Who Will Build the Roads? – Plans for Autobahn Privatization in Germany

A3 Köln – Frankfurt. Source: Flickr

Over the past two weeks, the sites of many major German news outlets featured articles about the German government planning to privatize the famous Autobahn. Actually reading the articles, one would have found out that the proposition was a bit different:  A private company would be in charge of maintaining the German highways system, but only about half of this company would be sold to private investors: the government would own the other half and keep a slight majority of the shares. Of course the company wouldn’t just be sold to anyone, but exclusively to larger financial corporations, like insurance companies. These companies are in dire need of things they can invest in, due to the low interest rates. The German highway system would be a perfect investment for them: It’s a fairly safe investment (insurance companies are not allowed to invest in risky assets) and it would be profitable. The people who’d like to drive on the Autobahn could be charged a car toll. This all was proposed by Wolfgang Schäuble, Germany’s current minister of Finance.

Now, what sounds like (and is) a perfect example of corporatism, does actually convey an interesting idea. A strip of asphalt, a guardrail – all these things have value for those using them, irrespective of who has paid for them. Yet still, it seems to be a concrete-cold fact, almost a rule, that roads, especially highways ought to be paid for by taxpayer money, in other words: to be funded by the government. But why not leave it to the private sector completely?

Is a highway a public good?

In economics, the theory of public goods can help us fathom whether a good should be provided by the state or not. To distinguish different types of goods from each other, economists have developed a simple set of criteria:

The first criterion is: Is the good excludable, or is it non-excludable? So, in other words, can we exclude people from using this good? If the good is non-excludable, then we can stop here: This good probably can’t be supplied by the private sector (however, some people argue that there actually are public goods being supplied by the private sector, the example being Open Source Software). Economists often use the example of National Defense, as the military either protects all of the country’s citizens or no one. It’s impossible to protect only some citizens. However, this is certainly not the case with highways. You can put a toll-booth at the entrance of a highway, and ask the people trying to enter to pay. So, highways are most definitely excludable.

The next criterion is a subtler one: Is there any rivalry in the use of this good? So basically, if one person uses the good, can others use it nonetheless? In that case, it would be non-rivalrous. If I have a piece of steak (I love steak), then once I’ve eaten it, nobody else can have it (rivalrous). The steak is an example of a private good, because it’s both excludable (obviously) and rivalrous in use. The other possibility would be that the good is non-rivalrous and excludable: A good example for this is cable television, and this is what we call a club good. Some club goods are provided by the private sector, and some by the government.

To make the whole thing a bit less confusing, I created this little matrix:

Now, it is not completely clear where highways belong in this matrix. They are certainly not anywhere on the right side, as we found out. But are they private goods or club goods? At first sight, one might say there is no rivalry, so they’re club goods, but then we all know it can get quite crowded on a highway (even on the Autobahn, believe me). So, to a degree, there is rivalry. Thus, a highway could very well be considered a private good. And therefore, to let private companies build the highways should at least be contemplated.

A perhaps not-so-great idea

So, should Germany do this? The problem here really is: Germans know they have subsidized the Autobahn for quite some time with their taxes, and those taxes weren’t particularly low. And now they’re told this will all be sold off to private, profit-seeking companies: That doesn’t sound fair. And it conveys a reasonable counter-argument: If this privatization is actually carried out, and taxes stay the same, then there is much reason for complaining. Overall, driving on the highways will become more expensive, as Germans will still pay the same taxes, but have to pay the toll on the highways, too. So at least there should be tax relief, unless one wants to discourage people from driving.

For those who wonder if Mr. Schäuble’s plan has any chance of being implemented: Probably not. Not surprisingly, the news stories I mentioned above haven’t made too many people happy. Most Germans oppose highway privatization (and privatizations in general), and even Sigmar Gabriel, the Minister of Economy, has voiced his opposition to the plan, among others. Thus, the consensus in the media seems to be that it won’t be happening – but then, who knows what the future holds. And it really isn’t too crazy of an idea – even the French have done it!

Marcus Rumler is a local coordinator and a member of the blogging team. He currently lives in Würzburg, Bavaria where he is a graduate student in Economics. Prior to that, he attended the University of Heidelberg where he graduated with a Bachelor’s degree in Economics. He is interested in finance, economics and politics.

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