Economist Clifford Winston has a message for the president of the United States: resist the urge to introduce new regulations to the freight rail industry and let market forces continue to compel the railroads to operate efficiently.
Winston, an applied microeconomist and the Searle Freedom Trust Senior Fellow in the economic studies program at The Brookings Institution, says that after nearly a century of counterproductive regulations, freight rail now plays a vital role in the American economy as it moves beyond a legacy of inefficient federal oversight.
Lawmakers must take a “long-run view” of the industry and avoid imposing unnecessary new rules. By looking to the future, he says, legislators can preserve a competitive environment that has encouraged and allowed railroads to operate more efficiently, dramatically improve their financial performance during the past 30-plus years and significantly benefit shippers.
“Freight railroads are an integral part of the U.S. economy. Their extensive and improved network enables connectivity between buyers and sellers and facilitates trade within the United States and between the United States and other countries,” says Winston. “Without an efficient rail network, U.S. industries would incur higher costs, and those costs would raise the prices of a large share of consumer goods.”
A report from Towson University’s Regional Economic Studies Institute echoes Winston’s view. The report’s authors find that in 2014, freight railroads:
- Created almost $274 billion in economic activity
- Generated nearly $33 billion in tax revenues
- Supported approximately 1.5 million jobs and $88 billion in wages across the country
Winston stresses that the true measure of rail’s impact becomes apparent when one considers how the U.S. economy would perform if the country did not have a rail network. Indeed, unfortunate service disruptions that have occurred a few times during the deregulated era suggest that economic activity would be significantly curtailed. Fortunately, the nation has a reliable rail network that continues to improve because carriers are still shedding the inefficiencies that became ingrained in their business model under regulation — a model that should be avoided.
“The way railroads thought about their operations before regulatory reform was not ‘How can I be more efficient and innovative and be more effective than my competitors?'” – Cliffrod Winston
“It was ‘How do I satisfy the regulators?’ And that is a very different mindset,” Winston says.
“A regulatory mindset was built up for decades and decades, That wouldn’t be so bad if the regulations were efficient. But we know, based on overwhelming scholarly evidence, that regulatory policy was very inefficient and had adverse effects on the industry, shippers and the overall economy. Shedding bequeathed inefficiencies is no easy task, and railroads deserve credit for reinstating their place in the U.S. economy’s logistics system following partial deregulation.”
Winston says this is especially important to recognize because of the challenges and pressures that lie ahead for railroads. Specifically, he points to globalization and the rapid development of new technologies in the transportation industry that would make new regulations on railroads all the more pointless and burdensome.
“With technological advances, such as automated vehicles, not only with railroads but also with trucks, now would be a terrible time to introduce new regulations that may affect competition in the industry,” he says. “I would urge any lawmaker considering additional regulations to take a long-term view. Realize that this industry is still evolving from an inefficient past, and while there may be some bumps along the way, overall, the path the industry is on today has been much better for railroads and American society compared with the industry’s evolution when it was stifled by excessive regulations before regulatory reform began in the 1970s.”
Winston is not alone in the conclusions that he has draws from his and others’ academic research. In fact, we spoke with experts from across the ideological spectrum, and the takeaway is clear: The freight rail industry spurs economic activity while supporting communities and jobs. To maintain this positive presence, a smart regulatory environment must persist.
What the Experts Are Saying
Eli Lehrer, president and co-founder, R Street Institute
“Everything from food to my kids’ toys will probably have been shipped by freight at some point. The efficiency of the U.S. freight rail industry and the historically high private investment in it is a major reason why we have the highest GDP per capita of any country.”
Philip Romero, professor of business, University of Oregon
“At least as far back as Adam Smith, economists recognized the power of trade: It allows consumers to source their purchases from the most efficient producers. Trade is only possible with an efficient transportation system. For the majority of the world’s population that does not live near a seacoast, this means rail. Being exposed to competition from distant competitors forces firms to ‘up their game’ even in isolated, landlocked rural areas. So even rural customers get greater choice and lower prices. And workers earn more, because competition forces them to be more productive.”
Marc Scribner, fellow, Competitive Enterprise Institute
“It is clear that additional regulations would not fix any problems that the market and intense competition are not already solving. The lives of all Americans would be radically different for the worse without a healthy freight rail network. Without freight railroads, we wouldn’t be able to move goods at the necessary volumes to remain a robust economy. These benefits would absolutely not persist if railroads operated in a stricter regulatory environment with less flexibility. Why ‘fix’ something that isn’t broken?”