Government Should Steer Clear Of Rail Re-Regulation

Drew Johnson National Director, Protect Internet Freedom
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A new report from Towson University draws a clear connection between a healthy freight railroad industry and huge downstream economic benefits like job creation and ample tax receipts for federal and local government.

The Association of American Railroads, which commissioned the study, makes an equally compelling case that the success of the industry and the benefits it provides across numerous other industries is a function of “smart public policy” – primarily partial deregulation of the industry in 1980 and the existing regulatory structure today.

Because government doesn’t yet excessively meddle in the day-to-day decisions of the industry, railroads are a success story.

Why should Americans care? Because the industry – not taxpayers – foots the bill to maintain the nation’s 140,000 miles of rails that carry freight trains. Railroads are capital intensive, and they need monster investments in rail infrastructure to run. The industry pours its own revenues, not tax dollars, back into the rail network at a staggering clip – some $25 billion annually.

The current regulatory structure has allowed railroads to control their economic destiny to a degree they didn’t have before 1980. Back then, a regulatory system that only a Soviet apparatchik could love was crippling U.S. railroads and squeezing dry any meaningful investment in rail infrastructure.

President Carter and a reform-minded Congress couldn’t agree on much, but they could agree on at least one thing: it was time to throw open the doors and allow the winds of the free market to sweep over an industry on the brink of ruin.

It worked, showing once again that when government is in the cockpit manipulating the levers of supply and demand, bad things happen. And when people are free to make their own choices, innovation, market stability, and improved efficiency and productivity soon follow.

That is certainly the case with freight rail.

The Towson study found that the freight rail industry in a single year supports nine jobs in related industries, generates more than $30 billion in total taxes, and leads to nearly a quarter trillion in the total value of all goods and services produced.

In other words, the system is working, and as Competitive Enterprise Institute’s Marc Scribner says, “should not be ‘fixed’ because it isn’t broken.”

Old habits die hard in Washington though.

The industry now faces several looming government threats, which taken together amount to a de-facto reregulation. Proposals under consideration would expand oversight in everyday decisions – in personnel, setting prices for services and in the operation of rail lines.

One proposal would require railroads to provide competitors with access to their lines. Not only is it absurd to direct a company to share its hard-earned and costly infrastructure with a competitor, the proposal would likely cause severe problems across the entire rail network because it would create unstable and unpredictable capacity. Those who rely on efficient rail service would be punished.

Another “fix” by Uncle Sam would cap railroad revenue. That socialist-style rate regulation amounts to government forcing rail companies to subsidize their wealthy customers – major industries themselves – who seek to cut their transportation costs. These companies are hoping to exploit government to get a free ride to move their goods.

The Federal Railroad Administration is also getting in on the act of trying to slap unnecessary new regulations on the industry. Under the guise of “improving safety,” the bureaucracy hopes to require railroads to seek permission to reduce the number of workers in the cab of a train. The proposal makes no sense because railroads are already installing a multi-billion dollar automated safety system that will make the network even safer.

In reality, the government wants to fix the crew size at two, an issue because this has traditionally been privately negotiated. It exemplifies a government agency woefully out of touch and issuing proposals by fiat in the absence of facts to support the measure.

“Even the Federal Railroad Administration concedes they have no ‘reliable or conclusive statistical data’ to suggest that two-person crews are safer,” says Edward R. Hamberger, CEO of the Association of American Railroads.

All of these new attempts to suffocate the freight rail industry in red tape fly in the face of the very principles that saved the industry a generation ago.

More than three decades after deregulation, “the transformational power of rail deregulation continues to shape and reward our economy,” says Robert Gallamore, an expert on railroad policy.

“It not only saved U.S. freight railroads from further bankruptcies and liquidation, it became, almost miraculously, the catalyst that transformed them into what they are today, the envy of the world’s transportation systems.”

We should all hope the government lets them stay that way.