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Transportation and Liberalization

Transportation and Liberalization. Definitions, Issues, and Trends . Regulation and Public Ownership. Through the 1970s government policy toward transport summarized as: 1. Interest in protecting customers and employees by using quality and safety controls 2.Controlling quantity of services

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Transportation and Liberalization

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  1. Transportation and Liberalization Definitions, Issues, and Trends

  2. Regulation and Public Ownership • Through the 1970s government policy toward transport summarized as: • 1. Interest in protecting customers and employees by using quality and safety controls • 2.Controlling quantity of services • 3. Controlling price of services • 4. Regulating entry of new transport operators

  3. Forces for Change • 1. High costs of regulation • 2. New ideology- regulators pursuing self interests, e.g. creating contestable markets • 3. Inflation and economic depression posed problems • 4. Demonstration effects from elsewhere showed that deregulation revealed no disastrous effects

  4. A Glossary • Deregulation-removal or weakening of legal controls permitting more free exercise of market forces • Privatization-allowing private sector to assume control of enterprises • Structural Adjustment- series of economic policies designed to reduce the role of government in an economy and increase market incentives

  5. Forms of Privatization • 1. Charging - where there is partial or total replacement of subsidy provision by forcing users to pay a more economic or market rate—user bears more of the actual cost • 2. Contracting Out- services still funded by public sector but are being provided under contract –after open competition-by private firms • 3. Denationalization-where there is a transfer of state-owned enterprises into the private sector

  6. Deregulation in U.S. Transport • Railroads-1976 • Airlines- 1978 • Motor Carriers- 1980 • Buslines- 1982

  7. Intentions of Airline Deregulation • Make airlines more competitive • Offer larger reductions in average fares • Provide new lower fare and quality options • Be more efficient • Force airlines to reconsider undertaking cost inflating operations • Develop more efficient networks: hub and spoke • Eliminate severe financial distress

  8. Theory of Liberalization • Theory of Contestable Markets (Baumol) suggests that entry into transport market of new operators is key to efficiency and welfare maximization • Regulation responsible for increasing prices by limiting competition • Contestable markets are those in which entry is free and exit is costless • Used to underpin ideological moves to deregulate and privatize • Theory challenged as outcome of liberalization has been oligopolistic control instead of competition

  9. Consequences of Liberalization • Differed widely across various modes Why? • 1. Variations in external market conditions • 2. Depression followed 1978 Act • 3. Air traffic controllers strike • 4. Interactive effects between modes- trucks compete with rail • 5. Effects on fares and freight rates? • 6. Changes in structure: no frills carriers, hub and spoke networks • 7. Social regulation-safety suffered?

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