The Staggers Rail Act: deregulation makes growth

Hayeon Kim

By to 1970s, the railroad industry has proved to be an integral method of communication of not just goods, but ideas, transnationally. However, by the 1980s and after the Great Depression and World War II, the interstate highway system and airlines were beginning to increase in popularity and take firms out of the industry. Regulation had forced private railroad firms with price controls and to take certain routes that were not profitable.  In competition, the railroad industry was failing under heavy regulation by the government. The Staggers Rail Act of 1980 proved to be a significant step toward deregulation. President Carter assured his confidence to the public:

By stripping away needless and costly regulation in favor of marketplace forces wherever possible, this act will help assure a strong and healthy future for our Nation’s railroads and the men and women who work for them. It will benefit shippers throughout the country by encouraging railroads to improve their equipment and better tailor their service to shipper needs. America’s consumers will benefit, for rather than face the prospect of continuing deterioration of rail freight service, consumers can be assured of improved railroads delivering their goods  with dispatch.

Carter signed the Staggers Rail Act as an extension of his railroad deregulation proposal to Congress a year earlier with the intention of strengthening the falling industry. Carter had the intention of benefiting shippers throughout the country and improving the production of goods throughout markets in America. In support of the act were railroad management and labor, automobile, steel, coal, and other companies, retail stores, farm organizations, railroad management, and environmental representatives. Deregulation of railroads was the next step after airlines and trucking industry. Airlines saw new improvement in services while price competition and service improvement have occurred in the trucking industry.

The Staggers Act came with the rising call for reform in the railroad industry and in fact, the railroad was one of the last major economic industries that became deregulated. In the 1940s and 1950s, the industry struggled with the regulation as competition was limited. Major signs for a need in the shift from regulation to deregulation were first in the 1970s when major Northeast railroads neared bankruptcy.

President Carter acknowledged the severe situation with the railroad industry and the needed to deregulate. In 1979, its rate of return on net investment was 2.7 percent, significantly lower than comparable industries that had over 10 percent return. The number of railroad bankruptcies has increased and the fixed costs in the short run loss-minimizing firms have exhausted billions of Federal dollars to stay afloat. Times called for a need of industry freedom, as they had been suffocating under the overregulation by the Federal Government. Freeing the railroad industry with the Staggers Rail Act allowed companies to set appropriate rates. Competition within the industry increased which brought about economic efficiency and social benefits. The act also authorized expansion and revision of current programs that financed railroad projects. Federal funds were expected to be directed as much as possible to the reconstruction of railroads.

Deregulation of the economy began when Carter appointed Darius Gaskins and Marcus Alexis to the Interstate Commerce Commission (ICC), and it saved the railroad industry.  In comparison to the deregulation of airlines, railroad, and trucking, as well as private businesses, the railroad industry show the steepest pre- and post-deregulation productivity growth. The total factor productivity growth for the railroad industry averaged 3.7 percent annually between 1980 and 2008, outpacing the growth experienced by airlines, trucking, and private firms. The growth is reflective of Carter’s success in signing the Staggers Act into action and moving towards deregulation which proved to be successful at what the times called for. Because of the increased productivity and competition in the railroad industry, costs of producing freight transportation have significantly decreased. Those who contend that Carter’s implementation of his deregulation policy proved to be ineffective fail to see the significant growth and few periods of industry decline since the Staggers Act was signed.

When Carter was faced with a dying industry with a 20 percent rate of firms filed for bankruptcy, he acted with the Staggers Rail Act in 1980 and quickly saved the industry. Because railroads transported coal, wheat, lumber, and other raw materials to allow the possibility of electricity, bread, construction for new homes, and production of other goods, preservation of the railroad industry was not only an economic achievement, but also one of American spirit.

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