Reserve Bank of Australia

How the Private Sector Can Improve Public Transportation Infrastructure

Transportation infrastructure significantly contributes to a nation’s prosperity by facilitating workers’ access to employers, consumers’ access to shopping and leisure activities, and firms’ access to capital, labour and potential customers. The public sector has generally provided the vast amount of a nation’s infrastructure – roadways, waterways, railways and airways – and expanded it to satisfy users’ growing demand for transportation. But as demand has increased and ageing infrastructure facilities have required ever-greater funds for maintenance and new construction, capacity has become increasingly strained and travellers and shippers have experienced more congestion and delays. Policymakers have tried to find new sources of money to finance projects to expand capacity; but congestion and delays have persisted.

The public sector’s "strategy" of increasing spending to build its way out of congestion has been entrenched for decades and is unlikely to change for the foreseeable future into a sustainable strategy that could improve infrastructure performance. I therefore consider in this paper three ways that private sector firms could potentially contribute to that goal.

  1. They could purchase infrastructure facilities from the government and operate them more efficiently subject to general business laws (privatisation).
  2. They could develop technological innovations that the public sector could implement to improve current infrastructure performance.
  3. They could make technological advances that greatly improve the operations of transportation modes that use the infrastructure.

In what follows, I explore those possibilities by drawing on evidence based primarily, but not exclusively, on highway and aviation infrastructure services in the United States, which have been the main focus of infrastructure policy discussions. I conclude that: privatisation, while worthy of carefully designed experiments, faces considerable uncertainties as to its long-run success in the United States; technological innovations developed by the private sector are available for the public sector to implement but policymakers have resisted doing so; and, more positively, technological advances in the transportation modes could facilitate significant improvements in infrastructure performance provided its implementation is not impeded by the government.