Bait and Reciprocal Switch

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America’s freight railroad industry is one of the greatest success stories of economic liberalization. After decades of stifling regulation that nearly brought the railroads to ruin, Congress partially deregulated the industry. The results have been remarkable. Freight rates have fallen, industry productivity has skyrocketed, and the industry is now able to invest more than $20 billion back into its networks every year.

The benefits of deregulation to shippers, consumers, and rail carriers are clear, but a number of commercial interests now support reregulating aspects of the industry. This pro-regulation coalition includes representatives from America’s largest agriculture, coal, and petrochemical corporations. Some Members of Congress have supported legislation that threatens to reverse many of the industry’s gains and would destabilize the current balance between public interest and healthy networks—so far with no success, but they are likely to keep trying.

A more significant threat comes from within the railroad industry’s economic regulator, the Surface Transportation Board (STB). In the name of competition, a shipper lobby has proposed new access rules aimed at forcing railroads to interchange one another’s traffic. The shippers claim the changes would not harm the affected railroads, citing limited and incomplete evidence from abroad. A better examination of the evidence refutes this claim and indicates that the proposed regulations would likely greatly reduce railroad investment and long-run efficiency.

Rather than imposing new regulatory burdens on the railroad industry in a clumsy attempt to improve outcomes for shippers, regulators and legislators should examine existing regulatory burdens that raise prices for customers and work to repeal them.