PROTECTING SMALL BUSINESS, PROMOTING ENTREPRENEURSHIP

Freight Railroad Legislation: Based on Politics, Creates Problems, and Solves Nothing

By at 1 February, 2024, 11:24 am

by Raymond J. Keating –

Too often, elected officials respond to a terrible event or accident with proposed legislation that has little or nothing to do with what actually occurred. Such responses tend to be driven by the political impulse to “do something,” or even worse, to be viewed as opportunities to move another agenda, often long desired by various special interests. But since these elected officials and their appointees have limited knowledge of the industry or sector of the economy being targeted, their actions tend to be overflowing with unintended consequences.

That, unfortunately, has been the case with the response to a fiery train derailment in Ohio in February of last year. This serious and tragic accident led Ohio’s two U.S. senators – Sherrod Brown (D) and J.D. Vance (R) – to propose the Railway Safety Act.

While “Railway Safety Act” sounds reasonable, and it is regaining attention given the one-year anniversary of the accident, this legislation would do nothing to improve safety, and actually create additional problems and concerns.

Mandates Would Do Little for Safety, but Undermine Innovation

For example, the legislation would turn two-person freight train crews into a government mandate. While this is the current standard based on collective bargaining, the legislation would set it in stone as a government mandate that not only ignores current technological options, but ignores and undermines future innovations and options. For good measure, such a mandate has nothing to do with safety, and everything to do with the demands of labor unions.

As a reminder, the train that derailed in Ohio last year had a three-member crew, and no link between crew size and improved safety exists. In fact, railroad safety actually improved dramatically even as the number of people on a train decreased. The norm in Europe, for example, is one-person crews and, again, no evidence exists that safety has suffered.

In another example of ignoring how investment and innovation improve performance, including safety, the legislation would dictate the use of trackside detectors that measure the heat of wheels. These detectors have improved safety, and are distributed based on actual analysis of data and operations. Government stepping in with mandates not only would raise costs dramatically in the short term, but it also would lock in current technology, undermine further improvements, and restrain efforts to come up with entirely new technological options.

Also, the Railway Safety Act would impose myriad dictates tied to inspections and the movement of hazardous materials. Not only would the government’s definition of “hazardous materials” be wildly expansive under this legislation, but so would the assorted requirements tied to trains transporting such materials, including train size, and town-by-town notifications of the passage of such trains.

Costs Versus Benefits

The legislation avoids rigorous cost-benefit analysis. In the competitive private sector, including transportation, railroads, along with truck, air and sea transport enterprises, have every incentive to focus on costs (in all of its forms), prices, customer service, and safety. If they fall short in any of these areas, penalties loom large. These businesses must be mindful, realistic and innovative.

In contrast, the full costs of regulation are always underestimated by the advocates of such regulation, for example, due to the fact that special interests, politicians, and regulators possess incentives to ignore all of the costs, and/or lack the proper knowledge to fully account for such costs. While industry actions have to be linked to market and economic realities, government action, while it should be, often is not linked to the realities of the marketplace and economy.

In the Summer 2023 issue of Regulation, Michael F. Gorman points out the many costs resulting from this act would actually reduce safety by making rail transport more costly than truck transportation, and since “trucks are much more likely to be in an accident, and their accidents are more likely to affect citizens than a train derailment, this would be an unambiguous worse outcome.” Safety also would suffer by shifting resources away from “more productive track maintenance requirements that would do more to reduce derailments.”

By the way, freight railroads were forced to travel far down the long track of excessive, unnecessary government interference and regulation, and the industry was nearly wiped out as a result. When policy sanity finally took hold, the Staggers Rail Act of 1980 partially deregulated railroads in terms of setting prices for services and setting rail rates; making decisions regarding what routes to use; and establishing shipper contracts, that is, allowing freight railroads to make decisions based on market conditions. The benefits from this major deregulatory measure are widely acknowledged, including vast improvements in industry efficiency and productivity, capital investment, maintenance and safety, market share, profitability, costs, and customer service.

Small Businesses Dominate the Rail Industry

Going back down the path of costly, unnecessary regulation benefits no one. And that includes, of course, the industries, entrepreneurs, small businesses and consumers that are served by freight railroads. Take a look at this SBE Council analysis that lays out how small businesses operate within and are served by freight rail. Make no mistake, over-regulating freight railroads imposes real costs on America’s small businesses, their employees, and their customers.

For good measure, while politicians post-pandemic talk about the need for reliable supply chains, measures like the Railway Safety Act explicitly work against sound and flexible supply chains.

The one-year anniversary of the accident is ginning up a push by labor unions and their allies to advance the Railway Safety Act in the Senate. Various senators, though, understand the obvious failings of the Railway Safety Act, and hence, we see restraint in terms of legislative action. That kind of restraint needs to continue. If not, this act would create additional problems for consumers, taxpayers, the rail industry, supply chains, and small businesses in terms of higher costs, restrained innovation, and reduced safety.

Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council. His latest books on the economy are The Weekly Economist: 52 Quick Reads to Help You Think Like an Economist and The Weekly Economist II: 52 More Quick Reads to Help You Think Like an Economist.

 

News and Media Releases