Regulation Retread

The Reagan administration throws trucking deregulation into reverse.


The Reagan administration, which had promised to get regulation off the backs of American industry, is apparently moving in exactly the opposite direction in some areas. While it may have frozen the promulgation of some new regulations and may be restricting the activities of the Environmental Protection Agency, it actually is repudiating the few successes to date of the deregulation movement. No doubt reducing the burden on industry of EPA, OSHA, and the Consumer Product Safety Commission is desirable, but the administration is turning right around and reregulating industries in which there has been significant progress toward eliminating regulation.

Starting in the mid-1970s under President Ford and subsequently under President Carter, the government moved toward reducing and eliminating regulation in certain areas where it was clearest that the marketplace can protect consumers' interests better than the cold hand of government can. The most successful initiative has been airline deregulation, which will eliminate all government economic controls by 1985. Significant deregulation has also occurred in other sectors, such as motor carriers, railroads, and telecommunications.

DEREGULATION For example, the Motor Carrier Act of 1980 substantially relaxed controls on trucking. For 45 years the Interstate Commerce Commission (ICC) had, among other things, had a say-so over what kind of freight each trucker could haul, where he could haul it, and how much he could charge for the service. The most significant provision of the 1980 act gives truckers freedom in these areas. No longer does an applicant have to show that any requested new authority for where and what to haul is consistent with "the public convenience and necessity." Instead, the burden of proof is shifted to the protestor to show that the requested authority is inconsistent with the public convenience and necessity. Under the new law, only those motor carriers that already have authority to offer the proposed service can file protests; and if their revenues would be cut into by the new competition, this is not to be construed to be in itself inconsistent with the public convenience and necessity, as it had been under previous ICC regulation.

The act also requires the ICC to revise its procedures so as to reduce restrictions on carriers' operating authority—restrictions that had previously, for example, forced truckers in many instances to return home with an empty truck rather than picking up a return haul, kept them from serving intermediate points located along their authorized routes, confined them to narrow territories, and limited the specific products to be carried. In addition, truckers can raise or lower their rates by 10 percent without seeking ICC approval.

The Staggers Rail Act of 1980 also accords considerable new pricing freedom to our hard-pressed railroads, another industry regulated by the ICC. Under the new law, ICC jurisdiction over rates is limited to those rates where railroads exercise "market dominance." This frees nearly two-thirds of railroad rates from maximum-rate regulation. Railroads have also been given more freedom to reduce rates.

The Federal Communications Commission (FCC), meanwhile, has proposed changes that could significantly increase competition in broadcasting and telecommunications. New carriers have been authorized to compete with the Bell system's long-distance service. Competition in the sale of telephone equipment has also been fostered. New competition with broadcasters has been permitted.

Those who study regulation have long recognized that agencies tend to protect the interests of the industries they regulate. Studies by experts from the whole spectrum of political persuasion, from the Nader left to the American Conservative Union right, have confirmed that the classical regulatory agencies that exercise economic controls over industries reduce competition at the expense of the public.

It wasn't meant to be that way, but here's how it happens: typically, industry-oriented individuals, because they have knowledge in the area, are appointed to commissions, often from industry itself or from Capitol Hill. Once in office, these regulators perceive their duty as protecting the financial health of the companies they regulate. Indeed, the legislation setting up these agencies mentions such financial health as one of the goals of regulation. The easiest way to accomplish this is to reduce competition, thereby increasing rates and creating monopolies.

Airline deregulation best illustrates the effects of regulation and the advantage of a free market. Since deregulation and after adjusting for a huge increase in fuel prices, fares have fallen. Moreover, the frequency of service to virtually all sizes of cities has expanded; at the same time, many existing smaller carriers have managed to increase their profits, and many others have sprung up to meet needs in markets too small for the major airlines.

In the short period since trucking was partially deregulated, rates have decreased, especially for truck-load shipments. Service to small communities has improved, and complaints from shippers have declined. Improved service and lower rates by for-hire carriers have led to a decline in private carriage (hauling by the truck fleets owned by such firms as Sears, Roebuck and Montgomery Ward).

FCC deregulation, for its part, has led to a virtual explosion of new equipment—for example, new phones with a variety of special features, answering machines, and automated dialing systems. In addition, several companies are challenging Bell with lower long-distance rates. Proposed changes in channel spacing and in strength of signal could bring a large expansion in the number of radio and TV stations. Cable-TV is growing rapidly, providing for the home video screen additional coverage of everything from news, sports, and children's programs to religion and pornography.

ROLLING BACKWARD Now, however, comes the Reagan administration. Surprisingly, it may be in the process of reversing this trend through the appointment of industry-oriented individuals who so far seem bent on turning back the clock. The progress that had been made in deregulation is directly attributable to the appointments by Ford and by Carter of people who came from outside the regulated industries. In the main, these individuals were from academe; many were economists.

Alfred Kahn, an economist, with the help of Elizabeth Bailey, an economist, led the Civil Aeronautics Board in a major effort to deregulate the airlines. Congress enacted legislation only after observing that CAB-instituted reforms were leading to lower fares and better service.

Darius Gaskins, an economist, with the aid of Marcus Alexis, an economist, and Thomas Trantum, a Wall Street securities specialist, reduced entry restrictions in trucking and freed rail rates for a number of commodities. This in turn led Congress to consider legislation. The Motor Carrier Act, which reduced barriers to entry significantly, resulted from the pressure of the Interstate Commerce Commission, which threatened to completely deregulate the industry if Congress failed to act.

The new Republican administration, on the other hand, has appointed to head the ICC Reese Taylor, Jr., a lawyer from Nevada who formerly chaired the Nevada Public Utilities Commission. Prior to his appointment, Reese Taylor had represented the Arizona Motor Tariff Bureau; he recently argued against permitting unregulated entry into the taxi industry in Nevada. According to the New York Times, Mr. Taylor was first suggested for the position by Edward Wheeler, the lawyer for the Teamsters' Union, which has bitterly opposed deregulation. Before his death in May, Frank Fitzsimmons, president of the Teamsters, is reported to have given President Reagan a letter naming Taylor as his choice. Nothing in Mr. Taylor's record indicates that he knows or understands the issues involved in deregulation. In fact, he fits the mold of earlier appointees who supported industry regulation.

What is particularly distressing about this appointment is that Reagan's own ICC Transition Team emphasized the importance of selecting a chairman who was clearly identified with deregulation, so as to underline the administration's commitment to the free market. The Transition Team's emphasis on continued deregulation was echoed both by Reagan's Task Force on Regulatory Reform, chaired by Murray Weidenbaum, now chairman of Reagan's Council of Economic Advisers, and by the Transportation Policy Task Force, whose membership included Drew Lewis, currently Secretary of Transportation.

The administration has made its policy quite clear on the regulation of surface freight transportation. Immediately upon taking office it asked Darius Gaskins, the deregulation-minded chairman, to resign. Once Taylor was appointed, deregulators Alexis and Trantum also resigned, without a peep of protest from the administration. That leaves no one on the commission in favor of continuing to roll back regulation.

Already, the commission is attempting to construe the deregulating Motor Carrier Act of 1980 in the most restrictive way. Applicants for general-commodity certificates are being denied because they cannot show that they have shippers who want to use their services for all possible commodities. Requests for authority to serve wide territories have been restricted to particular cities. Applicants for increased service are once again being required to make their case in oral hearings before an administrative law judge. While Taylor has responded to critics with the contention that he is simply upholding the 1980 law, the ICC's new rulings appear to be inconsistent with the spirit of the Motor Carrier Act of 1980.

Apparently reregulation is beginning in communications, also. Charles Ferris, whom Carter appointed chairman of the FCC and who guided the commission in reducing economic regulation, has been replaced by Mark Fowler. Mr. Fowler was a broadcast lobbyist who represented the Virginia Association of Broadcasters. His firm's clients include many broadcast and private radio licensees. Broadcasting Magazine, which represents the industry, welcomed his selection.

Eighteen months ago the commission unanimously endorsed the concept of shrinking channel spacing in order to permit more stations. The National Association of Broadcasters, the industry's lobbying organization, bitterly opposed this plan. Since the FCC approved the plan, which would have made the western hemisphere consistent with channel spacing in the rest of the world, three commissioners who strongly supported the plan have left the FCC. With these commissioners gone, Fowler has led the FCC to a four-to-two vote to reverse the decision.

The broadcast industry is quite happy with this change, but, in the absence of more competition, the public will be the loser. Some have estimated that, had deregulation continued, as many as 1,400 new stations providing more variety to the listening public would have been possible.

On the other hand, Mr. Fowler has advocated the elimination of the Fairness Doctrine and equal-time rules regarding political candidates' access to the airwaves. He states that he is in favor of competition and has no intention of protecting existing broadcasters. Nevertheless, he has expressed some reservations about a proposal to permit more VHF television stations. And the Wall Street Journal (June 9, 1981) quotes the new chairman as stating, shortly before he took office, "If introducing 30 more radio stations into a particular market erodes the broadcasters' economic base so they can't afford to produce news and public affairs shows anymore, is that in the public interest? In some places, it's hard for broadcasters to do well. It's been very tough to survive, you know, because there are already too many of them." These statements indicate a total absence of understanding of the competitive process and the benefits of competition.

To Republicans, deregulation means reducing the cost of regulation to industry. While this is no doubt a worthy goal, so is the goal of reducing the cost of regulation to consumers. But when the regulation in question is regulation that aids industry by reducing competition and thereby increasing prices, it seems to be welcomed with open arms. Increasing the profits of the trucking industry by restricting competition is not the same thing as promoting free enterprise; it is promoting the interests of the industry. It is bad enough that opponents of economic freedom confuse the two; when those who profess an appreciation of the free market do the same, it is a sad day indeed for the millions of people who, know it or not, stand to gain from the unregulated workings of a free marketplace: consumers.

Thomas Gale Moore, director of the Domestic Studies Program at the Hoover Institution, is the author of numerous studies on transportation regulation.