Monday, December 8, 2008

Can We Get There From Here?--On the NCDOT

If we were to design a new road system from scratch, what would be its basic requirements? Probably the most important issue would be that the roads should be laid out so we could get to where we wanted to go. Quite simply we would need the roads where the most traffic would be. Then, of course, we would want a quality road system that would not have potholes or bridges that fail inspections. When problems do arise, we would like them taken care of quickly and efficiently. There might also be several other factors that we might like to include, such as safety, clear signage, pleasing aesthetics, etc.

If there were no roads, we might think that we could go into business to design, construct and maintain the roads by charging a fee when riders use the road. Others might see how profitable our business is and compete against us. The areas that would have the most traffic would also have the most alternate routes. These businesses would compete on all of the issues listed above such as quality, safety, etc. and we would also compete on price.

We see businesses compete in all these areas in every economic sector. Let’s think of a local grocery store. Nobody tells the grocer when they are coming. But when a customer shows up, they expect to find what they are looking for, in the right quantity and quality, and at a good price. If the grocer fails in any one of these areas, the customer gets angry and refuses to return. The competitive market makes the money hungry entrepreneur serve the customer. The grocer also is able to see which products are selling and which are not. The grocer can tell what to order and on what to cut back. The prices are signals that guide the entrepreneur and allow entrepreneurs to make wise choices when using resources so that we do not waste them.

Now let us compare and contrast the grocer with the NC Department of Transportation (NCDOT). The NCDOT is a creation of government—a bureaucracy. The workings of a bureaucracy are fundamentally different from that of a business. The $57.6 million NC Board of Transportation currently has under consideration does not provide them any information. Unlike the grocer, the board does not know and cannot know the degree of desire for each product (road). There is no price signal to guide them. They cannot look at that number and respond as an entrepreneur would. Unfortunately, there is no bureaucratic equivalent. Surveys are clumsy and inaccurate. It is almost by magic that a market produces goods where there is demand. But it is not magic. It is the spontaneous coordination that occurs as a direct result of the price signaling process. Does the NCDOT build and expand roads where there is the most demand? No, it cannot because it simply lacks that information since there is no market for roads.

All bureaus receive their funds from taxpayers via the state government. When the state gives the NC Board of Transportation money to spend, it does not just write a check. There are rules and guidelines that need to be followed. These rules and guidelines take precedence over everything else. The NCDOT plans and builds roads based upon a formula set in Raleigh—by state government. As a result, roads are built not according to demand, but according to political power.

When the NCDOT says that it agrees that traffic congestion is bad, will get worse, and they won’t get around to building new roads for several years, what recourse do the customers have? Can drivers fire the NCDOT? Can they stop being customers? Being able to fire someone for not performing creates a motivation that is simply not there otherwise. In a market, consumers have the ultimate power to fire the provider of goods and services. We are unable to do the same with the NCDOT and as a result, they only listen to the political winds and not to consumer demand.

Is it possible to make a bureaucracy, NCDOT, to behave like a business? The answer is no. We cannot get there from here. Sometimes economists have the unfortunate duty to say that when you are standing on the platform for the south-bound train, “You can’t go east.” Drivers have unfortunately been relegated to the backseat of the NCDOT’s agenda. There is obviously room for improvement, but we cannot expect a wholesale change. Only with a new consumer mentality pervading throughout the department can we hope for progress. The NCDOT needs to become more businesslike and less an institution of political patronage. The source of its revenue needs to be tied with the demand for the road. We should consider a user-fee based system to replace the antiquated gasoline tax. However, ultimately, if you really want quality roads and bridges and more sensitivity to customer demands, we need to create a market for roads. Thus, road ownership for toll roads and other private networks should be encouraged.


Anonymous said...

"Is it possible to make a bureaucracy, roof tops! The answer is no." I have often argued with politicians that insist on the notion that that "government should be run like a business." Government should be run like a government - for better or worse.

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