The Empirical Results of Deregulation: A Decade Later, and the Band Played On
Paul Stephen Dempsey
McGill University - Faculty of Law
March 25, 2013
University of Denver College of Law, Transportation Law Journal, Vol. 17, issue 1, pp. 31-100 (1988)
For the past decade, America has basked in the sunshine of deregulation - deregulation of telecommunications, broadcasting, banking, oil and gas, and transportation. Transportation was the nation's first industry to be regulated by government, and a century later, the first to enjoy significant deregulation. We have now had a decade to evaluate the social and economic impacts of that experiment. This article assesses that experience.
Market failure gave birth to economic regulation. In the late 19th century, pricing discrimination and destructive competition in the transportation industry prompted Congress to establish our nation's first independent regulatory agency, the Interstate Commerce Commission, in1887.
Beginning in the late 1970s, regulatory failure became the catalyst for deregulation. Various forms of de jure and de facto interstate deregulation resulted both from legislation passed by Congress in the mid-1970s and early-1980s, and from the appointment by Presidents Carter and Reagan of individuals to the federal regulatory commissions fervently dedicated to deregulation.
The high water mark of deregulation as a blossoming political movement seems to be behind us, having peaked late in the Carter and early in the Reagan Administrations. As the American people have had more experience with the grand experiment in deregulation, they have become less enamored with it. Congress has not passed a major deregulation bill in recent years, and is now considering various reregulation proposals for those modes which have experienced the most comprehensive deregulation - airlines and railroads. And while a few states jumped on the band-wagon and adopted intrastate trucking deregulation in the early 1980s, that momentum seems to have died too, for no state has opted for intrastate deregulation since 1984. Today, the overwhelming majority of states continue to regulate intrastate motor carriage.
This article will examine the experience of interstate transportation deregulation, and the likely impact that additional deregulation would have. It will focus on several of the areas in which there has been a significant adverse impact: (1) economic efficiency; (2) pricing; (3) service; and (4) safety. In addition, the question of federal preemption of intrastate transportation, and the experience of intrastate deregulation in the few states which have followed the federal lead will be briefly explored. The article will also examine the question of whether more deregulation is in the public interest, and if economic regulation is to be retained, what form it should take. It will conclude with an analysis of the public interest in transportation - the policy objectives essential to accomplish social and economic goals beyond allocative efficiency.
We will examine the empirical evidence surrounding deregulation of all the major domestic transport modes - airlines, railroads, and bus and trucking companies. While these industries have somewhat different economic characteristics, they are strikingly similar as well, and in many markets compete for the same traffic. They all involve the movement of something or other from here to there. Moreover, their experience is particularly interesting in that airlines, railroads, and bus companies have undergone far more comprehensive deregulation at both the interstate and (by virtue of federal preemption) intrastate levels than have motor carriers. Hence, they provide something of a barometer as to what the publican expect from additional motor carrier deregulation.
Today, transportation is among the nation's most important industries. In 1987, the total cost of moving the nation's goods and people totaled $792 billion, or 17.6% of the gross national product. Hence, the role government plays has profound economic and social consequences. Federal deregulation has had nearly a decade to prove its superiority to the system it replaced. The time has come to evaluate the empirical evidence and determine whether to follow the lead of the federal government toward comprehensive deregulation, or to chart a more prudent course.
Number of Pages in PDF File: 70
Keywords: Transportation, Economic Regulation, Deregulation, Economic Efficiency, Perfect Competition, Pricing, Service, Safety, Industry Concentration, Federal Preemption, Intrastate Deregulation, Interstate Transportation, Public Policy, Banktuptcies, Oligopolies, Monopoly, Monopsony, Cross SubsidizationAccepted Paper Series
Date posted: March 25, 2013
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