Sen. Herb Kohl (D-Wisc.), who will not be seeking reelection this November, decided that he would make one last-ditch attempt to get his awful piece of legislation from last year (the Railroad Antitrust Enforcement Act) passed by the Senate as an amendment to their highway bill. The primary purpose of the legislation is to remove the limited antitrust exemptions granted to America’s private railroads. Right now, the Surface Transportation Board, which is the watered-down successor organization to the tyrannical Interstate Commerce Commission, has sole authority in ruling over matters of competition policy within the railroad industry.
You might ask, “Why do the railroads get that special privilege? Is that fair?” Fairness is not the proper way to look at it; rather, common sense and economic sanity is. Given the type of industry the railroads are — vertically integrated (they own and manage both track and the trains) network industries that operate across many states — applying traditional antitrust scrutiny to railroads is wholly inappropriate if the goal is to maximize social welfare. The Surface Transportation Board, while certainly a regulator with serious problems, has a wealth of technical knowledge and experience in dealing with this very special industry. This is why most people who know anything about railroads, who are not in the pocket of major shipper lobbies, react with horror whenever knuckleheads in Congress introduce such dumb legislation.
Unfortunately, Sen. Kohl, an antitrust-maximalist romantic if there ever was one, wishes to open the door for potentially disastrous actions on the part of the U.S. government. I suspect Kohl, along with others who rely on outdated antitrust and industrial organization theory to formulate their opinions of railroads, has forgotten what happened when the railroads were heavily regulated by the ironfisted ICC. The entire industry almost collapsed and Northeast freight service was taken over by the federal government after the Penn Central went bankrupt. But since the Staggers Act that deregulated the railroad industry, shippers and consumers alike have enjoyed huge benefits, all while the industry consolidated and returned to profitability.
The ICC may have been terrible and the STB may be bad, but Kohl is proposing that we unleash the antitrust zealots at the Justice Department and Federal Trade Commission. That’s not just terrible, that’s completely insane!
While Sen. Kohl’s legislation has essentially zero chance in becoming law, if you need another reason to oppose the Senate’s surface transportation bill, it is terrible enough to justify voting no on the entire Senate package if it is accepted as an amendment.
ADDENDUM: Here’e a response to my post that makes a number of factual errors. The author fails to define and use “monopoly” correctly. Congress didn’t “forget” to transfer competition policy enforcement to the FTC and DOJ. Virtually all intercity passenger rail service was taken over by Amtrak years before deregulation. Rail freight rates have fallen dramatically since deregulation. STB’s multiple commissioned investigations have failed to uncover price-fixing or undue exercise of market power.