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Forty Years of Freedom: Rail Deregulation Worked

Forty years ago today, President Carter signed the Staggers Act, which deregulated the American freight rail industry. As CEI has long maintained, this initiative showed that free enterprise allows for solutions that government control of industries cannot achieve. It allowed for increased investment and technological advancements instead of the continued decline of the rail industry. While it should serve as a model for future deregulation, special interests continue to call for reregulation. This would be a calamity for America.

Rail regulation was perhaps the original sin of America’s administrative state. The setting up of the Interstate Commerce Commission in 1887 saw government inflicting price controls on railroads, bowing to the demands of shippers. Yet, owing to the problem of expertise to which Nobel laureate Friedrich Hayek later called attention, railroads continued to call the shots, leading to accusations of “regulatory capture.” When railroads were not providing the information needed to set rates, rates declined below the levels necessary to sustain investment in the networks, leading to a slow but sure strangulation of the industry.

By the 1970s, it was clear the situation could not continue. While the great thinkers of the day were sure that nationalization was the only solution (and indeed that was the approach taken for passenger rail, with the creation of Amtrak), the Carter administration learned from Alfred E. Kahn’s successful deregulation of the airline industry and listened to John Snow of the American Enterprise Institute, a forceful advocate of rail deregulation. The role of then-Senator Edward Kennedy and his Senate Judiciary subcommittee on antitrust and monopoly should also not be forgotten. A bipartisan consensus on deregulation developed and the Staggers Act was passed.

With the railroads freed from the strangling hand of regulation, the invisible hand took over. Since the passage of the act, railroads have been able to make large investments in improving their operations, allowing them to compete successfully with alternative modes of transportation. As the president of the Association of American Railroads noted today in a Wall Street Journal op-ed celebrating the anniversary:

Since 1980, freight railroads have poured more than $710 billion of their own funds back into their operations. Average rail rates are 43% lower today than in 1981 when adjusted for inflation. This translates into at least $10 billion in annual savings for U.S. consumers. Safety and service are at historically high levels.

Railroads, their shipper customers, and American consumers have all benefited from deregulation. Yet, as former CEI fellow Marc Scribner notes at Reason, politicians and regulators are under pressure to re-regulate the railroads. As he says:

The transportation sector as a whole is undergoing rapid change, with new automation technologies, alternative fuels, and other innovations promising to reduce costs and improve service for customers. Rather than doling out favors to short-sighted special interests, policymakers should work to identify and remove any remaining impediments to modernization.

For forty years, rail deregulation has served America well. That’s why CEI was proud to contribute to the FreedomWorks video above, and to sign this letter to the Surface Transportation Board. Here’s to at least 40 more, and to other industries being freed from regulation’s strangling hand.

For an in-depth look at the history of America’s rail regulatory woes, here is Marc Scribner’s and Fred Smith’s excellent 2015 study, Reviving Capitalism: Lessons from the Near-Death and Rebirth of America’s Railroads.