US railroads

Railroad companies change the rules

We shown before how US railroads
have shrunk in the last few decades from dozens to four, two companies
that dominate the West and two that dominate the East. Traditional
economics would see this as an opportunity for rigging prices for their
customers, and this has doubtless happened, within the limits of
competition with the trucking alternative. The big companies presumably
also have economies of scale.. But the often overlooked power of
oligopolies is in their ability to change the rules,

That's well documented in a recent New York Times
article (“For Railroads and the Safety Overseer, Close Ties”,
11.7.2004). The Federal Railroad Administration (F.R.A.) has the
responsibility of overseeing the railroads, particularly in terms of
safety. Safety is not only a threat in terms of freight trains
derailing (a headache for the shippers), but in terms f chemical spills
and environmental hazards, as well as grade crossing accidents where
people get killed. Lax track inspection and trains pushed to run beyond
safe speeds cause many accidents.

The article talks about the way in which inspectors at the agency
have been called on the carpet by their managers every time they have
tried to fine or otherwise punish companies like union Pacific or CSX
that have notoriously bad safety records. For example, Union Pacific
has five derailments in Texas of hazardous or environmentally harmful
materials in one year. The stated reason from the higher-ups objections
is the administration policy of “partnerships” with the private sector
to co-operatively rather than punitively correct problems. But the real
issue seems to be cronyism.

As the article puts it,

Critics of the agency say that it has, over the years, bred an
attitude of tolerance toward safety problems, and that fines are too
rare, too small and too slowly collected… The ties between industry and
regulator are many-layered.

The problems cited include:

  • The head of the agency is a longtime friend of the railroad's
    Washington lobbyists, and regularly takes vacations together with that
  • One inspector was offered the agency's chief safety office a
    lucrative job *(over $300,000) while he was investigating the company,
    a job he subsequently took.
    The railroad industry is a major contributor to the Republican Party, with Union Pacific one of the top ten corporate donors.
  • Vice President Dick Cheney was a member of Union Pacific's board before he was elected vice president.
  • The agency spends much of its money promoting the railroad industry, and ever less time regulating it.

Buying influence and getting favorable treatment is an age-old
problem. But the existence of oligopolies, lobbyists, big campaign
money, and revolving doors has become institutionalized and pretty much
shameless over the past few decades. The big railroads now manage to
reduce the cost of safety compliance and government interference in a
way unseen since the days of the railroad barons. Changing the rules
can be a much more cost-effective than following them. [Oligopoly Watch]

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