ACI sides with railroads against reregulation: Report

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Written by: William C. Vantuono, Editor-in-Chief
The American Consumer Institute (ACI), a 501c(3) non-profit educational organization with no direct ties to the U.S. freight railroad industry, is speaking out against what it calls “continued attempts to overregulate the freight rail sector.”

ACI has released “Reregulating Railroads Is the Wrong Track for Consumers,” a ConsumerGram Report (downloadable at the link below) “that provides in depth-analysis regarding the impact new regulations would have on consumers and the industry,” according to author Steve Pociask, President of ACI.

Pociask, an accomplished economist, “provides a comprehensive overview of the freight railroad regulatory framework and detrimental impact new regulations would create,” ACI says.

Citing historical information well-known to the industry and organizations like the Association of American Railroads but perhaps little-known to the public as well as many current legislators, Pociask recalls that in the 1970s, “the accumulated effects of unnecessary regulations nearly brought the rail industry to its knees as trains were forced to [operate on] out-of-date, inefficient rail networks, and collective ratemaking led to an average 2.42% rate-of-return on investment. Deregulation laws passed in 1976 and 1980 (Staggers Rail Act) led to unparalleled improvements, decreasing rail costs by half and tripling productivity. Transportation prices fell by 4% in the first two years, 20% in the first 5 years, and 44% in the first 10 years following legislation, leading to $10 billion in annual economic benefits for consumers.”

“Regulations currently on the table due to efforts by the U.S. Surface Transportation Board and Federal Railroad Administration, have the capacity to reverse recent gains for the industry through decreasing rail’s ability to reinvest and continue to improve, ultimately harming transportation infrastructure and consumers,” Pociask says in the report.

Commenting on reciprocal switching, Pociask, a member of the Federal Communications Commission Consumer Advocacy Committee, compares it to a similar effort to regulate the telecommunications industry. “Nearly 20 years ago, a similar regulation of sharing was attempted, where incumbent broadband services facilities (referred to as unbundled network elements) would be provided to their competitors at below-market prices,” he says. “However, prominent economic studies concluded that artificially low wholesale prices would produce devastating consequences for industry investment and consumers. Specifically, one study found that unbundled network element prices gave incumbent telecommunications operators only 42% of their normal retail revenues. And as other economists noted, it would take 20 years of productivity-based price reductions to match the one-time shift to lower wholesale prices. Because of the onerous cost of regulations, massive losses of earnings and the risk associated with renting facilities to competitors at bargain prices, incumbent operators were discouraged from investing in broadband services. In response, the regulations were revamped, and broadband investment almost immediately increased.

“Like economies of scale in broadband networks, railroads have high fixed costs and must invest heavily in their infrastructure to safely and efficiently move products, some of which are hazardous and therefore require extreme care. Achieving and maintaining a superior condition of rail infrastructure requires diligent investment and attention to safety. Incentives to reduce investments would only hinder shippers’ ability to move these goods. In fact, new analysis commissioned by proponents of 9reciprocal switching] shows local switching can result in significant delays and that the problem is likely to worsen. Recent, scholarly commentary argued that the proposed regulation was a subtle scheme to reduce rates for select railroad shippers at the expense of others. As the Phoenix Center’s George S. Ford concluded, ‘Reciprocal switching is regulatory activism, not competition policy.’”

“Government regulators have a tendency to ‘regulate first, fix problems later,’” Pociask tells Railway Age. He agrees that this approach is similar in intent to the old saw used to describe renegade law enforcement officers: “Shoot first, ask questions later.”

Pociask has been involved in consumer public policy research for more than 35 years. He has published numerous economic studies, including three books for the Economic Policy Institute, and policy studies for several independent nonprofit organizations. According to his bio on the ACI website, “Many of his research studies have focused on the consequences of public policies on consumer welfare.” Pociask has extensive experience in policy issues, including energy, insurance, consumer products, information technology and healthcare. He has conducted surveys of consumer opinion covering a wide variety of public policy issues, and has participated as a consumer advocacy representative for policymaker organizations. Pociask is a member of the FCC Consumer Advocacy Committee, including the Broadband, Privacy and Technology Transition Working Groups, the latter of which he chairs. He has also written reports for the Small Business Administration’s Office of Advocacy, including one on small businesses’ telecommunications expenditures and use, and one on broadband use in rural America. From 1998 to 2000, Pociask served as Chief Economist and Executive Vice President for Joel Popkin and Co., an economic consulting firm in Washington, DC. Prior to that, he was Chief Economist for the Bell Atlantic Corp.

Download attachments: ACI ConsumerGram on Railroad Reregulation

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