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Who Protects the Consumer?
197
The first commissioner was Thomas Cooley, a lawyer who had
represented the railroads for many years. He and his associates
sought greater regulatory power from Congress, and that power
was granted. As President Cleveland's Attorney General, Richard
J. Olney, put it in a letter to railroad tycoon Charles E. Perkins,
president of the Burlington & Quincy Railroad, only a half-dozen
years after the establishment of the ICC:
The Commission, as its functions have now been limited by the
courts, is, or can be made, of great use to the railroads. It satisfies
the popular clamor for a Government supervision of railroads, at the
same time that that supervision is almost entirely nominal. Further,
the older such a commission gets to be, the more inclined it will be
found to take the business and railroad view of things. It thus be-
comes a sort of barrier between the railroad corporations and the
people and a sort of protection against hasty and crude legislation
hostile to railroad interests. . . . The part of wisdom is not to destroy
the Commission, but to utilize it.
4
The commission solved the long-haul/short-haul problem. As
you will not be surprised to learn, it did so mostly by
raising
the
long-haul rates to equal the sum of the short-haul rates. Everybody
except the customer was happy.
As time passed, the commission's powers were increased and
it came to exercise closer and closer control over every aspect
of the railroad business. In addition, power shifted from direct
representatives of the railroads to the growing ICC bureaucracy.
However, that was no threat to the railroads. Many of the bureau-
crats were drawn from the railroad industry, their day-to-day
business tended to be with railroad people, and their chief hope
of a lucrative future career was with railroads.
The real threat to the railroads arose in the 1920s, when trucks
emerged as long-distance haulers. The artificially high freight
rates maintained by the ICC for railroads enabled the trucking
industry to grow by leaps and bounds. It was unregulated and
highly competitive. Anybody with enough capital to buy a truck
could go into the business. The principal argument used against
the railroads in the campaign for government regulation—that
they were monopolies that had to be controlled to keep them from
exploiting the public—had no validity whatsoever for trucking.

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It would be hard to find an industry that came closer to satisfying
the requirements for what the economists call "perfect" com-
petition.
But that did not stop the railroads from agitating to have long-
distance trucking brought under the control of the Interstate
Commerce Commission. And they succeeded. The Motor Carrier
Act of 1935 gave the ICC jurisdiction over truckers—to protect
the railroads, not the consumers.
The railroad story was repeated for trucking. It was cartelized,
rates were fixed, routes assigned. As the trucking industry grew,
the representatives of the truckers came to have more and more
influence on the commission and gradually came to replace rail-
road representatives as the dominant force. The ICC became as
much an agency devoted to protecting the trucking industry from
the railroads and the nonregulated trucks as to protecting the rail-
roads against the trucks. With it all, there was an overlay of
simply protecting its own bureaucracy.
In order to operate as an interstate public carrier, a trucking
company must have a certificate of public convenience and neces-
sity issued by the ICC. Out of some 89,000 initial applications
for such certificates after the passage of the Motor Carrier Act of
1935, the ICC approved only about 27,000. "Since that time . . .
the commission has been very reluctant to grant new competitive
authority. Moreover, mergers and failures of existing trucking
firms have reduced the number of such firms from over 25,000 in
1939 to 14,648 in 1974. At the same time, the tons shipped by
regulated trucks in intercity service have increased from 25.5 mil-
lion in 1938 to 698.1 million in 1972: a 27-fold increase."
5
The certificates can be bought and sold. "The growth in traffic,
the decline in number of firms, and the discouragement of rate
competition by rate bureaus and ICC practices have increased the
value of certificates considerably." Thomas Moore estimates that
their aggregate value in 1972 was between $2 and $3 billion
6
—a value that corresponds solely to a government-granted monopoly
position. It constitutes wealth for the people who own the certifi-
cates, but for the society as a whole it is a measure of the loss
from government intervention, not a measure of productive capac-
ity. Every study shows that the elimination of ICC regulation of

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199
trucking would drastically reduce costs to shippers—Moore esti-
mates by perhaps as much as three-quarters.
A trucking company in Ohio, Dayton Air Freight, offers a spe-
cific example. It has an ICC license that gives it exclusive permis-
sion to carry freight from Dayton to Detroit. To serve other routes
it has had to buy rights from ICC license holders, including one
who doesn't own a single truck. It has paid as much as $100,000
a year for the privilege. The owners of the firm have been trying
to get their license extended to cover more routes, so far without
success.
As one of their customers, Malcolm Richards, put it, "Quite
frankly I don't know why the ICC is sitting on its hands doing
nothing. This is the third time to my knowledge that we have sup-
ported the application of Dayton Air Freight to help us save
money, help free enterprise, help the country save energy. . . .
It all comes down to the consumer's ultimately going to pay for
all this."
One of the owners of Dayton Air Freight, Ted Hacker, adds:
"As far as I'm concerned, there is no free enterprise in interstate
commerce. It no longer exists in this country. You have to pay the
price and you have to pay the price very dearly. And that not only
means that we have to pay the price, it means the consumer is
paying the price."
But this comment has to be taken with a real grain of salt in
light of a comment by another owner, Herschel Wimmer: "I have
no argument with the people who already have ICC permits ex-
cepting for the fact this is a big country and since the inception
of the ICC in 1936, there have been few entrants into the business.
They do not allow new entrants to come into the business and
compete with those who are already in."
We conjecture that this reflects a reaction we have encountered
repeatedly among railroad men and truckers: give us a certificate
or grant us a waiver of the rules, yes; abolish the issuance of
certificates or the system of government regulation, no. In view
of the vested interests that have grown up, that reaction is entirely
understandable.
To return to railroads, the ultimate effects of government inter-
vention are not yet over. The increasingly rigid rules prevented

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railroads from adjusting effectively to the emergence of auto-
mobiles, buses, and planes as an alternative to railroads for long-
distance passenger traffic. They once again turned to the govern-
ment, this time by the nationalization of passenger traffic in the
form of Amtrak. The same process is occurring in freight. Much
of the railroad freight trackage in the Northeast has in effect been
nationalized through the creation of Conrail following the dra-
matic bankruptcy of the New York Central Railroad. That is very
likely the prospect for the rest of the railroad industry as well.
Air travel repeated the railroad and trucking story. When the
Civil Aeronautics Board was established in 1938, it assumed con-
trol over nineteen domestic trunk line carriers. Today there are
even fewer, despite the enormous growth in air travel, and despite
numerous applications for "certificates of public convenience and
necessity." The airline story does differ in one important respect.
For a variety of reasons—not least the successful price cutting
across the Atlantic by Freddie Laker, the enterprising British
owner of a major international airline, and the personality and
ability of Alfred Kahn, former chairman of the CAB—there has
recently been considerable deregulation of air fares, both ad-
ministratively and legislatively. This is the first major move in any
area away from government control and toward greater freedom.
Its dramatic success—lower fares yet higher earnings for the air-
lines—has encouraged a movement toward some measure of
deregulation of surface transportation. However, powerful forces,