September 29, 2011
thought leaders | The DC Velocity Q & A

Freedom to move: interview with Marc Scribner

To Marc Scribner of the Competitive Enterprise Institute, the only good economic regulation is no economic regulation. On the transport battlefield, he has much work to do to keep government out of the equation.

By Mark B. Solomon

There's an old maxim that "oil and water don't mix." In Washington, D.C., a living, breathing example of that would be the Obama administration and the libertarian think tank known as the Competitive Enterprise Institute (CEI).

The administration believes increased regulation is often needed to restore fairness and balance to the nation's economic system. The CEI, by contrast, espouses "free market" economic principles and strenuously opposes government involvement in business affairs.

Marc Scribner, who coordinates CEI's freight transportation activities as its land-use and transportation policy analyst, is a true believer in the free market. His sights are firmly set on any effort to either increase existing regulations or turn back the deregulatory clock. Two of his current targets are proposals to change the rule governing a truck driver's operating schedule, known as "Hours of Service" (HOS), and moves by Democrats in Congress, supported by certain shippers, to reintroduce some level of regulation into the railroad industry more than 30 years after it was deregulated.

Scribner spoke recently with DC Velocity Senior Editor Mark Solomon to give his take on the two proposals, what's behind them, and the potential consequences for industry.

Marc Scribner Q: A CEO of a major truckload carrier recently told us the proposed HOS rule would force his company to add four or five more trucks to handle the same volume of freight it transports today. Do you think that's an exaggeration?

A: This is certainly possible depending on the nature of the freight being moved, the makeup of his work force, and the geographic distribution of his client base. For most carriers, I suspect the proposed rule would have a somewhat smaller impact, but the impact is certainly negative.

Q: Another trucking executive has said the revisions are a bone thrown by the Obama administration to the Teamsters union to essentially pad driver rolls. Do you believe the proposed changes are politically motivated, or are there legitimate safety concerns that would justify a rewrite of the HOS rule?

A: This proceeding is entirely of political origin. At the behest of the Teamsters and far-left, anti-business [consumer advocacy organization] Public Citizen, and prior court decisions involving those two parties, the [Federal Motor Carrier Safety Administration] has been bending over backward to accommodate ridiculous and inefficient rules on drivers' hours of service. This has nothing to do with streamlining the regulatory apparatus to foster socially beneficial outcomes or to improve highway safety. It has everything to do with appeasing left-wing ideologues and an increasingly irrelevant union faced with declining membership and a dangerously underfunded pension fund.

Q: There has been talk that any meaningful change in the current HOS rule will be litigated almost immediately, effectively tying up the process for years. Should carriers and shippers feel secure that nothing will change any time soon, or should they be preparing now to make changes in their supply chains just in case?

A: This is always the trouble with shifting regulation: uncertainty. I will not try to make broad recommendations for an entire industry with a diverse composition of firms, but I would imagine that more risk-averse firms that currently find themselves on shakier financial footing should take very seriously the impact this rule will cause if it is promulgated and perhaps immediately begin investigating what adjustments to their supply chains will be needed.

Q: Have you or anyone at CEI come up with numbers to quantify the cost to the industry of the proposed changes?

A: We have not conducted an independent econometric analysis. However, using the FMCSA's own cost-benefit estimates, minus the extremely dubious "health benefits" contained in the proposed rule's regulatory impact analysis, the economic cost ranges from $30 million to $640 million annually, depending on the percentage of crashes that one assumes to be fatigue-caused. Of course, the burden would be disproportionately borne by small firms and owner-operators, and some have claimed the agency has grossly underestimated the costs. The discredited methodology of calculating supposed health benefits was used by the agency's analysts primarily for the purpose of forcing a non-negative net benefits finding. They did not want to admit that this would be a costly rule for the industry.

Q: Is there a middle ground that would satisfy the industry and the regulators?

A: I would prefer a rule that was far less stringent than the current one and am quite skeptical of the FMCSA's stated core mission in the first place. The current rule, I believe, was forged on middle ground that should more than satisfy regulators, unions, and Naderites.

Q: Turning to the railroads, it appears that any rail reform to satisfy the concerns of captive shippers will come from the Surface Transportation Board, not Congress. What are the chances the STB will act, what's the likely time frame, and what form will "reform" take?

A: Any "reform" from the STB will not be of a deregulatory nature, but I am confident that the board will again resist the attempts of a minority of shippers to drive the railroad industry back into its pre-Staggers [Act] Dark Ages. In late 2011, we should have some idea as to the odds of action with respect to the reciprocal switching issue. Retiring Sen. [Herbert] Kohl's absurd legislation [S. 49] that would remove the railroad industry's limited antitrust exemptions has little chance of going anywhere, and many in the Obama administration are quietly opposed to any moves in that direction.

Q: What, in CEI's view, would pass for "sensible" or "balanced" rail reform?

A: While I generally believe the shippers I just mentioned are completely in the wrong on rail regulation, they are correct in noting that railroads suffer from seriously outdated workplace practices due in large part to the various unions representing different classes of railroad workers. Among other things, we support inserting a straightforward decertification provision into the RLA [Railway Labor Act], similar to the one contained in the National Labor Relations Act, which would allow rail employees to hold an election to decertify their bargaining unit if 30 percent of workers show interest.

Q: The National Industrial Transportation League has requested changes in existing reciprocal switching agreements. Do you see some change in those rules as a likely outcome at the STB, and would the railroads be prepared to accept those as the least onerous type of reform?

A: I would hope not. The STB and the ICC before it have been quite clear on the reciprocal switching issue. Given present conditions in the industry and the lack of any evidence of anticompetitive acts, I do not see how forcing reciprocal switching agreements on the railroads could be justified on economic or legal grounds. The railroads should absolutely reject any attempts to reregulate their business operations.

Q: The railroads argue that virtually all of their traffic is subject to competition, either from other rails or other modes. Captive shippers argue otherwise. Do shippers have a case?

A: The shippers ignore the economics of network industries and why traditional models of industrial organization and competition policy are inappropriate with respect to railroads. Most are unfamiliar with the special risks posed to sunk-investment-heavy industries such as railroads. It is very difficult to reason with people who have no intention of actually understanding the underlying issues of this dispute. I have half-jokingly called on these shippers to form a consortium in order to purchase and operate their own Class I railroad, like Grupo Mexico and Ferromex, rather than wasting everyone's time and money with silly political stunts before the STB.

More articles by Mark B. Solomon

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