Make Transportation Fair Again
This article is from a cover package of essays entitled Ten New Ideas for the Democratic Party to Help the Working Class, and Itself. Find the full series here.
Donald Trump has vowed to pursue sweeping deregulation of the economy in his second term. He has also called for elimination of at least one federal agency—the Department of Education—and set Elon Musk and Vivek Ramaswamy to work deconstructing the remaining administrative state.
So it might seem like an epic case of not reading the room to now propose that Democrats advocate for a new regulatory agency with broad powers over the single most critical sector of economy. Yet I am going to do just that, while hastening to point out to skeptical Republicans that if they get behind this proposal they will not only be more likely to achieve many of their stated goals, such as revitalizing heartland America and loosening ties to China, they will also be undoing the work of key Democrats of the last generation, from Ted Kennedy to Ralph Nader and Jimmy Carter.
Starting in the late 1970s, Democrats enacted, with Republican support, a radical new policy idea. The press mostly treated it as a banal, technical matter. But over time this quiet policy shift would profoundly tilt the balance of political economic power in the United States and wind up hurting tens of millions of people in both blue states and red states.
The radical idea was to get the government out of the business of regulating prices and terms of service in transportation markets. In all of American history, nothing like this had ever been tried before. In colonial times, Americans applied English laws dating back to the Middle Ages that prevented the owners of ferries, toll roads, and stagecoaches from charging some customers higher fares than others for the same trip. Later, American governments, at first at the state and local levels and later federally, banned this kind of discrimination whenever a new form of transportation came along, from canals, railroads, and steamships to trucks and airlines.
By the late 19th and early 20th centuries, as more and more commerce flowed by rail across state lines and came under the control of giant corporations, even the most conservative advocates of laissez-faire came to understand that Washington had to join in setting market rules for this increasingly dominant mode of transportation. The free enterprise system—let alone democracy—would not work if the winners and losers in American life were determined not by who came to market with the best products but by who got the best deal from the self-dealing financiers who controlled the railroads.
At the same time, even the plutocratic owners of giant rail systems came to advocate for federal regulation in this sector as a way of avoiding the ruinous price wars that frequently broke out among them. Railroads often charged predatory prices where they enjoyed a local monopoly. But where more than one railroad competed, they often had to set rates below cost in order to defray their high fixed expenses, leading to massive bankruptcies. In the 1870s, railroads accounting for nearly a third of domestic mileage failed or fell into court-ordered receivership.
Thus, in 1887, Congress created one of the federal government’s first regulatory agencies, the Interstate Commerce Commission. By the early 20th century, the ICC was effectively setting the industrial policy of the United States by ensuring that the prices railroads charged were publicly posted and nondiscriminatory. Under ICC price regulation, all rail shippers, regardless of their market power or geographic location, paid roughly the same price per ton and per mile for transporting the same kinds of goods for the same distance. Similarly, railroads had to charge passengers the same price per mile regardless of whether their trip was long or short, or between major cities or remote destinations. The ICC set rates at a level that allowed railroads to maintain their infrastructure and earn a fair return on their capital. But the carriers had to use some of the profits they earned on highly profitable mainlines to cross-subsidize service on less profitable or money-losing routes or lines of business. Finally, railroads could not abandon routes or cancel service without ICC permission.
In 1916, Congress extended these same principles, known as “common carriage” law, to maritime transportation. The Shipping Act created a new agency, the U.S. Shipping Board, and charged it with ensuring that all ocean carriers publicly posted their prices and offered all “similarly situated” shippers roughly equal terms of service. In 1935, Congress extended the same regulatory model to interstate trucks and buses by giving the ICC jurisdiction over these modes. Then it followed up three years later by applying the same models to airlines, putting the newly created Civil Aeronautics Board in charge of enforcement.
Under this regulatory regime, the United States developed into an industrial powerhouse, with a transportation system that, while far from perfect, was unrivaled in its efficiency, equity, and levels of innovation. Prairie farmers gained access to global markets, and both small and large manufacturers in heartland cities like Buffalo, St. Louis, and St. Paul could compete on an even playing field. Operating under the same market rules, air transport expanded rapidly after World War II, becoming safer and cheaper to the point that by the mid-1970s, two-thirds of all Americans over 18 had traveled by plane, and jet travel to tourist destinations in Florida, the Caribbean, and Europe was becoming routine.
Yet beginning in the Carter administration, key Democrats decided to remove these crucial, regulatory ingredients from America’s trademark formula for broad-based, capitalist prosperity. In 1978, at the urging of Ted Kennedy and the consumer activist Ralph Nader, Jimmy Carter signed legislation that permitted airlines to engage in systematic price discrimination and to abandon or roll back service that did not offer high volumes of profitable traffic. Two years later, Carter did the same for railroads and trucking firms, again at the urging of leading Democrats. Then in 1984, President Ronald Reagan followed through by signing legislation that ended price regulation and reduced common carriage requirements in ocean shipping.
At the time, policy makers hoped that this wave of deregulation would foster more market competition and cheaper prices. And it did, at least partially and at first. After deregulation, many small new airlines popped up offering bargain fares, for example. But as unmanaged competition drove down fares below cost, most of these new carriers soon failed or wound up merging into bigger, monopolistic systems. Service to midsize cities in what became known as “flyover” America either disappeared or became much more expensive, fueling regional inequality by helping to concentrate economic growth in a handful of elite coastal cities. Meanwhile, flying became a miserable experience, marked by ever-shrinking seats, baggage fees, delays, and restrictions, as airlines merged into a handful of giant systems with overlapping ownership that sought to maximize profits by cutting costs and engaging in more refined methods of personalized pricing.
The deregulation of railroads also seemed to work at first. But in combination with lax antitrust enforcement, it led to financiers and private equity firms exacting monopoly rents from captive rail shippers, thus making heavy manufacturing in the United States increasingly expensive and logistically difficult. The railroads’ abandonment of all but the most profitable routes and lines of business has also disrupted supply chains, causing shortages and inflation. Meanwhile, it has led to unregulated, energy-inefficient, pollution-spewing trucks hauling a rapidly growing share of the nation’s freight while also causing surging numbers of highway deaths and harm to roads and bridges.
If Republicans are serious about reindustrializing America and overcoming our economic and military vulnerability to China, then they need to join Democrats in building a new agency to manage and coordinate competition across the transportation sector.
Finally, the deregulation of ocean shipping has also proved to be a failure. In the absence of price regulation, ruinous price wars broke out among domestic carriers, causing many to go broke and contributing eventually to the near-total collapse of the nation’s merchant marine fleet. Deregulation has led to an ocean shipping system dominated by a handful of foreign-owned cartels that have a stranglehold not only over American commercial life but over its military sea lift capacity as well.
There were, to be sure, faults with the Interstate Commerce Commission and the other agencies that were once involved in regulating transportation markets. But these faults provided arguments for reform, not for abolishment, and now we are paying the price. If Republicans are serious about reindustrializing America and overcoming our economic and military vulnerability to China, then they need to join Democrats in building a new agency to manage and coordinate competition across the transportation sector. And if Democrats also want to lower carbon emissions, reduce highway deaths, and fight the “greedflation” caused by unregulated transportation monopolies, they need to embrace the same program to make 21st-century America truly great.
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