Like the Green New Deal, former vice president Joe Biden’s climate change proposal garnered immense attention, particularly for its emphasis on the revitalization of America’s first transformative transportation mode: rail.
Biden and architects of the more-drastic GND are not wrong in acknowledging the many shortcomings of passenger and transit rail systems in the United States, such as Amtrak.
Yet these politicians, and, frankly, the U.S. electorate, should understand and appreciate not all U.S. rail systems are created equally. In fact, the United States has the best freight railroad system in the world. An October 2018 study found that Class I railroads supported more than 1.1 million jobs, $219.5 billion in output and $71.3 billion in wages. Unlike roads used by competing modes, this is wholly funded through private dollars — $28 billion per year from 2011 to 2017.
And, based on recent analysis from the Small Business & Entrepreneurship Council, that’s good news not just for the large businesses typically associated with freight rail shipments but also for American small businesses.
Looking ahead, entrepreneurs and their employees need a public policy environment that promotes freight rail investment and innovation, not a return to the past when intrusive, misguided regulation caused deterioration of the rail system.
During much of the 20th century, intrusive federal regulations had government setting prices and effectively controlling major decisions over railroad operations. In fact, the railroad industry only returned to health and profitability after Congress partly deregulated the economic dealings of railroads in terms of setting prices for services and setting rail rates, making decisions regarding what routes to use, and establishing shipper contracts, that is, allowing freight railroads to make decisions based on market conditions. The resulting turnaround was positive and dramatic for the railroad industry in terms of efficiency and productivity, capital investment, maintenance and safety, market share, profitability, and reduced costs and enhanced service for customers.
Unfortunately, lobbying pressure from certain special interests seeks to ramp up railroad regulation once again.
For example, labor unions have been pushing at the federal level and in the states for government to dictate train crew size. Such efforts ignore the dramatic safety improvements achieved in the industry, while also undermining the implementation of the most effective and efficient operational decisions, investments in technology and innovation, and the competitiveness of rail transportation.
Fortunately, the Federal Railroad Administration recently ruled that no evidence supported requiring two people in the cab of every locomotive for safety purposes. Federal and state lawmakers should take heed. Train crew sizes should be left to collective bargaining and managerial decisions within the context of technological and operational advancements, and competitive realities.
At the same time, a proposal from the Surface Transportation Board — responsible for regulating the economic dealings of railroads — is afoot to impose price controls on rail carriers. In essence, bureaucrats at the STB could decide when railroads have earned “adequate” money in a year, and from that period forward regulate private carriers as utilities subject to across-the-board price controls, regardless of market analysis.
History shows that the imposition of price controls always results in reduced investment. After all, why would investors put their financial capital to use in an industry where government can limit returns?
Freight shipments are expected to grow substantially in coming years. When considering these and other legislative and regulatory challenges, it must be kept in mind how broadly competitive the freight transportation marketplace is, encompassing trucks, rail, water and air, not to mention how drastically the sector will change in the future. Everyone would benefit from establishing a policy environment that fosters investment, efficiency, productivity and innovation.
Clearly, freight railroads, their customers, consumers in general, and the small-business community — including small businesses in the railroad sector, serving railroads, and as customers of freight rail — have benefited from moving away from intrusive, unwarranted and costly regulation. Today’s policy objectives should look forward, not backward.
*Raymond J. Keating is the chief economist for the Small Business & Entrepreneurship Council.