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Trucking Deregulation and Political Battle

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When Congress overrode Truman's veto of the Reed-Bulwinkle Act, he became the first of several presidents whose efforts to reduce trucking regulation proved no match for powerful vested interests. Twenty-five years later, Richard Nixon backed off from planned legislation when he met strong Teamster resistance. Gerald Ford sent Congress a sweeping reform proposal on trucking. But during the final weeks of the 1976 campaign, pressure from truckers and Teamsters caused Ford to beat a hasty retreat.

Ford's opponent, candidate Jimmy Carter, spoke out for regulatory reform but then feigned support for trucking controls in response to the same political heat. Carter sent his close friend Bert Lance to address a high-level gathering of trucking executives late in the campaign. Lance analogized motor carrier operating rights to government allotments to grow peanuts and convinced the truckers that Jimmy Carter, the Georgia peanut farmer, was sympathetic to their position.

Carter was decidedly not sympathetic, and his true colors began to show through soon after he took office. In March 1977, at a Massachusetts town meeting, Carter responded to a disgruntled owner-operator by promising to push for "substantial deregulation." The following month he elevated to ICC chairman the agency's youngest commissioner, a lawyer with a reputation as a progressive. A. Daniel O'Neal, forty, had been transportation counsel to the Senate Committee on Commerce, Science, and Transportation before joining the ICC in 1973. Initially one of the agency's defenders, O'Neal had become critical of the ICC's "institutional inertia" and supportive of regulatory reform short of "deregulation."



With a progressive ICC chairman in place, political observers expected that Carter would send trucking-reform legislation to Capitol Hill. But the White House hoped to score a quick hit by championing the Cannon-Kennedy airline-deregulation bill then before Congress. Administration aides feared that a second regulatory reform initiative would jeopardize passage of the airline bill. They decided to concentrate White House energies on defeating the airline industry and, if they succeeded there, to challenge the more politically powerful trucking industry then.

Airline Deregulation

The Cannon-Kennedy airline-reform bill, which the Carter administration strongly supported, was the culmination of months of hearings and careful spadework by its two sponsors, particularly Edward Kennedy. That Howard Cannon's name appeared first on the bill was significant; having invaded Cannon's jurisdictional turf, Kennedy sought to mollify the powerful Nevada senator in order to gain his cooperation. That Cannon's name appeared at all was even more significant; only months earlier, he was regarded as an opponent of airline decontrol.

The issue of airline regulatory reform was first "discovered" by Senator Kennedy, in late 1973. In search of a topic on which the Judiciary Subcommittee on Administrative Practice and Procedure he chaired could hold hearings, Kennedy consulted Stephen Breyer, a Harvard Law School professor specializing in economic regulation and administrative law. Breyer recommended holding oversight hearings on the Civil Aeronautics Board, the independent federal agency responsible for regulating pricing and entry in the airline industry.

Airline regulation was a response to conditions similar to those that spawned the Motor Carrier Act of 1935. The appearance of small, "hungry" carriers, combined with economic problems brought on by the Depression, threatened the security of the larger, established air carriers. These carriers formed a trade association and demanded legislative protection from the "financial starvation" they predicted would lead to industry chaos and competition so intense as to sacrifice safety. Congress established the CAB and gave it the authority to restrict entry into the airline industry and to control industry pricing.

Breyer envisioned Kennedy's subcommittee investigating not only CAB procedure but also whether the strongly protectionist agency should allow more competition in the airline industry. The issue of airline regulatory reform had no outside constituency, and several well-organized groups--namely industry and labor, which had grown comfortable in the regulatory environment--were sure to oppose it vehemently. But the reform issue had at least the potential of attracting support from consumer groups concerned with lowering air fares and from ideological groups interested in reducing government interference in the marketplace.

The hearings that Kennedy subsequently held were carefully staged (under the supervision of Breyer, by then on leave from Harvard), to push the academic case for airline reform into the political arena. A number of economists testified, along with officials from the Ford administration. By far the most persuasive evidence presented came from a few well-studied states--California and Texas--where intrastate airlines were unregulated. Not only had competition not been "ruinous," as the regulated industry was predicting, but fears were substantially lower than for comparable air service in other parts of the country, and the unregulated markets were characterized by constant innovation, intensive advertising, and dramatic growth.

The Kennedy hearings gave the issue of airline reform sudden visibility in Congress. They also created considerable friction between Kennedy and Howard Cannon who, as chairman of the Aviation Subcommittee of the Senate Commerce Committee, had jurisdiction over the CAB. The clash was largely over turf, though substantive differences were also a factor. Cannon, an aviation buff, was generally perceived to be a close friend of the airline industry. Moreover, Sen. Warren Magnuson, the Commerce Committee chairman, opposed decontrol seemingly for fear it would harm Boeing Company, the major employer in his home state of Washington.

In an effort to reclaim the aviation subcommittee's territory, Cannon convened his own set of hearings on airline regulation in April 1976. As the hearings progressed, he became increasingly skeptical of industry arguments for maintaining the status quo. Particularly convincing to Cannon was the testimony of John Robson, recently appointed chairman of the CAB. Robson testified that CAB regulation not only had encouraged inefficiency and higher fares but might ultimately destroy the financial health of the industry. Robson called for reform legislation that would significantly reduce the agency's control over pricing and entry.

Persuaded that reform was necessary, Cannon nevertheless favored a much milder, more gradual reduction of CAB controls than did Kennedy. Opponents hoped this disagreement would be sufficient to stall the efforts at a reform bill altogether. But Cannon and Kennedy teamed up, and in February 1977, they introduced legislation that represented a compromise between their previous positions.

Even as the Senate was holding hearings on the Cannon-Kennedy bill, Robson was instituting CAB reforms under the agency's own authority. The pace of administrative reform picked up considerably when Robson was succeeded by Carter appointee Alfred Kahn, a Cornell University economics professor who had served as head of the New York State Public Service Commission from 1974 to 1977. Under Kahn's direction, the CAB began giving domestic carriers latitude to lower fares without agency approval and at the same time relaxing controls on who could enter the airline industry.'

Thirty-nine Recommendations

As Kahn orchestrated a major rollback of controls at the CAB, across town at the ICC, a campaign for less sweeping regulatory reform got underway. In July 1977, a task force appointed by Chairman O'Neal issued thirty-nine recommendations for improving ICC regulation. The task force did not call for major deregulation but rather proposed more moderate steps the commission could take--from simplifying the application process to exempting more commodities from regulation.

O'Neal had asked for the task force report in part to defuse any effort by Carter or the Congress to impose deregulation through legislation. However, as he traveled the country to chair hearings on the thirty-nine recommendations, he met with strong opposition by truckers and Teamsters to all but the mildest proposals. One industry spokesman told O'Neal that small carriers would be hit especially hard by deregulation: "What is at stake here is not just the future of many marginally financed trucking companies, we are talking about defending an ideal."

As O'Neal continued his public hearings in an effort to stave off legislative deregulation, another Washington figure convened hearings in the hopes of accomplishing just that end. In October 1977, three years to the week after he opened his celebrated hearings on the airline industry, Edward Kennedy began a similar investigation into deficiencies in trucking regulation. The focus was nominally on rate bureaus, in keeping with Kennedy's new Judiciary Committee jurisdiction-chairman of the prestigious Subcommittee on Antitrust and Monopoly.

Much of the initial, quite technical testimony received little notice. However, things perked up when ICC auditors testified that truckers and railroads spent up to $1.5 billion a year on gifts to shipping agents and government officials and then passed the cost along to consumers. The auditors maintained that paid vacations to Las Vegas and the Caribbean, hunting trips, and other gifts--most of them illegal--were "common practice" in the truck and rail industries, which couldn't compete on prices because of federal regulation. One witness--an Ohio air freight carrier--suffered extensive losses when his firm was bombed four weeks after he testified about the misuse of ICC route authorities.

The Kennedy hearings lasted twelve days over the course of ten months and produced more than 1,700 pages of testimony and evidence. Though less dramatic than the proceedings on CAB reform, the rate bureau hearings drew considerable attention to the issue of trucking deregulation. That visibility put new pressure for reform on the ICC and the White House. The week Kennedy's investigation closed, O'Neal announced that his staff would undertake a major review of truck regulatory policy.

The hearings also worked to smoke out a senator who would be key to any legislation dealing with transportation--Howard Cannon, who had recently replaced Warren Magnuson as chairman of the Senate Commerce, Science, and Transportation Committee. In a June 1978 speech to the Executive Committee of the American Trucking Associations (ATA)--the industry's powerful trade group--Cannon predicted that legislation to loosen trucking regulation would be introduced in the Senate that session. But he emphasized that any such legislation should be handled solely by the Commerce Committee--a reference to speculation that Kennedy would try to seize the lead from Cannon and use his antitrust subcommittee as the forum for a deregulation bill. The Nevada Democrat also told the truckers that if motor carrier regulation needed a congressional overhaul, "then the appropriate response should be action to eliminate the weaknesses, not to throw everything out the window in the process."

Dissension in the Administration

Cannon's speech only confirmed what proponents of reform already felt--that the powerful Commerce Committee chairman--a Democrat from a state where the Teamsters had considerable sway-was no fan of trucking deregulation, despite his support for airline decontrol. But they expected even more resistance from the leadership of the House Committee on Public Works and Transportation, which would have jurisdiction over any legislation affecting ICC regulation. Opposition from that committee had proved a major obstacle to deregulators' efforts at airline reform.

The makeup of the congressional committees led to general agreement within the Carter administration that Congress would not pass any proposal calling for substantial trucking deregulation and that opposition by labor and industry might be strong enough to kill any reform measure. But beyond that, there was little consensus. When an interagency task force set out to draft trucking legislation in early 1977, the group bogged down because of sharp differences over how, and how much, to reduce motor carrier regulation.

The controversy pitted the Justice Department's Antitrust Division, which favored a "substantial legislative initiative," against the Department of Transportation, which felt that Carter should work through the ICC to make changes within the existing law. Rival options papers proposed in the summer of 1977 contained differences so sharp that even the fallback positions of Justice called for more cuts in federal controls than DOT's primary position.

DOT's stance was partly a reflection of its leadership. Secretary Brock Adams, formerly chairman of the House Surface Transportation Subcommittee, made no secret of his opposition to trucking deregulation. But even reform supporters within the agency believed an ambitious legislative initiative would be counterproductive. Justice gave less heed to pragmatic considerations on the explicit rationale that it was one agency that should be above politics.

Early in 1978, Brock Adams and James McIntyre, acting director of the White House Office of Management and Budget, submitted an options paper that reflected considerable compromise between DOT and Justice. The memo was the work of a DOT-organized task force that represented the Departments of Agriculture, Commerce, Justice, and Transportation; OMB; the White House Domestic Policy Staff; the Council of Economic Advisers; and the Council on Wage and Price Stability. In blunt terms, the memo said that trucking regulatory reform was difficult to explain to the public, had no large constituency in its favor, and, "in short, [was] a tough issue bringing with it little if any political benefit, at least in the short run." The memo urged that Carter "nudge the ICC along" toward administrative reform, while proposing limited legislation to encourage competition.

The options paper was never given to Carter, and the administration did not develop legislation. White House advisers feared that even raising the trucking issue would jeopardize the airline bill, which was meeting continued resistance in a House Public Works subcommittee. Eight months later, Congress finally approved an airline-deregulation bill--one that went much farther than regulatory reformers had expected--and administration aides began preparing a second, more detailed memo describing the options on trucking reform and outlining recommended legislation.

"Open-Heart Surgery-Blindfolded"

Even before Congress approved the airline bill, the effects of deregulation by the CAB were being felt. "Laissez-faire and half-fare" is how one observer described it. In an effort to compete, airline companies began offering a rash of discount fares--with names like "chickenfeed" and "peanuts fare"--much to the delight of the public.

Borrowing a page from Alfred Kahn's best-seller, ICC chairman O'Neal proposed a plan for significant reduction of motor carrier regulation. O'Neal told commission members that the apparent success of airline deregulation had created sudden interest in trucking reform, and that the ICC was under pressure to begin its own regulatory rollback lest Senator Kennedy, the White House, or the Justice Department seize the initiative.

O'Neal had by then conceded that legislation was ultimately needed; a year after the task force issued its report, the commission had adopted only thirteen of thirty-nine recommendations. But O'Neal proposed to undertake widespread reform administratively even before Congress acted--much as the ICC had done.

Stimulated partly by the administration's legislative plan, O'Neal's proposal called for eliminating most regulation of specialized trucking, including the public convenience and necessity test for gaining entry and antitrust immunity to set rates collectively. O'Neal said there was little reason to continue regulating the fifteen thousand (specialized) carriers who hauled full truckloads, since free competition wouldn't likely lead to concentration in fewer firms.

For general commodity carriers, O'Neal proposed two major changes. The first would shift the burden of proof in entry proceedings from the applicant to the protestant; an existing carrier who protested an application would have to demonstrate that the new authority wasn't warranted. The second change would allow individual truckers to lower or raise their rates within a specified zone without having to get approval from the ICC or from their trucking competitors.

The trucking industry reacted angrily. "We're seriously thinking of suing the ICC for trying to deregulate without benefit of law," said one industry member, reflecting the discussions that followed O'Neal's action at an industry convention. In addition, representatives of over fifty of the largest trucking firms and related businesses--including shippers, and bankers who provided financing for much of the industry--met in Chicago to develop a counterstrategy. They formed a group called Assure Competitive Trucking (ACT) and promptly circulated a petition calling for O'Neal's resignation.

At about the same time, the ATA began circulating among its executive board members a draft of compromise regulatory-reform legislation--legislation the industry trade group had developed in the hopes of heading off efforts at the ICC and on Capitol Hill toward more substantial reform. "The purpose of our proposal is to bring forth a positive position of the trucking industry that [will] answer many of the critics and at the same time alleviate the misconception that the ATA and its members are only in favor of the status quo," said C. James McCormick, a former ATA chairman. "We want to preserve the system through modernization."
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