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Interstate Trucking: The Collision of Textbook Theory and Empirical Reality

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Document pages: 70 pages

Abstract: Deregulation, that powerful legal, economic, and political movement of the last decade, is beginning to reveal its profound impact upon the industries it has grasped. During the late 1970s and early 1980s, it embraced a multitude of diverse industries, including airlines, railroads, bus companies, telecommunications, broadcasting, banking, cable television, oil and gas, pipelines and motor carriers. Stripped bare of government bureaucrats and layers of red tape, firms in these industries were cast into the stormy seas of the free market, to sink or swim on their own. Not unlike other deregulated industries, the decade of deregulation has been one in which the motor carrier industry has been plagued by severe economic problems. Indeed, perhaps the most onerous economic impacts of deregulation have been suffered by savings and loan institutions and motor carriers. Deregulation of the thrifts has made the headlines because the taxpayer has been saddled with more than $300 billion in federal insurance liability. But the trucking story has been left untold. Trucking only makes the local news when a semi turns over on the interstate and flattens a few automobiles. But make no mistake about it, the economic carnage in both industries has been relentless. The level of bankruptcies and rate of concentration among motor carriers has been unprecedented in American business history. The public served by the trucking industry is paying highly discriminatory prices for service. Motorists are endangered by an unacceptable deterioration in the level of safety. As we shall see, these deleterious results of deregulation in the 1980s and 1990s parallel those which preceded economic regulation of motor carriers in the 1930s, and of the railroads in the 1880s. Rate wars, bankruptcies, a deteriorating margin of safety, and consumer exploitation coalesced in the 1930s to prompt federal regulation of the motor carrier industry. In promulgating the Motor Carrier Act of 1935, Congress added trucking and bus companies to the jurisdiction of the Interstate Commerce Commission (ICC). Destructive competition abated, and during the half century which followed, motor carrier service was ubiquitously available throughout the nation at a price which was "just and reasonable. " Service was safe and dependable to large and small communities throughout the nation. As in telephone regulation, there was some measure of "cross subsidization " performed under the regulatory umbrella of the ICC (in interstate transport) and the State Public Utility Commissions (PUCs) (in intrastate transport), with more lucrative, denser traffic lanes paying a premium above marginal costs to subsidize rural and small community service. Nearly a half century later, the fire kindled in a movement which found economic regulation wasteful and hateful, and deregulation was advanced as the means to achieving a more efficient and productive economy. The free market economists who promoted deregulation assumed that the motor carrier industry had relatively insignificant economic barriers to entry and economies of scale, that destructive competition was unlikely, and that deregulation would likely produce an atomistic market, with a large number of buyers and sellers in nearly textbook levels of healthy competition. Their efforts persuaded Presidents Carter and Reagan to appoint individuals strongly wedded to the ideology of laissez faire to the ICC, who began de facto deregulation of trucking in the late-1970s. Congress followed suit by promulgating the Motor Carrier Act of 1980, a modest bill aimed at regulatory reform, but which has been interpreted as if it mandated comprehensive deregulation. These policies have crippled the industry. After a decade of empirical evidence, we see that the assumptions of the free market economists were erroneous, and hence, the predictions upon which they rested were, simply, wrong. Their folly affects not only the motor carrier industry, which is perhaps the most important mode of for-hire transportation, but the entire nation. The movement of goods over the highways accounts for more revenue than all the other modes of transportation (i.e., air, rail, water, and pipeline) combined. Nearly everything we Americans consume - our clothes, our food, our furniture, our appliances - was at some point moved by truck. Moreover, transportation as a whole accounts for nearly eighteen percent of the U.S. gross national product. Hence, governmental policy here, good or bad, has profound implications. In the first part of this article, we will review the principal theoretical underpinnings of deregulation. In the second, we examine the results of deregulation upon this important industry and the public it serves. Finally, we shall explore the theory of economic regulation, and advance a policy justification for a more responsible governmental approach to this important industry.

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