the 20th century. Almost uniquely, they are consequently under-priced, under-valued, and - as a result - greatly over-used.

And if this were not enough, the users of the roads operate independently of each other and of the road manager. The incredible technical advances of the 20th century are still little to be seen in the 21st century road systems. For example, radar was invented and well used during the Second World War. And yet even today, collision avoidance equipment is a rarity in road vehicles. Despite the simple technology, we have waited over half a century to see non-technical issues such as supplier liability overcome and even then in just a small proportion of the vehicle fleet. It is interesting to compare the rapid development and application of mobile-phone technology with the very slow introduction of similar vehicle-to-everywhere technology into the vehicle fleet.

One basic example of this is in vehicle identification systems. All vehicles have a unique identifier, often called a VIN, which is usually found (with some difficulty) stamped somewhere on the vehicle body. For decades now, it would have been possible to have a vehicle's VIN made thief-proof and readable by roadside device - for instance by embedding microchips in the parts of the vehicle.

Two practical applications of this approach would be to automatically detect vehicles behaving illegally and to charge vehicles for using a piece of road. The second application brings us back to a basic theme of this paper - pricing for road usage. Road pricing on all roads was first advocated by the famous economist Pigou in the early years of the twentieth century. Since then none have questioned its logic, but many have doubted its political acceptability. A number of governments have instructed their staff not to even use the words "road pricing". As yet no government has introduced a system of universal road pricing, although a Dutch proposal withdrawn earlier this year would have done. Of the two best-known current systems, the Singapore scheme only tolls major roads and the London scheme applies within a specific zone.

There are certainly charges on car usage but these are seen as taxes and are very blunt in their impact. In 1850 the future British Prime Minister William Gladstone attended a lecture on batteries given by the famous scientist Michael Faraday. He asked Faraday what uses his new invention might have. Faraday replied, "Sir, there is every probability that in a few years you will be able to tax it." The taxation idea continued to attract politicians and in 1907 Herbert Asquith perceptively told the British Parliament that a tax on cars would be almost an ideal tax because the car was a luxury which was apt to degenerate into a nuisance.

By the 1920s, it was realised that a tax on fuel used would be an "ideal" tax - it would be collected by the private sector and the motorist would blame the fuel seller and not the government. Treasury officials were quick to denounce the idea of "hypothecating" these fuel taxes to the construction and maintenance of roads. This was despite the fact that the theory of marginal pricing - users should at least pay for the damage they cause when they use a product - was well established by the beginning of the 20th century.

There are some wonderful exceptions to this treasury dogma. The best known is the magnificent, heavily-used and very extensive US Interstate freeway system built during the second half of the twentieth century entirely from funds raised from fuel taxes.

Fuel taxes are blunt taxes as they are levied on users quite independently of the cost of building and maintaining that road, of the degree of congestion, and of the costs that the use imposes on others. As the recent Dutch trials showed, road pricing using readable vehicle VINS and GPS to locate the road being used can avoid all these problems. The prices imposed would then constructively influence the behaviour of both road users and road managers. The other problem with fuel taxes is that the move towards diverse power sources and fuels, as highlighted by the increasing use of electric cars, will see the traditional fuel tax base eroded. Governments may find themselves forced into rational pricing.

The road has been with us for at least three millennia, however for the last two centuries road managers and road users have not kept in step with major changes flowing from the industrial revolution. As a consequence the world has a road system that is shakily funded, poorly priced, inefficiently used and far less safe and effective than it could be. The tools are now all available for us to correct these deficiencies and achieve far better outcomes, but their application will require strong leadership - politically, technically and commercially.

Author
*Dr Max Lay was a founding Director of ConnectEast, a toll road company, and is now Chairman of its Health, Safety and Environment Committee.

He is an Advisor to Roads Australia and a Professorial Fellow at Melbourne University. From 1986 to 2008 he was a Director of RACV, and President from 1999 to 2002. He was President of the Australian Automobile Association from 2000 to 2002