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How Trucking Deregulators Go about Killing their Game

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Let us examine trucking deregulators went about "killing their game." The volleying between those supportive of deregulation and those opposing the proposal shows that both of them appeared without any knowledge of economics before an audience of Congress. Here is how they presented their cases.

In late 1978, when the Carter administration turned its attention from airlines to trucking reform, Congress looked on trucking deregulation as only a half-crazy idea. Several events had lent credence to the once-heretical notion. Senator Kennedy had held lengthy hearings critical of truckers' immunity from antitrust laws. The ICC had initiated moderate administrative reform-partly in response to unfavorable publicity from Kennedy's hearings. Even more important, airline deregulation was proving extremely popular in most.

The airline precedent meant that trucking deregulators didn't have to break new ground, prove that they weren't kooks. But there were differences between the two transportation industries, which the truckers were quick to point out. Unlike airlines, regulated trucking was generally a healthy and prosperous industry (too prosperous, reformers would argue), hence the ATA's anti-deregulation theme--"If it isn't broke, don't fix it." Trucking is also the transportation mode most vital to the nation's economy. The industry's motto, "If you got it, a truck brought it," is not far off. And while lower prices brought on by deregulation meant considerably more business for airlines, shippers' demand for trucking is less price elastic.



Where airline deregulation had caused seeming problems, truckers were quick to draw parallels between the two industries. The temporary loss of air service to some communities following deregulation played smack into the hands of the trucking industry, which had long maintained that ICC regulation was the only thing that kept trucks traveling to and from rural areas. That became the single greatest obstacle for proponents of trucking deregulation to overcome. The trucking industry also made hay of the rise in air cargo rates that followed decontrol of that industry in 1977. Economically, such a rise was warranted; the CAB had kept cargo rates artificially low. Politically, it was damaging to trucking reformers' case.

In short, the proposal to decontrol trucking was no longer viewed as fuzzy theory on Capitol Hill, but the substantive case had yet to be made. The burden of proof on those proposing policy termination was particularly heavy here, where a regulatory system had been in place for nearly forty years and where an industry vital to the nation's economy had grown and thrived under it. Reformers had to show not only that the system was "broke," but also that deregulation would "fix it"--and do so without significant disruption. The last requirement was key. Election-conscious legislators are understandably shortsighted; the prospect of long-term social benefits may pale next to the threat of near-term disruptions.

The System Is "Broke"

[This is] the most insane network of regulation that could conceivably have been devised by a paranoid. --Alfred Kahn

From the economist's list of malfunction symptoms -- monopoly profits, excessive costs, and inefficient price--service options, and discriminatory rates--evolved the major themes of deregulators' case to Congress on the merits: ICC regulation of trucking produces excessive rates, fuel waste, and senseless restrictions. Stated differently, regulation contributes to three of the country's most pressing problems--inflation, the energy shortage, and unnecessary government interference.

Excessive Rates

Trucking rates are excessive, said deregulators, largely because regulation suppresses competition that would otherwise drive prices down. Consumers ultimately bear this cost. Deregulators had no smoking gun-- no single piece of evidence as persuasive as the studies of (unregulated) intrastate air service in Texas and California had been in that policy battle. What they had was a long list of smoking sling shots that were convincing in the aggregate:
  • When certain agricultural commodities--frozen poultry, frozen fruits and vegetables--were exempted from regulation in the 1950s, rates fell 19 to 36 percent; rates rose back when some of those products were reregulated.

  • In New Jersey, where intrastate trucking is unregulated, rates are 10 to 25 percent lower than for comparable interstate shipments; household-goods moving within Maryland is unregulated, and rates are 27 to 87 percent below those of interstate movers.

  • Regulated carriers commonly "lease" their operating rights to independent truckers in return for 20 to 30 percent of the revenue from hauling the regulated goods. The fact that independents enter into such an arrangement indicates that revenues well below the regulated level are still profitable.

  • Operating rights, granted free by the ICC, have market value--an indication that regulated carriers are able to earn higher-than competitive rates.

  • In recent years, the trucking industry's profits have consistently been among the highest of any industry.
Moreover, deregulators had a very large "bottom-line" figure for what excessive rates cost consumers. The Council on Wage and Price Stability (COWPS) estimated the cost at $5 billion. The Congressional Budget Office (CBO) estimate, released days before the critical Senate floor vote, predicted that trucking deregulation would save consumers $5.3 to $8 billion annually by 1985. That's equal to $70 to $105 per household, 0.3 to 0.45 percentage points on the Consumer Price Index (CPI).

The ATA countered that regulation had actually served to keep prices down, as evidenced by the fact that trucking rates per ton-mile had risen less rapidly over the last decade than the CPI. The industry group estimated annual savings at several billion.
As a logical proposition, the ATA's statistical comparison was not persuasive. "The rates [were] unnecessarily high to begin with," testified a Nader attorney. "The change between the [designated] years, or in any period, does not prove anything-"

The CPI comparison was also misleading. It ignored productivity improvements (better loading equipment, improved roads) and changes in average shipment weight-specifically, a trend by shippers toward consolidation of small shipments into larger ones, which move at vastly cheaper rates. The Department of Transportation recalculated the comparison, taking this trend into account, and found that regulated rates had risen slightly faster than the price index.

Fearing that this counter to the ATA's claim was overly technical for harried congressmen and their staffs, DOT analysts worked out another, more simplistic refutation that turned the industry's argument on its head. They computed two separate indexes--one for the less-than-truckload (LTL) sector and another for the truckload (TL) sector of the industry. DOT Secretary Neil Goldschmidt explained the results in a letter to Senator Cannon:

'"Deregulation Could Trim Transportation Costs by $8 Billion, CBO Claims in Study," read the Washington Post headline, on page one of the business news (March 31 1980). In fact, CBO had done no "study" of its own, merely reviewed existing ones.

CBO's report was leaked to the Washington Post by a high-level deregulator in the Department of Transportation. The leak was carefully timed so that the story would appear on a Monday--normally a slow news day--and hence receive maximum exposure.

If regulation were successful in holding rates down, then rates would tend to rise more slowly in the LTL sector of the industry, which is heavily regulated, than in the TL sector, where rates are more competitively determined. In fact, the findings ... show just the opposite: Rates on LTL shipments increased by 130 percent per year--over half again as fast as the CPI and almost double the 6.8 percent per year of the TL sector.

Even more commonsensical was reformers' responding query: If regulation keeps trucking rates low, why aren't carriers clamoring for deregulation? (The ATA's reply: fear of cannibalization within the industry.)

Fuel Waste

Deregulators argued that regulation needlessly wastes precious fuel by requiring trucks to take indirect routes to their destination and travel many miles empty, even though freight is available to be moved. They cited estimates that nearly one-fourth of all truck miles are traveled empty and that removal of backhaul restrictions would alone save 220-320 million gallons of fuel each year. They also described concrete examples of seemingly blatant waste: the regulated carrier who could travel between Omaha and Denver, 540 miles total, but only by way of Cheyenne, Wyoming, a 260-mile detour; or the carrier who had to serve the traffic between Pittsburgh and Frederick, Maryland, by way of southern New Jersey, adding 216 miles to what should be a 188-mile trip.

The trucking industry said energy waste was a phony issue: 97 percent of all empty backhauls were the unavoidable result of either natural traffic imbalances--for example, between producing and consuming regions--or use of specialized equipment designed to carry only one type of freight. Moreover, "one man's backhaul is another man's front haul," meaning there's no way to fill one empty truck without creating another.

What's more, argued the industry, by easing entry restrictions, deregulation would mean more trucks on the road and hence additional fuel consumption. Applying that logic, industry supporters amended the Senate bill so as to make the goal of the legislation "efficiency and competition" rather than just "competition." They reasoned that they could fight a liberal ICC interpretation of the entry provision on the grounds of its potential energy inefficiency.

The ATA lacked any hard numbers to back up its energy consumption claims, however. An analysis commissioned by the Federal Energy Administration in 1975 had concluded that trucking deregulation would increase fuel consumption slightly, because trucks would divert traffic from railroads, which use far less fuel. Ironically that finding (challenged by an independent DOT-sponsored analysis) was of little use to the ATA, since the lobby group steadfastly maintained that deregulation would not produce any new demand for the industry's services (the "trucking-is-not-like- airlines" argument).

Senseless Restrictions

Livestock are exempt from regulation--unless you're taking them to a show; then they're not; unless it's a 4-H show; then they are. Raisins are exempt if they're coated with honey, cinnamon, or sugar, but not if they're covered with chocolate.

Administration staff people combed the Federal Register daily for examples of seemingly absurd ICC restrictions and nitpicking rules. Reform proponents had made a conscious decision years earlier to play up these senseless-sounding distinctions; hopefully that would help offset the fact that good data on the industry--the kind the CAB had collected on airlines--didn't exist at the ICC.

Deregulation supporters studded their speeches with the examples. President Carter described as "defy(ing) human imagination" rules that permitted some truckers to carry milk but not butter, cream but not cheese, paint in two-gallon but not five-gallon cans. He ridiculed ICC regulations that prohibited the same trucker who had delivered tomatoes to the soup factory from hauling away canned soup, or that required a trucking company to go from Denver to Albuquerque by way of Salt Lake City, a detour of 300 miles.

The press loved these seeming absurdities. Many an editorial began with the case of the trucker who could carry empty ginger ale bottles but not empty cola or root beer bottles, or the rule allowing exempt carriers to haul frozen TV dinners unless they contained chicken or seafood. "The Byzantine World of Trucking..." read the headline for a Washington Post article describing the regulated industry.

The examples were used to illustrate dramatically the lengths to which businessmen would go just to get around the regulatory system: the piano manufacturer who purchased refrigerated trucks so that he could carry (exempt) agricultural produce on the backhaul. The story of the trucker whose request to carry (nonexistent) yak fiat received thirteen challenges pointed up the extremes carriers went to just to preserve their regulated turf. The appeal was not to a less-government-is-good ideology but to a more universal disdain for paperwork and mindless bureaucracy: "It takes 2,000 ICC bureaucrats just to keep track of the 7,000 pages of rate filings the commission receives every day."

Most of the illustrations of absurdity were based on the ICC's distinction between unprocessed (exempt) and processed (nonexempt) agricultural goods. Ironically, that was the major feature of regulation that the trucking industry successfully preserved (though it was weakened somewhat). So in a direct sense, reformers' efforts were wasted. But indirectly, the colorful depiction of regulation as "byzantine," "mindboggling," "nitpicking," and "insane" was effective because there was so little the ATA could say in defense.

Industry spokesmen argued that they were the victims of a shell game--a political ploy by faltering liberals to distract public attention from the real issue of social or environmental regulation. The ATA warned that businessmen and conservative groups had been fooled into confusing the two, even though the difference between social regulation and trucking regulation was, in Mark Twain's words, the difference between lightning and lightning bugs.

More generally, the industry appealed to the flip side of reformers' charge of mind-boggling regulation--by portraying trucking as a highly complex industry that could be destroyed in no time by the blind tinkering of naive outsiders. Truckers went for the Achilles' heel-fear of the unknown: The industry has functioned smoothly for forty-five years under regulation to provide the finest transportation system in the world; now some ivory-tower economists who have never seen the inside of a truck terminal want to rush in and dismantle it. That was their general message. Specifically, they warned that deregulation would lead to chaos, followed in time by industry concentration; in addition, safety would suffer and, most important, small communities would lose service. Discrediting these dire predictions was deregulators' greatest challenge.

". . . Don't Fix It" (Or Else)

Government operates according to the old theory which states, "If you think the problem is bad now, just wait till we've solved it." --Bennett Whitlock, ATA president

Chaos

History will repeat itself, warned industry spokesmen as they recalled the conditions prior to the 1935 Motor Carrier Act, "when the trucking business was a cutthroat game... and companies went in and out of business before the ink on the letterhead could dry." (One industry consultant advised them to forget their appeal to "pre-1935 chaos." "Americans as a whole are not notably history minded," he told them. "The attitude still is widespread that 'history is bunk'.") Projecting, they described a scenario under deregulation with carriers engaged in predatory price wars, shippers facing a bewildering array of ever changing rates, rampant excess capacity, and scores of bankruptcies.

Deregulation proponents argued on theoretical grounds that destructive competition would occur only if an industry had heavy fixed costs and chronic excess capacity with little or no alternative use for its assets; neither of these two conditions described trucking.

More important, they pointed to the existence of, and experience from, unregulated trucking sectors as evidence of the lack of chaos: Department of Agriculture studies showing that bankruptcy rates for independent truckers were about equal to those for other small retail firms; a recent DOT investigation of (unregulated) intrastate trucking in New Jersey that found no evidence of destructive competition; a study of motor carrier deregulation in Great Britain that found there was no flood of new firms into the industry, and shippers judged service quality to be as good after deregulation as before.18 The generally positive experience following deregulation of airline rates and entry also contradicted predictions of chaos.

On most issues, the substantive disagreement between proponents and opponents of deregulation was over questions of fact: Would additional competition cause rates to rise or fall? (An ATA official began a speech denouncing deregulators by recalling a New Yorker cartoon that showed a filing cabinet with drawers labeled "Our Facts," "Their Facts," and "The Real Facts.") But on certain issues-rate stability was one, "discrimination" (cross-subsidy) was another-the disagreement went to philosophy and values.

Both sides agreed that regulation served to keep rates more stable than they otherwise would be; they clashed over whether or not that was desirable. The ATA argued that the benefits of stable rates were self-evident: Shippers know what they're going to be charged, and they can plan accordingly; that's not the case in the exempt agricultural market, where rates swing widely. Proponents of deregulation portrayed variable rates as a sign of a healthy market: They represent seasonal fluctuations in demand and hence provide an efficient mechanism for allocating trucking services.

Concentration

Following a period of destructive competition, the ATA warned, the industry would go through a "shaking out" phase, after which time the "big firms with the heaviest financial and managerial guns" would dominate the field. "In the brave new world of deregulated trucking only a select few- and not necessarily the fittest-will

The thrust of deregulators' defense was that two conditions must hold for monopoly to result. Large trucking firms must have inherent cost advantages over small ones--that is, there must be economies of scale. And once the large firms have competed all of the others out of existence, there must be barriers to entry by new competitors. Both are absent in the trucking industry, said deregulators.

The economies-of-scale issue was particularly sticky. Several academic studies from the 1950s and 1960s had concluded that there were cost advantages to size in trucking. DOT spent considerable resources studying that issue (both internally and by funding academic research) using more refined methodologies. Most persuasive was the work of Ann Friedlaender, a Massachusetts Institute of Technology economics professor, which found that existing economies of scale were exhausted by quite small firms, after which point diseconomies of size set in.
If there was ever a case where economists and industry practitioners spoke two different languages, it was on the issue of scale economies. This may account for the sincere belief of some industry members that the economic evidence on this point was naive and counterfactual. In one enlightening exchange, a major trucking-company executive challenged the remarks of a government economist who, based on his own and others' research, denied there were scale economies in the motor carrier industry: "I was the chief financial officer of the largest trucking merger that has ever been. ... I know a lot about economies of scale, because there were tremendous [ones], but tremendous problems of management and labor... more than offset the economies of scale and have consistently driven down that company."

The economist responded with glee, saying he had for the first time realized that what (some) businessmen mean by economies of scale is simply not what an economist means; in economic terms the notion includes management and labor as well as the physical attributes of a trucking firm.

In addition to shooting holes in the ATA's prediction of monopoly, deregulation proponents went on the offensive, charging that the industry was already heavily concentrated as a result of regulation. The ATA had always maintained that deregulation wasn't necessary to bring about competition in an industry that had 17,000 (regulated) firms. But of course, aggregate numbers don't tell the real story. The test is how much competition exists on individual routes.

The ICC didn't have the data to answer that question. Only the industry rate bureaus did, in the form of Continuing Traffic Study (CTS) tap--a sophisticated data base used for collective ratemaking and for justifying general rate increases. The ICC had tried unsuccessfully to get the CTS tapes for years. Kennedy's Subcommittee on Antitrust and Monopoly finally obtained them under threat of subpoena, with the promise that proprietary information would remain confidential.

Kennedy's staff, assisted by DOT experts, analyzed the CTS data extensively. The senator unveiled the results, with a flurry of tables and charts, at the opening day of hearings on the Carter-Kennedy deregulation bill. The findings showed that the trucking industry was highly concentrated in individual city-pair markets: The four largest firms had an average market share of over 60 percent. The evidence also suggested that concentration was due to ICC regulation: Concentration levels were much lower in the East and Midwest-where many firms received grandfather rights in 1935--and much higher in the West and Southwest--which experienced their growth after 1935, when the ICC tightly restricted entry.

The ATA was unable to respond to the Judiciary Committee results because the trade group itself couldn't get the CTS tapes from the rate bureaus. The bureaus apparently feared that the data would show which markets had heavy freight flows and thereby encourage entry into those markets. Much blood was spilt over that issue within the industry.

Safety

The scenario for chaos depicted by those opposing deregulation included the sobering specter of truckers deferring maintenance, driving on hot tires, popping pills in general, safety falling by the wayside under the cost-cutting pressure of decontrol. Since motor vehicle accidents take nearly 100,000 American lives each year-with trucks involved in many of those accidents-the issue was highly emotional. Giving the industry's claims credibility was a study by Harvard Business School professor D. Daryl Wyckoff which showed that regulated carriers had a consistently better safety record than unregulated owner-operators.

Deregulators countered that certain measurement problems discredited Wyckoff's findings: He measured things that might be associated with accident rates, rather than accident rates themselves, and these by self- reporting (Do you pop bennies? Do you drive beyond the ten-hour limit?). There was also some indication that regulated trucking companies had advised their drivers how to answer the questionnaire (the study was partially funded by the Teamsters and ATA).

The administration put forth its own numbers as well. Statistics from DOT's Bureau of Motor Carrier Safety, which regulates truck safety, showed no appreciable differences between the accident levels of regulated and exempt carriers. (The ATA countered that fatality rates for exempt carriers were double those for regulated carriers.)

Numbers aside, said deregulators, economic regulation is an inappropriate way to improve truck safety. The solution to this serious (underlined) problem is better safety regulation. Reformers also proposed that a deregulation bill address the problem by setting insurance requirements-a proposal that came back to haunt them when the industry pushed through high insurance minimums intended to serve as barriers to entry.

Small-Town Service

"So long, Escanaba." That was the message contained in "Small Town Blues," the ATA's report on what deregulation would mean for Escanaba, Michigan, and other small communities across the country. Service to small towns was often uneconomical, the industry warned. The regulated carriers provided it, through a cross-subsidy from their more lucrative routes, only because of their common-carrier obligation. Absent regulation, many communities would lose service altogether or have to pay dearly for it.

The industry offered surprisingly little in the way of hard evidence to bolster its claims. "Small Town Blues" contained the results of a four- question survey of900 regulated carriers conducted in 1976. In response to a highly leading query, 62 percent of the carriers said they would suspend service to one or more points if it were not required by regulation. It was not a persuasive piece of social science. Aside from loaded questions, there was virtually no explanation of sampling methodology, and the entire survey was published on three pages in the middle of a public-relations tract. The ATA's only other statistical ammunition was a survey of shippers and carriers in Virginia, conducted by that state's regulatory commission, with results so mixed that deregulation proponents liked to cite them as well.

The assignment of convincing the public that deregulation threatened small-community service fell largely to Hill and Knowlton, a prestigious public-relations firm that the ATA hired for a multimillion-dollar sum. Hill and Knowlton developed a media campaign, aimed at small towns themselves, using slogans like "The Truck Stops Here". The ads warned that children in outlying communities might not get Halloween candy or Christmas toys if Congress deregulated the trucking industry.

The trucking industry's best argument, at least for a while, was the disruption in air service that followed deregulation of that industry. ATA President Whitlock joked with groups like the Fort Wayne, Indiana, Chamber of Commerce about the "ultimate in supersavers"--"United's Disappearing Service." He left them with the clear message that the folks "who brought you this situation-the free-market economists, the theorists, the bureaucrats," would do the same thing to trucking service.

The disruption in air service generated plenty of political heat even without the ATA around to fan the flames. Several congressmen proclaimed themselves "born-again regulators" over the loss of service to their districts. Others withheld judgment of trucking deregulation, waiting to hear what the debate would say about small-community service. Even this reaction was a boon to the ATA, since these "agnostics" tended to be from rural, conservative districts-in all other respects a natural constituency for a less- government-is-good issue like deregulation.

The trucking industry's most visible attempt to exploit the airline experience was a near full-page ad in the Washington Post and the Wall Street Journal proclaiming that "Deregulation has shot down more planes than the Red Baron" and listing twenty-five communities that had allegedly lost all certificated service. (By coincidence, directly opposite the Post ad was an equally large advertisement for TWA family bargain fares.) The CAB chairman held a press conference to refute the Red Baron ad, and DOT compiled a thick document showing airline service changes at certificated airports in every state.

DOT's compilation was actually one of the last of a long line of documents produced by deregulation proponents to dispel the loss-of- service-to-small-communities charge. From the start, they had rightly feared this as the greatest obstacle to decontrol. When DOT began its research effort on trucking reform in the early 1970s, one of the first tasks involved sending a team of summer interns out to small towns to question shippers about trucking service.

Given what they knew, deregulators had no reason to believe that the trucking industry was serving small communities at a loss and hence would terminate service under relaxed ICC control. The commission had never once revoked a carrier's authority for failing to serve small towns. The industry argued that the mere threat of ICC reprisal was sufficient inducement but could never document the claim. Moreover, the ICC had received almost no requests to discontinue small-town service, whereas application by even the largest firms to serve small towns was not a rarity. In short, since the common-carrier obligation was effectively unenforceable, regulated carriers must be serving small communities because it was profitable to do so.

Early informal evidence indicated, moreover, that precisely because they could avoid serving small communities if they chose, regulated carriers provided little of the trucking service that went to these areas. Most of it came from private carriers, exempt agricultural haulers, and United Parcel Service. Thus, even if deregulation did lead regulated carriers to seek more lucrative markets, the impact on small towns would be minimal.

But how to convince Congress that the small-communities problem was a red herring? Some reform proponents predicted that no amount of scientific evidence could defuse such an emotional issue.

The first test of that prediction came when the Senate Commerce Committee released a study it had commissioned from a Boston consulting firm, Policy and Management Associates, Inc. (PMA) on the impact of deregulation on small communities. Using sophisticated sampling methodology, PMA surveyed shippers and carriers in several hundred towns throughout the country. The study concluded that "service to small communities would not deteriorate and might, in fact, improve under deregulation."

The ATA lambasted the study on several counts. Reform proponents were also somewhat critical. To resolve these objections, the Commerce Committee asked the Congressional Budget Office for an independent analysis of the PMA study. CBO looked at several other studies as well and concluded that deregulation would have a negligible effect on service and rates in small communities, since there was no evidence of a significant cross-subsidy and since carriers could at present avoid serving small towns if they wished. That conclusion, unencumbered by the doubt cast on the PMA study, was generally persuasive.

Deregulators' trump card, however, was a set of DOT surveys of sixteen small communities in six states. The six states corresponded to members of the Senate Commerce Committee who were concerned about the small-communities issue. It was custom-tailored research; the six senators even selected the towns to be surveyed in their own states.

A team of DOT researchers interviewed a dozen or so businessmen in each of the communities. The published reports documented each interview in folksy detail:

Bud's Husky (McGill, Nevada) is a general service gas station that has been in business 10 years. Bud's is the only gas station in McGill; up until 5 years ago, there were three.
Bud Ingle, the station's owner, said he receives shipments from Twin Falls, Idaho; Salt Lake City; Elko; Reno and Ely. [His] shipments are mainly brought in on the suppliers' private trucks. His gasoline is shipped in by Husky; Pyroil products (fen belts, clamps, bolts, windshield wipers, antifreeze, etc.) are shipped in by Packapart in Elko, a general auto concern, and Wynn's TBA in Idaho brings in tune up parts.

Mr. Ingle receives good service from each of the carriers. He felt, however, that rates are too high overall. "If you're trying to figure freight prices, they're too high, I'll tell you that."

The findings were consistent across communities: Shippers were by and large satisfied with the service they received, but that service came largely from UPS and exempt carriers. ICC-regulated general freight carriers did not play a major role in providing small-town service, and much of the service they did provide was perceived as infrequent, slow, and costly. DOT secretary Goldschmidt summed up the findings to a Capitol Hill audience: Regulated common carriage "is not small town America's lifeline ... [it is her] last resort.

Other DOT and ICC studies echoed these findings, as did a survey by the California Public Utilities Commission (PUC) on trucking service in three small communities in that state. (One of the California towns fell just outside the district represented by Bizz Johnson, chairman of the all- important House Public Works Committee. DOT tried to get the commission to select a community located within Johnson's district, but the PUC had its own political agenda to serve.)

The small-communities studies, particularly DOT's six state surveys, had visible impact. DOT officials presented the preliminary findings from the Nevada survey at a Commerce Committee hearing in Fallon, Nevada. Howard Cannon's tepid support of deregulation warmed noticeably after that. Sen. Harrison Schmitt of New Mexico, a conservative Republican and natural ally, had withheld support out of fear that his state's experience following airline deregulation would be repeated (among other things, one air carrier pulled out suddenly during the Christmas holidays). When DOT reported on its survey of Taos and Truth or Consequences-towns that Schmitt picked in consultation with the New Mexico Trucking Association- he became one of the Senate's most committed supporters of deregulation.

Overall, the small-communities issue was laid to rest more quickly arid soundly than deregulation proponents (and the ATA) expected. By the time the action on the bill shifted from the Senate to the House, it was no longer a major obstacle.

Persuading on the Merits

Reformers' effort to make trucking deregulation substantively acceptable accomplished its immediate goal--persuading the Senate Commerce Committee leadership. The trucking industry had always considered Howard Cannon sympathetic to its side; thus it came as a surprise when, shortly before the Commerce Committee hearings were to begin, the Nevada senator delivered a keynote speech to the ATA in which he offered his nominations for the "five worst arguments against changes in the regulatory structure."

The winner for the most ineffective argument is the bare boned assertion that, "Deregulation will result in complete chaos." . . .

In second place, but a very close runner-up, is the argument that, "We have the finest surface transportation system in the world, so why change it?"

Cannon also told the truckers it was "obvious" that their industry was not a natural monopoly, but that if there were substantial economies of scale, as the industry maintained, and then perhaps regulation was stifling efficiency through under concentration.

As an old-fashioned Democrat from a state where Teamsters are a significant power, Cannon was not expected to become a fierce advocate for deregulation no matter how compelling the evidence. But he did at least become sufficiently convinced of the merits to conduct the hearings and proceed in an evenhanded way. That he fought for such a strong bill is probably due more to other factors, including the influence of Sen. Robert Packwood, the Commerce Committee's minority leader. After thoroughly steeping himself in the evidence on both sides, the Oregon senator became a passionate believer in trucking deregulation. The sophisticated understanding of the industry he acquired, plus his fluency with the economic arguments all around, made Packwood a persuasive spokesman for reform.

The substantive case for deregulation hit its mark with more than just the leadership. The battle in the Senate--both in committee and on the floor--was won largely on "the merits". The merits had far less direct impact in the House of Representatives, where the parties worked out a deal in advance and presented it to the Public Works Committee and the full House for pro forma ratification. But they were critical in the Senate.

That is not to say that economic data and analysis per se were all- important. They're only one measure of the merits of a bill. The other is the age-old political barometer--who's for it and who's against it. The two measures work hand in hand, assuming they give consistent readings. But even that barometer was somewhat sensitive to economists' case for reform. In a few instances, analysis persuaded neutral or opposing groups that deregulation was, after all, in their interest. More commonly, the price tag economists attached to ICC regulation served to elevate trucking reform on the legislative agendas of sympathetic interest groups and elected officials-most notably Jimmy Carter.

The weight of evidence also contributed to the considerable attention and support deregulators received from the press. In 1979, more than 400 editorials supporting trucking reform appeared throughout the country; unfavorable or neutral editorials totaled only 22.37 The typical editorial began with an example of seemingly mindless ICC regulation (birdseed is exempt, hamster food is not), then went on to recite the major substantive arguments on both sides, and ended with a ringing endorsement of deregulation couched in a warning that political muscle rather than common sense would likely dictate Congress's decision.

Common sense may not have dictated the ultimately favorable vote of Congress, but it certainly entered into the calculation. And economic analysis had both a direct effect on that vote--most visibly through the small-communities studies--and an indirect effect--by helping to gain the attention and support of interest groups, the media, and the White House.
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