Transportation and Liberalization

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 rateuser 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?