Mississippi Sen. Roger Wicker recently presided over a confirmation hearing for nominees to the Surface Transportation Board, the federal agency tasked with oversight of freight railroad rates and disputes.
Sen. Wicker notably focused on the possible restoration of Amtrak service along the Gulf Coast, a long-stated priority of the state’s senior U.S. Senator. But another issue that did not get an airing at the hearing is just as important for the region, for the health of local economy and for the health of private freight railroads.
That issue is that the STB is being asked by powerful businesses to insert itself in the private market to dictate the prices private railroad carriers must charge and to hand over their equipment to competitors.
The demands by some of the country’s largest and wealthiest corporate behemoths are alarmingly anti-American for their central-planning motif in which government, and not the market, sets prices. If enacted, they would limit the ability of this industry to spend money on its rail network, a must should the state want to grow its economy and reach foreign markets with local goods, and should Mississippi consumers continue to demand the abundance of consumer goods currently transported by rail.
The STB and its new nominees should understand that the rail industry is one of America’s greatest deregulatory stories; and they all should stand against efforts to enact backdoor rate regulations at the expense of consumers.
Let’s look at history of the industry and associated public policy.
As one of the country’s oldest industries, the rail sector was saddled with decades upon decades of regulation. By the 1970s, many rail companies became insolvent and teetered on bankruptcy, as regulations forced rail operators to travel on inefficient and unprofitable routes. While this resulted in spiking rail transportation costs and increasing prices for everyday products, the nation’s attention was quickly drawn to a new interstate highway system.
The dilapidated state of the rail network and high prices became so dire that the government partially deregulated railroads to revitalize the industry and improve consumer welfare as quickly as possible.
The economic evidence shows that these changes saved the industry: consumer prices fell dramatically while railroads improved service. Transportation prices fell 44 percent in just 10 years after deregulation. For shippers, lower rail costs yielded 65 percent lower prices; for consumers, this resulted in $10 billion in annual consumer welfare benefits. The reduction in onerous price and routing controls was a big win for the industry, shippers and consumers.
Unfortunately, this historical record and the evidence was largely ignored BY the STB just a few years ago when several new policies were proposed. In the ensuing months, the nominees who are likely to be approved to join the STB will be considering these proposed regulations.
Chief among the regulations is one allowing rail competitors to use another railroad’s assets and facilities. Essentially, it would force railroads to share their traffic and rail lines — even at below market prices. Another measure would cap the revenues railroads can earn, which would reduce the cashflow operators need to make the private capital investments.
“This would be like the government telling Comcast it needs to let Verizon run its Internet traffic over its network, or ordering Ford to let GM build cars in its facilities,” says national pundit Steve Forbes.
If private railroad transportation becomes costlier, there will be less private investment and fewer jobs. Higher costs and less investment in railroads will put more trucks on the public roadways and bridges as the Governor closes 100 bridges across the Magnolia State. This would increase traffic and lead to more wear and tear on the public infrastructure.
These regulations would never pass a cost-benefit test – which has been avoided to date.
History tells us that a smarter approach to regulation allowed the rail industry to operate in a more cost-effective and efficient manner to the benefit of consumers. Moving forward, as new STB is staffed, regulators must remember this and avoid burdensome and unnecessary proposed rules.
Published in the Clarion Ledger at https://www.clarionledger.com/story/opinion/columnists/2018/04/26/government-proposals-would-hurt-mississippi-rail-and-beyond/551263002/