(Bloomberg View) -- During his State of the Union speech, President Donald Trump laid out a plan to rebuild America’s infrastructure by “tapping into private-sector investment.” Doing so would “permanently fix the infrastructure deficit,” he declared.
Behind this lofty bit of rhetoric was the humble toll booth -- in this case privately owned ones on privately owned roads. As governor of Indiana, Vice President Mike Pence tried out the strategy, turning over an expansion of I-69 to foreign investors. Trump now hopes to take this to the next level, making it the centerpiece of plans to revive America’s infrastructure.
Unlike many of Trump’s vague policy proposals, this one has plenty of history behind it. Private toll roads once played a signal role in the economic development of the U.S. But the chance of a successful resurgence is small thanks to the shifting incentives of investors between then and now.
The idea of tapping private capital to build roads goes back to 17th-century Britain, when a cash-strapped parliament began chartering private corporations to fund and build turnpikes, with tolls paying the cost of construction (the “pikes” referred to the spiked barriers that encouraged travelers to stop and pay).
In 18th-century America, though, roads remained under the control of local governments who required locals to build and maintain them. Predictably, their work was not stellar. One traveler outside of Boston in 1790 described a typical road as “horrid,” and complained that the bumps “jolted me Mountain high,” and were “sufficient to Murder any Honest Man.”
Inspired by the British, Americans started chartering private companies to build roads. But they twisted the business model in the process, turning non-profit trusts financed by bonds into for-profit joint stock companies that promised to pay dividends.
Pennsylvania chartered the original one in 1792. The success of its first big project -- a 62-mile road connecting Philadelphia with the town of Lancaster -- inspired a massive toll-road-building boom. By 1800, state legislatures had chartered 69 turnpike companies, a number that would near 1,000 by 1830. An astonishing 27 percent of all corporate charters in the Mid-Atlantic and New England states went to turnpike companies in the first four decades of the nation’s existence.
But the companies themselves remained modest in scope and ambition, building roads with average length of approximately 12 to 16 miles. They usually began with a small group of local farmers and artisans who would secure a charter that empowered them to build the road and even invoke some limited powers of eminent domain. They would then issue stock to defray the cost of construction, hire workers and start charging tolls.
These companies, though, operated under strict regulations that capped tolls and forbade them from charging certain travelers: people on their way to church, for example, or in the case of Massachusetts, anyone “on the common and ordinary business of family concerns.” States also capped penalties for “shunpiking,” a colorful verb that referred to the many toll dodgers.
Moreover, most turnpikes didn’t remain private: They typically reverted to public control once the corporation recouped their initial investment. Even more peculiar, given their joint-stock structure, most toll roads never paid any dividends to their stockholder. “The turnpikes did not make money,” one historian put it, “as a rule it was clear from the beginning.” Another was more blunt: “Turnpike stock was worthless.”
So what was going on here? Historians have discovered that the people chartering turnpike companies -- and buying the shares of stock -- didn’t do so to create a new profit center. They sought the indirect benefits of having a road run through their communities, which helped increase trade and also the stature of the road’s pioneers. Investors tended to live near the new roads, enjoying the energy they carried. Turnpikes, one booster wrote, “encourage settlements, open new channels for the transportation of produce and merchandise, increase the products of agriculture, and facilitate every species of commerce.”
By 1845, some 1,562 companies incorporated to build turnpikes, most in the northeastern U.S. Later, another boom built out a network of roads in the west. The same motives appealed to investors, research suggests, and it wasn’t about getting rich off the road.
Private roads went out of fashion in the late 19th century, as reformers sought to bring everything from utilities to roads under centralized control and regulation. Toll roads now fell under the jurisdiction of public authorities financed by bonds. These projects generally failed to live up to revenue expectations, and needed direct infusions of public money.
Building and rebuilding America’s infrastructure is an unfathomably large task without easy solutions. But privatization is a dead end as long as it relies on investors who expect to make a steady profit. Just ask Mike Pence: Private investors spent years racking up debt on the road he sold them. In 2014, they filed for bankruptcy.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Stephen Mihm, an associate professor of history at the University of Georgia, is a contributor to Bloomberg View.
To contact the editor responsible for this story: Mike Nizza at mnizza3@bloomberg.net.
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