The ACT party – or at least its biggest funder – was in the news last weekend for expressing some of his views for the party at their annual conference. Of note was this line

“I’d privatise all the schools, all the hospitals and all the roads,” he told the conference.

Now obviously we’re not in the habit of talking about schools or hospitals (unless it’s about how to get to them) but roads are something on our list. Now in reality I can’t see it happening here – at least any time soon – but it raises the interesting question of what would happen if we were to privatise roads? This post is really just a thought exercise as to some of the impacts of doing so.

I suspect that if we were ever privatise the roads the impact would how we get around and our views on transport would change dramatically. There would be some overall impacts across the entire network but also more local impacts due to there likely needing to be different forms of privatisation.

The key impact would be across the entire network and the true cost of operating, maintaining and building roads would become much clearer regardless of how that’s passed on to the public. A better understanding of just how much roads cost, especially if charged for through forms of road pricing would lead to changes in how people travel. People would likely reduce the amount of driving they do in favour of more walking, cycling and PT use.

Private road owners would also likely seek to reduce their maintenance costs while users of lighter vehicles would likely demand that costs are more fairly distributed to those that do the most damage. That in itself could have large impacts. It would likely see the vehicle fleet get smaller and lighter over time i.e. less people would be driving around in large SUVs unless they absolutely need too (or want too). Truckies would be even harder hit. Due to their weight, trucks cause substantially more damage to road surfaces and so would likely be charged substantially more than other vehicles which in itself would have far reaching impacts by pushing up delivery costs. Those increased costs would of course be passed on to businesses and ultimately consumers.

Perhaps one of the areas most impacted would be in road construction. In short it would kill it dead. Most transport projects simply don’t make sense financially and the toll road troubles in Australia are proof of this. Traffic volumes often don’t stack up and most projects are only able to be justified based on the benefits to the wider economy from improved travel times. Faced with paying for a journey in time through congestion or paying a monetary cost to avoid congestion, many choose the former. What all of this means is that road construction would dry up almost immediately and the costs would shift to making the best use of the infrastructure that exists. That could have some negative consequences as there might be little attention paid to improving roads through projects like this. The flip side of this is that the private road owners would likely become liable for road safety and therefore be a push to improve crash black spots.

Regardless of whether privatising roads is a good or a bad thing, one thing that isn’t so clear is just how it could be done. The real benefit from roads comes from the fact they are an extensive network. Very few trips begin and end on the same road and a trip might commonly involve travelling on quieter residential streets, arterial roads and motorways. Each of those would present vastly different opportunities for privatisation.


Motorways would probably be the easiest roads to privatise due to the fact they have limited access and all journeys that use a motorway begin and end somewhere else. Motorways also carry large amounts of traffic each day. This is also why groups like the NZCID who have been pushing for the council/govt to find additional ways to fund ever more and larger transport projects have suggested charging for access to the motorways. If we were to privatise roads there would likely be a big temptation to do the easiest ones first and so motorways would be at the top of the agenda. The problem with that though is that it would likely have a huge impact on but still publicly owned roads.

Residential streets

The next easiest set of roads to privatise would actually be quiet suburban streets, particularly those post 1950’s suburbs full of cul-de-sacs. There we would probably do something similar to what is likely to happen later this year in the small sprawly village of Long Grove (north of Chicago). They are looking to privatise many of their currently public suburban roads because it simply can’t afford to maintain them due to their pyramid scheme like system of how roads were funded where the money to pay for them was only raised through development contributions which dried up as a result of the GFC. They are simply going to turn over the ownership of the roads to the owners of the houses on the street and leave it up to them to maintain. 

Some typical post 1950’s street patterns

That could put big strains on neighbourly relations in many places as people work out who will pay for what i.e. does everyone on a street pay equally or do those at the end of the street pay more? In some parts of Auckland there could be interesting changes in the stance taking on intensification. More people living on a street means more people to share the cost of a road with and so some of the suburbs that were most opposed to intensification in the Unitary Plan discussions might quickly change their mind. Going further some residential neighbourhoods might start imposing restrictions on vehicle use in their streets – particularly truck movements – in a bid to lessen the damage vehicles do to the roads. Gated communities might also become more common to stop others from passing through.

On the positive side these communities are likely to become much more pedestrian and cycle friendly as those two modes cause much less wear and tear on roads which equates to less maintenance.


Privatising arterial roads are likely to be the hardest to do because not only do they serve a movement function but they serve a place one too, people live, work and play along arterials. To be honest I don’t even know how you could privatise them as due to their function they can’t just be turned over to locals to maintain but their connected nature means they would be prohibitively expensive to charge for. Who would really want the cost and hassle of owning them?

Overall I don’t think the idea of privatising roads is necessarily a bad one from an ideological perspective and doing so would certainly change how we use roads, including what modes we use but overall it simply isn’t practical. Roads are such a key part of our everyday life that changing our relationship with them – however flawed it currently is – would have radical and far reaching consequences for society, probably far more so than the privatising of many other government functions. As such I would suggest the likelihood of it happening is very very low. Far more likely and practical would be the introduction of proper road pricing.

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  1. All of the claims made about how much more transparent roads would become if roads were privatised were all levelled as reasons why privatising electricity was a good idea.

    And as we know the exact opposite has occurred – it is impossible for the average home owner to get transparency on their power prices, and the little guys (low power users) get ripped off as badly now as they did before – and it took government intervention to even get them some discount for using less power (the argument was that since they used less power,but the fixed cost of supplying them was the same, they had to pay more per unit to cover the costs).

    And as you know the major power users now have the majority say on power pricing in NZ.
    So think major road users aka trucking lobby for roads and they would end up with the majority say in any road decisions.

    Its all fine in theory but doesn’t work in practise. Simply lets private enterprise cherry pick the states resources for its own profits and leaves the rest (the “basket cases”) for everyone else to deal with.

  2. There is nothing wrong with privatising the electricity supply or any other utility. The problem comes when you introduce de regulation.
    So the Government should not be a shareholder in industry – it puts tax payers money at risk – but it should be the rule maker and enforcer on industry activity.

    1. Yep, all fine in theory Phil, except de-regulation and privatising are considered one and the same by governments, their advisors and the privateers (and the Act party and their backers).
      You can’t, in their minds, have one without the other.

      After all “any regulation” = “lots of red tape” = “a bad thing”

      This means that “de-regulation” = “no red tape” = “a much much better thing”.

      And thats what they’d want with roads as well.

  3. Why would the Transport Blog take anything that the ACT Party says seriously? You’re not the Herald. You’ve still got integrity.

    The ACT Party is the biggest bunch of gas bag, blowhard has beens this side of the National Party. I’ve got a stone in the garden that is brighter than the lot of them combined.

    1. By virtue of the press that some of the wacky stuff at either end of the spectrum gets, it is always good to have some reasoning to show it as wacky, especially when the media and those that comment on articles tend to be more towards the neo-con ideological standpoint..

    2. I don’t see why there is an issue with covering something they’ve raised and anyway it was something I’ve been meaning to write about for some time (well before it was raised by Gibbs).

    3. Good on you for covering it. And just when I was thinking ACT were a bunch of selfish dicks I read Matthews comment and I realised maybe I should give them a go just to annoy people like him.

  4. I’m hoping Matt was putting himself in the mind of an ACT voter rather actually thinking any of that would remotely happen.

  5. Treasure I believe has suggested privatisation of roads in the past, but governments (Right wing included) have always resiled from implementing it. I think this is because, deep-down beneath all the ideology, they realise that roads are just too important to entrust to the vagaries of business. So too are railways, power companies and other utilities, but unfortunately privatisation dogma won out and aside from very illusory benefits, led also to the likes of the Auckland power blackouts of 1988 and 2006, and the Great Tranz Rail Robbery by Messrs Fay and Richwhite. The failure of the railways privatisation is well-known. The promised benefits of electricity privatisation we are yet to see, even as power prices continue to rise as companies continue to be sold. Telecom’s privatisation appeared to succeed, but a huge shift in technology accompanying the privatised era would most certainly have swamped any effects of privatisation per se. We can only guess how these industries would have fared in these changing times, had privatisation not occurred. But the fact that even National Governments have baulked at privatisation of roads, speaks volumes about the wisdom (or lack of wisdom) in dismantling state owned and controlled enterprises. They were not all bad as often alleged, and in too many cases a valuable baby was thrown out with the bathwater. Even right-wingers must acknowledge this.

    1. To clarify, Dave B, the Auckland blackout of 1998 (not 1988) was not a consequence of privatisation, quite the opposite. Although Mercury Energy was formed in 1993, the seeds were sown long before that when the AEPB operated under its own Act. The tunnel project was well under way in 1998, it had just been started too late. While privatisation implies a profit motive, it also leads to improved performance. The question is which of these factors prevails. The Transpower fault of 2006, although of a much smaller scale, occurred under state ownership too.

      As for roads, I happen to live on a private road where the residents have contributed to a sinking fund based on property values (ie similar to rates, not based on location within the street). But I agree that extending the concept would be a massive undertaking with doubtful benefits.

    2. Hi Dave – I was working for Railways in 1998 when this issue last reared its head. There were so many devils in the detail:

      * How one would charge car users. Fuel tax may not be the most precise charging tool, but most of the time it works fairly well, and it is also cheap to collect.

      * Network effects. In most networks the trunk supports the branches – the work done at the time suggested that Auckland was being under-supported and the rural areas were being over-supported; but any likelihood of changing this was minimal.

      * Road user charges showed the same problem. From my quite limited knowledge of road engineering, a change in the rules to location-sensitive pricing would have hindered railways considerably – because it would have meant that truck use on the trunk roads (the main state highways), which are built to a much stronger standard, would have been charged *less* than truck use on local or rural roads, This is because the real cost of a truck movement on the weaker pavements, is quite a bit more, so rural truck use would have been charged more.

      * Aversion to direct time-based road pricing. Even if it could work technically, as it does in most other parts of the transport system, politically it was never going to work.

      So, it just got to the point that politically as much as technically it was never going to work, and the ideas were abandoned. Time-sensitive pricing is an issue only for Wellington and Auckland, anyway.

  6. I find it amusing that Mr Gibbs uses a benign dictatorship as an example of good government. Generally I am against privatisation, but I do see the merits in some cases when government intervention results in stupid decisions. If the service is essential, then I think it is better to have a state-owned company running things rather than a private business which may go bankrupt and need a state-bailout because it is an essential service. And if it is profitable, then the profits go back to citizens. Privatisation doesn’t guarantee lower prices, better safety, better service or greater social good (which is probably the better measure). Of course, neither does public-owned systems. Regarding road privatisation I think this is an interesting discussion. I’d imagine if we had a privatised transport sector in Auckland, we would still have trams everywhere and far fewer motorways. An unsubsidised car/roading industry would not have stood a chance.

  7. My god Matt! You makin me al’giddy. Great article and great thought experiment. As I told Julie Ann-Genter the other week, imagine if she didn’t have to fight Gerry Brownlee in parliament and, could rather be head of her own transport firm, selling her product to customers, not politicians and very very distant voters! Imagine if all you transport lovers didn’t have to buy into the National government monopoly on roads.

    1. But Phil, that’s what a National politician’s role is. Slowing down progress, making sure we don’t do anything smart.

      It’s very interesting to listen to Wellington public servants talk about the performance of their ministers. Nothing is getting done because of ministers’ disinterest and laziness. That’s not transport obviously. They’ve been busy in Transport. It’s just the wrong kind of busy. Without trying to sound too partisan, it’s very much a reverse meritocracy.

      1. OK Matt L: I left this a bit late as I was discussing transport policy with Act on Campus… but never fear, I am here, as I know you were waiting with baited breath.

        Firstly, I really thought your hierarchical approach was very good. Something I hadn’t conceptualised myself, but it makes good sense to break it down as you have. Now, to answering your question. Your issues with privitisation (as far as I can read, let me know if I missed one):

        1) The network question: monopolies and competition. Or as Walter Block describes them ‘Long Thin Things’ (Roads, Gas, Internet etc).
        2) Privatised motorways. Other roads still public.
        3) Residential Streets: Strains on neighbourly relationship
        4) Arterials: Balancing Space, so many needs (e.g. play, work, art).
        5) Privatisation just isn’t practical as they are a key part of our lives. Radical and far reaching consequences.

        Issue #1.

        Let’s deal with that good’ol chestnut of the network question: How could a road network function when you had different owners of the network all looking to make a profit? What is to stop access being denied to some, to the benefit of others?

        Firstly, ownership comes in many different forms and the form chosen reflects the form which adds the most value to the asset in question. The privatisation of Telecom for example created a monopoly which has taken the market a long time to slowly erode was not the natural state of ownership. Preferably, NZ would not be in the same situation as Roger Douglas was and privatisation could take on a fairer method in which everyone owns a ‘share’ of NZ’s network. Possibly divied up by road (e.g. every New Zealander owns a portion of every road). They can sell and pay for the current maintenance loss of the share or sell. Their choice, as they own it. Regardless for now let’s assume that roads owners are people who have an inherent self-interest in the road (e.g. residents, business), naturally.

        Let’s move to a hypothetical but realistic situation that Newmarket Business Association (NBA) and Parnell Business Association (PBA) each owned Broadway and Parnell Rise respectively. What would they do with it? Would it be in their best interest to work against each other or with each other? Would Parnell blockade traffic from Newmarket or vice versa? Of course not, these are not local councils which collect taxes no matter what. They best way for private enterprise to realise the value of their assets is to work together. NBA might charge less for cars than PBA but they would still have an interest in permitting vehicle access, providing that access was paid for.

        Now let’s consider if their were two ‘warring’ road owners and what the consequences would be. Imagine that Grey Lynn Road Owners Association built the ‘Great Wall of Grey Lynn’ to blockade the customers from Ponsonbians. Who would lose value here? Ponsonbians would simply shift their consumerism to Herne Bay, City Centre, Parnell or Newmarket. And the value of business, and therefore residences in Grey Lynn would reduce. Somehow I don’t see this business practice being ‘sustainable’.

        Do you see how the interconnected nature of value (I need you, you need me) results in collaboration? Natural ownership of roads would be a communal affair. It is likely that the owners of Broadway would hire contractors to design and plan fantastic streets. In regards to networks such as buses: If there was value to buses traversing Broadway and Parnell, then it is in the best interest to allow the buses. If Newmarket was best served by trains , then it is Newmarkets interest to ensure that that happens (its most likely both are of huge benefit to shops!).

        Issue #2.

        Privatisation of the motorways is naturally the first step yes, given that this is definitely central government property per se. Agreed that this could push people onto the local council roads, but this could be a good incentive for local governments to at least price their roads as well.

        Issue #3.

        The fact that communities have to get together to organise the ‘ownership’ of their streets is not necessarily a bad thing! I would argue that it could greater ‘social’ harmony and interaction. No one has an interest in lengthy debates though so there will be structures in place to ensure that decision making isn’t too bad and if it really gets up your nose, then perhaps you should move to a community which shares similar values set regarding road management.

        Ownership of the streets means that people have an objective interest in making as much value from their asset as possible. Balancing space, is in Newmarkets Business Association’s best interest! Introducing price signals (what people are prepared to pay for space (e.g. cars, cafes, and buskers). In other words, the market is the way to realise the value of road space!

        Issue #4.

        I’m not sure what you mean here. Why does connected nature necessarily mean high costs? Who would want the cost and hassle of owning them? If you don’t want the cost and difficulty of owning them, then don’t own them. The market is voluntary, so is ownership. I don’t want the bother of investing in a Chinese man shop, then I won’t. You would only own a road if it was in your interest and desire to do so.

        Issue #5.

        I agree that this is radical, and would have massive consequences. But I believe introducing the market to transport, and the space that transport consumes in our city would allow much greater realisations of the true value of that space. I disagree that privatisation isn’t practical. I would suggest the opposite, that government ownership and the inherent lack or appropriate price signals that we currently have is the worse way to manage a system as complex as the transportation system.

        Anyway, I hope this isn’t too long. I have probably missed something so let me know.


        1. Good points but in the examples you’ve given for Issue1 wouldn’t a more likely scenario be that the more successful of the two business associations would seek to buy the road that goes through the other retail area? They could then gain a competitive advantage by creating an unpleasant environment and limiting accessibility to the other centre e.g. neglecting footpath maintenance, focusing on traffic throughput, reducing pedestrian amenity, reducing parking supply, using the revenue from parking fees to invest in their own centre (taxing foreigners abroad) even charging penalty fees to buses that stopped in the area whilst waiving the fee for services that serviced their own centre.

          Eventually the other centre is destroyed, the more successful centre becomes even more successful and moves on to buy roads in the next area. This is fine if the objective is to catalyse the concentration of wealth and power into the hands of the more powerful at the time of the sale but not much good for local communities who don’t have the funds to buy their local assets and then see their local facilities decimated by another town centre.

          At least if the roads stayed within public ownership if the local authority reduces accessibility in one area there is potential for local stakeholders to come together and seek redress through the political system.

          1. Ah, I think that A) business or residential associations would be silly to relinquish power of the strategic asset, and B) even if they did, it would be via a contract in which access was maintained in the transfer of ownership.

            As I did, the spatial dependency of value means that Newmarket would severely devalue their own asset if they tried to devalue the neighbouring suburb.

  8. OK so those in favour of privatisation see it as a solution to the market failure that occurs with public goods (tragedy of the commons and all that). But it simply replaces it with a private monopoly which is another form of market failure so you are not really any better off. (Unless of course you are part of the Kleptocracy ( ) that got to buy it all cheap. In my opinion we are better off with a public monopoly running our roads rather than a private one as it means the positive externalities of roads get included albeit obliquely through the political process. Power is the same. The value of power to our country is far higher than the cost of power on power bills. Privatised oligopolies seek to gouge economic profits while state owned companies can only get away with financial returns on capital before people put a stop to their natural tendancy.

    1. Or there’s the hilariously tragic UK privatisation outcome; there they flogged off everything they inherited from their forebears in common ownership because of course private is always better, right? Only to find most of these assets now owned by state owned European companies. So they are still owned by the people; just not the people of Britain. Also services have not got cheaper and better, and wealth is being transferred to foreign governments! Absurd.

      Of course what they should have done is focused on improving service, efficiency, and cost control, rather than obsessing about ownership. So much is now spent in legal disputes by and with these new owners, and of course there now is the enshrined ‘fair return on capital’ to add on top of every service, whether it’s electricity generation, railways, water…. It really is a tale of high tragedy, or rather farce.

      Current gov there now dismembering the NHS; Gibbs may love to talk about Singapore, but it’s the shuffling disaster of the UK that ACT’s policies more generally tend towards.

      1. Singapore is such an interesting example as it is an amazing mixture of neo liberal free market and rampant paternalistic socialism. It has protectionism and huge state planning but no welfare system really to speak of (but low cost public housing).

        80% of housing is owned by the government and funded through the classic state planning and capture of capital value system. The same one NZ abandoned in the 1950s after building the Hutt Valley rail project.

        It has low taxes but huge restrictions on car ownership and massive subsidies and investment for public transport. Also a great amout of state R&D investment, something NZ is again woeful on.

        I think ACT and Gibbs would very much want to cherry pick from the Singapore example.

    2. Where is the private monopoly if you privatise a road? Mono = one. If you privatise the Southern Motorway, a person could choose to drive on GSR, or cycle on GSR, or take the train, or the bus. Heck they could drive to Half Moon Bay and get on the ferry. Where’s the monopoly? Just like the original (private) London Underground wasn’t a monopoly (as it is now), neither would privatising roads lead to a monopoly.

      The only monopoly is the state.

      1. Al boundary solutions are not choice. Choice implies two or more goods with the agent optimising utility for their given budget constraint. If the cost of all but one of those goods is outside the budget constraint then you have no choice. I have used the term forced too many times in previous posts but that is essentially what you are doing forcing people to one outcome or noting at all. That is the basic premise or a monopoly situation “take it or leave it”. Given demand on say the Harbour Bridge a private owner would price it at the cost of the next best alternative which might be pay for parking an ride or drive an extra 30 or 40 minutes around a completely congested upper harbour. The commuter faces the take it or leave it price. Some take it and pay economic profit, some leave it and dont travel creating a dead weight loss. Of course you could build six motorways parallel to each other and sell them to separate companies to have competition. But that isnt likely to be efficient either. Roads are a bit of a natural monopoly, high fixed startup costs low per person running costs. Doesnt matter whether you run cars, bikes or buses on them the same holds.

        1. Patrick – unsure what your point is. I gave one example, would you like another?
          mfwic – At what point is only one of those options within a persons budget constraints? For example, my own situation. I walk half an hour to work both ways. There is a bus that runs from my house to my workplace with little walking involved. I could choose to take the bus, and I could afford it, but I like the exercise. I also could choose to purchase a bicycle (but I haven’t gotten around to it yet). I could also choose to buy a car, but I haven’t owned a car in a few years, I’m young and I’m probably going to travel soon so I see it as a big waste of money. Now getting back to my example, if the private company who owned the Southern Motorway decided to charge ridiculous prices, then people would start to take the train, or choose other modes.

          And again to Patrick – I know you push the CFN, the concept of which I am wholeheartedly in favour of. But the mess we have today, this car focussed rubbish which is shortening our lives and polluting our environment is the product of the state. The free market would never have allowed it to get to this stage, because roads are not easy to charge for, unlike PT.

          I repeat, the only monopoly is the state.

          1. Al: GSR and SH1 are different. SH1 is the only m’way standard route through there; ie has a monopoly. Also, as we learn’t from the telco sector recently duopolies often function in just as a distortive way as monopolies.

            Transport infrastructure requires a commanding role that can only be provided by government, and whether local or nation this is, by definition, going to be a monopoly.

            Having choice in movement does not require private ownership but rather the decision to offer it by our institutions. You are right to refer to the CFN, which would offer serious competition to always driving, but will not come about just by changing the ownership of stuff.

          2. Yes Al Governments are a monopoly. You dont want it any other way. Countries that have more than one government have civil war. But governments are not the only monopoly. Economic efficiency comes from competition not from private ownership. Every company has an incentive to reduce competition as that will maximise their profit. It is done through building brands, through patents and copyrights and through mergers and aquisitions. The best way of all is through buying a natural monopoly like a port or airport or major road where users have no effective choice except like it or lump it. Some things will always be monopolistic. My view is that we are better off with these in community ownership so we can at least have indirect control of them. The option appears to be selling it off to people who then sell it on to foreigners. The new owners then complain as soon as a future government tries to fix things or bring some sort of sense back to the market such as introducing price controls on wholesale broadband or limiting landing charges. Have you ever wondered why Auckland Airport makes more money that Air NZ yet provides a lot less service? Because they can. Infrastructure often forms a bottleneck to the growth of the rest of the economy. You can satisfy all the requirements for growth such as capital, technology and talent but infrastructure can block growth. Why incentivise a company to limit infrastructure?

          3. Well said Al. Public ownership and the lack of price signals for the value of land have created the environmental, social and economic disaster that is our transportation system.

          4. In regards, to monopoly discussion. Would you prefer a monopoly which is government owned and gets money regardless of whether it supplies a good product or, a monopoly which is privately owned and still at the behest of the consumer? Don’t forget that the difference between private and public is that the private one is still a choice. If you don’t like it, you can a) work from home, or b) move to a suburb, town, city where it is run the best. We know the market works to either erode monopolies or negotiate around them.

      2. Yep just like Telecom wasnt a monopoly. You could send a letter, go round and deliver the message yourself in person, send a pigeon or courier – lots of options.

        In saying that I would love to see motorways privatised. As motorists started paying the true costs of their chosen form of transport (without subsidies from other tax sources) wait for tyhe squealing to start, especially from the trucking lobby. And watch the buses, trains, ferries and cycle ways (which should also be privatised for a fraction of the operating costs and tolls) explode.

        Of course, as you say, the arterials will be bumper to bumper as people avoid the charges on tolled motorways – and arterials are paid for out of rates and public money like GST (especially in Auckland) – so how do we deal with that?

        Congestion charging is really just de facto privatisation of inner city motorways. But would motorists also demand less fuel tax and RUC?

  9. I see this as a moot point. No government will hand over the planning of where trunk infrastructure will go to private individuals. They certainly will not give private individuals the power to buy land for said infrastructure by compulsory purchase. Without this power no effective transport system -road, rail, bus-ways, cyclelanes etc can be developed.

    So at best we will move from one type of regulated market to another. So this proposal shouldn’t be called privatisation or allowing the free market to work or whatever other neoliberal label ACT want to call it. There is nothing ideologically pure about ACT is proposing.

    Really it is just another form of regulated market that may or may not have something going for it.

    Personally I think it is just confused British type thinking that will not work and will continue the underfunding of transport infrastructure that has created the mess we are currently in.

    1. I love his opening line in the book. “Most people who read this book will dismiss it as the ravings of a lunatic.”

  10. Mmm,
    A) So you’re not really talking about privatisation in the sense of a free market where the highest bidder gets the asset. It would just be offering local business associations the choice of owning their street so they could pay maintenance contractors directly for street maintenance rather than via rates. In exchange they might also get the right to levy those who use the street. Under this scenario there would still need to be taxation and some sort of regulatory body that determines what network standards the street has to meet. Even then, what happens if the local Business Association realises that it is more cost effective to pay rates and get the council to carry out maintenance? Would they be able to opt out of privatisation and prevent those who may want to destroy the place making aspect of their asset from buying it?
    B) Only if they are in a position to negotiate this, i.e. if they get to decide whether the streets can be privatised or not or they are rich enough to not have to subcontract if they didn’t want to or there was a sufficiently strong regulatory body to enforce the contractual obligations.
    I don’t really follow your argument about the dependency of value. If the Newmarket Business Association could devalue the public space amenity of say Remuera and make it more unpleasant to shop there, how does that devalue Newmarket? Wouldn’t Newmarket be more likely to attract the Remuera patrons who no longer enjoy visiting Remuera and increase the value of their area? They would not be devaluing the whole suburb of Remuera just the town centre retail area that they compete with.

    1. No, no it would be highest bidder wins. We just need to be careful about how we got about privatisation and hopefully it won’t be a forced fire sale such as those undertaken in the 80s.

      To perhaps elaborate clearly on the privatisation part. Ideally, every NZer would have Gov Account. Here we can hand over ownership, in the form of shares to all NZ over the age of 18 for every road (e.g. every road will be divied up by 2-3 million). Ludicrous I know, but the idea is that share owners will have to pay for the maintenance of that road. Now most people who live in Bunnythorpe will not have an interest in owning a piece of Parnell Rise and will sell it. Meanwhile, people in Parnell (businesses and residents) will want to sell Bunnythorpe shares and consolidate Parnell. The purpose of dividing it amongst everyone and not just the property owners with access points on their roads is that different roads are of different value (e.g. Queen St) and therefore, in the interest of equality, we give to everyone to sell if they choose. People would be able to opt for government ownership yes, but they would have to pay for it. Making them realise the cost of a)road transport and b) other opportunities costs (e.g. cafes).

      Now as an owner of an asset, you are incentivised to make as much value out of it as possible. The only way to turn a profit in the market system is to add value to someone else’s life. So these road owners, in their own self-interest are driven to add value in other peoples lives and therefore they will look to maximise the value of their asset as best they can. Some will get it right, some will get it wrong (trial and error), but the beauty of the market is that the successful street layouts/designs do better and best practice ensues. I don’t believe that you’d need any statutory body determining road design, as self-interest will ensure people add value and will not destroy their own assets.

      If the Newmarket Business Association believe that the best way to get value out of their roads , and into their shops is to have a 6 lane expressway through their town centre then so be it. They’d just buy the same contractors as the council did. But if Ponsonby decided that the best way was to rent out space to cafes and charge a decent fee to car travel along it, and this was the most profitable management of the road, then Ponsonby will out compete Newmarket and Ponsonby Businesses will grow as opposed to Newmarket.

      OK dependency of value. Let’s think about Newmarket, they’re trying to make as much profit as possible. You are suggesting that in the pursuit of this profit, different centre’s would attempt to sabotage other centre’s. Why? Why would it be in Newmarket’s profit interest to blockade Remuera? If they did that, then Newmarket would lose a lot of its clientele. This would be prohibitively expensive and not the most profitable course of action. Of course, there are methods in which the private market can deal with unsociable neighbourly behaviour such as insurance. But I do not think that this will be a realistic problem. I do not see neighbours sabotaging the value of their asset in order to devalue and acquire their neighbours asset. In fact, I see the opposite. I see people generally looking after their buildings, adding value to theirs and their neighbours buildings.

      1. Perhaps we could get rid of building rules as well as no one is as incentivised as the individual home owner to make sure their own house doesn’t leak….oh bugger!

        1. Haha, mfwic stop being such a lazy thinker. Humans have built homes that do not leak for thousands of years my dear friend with plenty of natural regulation to ensure that they do not flop. It is only since the advent of government regulation, has regulation been done so poorly. Government regulated against traditional materials, did not do adequate testing on the new materials and subsequently we have a crises. Government can’t even do this right!

          1. OK Phil. Perhaps I was being flippant. The problem as I see it is not that government regulation was the root cause of leaky houses but simply a reflection of the fact that a completely deregulated market provides an incentive for cheating on contracts. Particularly if the customer and principal are not going to have an ongoing business relationship. Game theory suggests an infinitely repeated game discourages cheating but in a finite game cheating is the best action to take in the last round where you can get away with it. It is simply a matter of the payoff for cheating less cost being higher than the payoff for honesty. In a system of no rules you could threaten the builder with your wooden club when he is building to let him know what will happen if he cheats. But most people don’t really support that type of anarchy any more. Rules can actually lead to economic efficiency. Imagine a world where the two supermarket chains had managed to buy up enough shares in the roads in front of their competitors store. Again I state my position that competition leads to efficiency not privatisation. But as we know some things are not a competitive market. Roads are not a market. We can all imagine a world where they could be made into a market but that comes at a cost, not just transaction costs but potentially the cost of freedom.

          2. OK mfwic, this is risking getting off-topic but I will persist. It is related in a metaphysical sense. Your statement:

            “…a completely deregulated market provides an incentive for cheating on contracts”.

            There is no proof of this. In fact it is the complete opposite. People who are bad practitioners quickly get rooted out by the market (Trade Me, Ebay, etc). There is huge value placed upon trust (hence people buy Apple products). In common law and within natural markets, if you provided a product which did not do what it said, you are liable for the costs and the consumers get their money back (money back guarantee etc). Actually, if it wasn’t for government regulation (limited liability) which is a shocking ‘rule’ then businesses would have to behave much more responsibly. This is the type of rules you get when you place government in rule making role, powerful vested interests. Advocating for the market is not advocating for no rules; it is advocating for voluntary rules of exchange which facilitate trade. The market allows for all the vested interests to play out, not just the ruling class (politicians) bought out and cartelised by the richest businesses.

            In regards to your supermarkets scenario, why do they not do that now with other competitors? Diaries etc. This sort of anti-competitive behaviour is not the norm in the market because it costs a huge amount of money! In fact, if the roads where privatised, and people were made to feel the real cost of driving, I doubt the huge supermarkets we see would be economically viable.

            Everything which is not a ‘competitive’ market is a complete failure. Take a look around mfwic, everything that is not a market is under huge pressure. From schools, health, to the environment. They’re all a tragedy of the commons. But to relate this back to roads in particular, you seem to have a fear of monopolies, yet you favour the state. The reason the roads are failing is because there are a lack of price signals and no value of space. Thus, if we introduce price signals to the transport system, then you effectively have the state as the one monopoliser of the roads. A monopoly which is not at the behest of the consumers, but of politicians.

          3. Finally some sense. Thank you Phil. Of course there is no incentive to break contracts. It just requires a small thought experiment.

            In regards to there being no value put on space by the monopolistic government, just look at Fanshawe Street.

            Three lanes between Hobson and Halsey, two through and one left. No dedicated bus lane. Yet 72% of people who travel along this route do so by bus. Simply put, we are wasting physical space that could be put to commercial use. Either that or one of those lanes should be a bus lane, if “majority rules” holds. Of course, no free market would ever result in this abomination of poor land management, along with our other great friend the CMJ.

            mfwic – why are roads not a market? The answer is because the government has prevented them from being a market. They would be a market, and consequently would be much narrower, much smaller, and we would have a decent damn rail network. Roads have been built privately for thousands of years all over the world.

          4. “In common law and within natural markets, if you provided a product which did not do what it said, you are liable for the costs and the consumers get their money back (money back guarantee etc).”

            As a lawyer, I can tell you this is completely untrue. The rule under common law is caveat emptor – you could sue under torts law but good luck on that. That is exactly why statutory consumer law was created – because there was no effective remedy under common law. The first being the laws coing door to door salesmen and the Sale of Goods Act 1908.

            Libertarians seem to have a very inflated idea of the common law and the protections it provided for ordinary people (i.e. none). The common law was pretty much the law of the jungle. That is why people were able to make such outrageous claims about protects in the 19th century, the classic being the “snake oil salesman”.

            The “free” market was great for getting kids involved in the work force however – and how the libertarian capitalists at the time screamed that requiring children (ages 14–18) must not work more than 12 hours a day with an hour lunch breakwas an impositiopn on their rights ( Not much has changed as far as I can see, the goal posts have just been moved.

            As for limited liability companies, I cant believe you are arguing against those. Of course that argument went on for a long time up until the 19th century and it is still possible to incorporate a company with unlimited liability.

            However, for commerce to develop people need to know there is a line to be drawn under their liability. Which is why I spend a huge amount of time negotiating indemnities and limitation of liability clauses. Which is fine when the parties have equal bargaining power.

            That is also why we introduced bankruptcy laws. I have practised in countries that dont have bankruptcy laws and it definitely discourages entrepreneurs. A safety net for extrepreneurs is quite vital, which is why countries with a good safety net (like Scandinavia) actually produce quite a lot of entrepreneurs per capita, while countries like the USA dont produce that many per capita – if you fail there is nothing to stop your slide down the social scale.

            You should read the book 23 Things They Dont Tell You About Capitalism.

          5. Goosoid – A question. Do you think that a person, a lawmaker in the government, has the right to tell another man that he cannot work for less than the minimum wage? Does he have the right to tell a man he may not work more than a certain number of hours a week, even if he has voluntarily agreed to with an employer?

            On another note – capitalism is simply the system in which people voluntarily transact. The capitalism you refer to is crony capitalism, where business people use the government as a tool to beat out the competition.

            Government backed unions are a fantastic example – the middle class uses the government’s power to prevent the harder-working lower class from rising up and taking their jobs. In a similar vein the middle class uses the minimum wage to prevent low skilled people from working – and thus obtaining skills – thereby trapping them in social welfare.

            This is the result of democracy – the middle class leaches from the rich to give to the poor, ahem, I mean to themselves.

          6. Phil of course people cheat Gary Becker won a Nobel Prize in part for his Crime and Punishment essays. People way up the chances of getting caught and the penalties against the payoff. The opportunity cost of crime is much lower if you dont have to maintain and ongoing relationship with the party you cheat. Your idea that bad practitioners get excluded assumes they are going to continue in that particular market and care a jot about reputation. The idea that you are protected by the law ignores the costs of enforcement which can be huge. As for the supermarkets not blockading each other, the RMA had to be altered to try to reduce exactly that, you are only going to offer another avenue for them. Your assumption that everything that is not a market is a complete failure saddens me. Despite being a hard arsed right winger at times who believes in personal responsibility I have to say it is this type of crap that gives us a bad name! It is only a failure if you define success with a very limited frame of reference. Even the classic tragedy of the commons was only a tragedy inasmuch that it resulted in inefficiency. But the solution was the enclosure acts which lead to inequality and people being squeezed out of their agrarian lifestyle. I know that overall it mostly had to be done but there was a huge social cost. Same with the Highland clearances. FFS efficiency is only one goal. I will shoot down any one who tells me it isn’t important or that it shouldn’t be one of our goals but it is still just one. And yes I fear monopoly more than I fear a democratically elected goverment. Both try to shaft you but at least the goverment is answerable.

          7. AI – an answer – absolutely, if that leads to a happier, healthier society.

            The problem I have with libertarianism (and I say this as someone who passionately believe in it as a younger, more naive, less travelled man) is the same I have with communism (and I say that as someone who has lived in two ex-communist countries). Both have to say, “well it would work if only people would [insert idealistic platitude]”. Well they dont do x y z – that is the world we live and the human beings we have to deal with every day.

            I have given up on -isms and the blind faith behind them. We need to ask, “what kind of society [not economy or efficiency or productivity] do we want?”. Then, “how do we get there?”.

            Everything else is just academic masturbation.

            You really should read “23 Things They Dont Tell You About Capitalism” – It has no -isms, just an examination of what certain econimic strategies have led to now and in the past.

          8. Hahaha thank you for the reply. That’s the exact same thing my father said about libertarianism. So, I make the admission that I am young.

            You’ve given up on -isms! And what about statism. Why does it hold a special place for you?

            I’m not saying that you think this, but the idea that democracy and the state is the final and most advanced resting place of human social structures seems a bit arrogant to me.

            I wonder what they thought before the French revolution?

          9. Al which part of the French revolution do you mean? The part where they stormed the Bastille and let out 7 non-political prisoners and cut off the governors head with a knife? Or the later part where the radicals took over and executed up to 40,000 people during the terror? I am sure the people doing it thought they were right. As an older dude my advice is beware of ideology and never trust someone waving a flag.

          10. “Why does it hold a special place for you?’ – I never said it did, did I? I am not even sure what that is really.

            If you mean, do I think the State should use its resources to design and build communities that supply good social and transport outcomes to the residents, like was done in Wellington in the 1940s (and is done now in Northern Europe and Singapore)? – then yes, I think that is a very good outcome for a society and will result in happier, healthier people.

            I dont attach any -ism to that concept.

            “democracy and the state is the final and most advanced resting place of human social structures seems a bit arrogant to me” – Maybe, but I am sure you know the old quote about it being the worst way to govern a country except for all the others that have been tried – Winston Churchill knew a thing or two I reckon.

            Abandon the -isms! More human misery can be assigned to -isms than any weapon invented. Believe in what has been shown to work and produces a society worth living in for the most vulnerable. Everything else has an agenda.

          11. Seriously. I’m not saying the French revolution was good, my point was that social structure changes.

            How did you miss that?

          12. “I wonder what they thought before the French revolution?” – I think they thought, “I hope I have enough to eat today and my child doesnt die while those fat bastards in the chateau eat cake” – which is why there was a revolution.

            I just hope we can fix the inequality in the current capitalist system before we have another revolution – and continue the great cycle of history.

          13. Statism, noun:

            “The belief that the centralization of power in a state (sovereign polity) is the ideal or best way to organize humanity.”

            I too adore that quote, and it only backs up my point. Why didn’t I use it!?

            More human misery can be assigned to the New Zealand government than I care to think about, let alone the US government or the Chinese government.

          14. AI – yes I know what the technical definition of Statism is, but what does that mean in practical terms? Again, academic masturbation. I think that it is true statism is a good way to organise to achieve some goals and a bad way to organise to achieve others. Again, you need to decide what you want to achieve first. That seems to be a step -isms miss.

            Well governments may not be perfect but I imagine anarchy and the law of the jungle are even less fun. Certainly whenever I have heard a story about someone living in times without a strong government in control(like my father in law during the coup in 1989 in Romania), my first thought is “how would I protect my family in the middle of that?”. Not very f**king well I can tell you without a gun in your own hands and a group of men around you with guns as well. Not much fun.

            Like communists, you have too much faith in the actions of large groups of human beings. But good luck with that.

          15. It’s not academic masturbation. A utopia doesn’t exist. We have all been progandised from childhood in the exact same way many people have religion shoved down their throats from day one.

            “The law of the jungle” as you put it is simply this – everyone has equal rights to weaponry to defend themselves, rather than a very small minority with all the guns. The right to bear arms is not about hunting.

            I don’t have faith in large groups of human beings. Certainly not to elect a good leader who doesn’t interfere with my freedoms. Every post you make, you make a point that brings down your own argument.

            To you, statism must sit in a different category to every other -ism. YOU have faith in the actions of large groups of human beings. Not me.

      2. Re the monopoly argument. Local or regional government is less of a monopoly than central government or its agencies -NZTA. With local government you have two chances to influence the efficient allocation of transport services. By the vote and by moving towards or away from efficiently run cities. This has long be recognised by economists, such as Ronald Coase etc.

        1. I think that is true to a point. Local Govt amalgamation was intended to remove our right to choose. Before there were 8 local areas each with their own solution to rates and spending. I never begrudged North Shore their rates. Since then mine have gone up 30% and I get less services, less local knowlege and expertise from the council, Councillors who live in Orewa and a planning document that will stuff up planning in my area. I chose NSCC but go lumped into Auckland Council simply to provide them money.

  11. response to Phil Donovan 11.32
    What I’m saying is that the Newmarket Business Association might have an interest in the roads in Remuera Town Centre not just their own. So they might use their superior buying power and secure the roads in Newmarket and Remuera. They wouldn’t create a 6 lane expressway in their own centre, they would create it in Remuera. This reduces the amenity in Remuera and makes it easier for people to get to Newmarket. Newmarket could design the street environment in Remuera as a traffic corridor primarily rather than a place where people might want to linger, shop and interact. Newmarket would gain the customers that previously went to Remuera and retain their existing base. Remuera businesses would lose out, Newmarket businesses would benefit. Remuera businesses would have no redress unless they raise enough funds to buy the road back, but they would struggle as their revenue would be down as the street environment has been munted.

    1. OK yep I’ve got your scenario well-painted in my head now: Newmarket vs Remuera.

      There are two costs and benefits (C/B) being weighed up in this picture: The C/B the roads in Remuera (inherently connected to business value of rent there); and, the C/B of the expressway (extra customers to Newmarket by building a six-lane expressway).

      Now I am not sure of the value of the roads in Remuera but I am sure that it is off immense value to the businesses there. You’re talking large amounts of fixed capital and returned profits for these businesses.

      Whereas NBA, are evaluating the potential of a) buying the roads off RBA, b) the cost of building a six-lane highway and c) the benefits derived from this massive capital outlay and the increased customer clientele. Surely there would be a better way? Realising that it likely that people would be charged for the 6 lane expressway! Surely wouldn’t NBA and RBA be interested in collaborating and finding efficient means of getting people to their town centres (e.g. buses, rail)?

      Bear in mind that the NZTA Cost/Benefit Analysis currently has Remuera road as basically a 6 lane expressway! Which as Matt highlights in his post, if people faced the true cost of the roads, they’d use them much more efficiently (less).

    2. They would never create a six lane expressway if their goal was to get more customers to Newmarket, and want to charge them to get there. They would use the smallest amount of land possible and the cheapest cost to deliver the most people, essentially they would build some form of rapid transit facility, be it bus, tram or rail. Six lane expressways are not an efficient use of land, and thus would not exist within a city if the free market had its say.

      Just look at some older cities that have developed organically. Where are the huge expressways near the centre of Paris? But I see there is a metro system.

  12. I’m not saying that a six lane expressway in Remuera would be the most efficient way to get customers into Newmarket.
    I’m saying that a six lane expressway in Remuera might be of benefit to Newmarket if it holds back Remuera developing into a nice town centre that might suck Newmarket customers away from Newmarket. This would hold regardless of how efficient it was in getting people to Newmarket. Newmarket might even design it so that it has dedicated buslanes down the middle, with buses that don’t stop in Remuera town centre.
    Maybe this makes more sense. If I were a suburban mall operator with a model that relied on ample “free” parking and efficient road accessibility I might decide it is worth investing serious capital in buying up the roads in the town centres that are closest to me and pose the biggest competition. I might then try to reduce amenity and accessibility in those areas to harm their bottom line and secure a bigger share of the retail customer market. I don’t doubt that the town centres would fight hard but under a privatised scenario it boil down to who has the most capital available to buy the roads.

  13. “I’m saying that a six lane expressway in Remuera might be of benefit to Newmarket if it holds back Remuera developing into a nice town centre that might suck Newmarket customers away from Newmarket”

    Unfortunately this statement seems to assume that there is no concept of land value, and no one exists except NBA, RBA and retail customers.

    That land is FAR too valuable to be used for such a nefarious deed.

    If NHB were to acquire it, a different company would see the massive waste and offer NHB a quantity of money that they could not refuse, in order to narrow the road and develop the land, as well as improving transit efficiency.

  14. Fair point, I used two business centres because that was the format of the original example Phil gave.
    “Narrow the road and develop the land” If you provide transit lanes and no traffic lanes you’re left with a sliver of land between the existing property boundaries and the new footpaths (assuming the new owners want to provide footpaths).
    So taking your point about land values and other interested parties, what could this company develop the land into?

    1. I’m not sure. The business would need to assess all the possibilities – retail development, a railway, a tolled road, whatever. Maybe the residents of Remuera pool together and pay for it to be developed as a linear park and cycleway.

      It could even remain as a six lane expressway – however heavily, heavily tolled. I suspect modal split would change pretty quickly.

  15. All this hypothetical discussion is amusing but thare pointless. It will probably never, ever happen in our lifetimes.

  16. Countries with large networks of private roads include France, Spain, Portugal, Italy, Taiwan and Japan (all motorways), but also Sweden (rural roads). Highways in Austria are all run by a state owned commercial company, whereas England is about to transfer its strategic road network into a state owned commercial company as well.

    “Better Transport Better Roads” was an attempt by the Bolger/Shipley Government to commercialise all NZ roads into one SOE and around half a dozen regional road companies owned by local authorities (i.e. there would have been an Auckland/Northland Roads responsible for all local roads in both regions), with boards appointed by local authorities. The then Transit NZ would have been one of them for state highways, the others would have been formed basis on their viability by geography. Nothing had been finalised, but regional road companies would have been some combination of existing regional council/unitary authority areas (e.g. Northland and Auckland needed to be combined, as did Nelson/Tasman/Marlborough, and Gisborne needed either Hawke’s Bay or Bay of Plenty). The expectation was that economies of scale would be considerable in terms of contracting, plus competence and capabilities of the new companies would be greater as it is easier to hire for a larger regional roads company than for say McKenzie District Council.

    All those companies would have received funding from what was then Transfund, to reflect the purchase of highway maintenance services on behalf of road users, and enhancements prioritised by BCR. Rates funding of roads was to cease, replaced by an increase in FED and RUC to reflect the local share.

    However, centrally set FED and RUC were not seen to have a long term future. Although it had not been finalised, one school of thought was that both centrally collected taxes would be frozen and the road companies would have to collect additional revenue by themselves if they wanted to do more. They would be allowed tolls, congestion charging, to charge property owners development levies for expanding networks and to allow road users to contract out of paying FED and RUC on their networks by paying directly. There would remain some common centrally set standards for charging and for safety.

    The road companies would be liable for safety on their networks, for all road users, but would also have been liable for emissions. They would have needed to, after a transition period, apply for resource consents for emissions escaping their networks onto neighbouring properties and to compensate if levels got above certain standards. The road companies would be expected to manage this through a combination of smoothing traffic flow, charging or setting standards for vehicles on their network (e.g. the road companies could have established low emission zones to prohibit high emission vehicles at specific times and locations).

    The Roads Bill would have prohibited local authorities and central government from privatising the companies, but it really would have been one step away from it. Local authorities and regional roads companies would have set up corridor management agreements which would have dealt with day to day management of footpaths, pedestrianised malls (which were still legal roads) and the like.

    Of course it all got scrapped after the 1999 election, as LGNZ was thoroughly opposed, along with Labour and the Alliance, primarily because it was a significant loss of political control of roads, plus there were easily dozens of rural local authorities that – without roads – had little reason not to amalgamate, given most of their budgets would be spent on roads. Curiously, NZ First supported the Bill at the time.

    The expectation is that the commercialised roads companies would be more accountable to road users and those bordering highways for their performance, that politics around funding would largely disappear, that arguments about raising FED and RUC would devolve to the roads companies themselves setting charges.

    One theory of the long run pricing impact, beyond the obvious peak charging and off peak discounting, is Ramsey pricing would evolve. Roads companies would see truck and bus companies as their most important customers, because they would pay the most and commercial traffic is most sensitive to pricing (plus on the margins rail and even sea transport in some cases offered an alternative). Given RUC has been over-recovering the allocated costs imputed to heavy vehicles for some time, that would mean charges for trucks may reduce on state highways, increase on regional roads (particularly urban roads where scarcity of road space is at a premium).

  17. My understanding is that trucks are actually subsidised somewhat through the current RUC charges, even without allowing for the government’s RoNS program which is also an indirect subsidy for road freight. I’ll look into this more in a post in the next month or two.

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