[Congressional Record Volume 144, Number 143 (Sunday, October 11, 1998)]
[Extensions of Remarks]
[Pages E2049-E2050]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                      RAILROAD ECONOMIC REGULATION

                                 ______
                                 

                          HON. SPENCER BACHUS

                               of alabama

                    in the house of representatives

                        Friday, October 9, 1998

  Mr. BACHUS. Mr. Speaker, Dr. Alfred E. Kahn, the noted economist and 
``father of deregulation,'' has rightly earned our gratitude for his 
work over the years. With all due respect, however, Dr. Kahn is doing 
himself and his many admirers a disservice in his continued calls for 
increased economic regulation of the freight railroad industry in this 
country.
  Dr. Kahn testified on April 22, 1998, before the Subcommittee on 
Railroads of the Committee on Transportation and Infrastructure. At 
that hearing, he testified at length on his perception of anti-
competitive conduct by the rail industry and his suggestions on steps 
that should be taken to alleviate such conduct. Dr. Kahn has repeated 
his viewpoints at other times and in other venues in recent months, 
including testimony to the Surface Transportation Board. Most recently, 
an interview with Dr. Kahn was the basis for an article in the October 
5, 1998 issue of Traffic World. In that interview, Dr. Kahn continues 
to advocate misguided railroad reregulation.
  At the April 22, 1998 hearing at which I was present and engaged in 
considerable discourse with proponents of reregulation, Dr. Kahn was 
challenged by a number of experts in railroad economics and finance. In 
my opinion, his pronouncements were inconsistent with operating and 
marketplace realities. I respectfully submit he likewise errs on a 
number of points in the recent Traffic World article, including the 
following:
  Dr. Kahn's basic premise is that service by a single railroad is 
equivalent to monopolization and that competition does not now exist 
for shippers. To the contrary, railroads face intense competition from 
other railroads, from other modes such as trucks and barges, and from 
other sources for the vast majority of their traffic. Shippers of all 
types, including those which are served by only one railroad,

[[Page E2050]]

almost always have ways to obtain competitive transportation. And 
because of this competition, rail customers exert meaningful power in 
negotiating railroad rates and services.
  In those relatively few cases wherein shippers do not have effective 
transportation options, existing maximum rate regulation protects 
shippers form egregious railroad rates. In two recent cases, for 
example, two utilities were awarded millions of dollars in reparations 
by the STB because they were deemed to have been charged unreasonably 
high rates by the railroads that served them. In response to criticisms 
by Dr. Kahn and others that rate reasonableness case procedures were 
cumbersome, lengthy and expensive, expedited procedures for small 
shipper cases were recently implemented by the STB, though shippers 
have not taken advantage of them to date.
  Dr. Kahn is wrong in dismissing the likelihood of reduced investment 
in rail infrastructure if mandated access forces rates too low. Under 
forced access, railroads would be unable to recoup the full costs of 
their investment in their infrastructure.
  Without the ability to cover total costs, railroads would be unable 
to maintain or increase their investment commitment. This would lead to 
deterioration and/or shrinkage of the national rail system and reduced 
service levels. Given the vital importance of transportation to the 
national and global economies, this is the last thing the national 
transportation system needs.
  Dr. Kahn is wrong in claiming that ``structural remedies'' such as 
mandated competitive access would assure rail-to-rail competition and 
permit market forces to determine rate and service levels. In fact, 
under a system of forced access, government bureaucrats would have to 
regulate anew an incredible variety of price and operational decisions, 
creating a system of economic regulation that would be far more costly 
and pervasive--and far less effective--than the current system.
  Proponents of mandated access, like Dr. Kahn, essentially advocate 
that freight railroads should be regulated on the basis of how many 
railroads serve an individual shipper, rather than on the presence or 
absence of competition. They propose that access to a railroad's 
privately owned and maintained infrastructure by its competitors should 
be mandated, and that the fees for access should be set by regulation, 
not by competitive market forces. This uneconomical reregulation of 
freight railroads is an attempt to gain short-term rate reductions for 
some shippers, at the expense of other rail customers, railroad 
investors and society in general.
  Deregulation of the U.S. railroad industry has led to tens of 
billions of dollars in savings since 1980 to shippers and, ultimately, 
to all of us. It would be a tragedy of enormous proportions to jettison 
these gains in favor of cleverly disguised regulation that has failed 
in the past and would fail again.

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