Impacts on Agriculture of Deregulating the Transportation System: Discussion

I concur with the general conclusions of Johnson's paper. Transportation deregulation was long overdue. Regulation was ineffective and, in some instances, counterproductive to agriculture, rural communities, and the regulated carrier. There will be individual losers as adjustments are made to less regulation, but the total result for agriculture will be positive. However, I have several reservations about the overall thrust of rail deregulation. Johnson states two justifications for regulation of the transport industry. One is the need for the cross-subsidization of services that the transport firm could not or would not otherwise supply. The other is the argument that the state must protect the public from the market power of the industry. Two examples that the opponents of deregulation use to show that agriculture and rural communities require transportation regulation are then discussed. These are (a) that market barriers to entry will leave rural communities without adequate truck service, and (b) that insufficient competition exists to protect agriculture from railroad monopoly behavior. With regard to truck service to small communities, he concludes, and I fully concur, that "free entry and the removal of specific authority restrictions on commodities, routes, and service points will tend to lower rates, improve service, and enhance capacity utilization." The barriers to entry for trucking came more from the regulatory requirements than from market barriers. The Motor Carrier Act of 1980 removed many of these restrictions. The act will have little impact on agriculture and rural communities, and the impact that it does have will be positive. That is also true for airline and intercity bus deregulation. The airways and highways are publicly owned, and freedom to enter a market can provide competition. Rail is different. The roadbed is privately owned. That provides monopoly power. Will sufficient competition exist to protect agriculture from railroad monopoly behavior? Johnson concludes that although there may be some harm, there is no strong evidence to maintain transportation regulation for agriculture. He cites a number of studies to back his conclusions, but each addresses specific issues and not the total deregulation package. That package went much further than thought possible two years ago. Consequently, rail deregulation may have gone too far. I agree with the rail abandonment studies that conclude that the maximum abandonment case is most efficient considering the economic variables studied. However, I am not convinced that the distribution of the economic returns will be equitable. How much of the savings will stay in the rural areas? What will happen to land values 40 miles or more from a subterminal? Will subterminal ownership become controlled by the limited number of regional or national firms that have the access to the capital required to build trainloading facilities and the market power to negotiate favorable contract rates? Do these studies adequately account for the cost of maintaining our road network as grain is moved longer distances to subterminals and the vehicle mix and routes traveled change? The Staggers Act did not leave the ICC and the states enough discretion on abandonments. There still is no master plan with hard decisions on abandonment versus the rehabilitation of marginal lines. The last branchline in an area frequently will have operating profits after competing branches are abandoned if it is rehabilitated at railroad or public expense, but the ICC cannot force a sensible rationalization of the rail system. Some of the studies center on interrailroad competition holding down rates. But, will we really have effective interrailroad competition in 1990 with only six or eight major rail systems? Mergers as a method of rationalization are encouraged by the Staggers Act, but we Jerry E. Fruin is an assistant professor, Department of Agricultural and Applied Economics, University of Minnesota.