There was a nice example of how different categories of rent-seeking overlap in yesterday's Daily Mail:
It is the Monaco of the West Midlands - a private toll bridge which is spared paying income tax on its profits. Motorists spend up to £2,000 per week crossing the 18th century bridge at Whitney-on-Wye, between Hereford and Hay-on-Wye. And following the death of its owner, the Herefordshire tax haven has now been placed on the market for a starting price of £450,000...
It also acts as an inheritance tax shelter, so it can be passed on to heirs without falling prey to a levy. The 1779-built bridge, which currently costs 80p to cross, was initially funded privately. In return, an act of parliament granted it tax exemption. Prospective owners will also forfeit having to pay stamp duty, business rates and capital gains tax. But they will have to pay for its maintenance and the toll keeper's wages...
How would you classify that £100,000 a year annual income:
1. Are car drivers paying a fee, fair and square for the value of a service rendered by a competing private provider in a free market? Well no, because...
2. Is the bridge owner a monopolist? There appear to be no other bridges for miles up or down stream, so clearly he has a local monopoly and can hence charge more than otherwise - his income is a function of how much time people can save by using the bridge, so if the nearest free bridge were only a hundred yards away, his income would be nothing, but as long as the nearest free bridge is more than ten minutes drive away, people are happy to pay the 80 pence.
3. Is the bridge owner collecting taxes? Without the Act of Parliament, the bridge would not have been built (let's assume), and had the local council decided to build the bridge out of its own resources, we can assume that they would also have charged a toll, which, being payable to the council to fill the local coffers, we would look at as a tax. But whether a payment is publicly or privately collected does not change the nature of a payment, either it's a tax or it's not.
4. Is the bridge owner just collecting rent? The bridge doesn't look all too expensive to build, so surely it's the location of the bridge that matters far more than its physical properties. And the bridge depends on traffic between Hereford and Hay-on Wye, so the more people live or do business in either town, the more people will need to travel between them; and the bridge owner skims off a small part of that extra bit of the economy.
5. Is the bridge owner any different to a highway man? A proper highway man would jump out and attack every one-hundredth traveller and take everything, the more civilised bridge owner demands a small modest payment from every single traveller as 'insurance' for safe passage.
5. Then we add to that the fact that the profits from the bridge appears to be entirely free of publicly collected taxes (VAT is not mentioned, the toll keeper himself is liable to PAYE). The price of the bridge is the capitalised value of future income, so part of the purchase price is of course the capitalised value of the taxes which the bridge owner doesn't have to pay (even though the bridge would still have been built had these tax exemptions been due to expire within thirty years or so).
To sum up, AFAIAC, there is no clear dividing line between state-protected monopoly profits, tolls, taxes, rents, theft and insurance premiums, they are all just different names for the same underlying unearned transfers of wealth.
Of course, any subsequent purchaser/owner of the bridge will hotly deny this analysis, he will claim that he paid market value and therefore that he is merely earning a reasonable return on his investment, and not living off the proceeds of crime or government largesse. This is sort of half correct, but still overlooks the fact that he hasn't invested a penny in the bridge; that's been there for over two centuries whether it gets sold or not (the only money he invests is in the upkeep of the bridge, the up front purchase price is just like a ransom payment).
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26 comments:
In a free (planning) market someone would be very interested in building a competing bridge. I reckon that some second hand Bailey sections and a couple of pontoons should give me a functioning bridge. It looks like there are other crossing places nearby. I could build some simple gradad Macadam access ramps down to the river and float out my Bailey bridge and charge what, 75p?
My mistake, different bridge....
That bridge, being made of wood, looks like it will cost an awful lot in maintenance in the not-too-distant future. Also Mark, if you tried to build a bridge like that for £450,000, I think you'd be very disappointed.
Lola, I think your pontoon bridge idea would work fine right up until the next time the Wye flooded.
"the more civilised bridge owner demands a small modest payment from every single traveller as 'insurance' for safe passage."
No he doesn't, he's providing a service, by saving motorists time and fuel, and charges for that service. To quote Jenny Harrison, from the article 'It is a pleasant way of driving into Hay. You have to weigh up the toll but it is a way to save petrol.' Nobody is forced to cross the bridge and there are perfectly viable alternatives.
Surprising that a toll bridge survived the Rebecca Riots which centred on toll gates, toll roads etc.Classic British rioting, Rebecca encompassed cross dressing;Biblical quotations ;dramatic enactments of grievances; destruction of property
etc but with one difference:success.
I cannot see much to choose between toll bridges and user- charge roads so beloved of a certain type of libertarian.
Brilliant title!
Lola, perhaps the really clever thing would be to sign up the a BBC documentary crew to cover the construction of your bridge - though you'd have to do it in 24 hours flat, or dress up in historical costume or something like that.
Lots of free publicity and all your catering/labour needs solved - what's not to like?
L, assuming half the traffic comes from the east and half from the west, you could charge just as much as the other guy.
SW, no, it was definitely that one.
B, who says I'd build one like that? Maybe a wooden bridge is £500,000 with £50,000 annual upkeep and a stone or concrete bridge is £1,000,000 with minimal annual upkeep. You haven't addressed my second point that he gets a large element of monopoly profits, i.e. what happens if L opens his pontoon bridge a hundred yards away?
DBC, I've nothing against publicly owned toll roads as a matter of principle, it's the fact that you lose ten minutes in the queue to pay a laughable £1 toll than annoys me. And I'd have nothing against privately owned ones who are handing over their full whack Business Rates either (apart from the shag of queueing up).
McH, ta, we could call the programme Challenge Lola or something.
Yes, if he'd built the damned thing, it would be a different story but he hasn't. Moral dilemma.
Bayard - Floods are good for me, bad for the other bloke. My bridge floats. His doesn't and is more likly to suffer scour failure or debris damage.
MacHeath - 24 hrs! No bother. The British Army put one across the Rhine under fire in a morning. I tell you what, it's be a helluva lot of fun.
MW - Well, it all comes back to LVT does it not. If you (when we?) scrap all other taxes, and as we are the gummint, we'd make him pay LVT. Job done.
BTW I guesstimate the cost of replacing that bridge at at least £3m
JH, I don't think it does. This bridge is just the 18th C equivalent of todays 'Private Finance Initiatives' whereby individuals or companies favoured by the government line their own pockets at taxpayers' expense.
L, I'm trying to go a whole week without mentioning LVT, but point taken.
Are you serious about the £3million? Apparently it costs £8 million to build a mile of two-lane road in the UK, that's £4,500 per yard, that bridge is single lane and wooden and maybe fifty yards long, so I make it £225,000 tops.
MW - Yes, I am. It would not get re-built in wood anyway. It'd be rebuilt in concrete or steel and to modern design codes. It's very unlikely that the existing foundations would be any good, so that means piling or caissons or cofferdams and foundations or whatever. Even if you did it in timber all the same regs would apply. It may have been state of the art in 1779 (it wasn't - see Caolbrookedale), but it ain't now.
L, £3 million? Sod that, I'll get on the phone to the British Army or Anneka Rice.
not sure I believe the figures...if the toll is 80p per car and the income is £190k, then that is 237,500 cars per year rather than the 4 million the article mentions. That works out to about 36 per hour (for an 18 hour day), which strikes me on the high side. Hay-on-Wye probably gets about 40 vehicles per hour from all directions - and not all of nthem come from Hereford.
I would not be surprised itf the whole article is a pile of crap.
Diog - the last couple of sentences in the article relate to a completely different bridge :-)
"SW, no, it was definitely that one."
Sorry, mine is also the deleted comment above, I was referring to a toll bridge I went over on the 14th but it's a different bridge, that one was only 5p, don't recall exactly where it was but it was on the bus journey into Oxford from next to the RAF base.
have just re-read the Mail article...I do not see where it says that all the figures it uses relate to a different bridge. can you advise since you say they do relate to a different bridge? 80p toll 190k annual revenue 4m passengers
SW, I was just joshing you! How the heck would I know which bridge you went over?
Diog, the clue is that the main article is about a bridge in Whitney-on-Houston and the last paragraph of the articles reads:
"A stone bridge which crosses the River Thames, at Swinford in Oxfordshire, sold for more than £1 million in 2009. It generates an estimated £190,000 each year from the four million travellers who use it."
"You haven't addressed my second point that he gets a large element of monopoly profits, i.e. what happens if L opens his pontoon bridge a hundred yards away?"
Yes, but he hasn't and is not likely to. Bridges tend to be fairly isolated, except in cities like London, because, I suppose, of the cost of building them. The point is, no-one is preventing anyone from building a bridge a hundred yards away, it's not a state-protected monopoly. The fact that, in more than 200 years, no-one has thought it worthwhile to do so rather suggests that there is no economic point. Bathampton Bridge is a private toll bridge with free competition not far downstream, but is still fairly busy, because using it means you don't have to fight your way through the middle of Bath.
Libertarians are enthusiastic for road-pricing (which is what a toll bridge exemplifies) but get them selves in a mess over natural monopolies.Even Henry George,who was laissez-faire as they come,conceded that natural monopolies such as most railroad routes could not respond to business competition so he advocated nationalising the American railways.This kind of thinking about natural monopolies was once accepted by all shades of opinion in this country (Conservatives included) but starting with the Californian fuckwits who rebelled against property taxes ,political history has been made to go into reverse (see Adam Curtis's attack on Ayn Rand)and we are being forced to consider schemes akin to the laughable (18th turnpike trusts which did n't work then eithers.The Skye Bridge was set up as a private sector toll bridge under PFI arrangements: at the end, before mass civil disobedience saw the bridge taken into public ownership,using the bridge cost £11.40.Far better to put the bridges under public ownership and pay for them with LVT since the area served by the bridge would have land value increases consequent on the tolls being abolished (Winston Churchill mentioned the increases in rents following the abolition of a toll bar on a London bridge in his big 1909 Land Monopoly speech)
BTW the five central London bridges are all privately owned by the City Bridge Trust which pays for them out of the profits from their enormous property portfolio-a bit like LVT since the bridges enhance their property values.
Bridges are only isolated outside conurbations because there are few major transport routes. Actually that's a complete lie, there are thousands of bridges outside conurbations, but they range in size from modest culverts to proper bridges. Have some fun, take a drive in the country and count the bridges. There'll be loads. I am a big fan of brigees - large and small.
e.g. On my regular 2.5 mile dog walk I cross six. Two box culverts, one very small and old brick arch bridge, two agricultural plank bridges over streams and one single plank footpath bridge. And I live in Suffolk, which is pretty flat!
DBC Reed. Yes, well, trouble is once you nationalise a natural monopoly it ends up as a source of political power and suffers endemic producer capture.
But your point is taken, so is there a way to avoid the downsides of both forms of ownership?
I am also not entirely convinced that a railway 9say) is a monopoly. It might be a monopoly railwya, but it is not a monopoly as a means of transporting people and goods.
Clearly LVT is a prerequisite. But then suppose a new road or railway is proposed and that building it would increase the land values along its route. The it would seem to make sense to levy LVt to pay for the road/railway. That gets you the land to build it on. Then perhaps you rent out the land to a private business to build it and operate it for a fixed term for a price collected by tolls? At the end of the term the infrastructure reverts to state ownership and the maintenance is let out again to a commercial concern again paid for by tolls?
This might work for trunk routes, but what about local roads? These might be owned and paid for out of LVT?
This post is really a series of questions - I have not thought this through. Except that I am always very suspicious of any State monopoly - or private one come to that.
DBCReed - seen this?
http://mises.org/daily/5266/The-Myth-of-Natural-Monopoly
Post on behalf of MW who's got interweb 'issues'...
1. A toll bridge owner is clearly a monopolist. The amount of toll he can charge depends almost entirely on where it is, and the amount he receives in total also depends on where it is (i.e. how many people want to use it). If we kept building enough competing bridges side by side, then the free market toll price would go down and down until all rents are competed away and no bridge owner would make any super-profits.
2. Let's forget about LVT on roads, we have a perfectly good tax on road use, i.e. fuel duty. The government collects far, far more in fuel duty and VAT on fuel than it spends on roads, problem solved.
3. Most roads are "free at point of use" (which is absolutely fine - see point 2.), what's so special about bridges? Let's imagine the road from Hereford to Hay-on-Wye is a total of 23 miles, of which fifty yards is this confounded bridge. Lola tells us the bridge would cost £3 million to build, and the other 23 miles of (assume) two-lane road cost £8 million per mile = £184 million. So if it's acceptable for the bridge owner to charge 80p for the crossing, why not sell off the other 23 miles in half-mile chunks (worth £4 million each) and allow each new private owner to charge a toll of 80p? In fact, why not split it into fifty yard chunks and allow each owner to charge a toll of 80p? The value to the driver of that distance has nothing to do with how expensive the road/bridge was to build and everything to do with the value to him of getting from A to B (and back again). Each bit of that road has the same "ransom value".
4. As the "chunks" example in 3. clearly leads to a ludicrous outcome, why have tolls at all? Whatever the intellectual merits of such a tax, it clearly fails the most basic test "Do the costs of collection (i.e. drivers queuing up, wages of the man at the toll booth) exceed revenues?" to which the answer is usually a resounding "Yes!". For sure, the bridge needs to be maintained, and somebody has to maintain it, but the local council can do that as well as anybody else, using its pro rata share of fuel duty/VAT on fuel receipts.
Yep. I have understood that Fuel duty is the same as LVT...
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