Deregulation: When Fast Wasn’t Fast Enough
Deregulation: When ‘Fast’ Wasn’t Fast Enough Following The Motor Carrier Act of 1980
The Motor Carrier Act of 1980 created a highly competitive environment which allowed the capitalists to maneuver into a position where they could dictate market prices. Whereas the 1935 Act gave the power to dictate prices to the government, the 1980 act put the power firmly in the hands of the shippers. Deregulation replaced regulation, lobbied using the same vernacular, the same cries that this was in the best interest of the economy, the same reasoning and same commissions. The scheme was so masterfully executed, that trucking companies did not even realize that there was an option to control their own industry. What’s more, the revised version of the Motor Carrier Act changed, in one piece of legislation, what was previously a monopoly into perfect competition.
The Deregulation Leader
Every great movement has its leaders, and the movement of greed by way of the Motor Carrier Act of 1980 and the deregulation it enforced was led by such names as Darius W. Gaskin.
Accusations were made against Darius W. Gaskin, the chairman of the Interstate Commerce Commission, or I.C.C., for driving truckers into the biblical Lion’s Den of competition, stripping them from protective regulations and in so doing exposing them to complete destruction. Gaskin, a zealous man, noted that competition was the best market regulator and was defined as a person who “enjoys remarkable success in persuading others to accept his economic views”. An article published in the New York Times explains that at the end of the 1970s he influenced airline deregulation for the Civil Aeronautics Board, crude oil pricing decontrol for the Department of energy, and trucking deregulation by the Interstate Commerce Commission.
In his office at the Interstate Commerce Commission, with his boots on his coffee table, Mr. Gaskins explained his philosophy was to cut back regulation in all his jobs. In testimony before Congressional committees he pushed for all of the reforms embodied by the latest iteration of the Motor Carrier Act of 1980.
Mr. Gaskins taught at the University of California at Berkeley before leaving in 1973 for a job with the Interior Department. He became the director of the Bureau of Economics at the Federal Trade Commission in 1976 where he influenced major rule changes and deregulation. The following year Alfred E. Kahn hired him for the newly created Office of Economic Analysis where he urged his employer to provide deregulation for airlines immediately. After he succeeded in deregulating the airlines he worked for the Energy Department in 1978 where he convinced the department that regulating oil prices was hurting the entire country and only with deregulation through the National Energy Plan could changes be completed.
Thereafter he was appointed to the Interstate Commerce Commission, an appointment heavily opposed by the American Trucking Association which went on record asking, “how can someone who doesn’t believe in regulation be an effective regulator?”
Profit Drops for Truckers
His efforts, and those of likeminded individuals resulted in the passing of the Motor Carrier Act of 9180 and with it, complete devastation for the trucking industry in the form of market saturation.
In September 1980, price policies knocked 14% from trucker annual profits, resulting in demands for rate increases and higher layoffs.
A recent recession resulted in a substantial decline for trucking freight volume across the nation. Organizations representing regulated companies went to the Interstate Commerce Commission to seek approval for increased rates between 2.5% and 4.7% while concurrently contending with companies engaging in rate cutting and reductions.
Paul Schuster, president of Schuster Express Inc., noted that the ”I.C.C. had better grant the increase if they want to keep us in business.”
During that same year an official from the Interstate Commerce Commission argued that “while the economic downturn has led to a significant downturn in motor carrier traffic volume as measured in tons or ton-miles, the impact on motor carrier revenues and profits has been less severe than a brief look at the volume statistics would indicate.”
Without help, trucking executives resorted to layoffs, cost-cutting measures and a few succumbing to bankruptcy. Bennett C. Whitlock Jr., president of the American Trucking Associations, gave a speech in Washington to transportation experts where he noted that the rising cost of labor and fuel “indicate that the industry as a whole is earning… entirely too close a margin.”
The American Trucking Associations, headquartered in Washington, represents over 17,000 carriers and trucking organizations and they fought hard against the I.C.C. and all of its deregulation, attempting to keep the trucking industry afloat.
The Motor Carrier Act of 1980, passed the previous summer, under the guise of fostering competition, eased the rules for the trucking industry exacerbating the negative impact of the recession of 1973 and 1974 from which truckers were able to rebound. The figures indicate that at the beginning of 1978, the freight industry was carrying 980 million tons of freight and 1979 became prosperous as well. It was at the start of 1980 that things began to change.
Deregulation Throughout the Industry
By October of 1980, deregulation was blazing through the transportation industry. It was argued that the government, which had since the previous iteration of the Motor Carrier Act tightly regulated the trucking industry, was responsible for costly Inn efficiencies which now this essited the exact opposite behavior: unfettered deregulation.
The idea was planted in economics study groups from the 1950s onward but did not gain support in Washington until the beginning of the 1970s.
What was the purpose of such unfettered deregulation?
To force a change in the existing market structure. The Motor Carrier Act of 1980 forced a change in market structure from a monopoly to perfect competition, from complete control in the hands of the monopolitic Interstate Commerce Commission to an atomistic and dangerous free for all which still stripped shippers and trucking companies of any fair right to set rates. This was its intent, while the previous iteration of the bill under the same name, the Motor Carrier Act of 1980, was designed to force a market structure change to a monopoly.
By forcing the market to shift to perfect competition the characteristics of the industry became the exact opposite of a monopoly, allowing thousands of new shippers into the market, opening free entry and eliminating all price control. Wealthy capitalists were still guaranteed profits by way of the larger shippers in which they invested, larger shippers who would always retain the best prices regardless of the economy while smaller companies would be forced to cut their costs and efficiency to compete.
It started with smaller industries of transportation like airlines in 1978 with the passage of the airline deregulation act. This was designed to purportedly encourage competition by reducing Federal controls over the assignment of routes and fares.
Alfred E. Khan, the then-head of the President’s Council on Wage and Price Stability, and chairman of the Civil Aeronautics Board in 1977 and 1978 was an outspoken proponent of deregulation.
Urged forward by people like Khan, President Carter signed the Motor Carrier Act of 1980 reducing controls over interstate trucking which was allegedly designed to make it easier for truckers who change their routes, change their tariffs, and enter into the business whereas the previous iteration of the same act, under the same name, sought to restrict entry into the business, smother rates and tightly control routes.
That same year came railroad deregulation by way of the Staggers Rail Act of 1980. This, similarly, provided railroads with the flexibility to sign contracts with freight shippers, get rid of undesirable routes, and set their rates.
Supporters of deregulation like Khan argued that it would increase efficiency and result in billions of dollars in savings for truckers, airlines, and railroads. President Carter said that it was crucial to reduce inflation and spur competition.
The Carter Administration worked with banking executives to advocate for partial deregulation elsewhere such as the Federal Communications Commission and the banking industry. The push for increased deregulation in many other tangential sectors paints a picture of those same banking executives seeking personal control over their financial decisions, the government regulation on their communications, and their interests in shipping.
The International Brotherhood of Teamsters argued that the Interstate Commerce Commission had, by 1981, already exceeded Congressional intent by establishing overarching deregulation laws. These rules were resulting in such a saturated market that competition took the form of instability for trucking companies who, as Al Gardner, the then vice president of traffic, noted “might get business for a time, but they won’t keep it”. He went on to explain that a shipper can now lose a customer with a simple delay, breakdown of equipment, or damaged shipment leading to long term instability and a lack of reliable business for any one company.
One can have too much of a good thing. In this case, that good thing was, and is, competition.
By 1982, 5,122 new truck companies had registered with the Interstate Commerce Commission and existing motor carriers filed over 18,700 applications for new routes. Freight profits were falling by between 10 and 20%. John Ruan, president of the Ruan Transport Corporation noted that, “deregulation has turned the industry upside down and the recession has magnified its effects”, creating a free-for-all.
Many of these new entrants into the industry were small, non-union trucking companies with wages an average of 20 to 30% lower than the comparative union companies. The result was that union truckers lost significant market shares, some between 20%, and drivers were out of jobs.
Reports and Political Pressure
Senator Howard W. Cannon, chairman of the Senate Commerce Committee warned Federal regulatory agencies in 1979 to be cautious in their moves for complete deregulation, himself an avid supporter of deregulation. He emphasized that deregulations especially for the trucking industry needed to undergo meaningful, regulatory reform dictated by congress, not by individual committees. And yet, individual committees continue to wield their power.
He was not alone. Fred Thayer, professor of public and international affairs at the University of Pittsburgh, warned that “in the economically deregulated industries, intensive competition promotes wholesale violation of the rules because people feel compelled to cheat.”
Daniel O’Neal Jr, chairman for the Interstate Commerce Commission said in January of 1979, “ I don’t believe in deregulation. I think we need improved regulation to get the kind of competition that will help the trucking industry and shippers” and yet, within a few months he became a leader for deregulation, approving major proposals that saturated the competitive market. He was asked by industry leaders to remove himself from participation in Interstate Commerce Commission proceedings relating to deregulation because he was so biased in favor of deregulation. Such swift flips in regulatory viewpoints became commonplace as lobbyists, politicians, and the wealthy capitalists who controlled them applied their influence.
Reese H. Taylor, a former lawyer specializing in regulatory matters, was appointed as chairman to the Interstate Commerce Commission by President Reagan in 1981, and testified before Congress and in meetings across the nation in support of deregulation, with illustrations and narrative analogies.
But his support was clearly not adequate enough.
By February of 1982, the Joint Economic Committee of Congress demanded that the new Reagan Administration give the Interstate Commerce Commission more guidance for encouraging additional competition in the trucking industry.Consisting of 20 members, 3/4 of the committee or 15 members of Congress signed a report that suggested new members be appointed to the Interstate Commerce Commission who favored “more competition and less regulation in trucking”. Robert Dahlgren, a chief spokesman for the committee noted that only half of the members, 10 of those who signed the report, did so without reservation. The 5 remaining members who signed did so later. It is important to note that the 20 person committee was comprised evenly of 10 democrats and 10 republicans.
This report came as a rebuff to Reese H Taylor, the acting chairman of the Interstate Commerce Commission who, when prompted to encourage mass deregulation from the Motor Carrier Act of 1980, gave testimony before a Congressional committee that he had no guidance from the Reagan Administration and as such would not pursue strict deregulation enforced by the Interstate Commerce Commission particularly in light of the decades of regulation for which the Interstate Commerce Commission had been responsible.
When Taylor did not act accordingly, the economic committee concluded in its report that he “abandoned the goal of a freely competitive trucking market and has moved to reverse the progress toward deregulation which has recently been made. This policy contradicts the intent of the Congress embodied in its passage of the 1980 Motor Carrier Act. It is also at odds with the philosophy of the administration of President Ronald Reagan on the general subject of regulatory reform.”
In this report, severe criticism of Taylor explained that the Interstate Commerce Commission, after the passage of the Motor Carrier Act of 1980, opened the trucking industry to all newcomers who were “fit, willing and able”. The report said that Taylor expressed concern over “predatory pricing” because of mass deregulation, that he attempted to hire regulatory staff and hold hearings on new applications, “rather than allowing them freedom to expand” immediately.
Taylor went on to warn, “It will be awfully hard for smaller trucking companies to stay in business trying to match 50% discounts by the bigger companies. People who worry about entry should realize now that predatory pricing is a big ball game because there cannot be competition if the smaller companies cannot survive.”
Taylor combated the accusations by noting that the Interstate Commerce Commission was “moving at a steady pace to implement and administer the reforms envisioned by Congress in passing the motor carrier Act of 1980”, but that “contrary to some impressions [the act] does not allow the I.C.C. carte blanche to eliminate all trucking regulations.”
Taylor was progressively implementing deregulation in a methodical and legal fashion, approving 90% of the applications for expanded trucking, and as a direct result was publicly chastised. Congressional members influenced by their constituents of wealthy capitalists asked for direct presidential intervention to remove Taylor from his post because he was not implementing mass deregulation at a speed they demanded.
This attack against Taylor for being too slow to commit to deregulation was also applied to Mark S. Fowler, chairman of the Federal Communications Commission who Alfred E. Khan thought seemed “willing to open the field to competition” ; behavior Khan noted was juxtaposed by the slower progress of Taylor.
Robert G. Shepherd, Chief of Staff to Mr. Taylor explained that the American Trucking Associations and the Teamsters Union had criticized the Interstate Commerce Commission deregulating too quickly, and that such reregulation would threaten union jobs. Taylor also noted that the Interstate Commerce Commission had already exceeded the requirements for deregulation by the Motor Carrier Act of 1980. He added, “The trouble is, people expect me to enforce the bill they wanted, not the one that passed.”
Mr. Taylor criticized Darius W. Gaskins and Marcus Alexis, former I.C.C. members for “liberally handing out operating licenses to trucking companies, often issugin even broader rights than applicants requested”.
In spite of his Pro-competition policy, failure to move as quickly as certain politicians and their wealthy capitalist backers demanded resulted in Republican administration officials nominating four new members for the Interstate Commerce Commission who favored deregulation and would more readily implement demands of Republican committees.
Forcing a faster speed for implementation of a shift in market structure from a monopoly to perfect competition, the proponents of deregulation fought hard to expedite changes brought about by the Motor Carrier Act of 1980. Their lobbying and political efforts left a lasting, detrimental impact on the trucking industry.