Regulation is much in the news these days. But even as we look towards the future, the 40th anniversary of the Staggers Rail Act of 1980 on October 14 gives us an opportunity to consider how light touch regulation can benefit industry, customers, and the economy as a whole. That law, enacted under President Jimmy Carter, took a heavily regulated freight rail industry and moved it into the modern era.
Prior to the passage of the Staggers Act, freight railroads were regulated by the Interstate Commerce Commission, which exercised strict authority over minimum and maximum rates, firm entry, and firm exit. Carriers were required to maintain networks, even if they were redundant or unprofitable. The lack of flexibility of the nearly-century old regime had left the industry in poor shape. Nine carriers were bankrupt, including Pennsylvania Railroad which had been in business since 1846. Return on investment had fallen from a 4.1 percent average in the 1940s to just 2 percent by the 1970s. Railroad market share had also declined by 33 percent from 1950 to 1980 as trucks and airlines became common shipping options. As a result, freight railroads were unable to raise capital to invest in their networks and compete.
By contrast, the Staggers Act:
This light touch regulation helped the freight railroad industry become far more financially healthy and competitive. Return on net investment has increased more than 170 percent since the 1980s. Freight carriers have invested more than $710 billion since Staggers on capital expenditures and maintenance including locomotives and tracks. Importantly, this capital investment was privately funded by the industry, unlike airports and highways which receive major financing from taxpayers. Due to capital investment and technological advancements, accident rates among major rail carriers plummeted 73 percent between 1981 and 2019, good news for workers. All the while, shipping rates have risen at roughly the rate of inflation since 1981.
Now, freight rail is not the same as tech or broadband, but there are important historical lessons to learn. In particular, finding the right balance with light touch regulation isn’t always the easiest thing, but it can generate new investment and growth and pay off big for the whole economy.
