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Deregulation Works

by
Ken Blackwell

Jun 12, 2008

At this week's G8 Summit, the cost of gasoline is one of the main topics of discussion. With the price of crude oil hovering around $136 a barrel, the industrialized world is looking for answers. But none seem to exist right now.

Some blame the skyrocketing costs on increased demand. However, the International Energy Agency does not expect the demand for diesel and heating oil to grow by much — only 0.9 % in 2008.

Others are blaming low oil reserves. OPEC says otherwise. In fact, it increased its production. Its secretary general, Abdullah al-Badri, told Reuters on Tuesday, "The situation is unbearable as far as we are concerned. I want to say, 'there is no shortage now and in the future.'" He blamed investment banks and speculators for artificially driving up the cost of oil.

In the presidential race, both candidates seem quick to grab for bumper sticker solutions to the rising cost of crude oil and its adverse impact on customers and commerce. One candidate seeks a tax holiday and both point to "excessive" fuel company profits. Considering the enormous stakes of getting this issue right, the candidates would be wise to ponder a more market-oriented approach to energy policy.

In the long-term, America needs a comprehensive energy policy that emphasizes a homegrown approach — more domestic oil exploration and drilling, and greater emphasis on clean-burning coal and nuclear energy.

In the short-term, the nation needs to review the regulatory environment navigated by commercial transporters of goods. And, Congress should tread lightly.

The so-called Railroad Competition and Service Improvement Act currently making its way through the House and Senate does exactly the opposite. The proposed act seeks to place burdensome regulations on an important commercial transport system at exactly the wrong time.

The legislation places substantial "re-regulation" on freight transported by rail. Many industry experts believe the measure will cripple railroads. Some estimate it would cost the industry nearly $5 billion a year in lost revenue. Instead, the government should limit unnecessary regulation on American industries, especially the transportation industry.

Moreover, it is an undeserving punishment to an industry that has become so efficient that ever-increasing fuel prices may have a minimal effect on its ability to deliver low-cost transport.

According the Association of American Railroads, the railroad industry has reduced fuel consumption by 48 billion gallons since 1980 and reduced carbon dioxide emission by 538 million tons during the same period. They claim a whopping 85% improvement in fuel efficiency since 1985.

In fact, one gallon of fuel can carry one ton of freight about 423 miles, according to industry experts. Put more concisely, one train can do the work of 500 trucks without placing a heavy strain on the nation's sagging infrastructure.

These noteworthy accomplishments can be traced to a massive deregulation effort in 1980. The Staggers Railroad Act of 1980 rescued American railroads. Prior to the reform, burdensome regulation made it impossible for the railroad industry to reinvest in new track and equipment. When those regulations were lifted, railroad service thrived as an industry. And, railroad companies invested in fuel efficient systems that helped ease highway congestion and reduced air pollution.

The Department of Transportation estimates that the reform resulted in a 50% reduction in railroad costs and prices. It also allowed the industry to better compete with the dominant trucking industry — providing freight customers a sound market alternative.

In its analysis of the reform, the Cato Institute found that the railroad industry was able to withstand the recession in the 1980s, earn record profits, and cut costs.

Moreover, a joint report by the American Enterprise Institute and the Brookings Institute reported another important fact. Railroad customers reaped the benefits of deregulation. "Surprisingly, deregulation has also turned out to be a great boon for shippers as railroad carriers have passed on some of their cost savings to them in lower rates and significantly improved service times and reliability," their report found.

Reduced regulation worked for the railroad industry. And, that industry has provided the nation a cost effective and energy efficient mode of moving goods at a critical time.

Congress should not be so hasty to reverse a good decision made by its predecessors at a time when cruel oil costs and availability of oil consume the national consciousness. In 1980, government chose deregulation and reaped the benefits. Today, less regulation still is a good idea.

Ken Blackwell is a member of NTU's Board of Directors

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