There have been quite a heated debate going on regarding the recent Low Cost Green Car policy, a tax cut on cars which allows carmakers like Astra and Indomobil to come up with a line of under Rp 100 million cars. Those who oppose think the policy would certainly make traffic congestion in Jakarta even worse than the already dreadful state it is now. Those who support think it might be a way to let less well-off Indonesians to fulfil their dream of owning a car. As the debate gets ideological, I’m going to put on my libertarian coat and try to offer a free-market solution to the congestion problem.
There is a big mismatch in the transportation system in Jakarta, whereby automobiles are largely private while roads are largely public (toll roads make up for less than 5% of total road length). The LCGC bill simply further liberalised the the automobile industry, benefiting consumers, which in any other industry would be a good thing under libertarian perspective. However, as roads are public and are free, they are simply way cheaper to use than their market value. As with any government intervention in the price system, the lower price results in an excess demand and hence in this case heavy traffic.
Which means there are 2 ways to solve this mismatch: Highly regulate the auto industry to curb auto sales; or the better, free-market option: highly deregulate the roads system. The former option includes heavily taxing cars, spending massive amounts of money to build public mass rapid transport, and so on. It might make sense to do that, but remember that with that kind massive public spending potential losses and inefficiencies may arise. Bribes going around, corruption taking place, and all that shady stuff.
Now what about the free-market solution? This basically means auctioning off concessions of public roads to private companies, and allowing them to charge whatever price they want for usage of the roads. They could either use Electronic Road Pricing (ERP) or manual toll gate systems, whichever way they deem more profitable. They could raise prices during jams and lower them when its free. They should then be authorised to write and enforce their own street rules and punish whoever breaks them.
There are two benefits to this approach. First, I argue that by privatising the roads and hence allowing their usage price to go up to the market clearing price, their excess demand will decrease and soon disappear. It will deter road usage by people who do not value their use as high as the market price. The second is that by raising the cost of road usage, the private sector would have more incentive to build and operate mass transportation systems. There will simply be too many people that rely on them that they can be profitable enterprises. As they too would be run by the private sector, it is arguable that they could be more efficient.