Many Americans have probably forgotten how heavily regulated the U.S. transportation industry was two decades ago. Airlines, truckers, railroads - all were under the stifling hand of government control.
So what has the outcome been since the transportation industry was largely deregulated?Despite painful adjustments, the experiment has been a success and the public is enjoying lower prices and improved service. That should come as no surprise. Competition always works better than regulation.
A study released recently by Clifford Winston of the Brookings Institution shows that deregulation is saving consumers about $30 billion to $40 billion a year. Those are billions, not millions.
How is this possible?
Government regulations certainly protected profits by limiting competition. Routes and franchises were controlled to keep out newcomers in areas already being served. The downside was that government control also raised company costs.
When transportation was deregulated, profits went down in the face of competition and some firms failed to survive the losses. But most found ways to be more efficient, cut costs, adjust rates and eventually do better than before.
Under regulation, railroads were a dying industry. Deregulation gave railroads more freedom, lowered operating costs and allowed railroads to charge rates more related to volume, length of haul and other business considerations. The result was lower rates to many customers - although not all - and more profitability for the railroads.
In trucking, competition reduced profits faster than it cut costs. Profits are not as high as they once were. But the industry is still making money and consumers are saving an estimated $15 billion a year.
Airlines have gone through a rough time, particularly in recent years. But most of the blame has been laid on poor business decisions and mindless fare wars often triggered by airlines continuing to operate behind bankruptcy protection and trying to generate quick cash flows.
As the former communist countries are discovering, going from a regulated economy to a free market economy can be painful. But once the transition is made, nobody would want to go back. Formerly regulated U.S. firms say the same thing.