Every good prag­ma­tist knows that one of the absolutely essen­tial func­tions of gov­ern­ment is to own, oper­ate, and main­tain pub­lic roads. Sev­eral argu­ments I have heard advanced in favor of publicly-​​owned roads include:

• Uni­form standards;
• Unre­stricted access;
• Cost-​​free access;
• Uni­ver­sal access to an essen­tial resource;
• Safety;
• Effi­cient allo­ca­tion of scarce resources;
• Avail­abil­ity of emi­nent domain power to effi­ciently locate major roadways;

And of course the vague but ever pop­u­lar, “that’s what gov­ern­ments are for!” And every good econ­o­mist knows that all of this is bunk. But is there some­thing more nefar­i­ous in the insti­tu­tion of the pub­lic road?

Con­sider cable tele­vi­sion. Or any other util­ity that requires long, nar­row, con­tigu­ous strips of prop­erty. Cable tele­vi­sion is con­ve­nient because it is an excel­lent, mod­ern exam­ple of the prac­ti­cal end result of pub­lic road own­er­ship, as we shall soon see.

Joe Cap­i­tal­ist decides to start a cable com­pany. He will sell cable tele­vi­sion ser­vice to his cus­tomers. To do so, he buys up land (or ease­ments across land) to bury his cable and con­nect his satel­lite receiv­ing sta­tion to the homes of his cus­tomers. Per­haps he charges instal­la­tion by the cable foot from his sta­tion. This will be costly for dis­tant cus­tomers, but inex­pen­sive for nerby ones. In addi­tion Joe Cap­i­tal­ist also charges a sur­charge for each ease­ment he has to obtain in order to con­nect a new cus­tomer. Again, dis­tant cus­tomers will be priced out, but adjoin­ing cus­tomers will enjoy a great dis­count, as no ease­ments will be nec­es­sary. As Joe’s busi­ness grows, the num­ber of cus­tomers who must pay ease­ment sur­charges will decrease. Joe might even want to sell to some dis­tant cus­tomers below cost, because the prop­erty own­ers crossed by Joe’s cables will be encour­aged to sign up, too. Once a line has been estab­lished in an area, neigh­bors are encour­aged to buy from Joe, because buy­ing from a similarly-​​structured com­peti­tor will require the pay­ment of ease­ment sur­charges, whereas con­nec­tions to Joe’s exist­ing lines will be much cheaper. But if Joe’s prices get too high, or his ser­vice gets to crappy, then the extra cost to buy from a supe­rior com­peti­tor is jus­ti­fied. Every­thing works.

If Joe wanted to, he could make a large cap­i­tal invest­ment and lay out cables all over town by deal­ing with who­ever owns the roads. Cable requires long, nar­row, con­tigu­ous strips of land, and roads are just that. There are three rel­e­vant road-​​ownership mod­els to consider:

1. Roads are owned by adjoin­ing prop­erty own­ers, who may or may not license road main­te­nance and man­age­ment out to a third party that does such things; such road main­te­nance enti­ties would be busi­nesses in them­selves whose ser­vice cov­er­age would coa­lesce by offer­ing lower rates (and expend­ing less in cost) for ser­vice to adja­cent road-​​owners;
2. Roads are owned by a third party, who oper­ates a large per­cent­age of roads in a geo­graphic area which, for the same rea­sons as above, would likely be con­tigu­ous; or
3. Roads are owned by the government.

Under the first sce­nario, Joe might some­times find lay­ing his cable out on the roads to be a good idea. If the roads are owned by adjoin­ing prop­erty own­ers, then he can offer them the bonus of cheaper cable tele­vi­sion in return for let­ting him bury his cable near or under their sec­tion of the road. But it could be spotty. If he runs into an intran­si­gent prop­erty owner, he may have to divert across an exist­ing customer’s land to find new cus­tomers. So a plan for lay­ing out cable exclu­sively along the road­ways might actu­ally harms him in the long run. Roads are func­tion­ally one-​​dimensional: for any given point on the road where a cable could branch off, only two prop­er­ties are adjoined. But whole parcels are fre­quently bor­dered by more than two neigh­bors. Even in rig­or­ously designed com­mu­ni­ties, each par­cel will ordi­nar­ily have three neigh­bors: one to each side and one to the rear. While Joe might make use of roads occa­sion­ally, they are not nec­es­sar­ily the most effi­cient way to lay out cable.

Under the sec­ond sce­nario, Joe might go to Sally’s RoadCo and strike a deal. Per­haps some sort of com­mis­sion deal whereby Sally earns roy­al­ties on the cus­tomers Joe gets adja­cent to Sally’s roads. He has this option, and it might work bet­ter, depend­ing on how the roads are arranged with respect to the adjoin­ing prop­er­ties. If Joe is pay­ing roy­al­ties and also pay­ing the cost of bury­ing lengths of cable, this kind of agree­ment with Sally would work best on high unit den­sity streets — where there are more cus­tomers per unit of dis­tance along the road. Con­dos, apart­ments, high-​​rise office space. Under this sys­tem, remain­ing com­pet­i­tive would be more chal­leng­ing, because com­peti­tors would be able to make sim­i­lar agree­ments with Sally, reduc­ing the ini­tial cost of enter­ing the new mar­ket as com­pared with the pre­vi­ous road own­er­ship model. Even if Sally likes Joe so much that she doesn’t give sim­i­lar deals to Joe’s com­peti­tors (or, per­haps, offers him an exclu­sive agree­ment), it will be more dif­fi­cult, but again not impos­si­ble, because Sally could still sell indi­vid­ual ease­ments across the roads and com­peti­tors could fall back on the cus­tomer prop­erty approach, deal­ing with Sally only when they need to cross a road.

But in the third sce­nario, there is only one owner of the roads, and it is moved by the chad, not the dol­lar. Joe can no longer use the pre­vi­ous mod­els for his busi­ness, because the gov­ern­ment has sur­rounded small chunks of pri­vate prop­erty with pub­lic roads. Whereas under the pri­vate mod­els Joe could nego­ti­ate with prop­erty own­ers, or with Sally, when he needed to cross a road, now he has to nego­ti­ate with the local gov­ern­ment. Local gov­ern­ment has inter­est in rais­ing rev­enue, sure, but it does not need to worry about los­ing cus­tomers. So its ser­vices are crap and its prices stratos­pheric. Get­ting a right of way to cross a pub­lic road with his cable, either above it or below it, would be cost pro­hib­i­tive if Joe wanted to expand his mar­ket beyond a few sub­ur­ban blocks. He no longer has a ratio­nal road owner with whom to deal. Nor does he have an alter­na­tive road owner who might be more ratio­nal. What he does have, and where cable tele­vi­sion shines as a per­fect exam­ple of what I’m dri­ving at, is the option of buy­ing a munic­i­pal fran­chise.

With a fran­chise, Joe Cap­i­tal­ist pays 5–15% of his gross rev­enue earned from cus­tomers within the city. In exchange, Joe gets three things: 1) an exclu­siv­ity agree­ment, pro­hibit­ing any com­peti­tors from get­ting the same deal from the gov­ern­ment; 2) the right to bury or sus­pend cable under, over, or along roads at no addi­tional fee beyond what it costs him to install the cable; and 3) the promise from the local gov­ern­ment that no com­peti­tors will be allowed to oper­ate in his ter­ri­tory. As if they could under these con­di­tions. The roy­al­ties are so high that the agree­ment wouldn’t be of any value to Joe with­out a guar­an­tee of exclusivity.

These and sim­i­lar agree­ments have been used ever since pub­lic util­i­ties began to dereg­u­late. Power, water, sewer, nat­ural gas, tele­phone, the new fiber to the premises ser­vices (which some are argu­ing inter­fere with cable tele­vi­sion fran­chises, because of Verizon’s intent to deliver TV over their FiOS prod­uct), &c. It is as if “dereg­u­la­tion” was just a cover for some­thing entirely unlike deregulation.

But if Joe did not want to deal with the gov­ern­ment, he could only sell cable tele­vi­sion ser­vices (assum­ing no other obnox­ious reg­u­la­tions) to peo­ple on his block. He can­not cross the road with­out deal­ing with the government.

This is dif­fer­ent from the sit­u­a­tion where Sally owns the roads, but doesn’t want to deal with Joe. Mar­ket forces affect Sally. They don’t affect the government.

By virtue of its own­er­ship of roads, the gov­ern­ment gains extra­or­di­nary con­trol over the cable tele­vi­sion mar­ket. It may deter­mine who offers cable tele­vi­sion ser­vices, where they are offered, and the price cus­tomers pay. If cus­tomers don’t like their cable com­pany, they can­not choose another. Their only recourse is to alter­na­tive tech­nolo­gies. Like satel­lite, which doesn’t suf­fer from road-​​related oppres­sion, but has its own spe­cial prob­lems (read: FAA, FCC, and NASA). Sud­denly, Joe Cap­i­tal­ist doesn’t have any incen­tive to offer qual­ity ser­vice at low prices any more.

Cable TV is only an exam­ple. Roads let local gov­ern­ments con­trol local mar­kets by lim­it­ing the extent to which they can be oper­ated with­out some inter­ac­tion with the gov­ern­ment. Roads let local gov­ern­ments con­trol what pri­vate prop­erty own­ers may do on or with their prop­erty. I sub­mit that, where roads are owned by gov­ern­ments, there is no such thing as pri­vate prop­erty, and no such thing as a free mar­ket. If I were a power-​​hungry local gov­ern­ment, and wanted a sub­ver­sive yet pow­er­ful means by which to throt­tle local mar­kets and prop­erty own­ers, I would make sure I owned the roads.