Thank you very much. I will be happy to answer any questions, you may have. Mr. JARMAN. Thank you Mr. Scoggin. I think it is an interesting commentary the part of your statement that is directed toward the importance of considering the relationship between a high level of performance on the part of the industry and its requirement for added rolling stock. You have taken the position that simply adding the rolling stock is not going to solve all the problems. On page 6 of your statement you refer to urgings made to the ICC that some system of reasonable standards of service be met with penalties to apply when carriers fail to adhere to such standards. In the Amtrak amendments of last year we gave the ICC the authority to set standards for passenger trains. In that regard we alsoprovided for incentives as well as penalties. Would you consider that a possible approach in the freight transportation? Mr. SCOGGIN. Mr. Chairman, our approach to the Commission has implied on our part that the Commission has adequate authority to require such standards of performance to be imposed upon railroads. I am not aware that the Commission has taken the position that they do not have that power although that may perhaps be in the cards. If there is any question about the power of the Commission to impose such standards, then perhaps such legislation would be very appropriate. As I say, we have taken the position they already have it. Mr. JARMAN. I understand. The aspect of it that I was referring to was the possibility of incentives being worked into the attainment. of those standards that we are talking about. Does that not sound like a possibility to you? Mr. SCOGGIN. I think that is true, the carrot as well as the stick, yes, sir. Mr. JARMAN. Thank you very much. Mr. ADAMS. I have only one question, Mr. Scoggin: I agree with your statement that utilization is as important as production of cars, in the sense that just simply additional cars won't solve the problem. I am a little concerned about your statement on pages 7 and 8. The proposal that was made was simply for the publication of rates, rather than the regulation of rates. I do have a little question about why anybody should worry about rates being published, so that shippers who are not in dominant economic position are not able either to control or drive down rates of individual water carriers as opposed to what could be done by small businessmen. I wonder why there is some opposition to at least knowing what everyone else is doing. All the provision in the bill requires is publication. It doesn't say you can't change them. Mr. SCOGGIN. The bill, as I remember it, required publication according to rules to be prescribed by the Interstate Commerce Commission. I know, at least in the past proposals of this sort have suggested, that there not only must be a publication of rates that may have moved traffic but that rates be published in advance and they can't be changed unless there has been 39 days' notice of such rates. It seems to us entirely likely that the rules that would be prescribed by the Commission might include those things which would place a great deal of rigidity into the rate structure of the water carriers that would be quite undesirable today. They can make a spot rate now that reflects the market conditions transportation today which we find is a desirable thing from the water standpoint. We think that the rate publishing requirements might make us lose that flexibility and thereby lose the flexibility that is so important in water transportation today. I don't know of anyone in our industry who is opposed to a dis'closure of the rates that actually require our commodities to be moved but it is a loss of the flexibility in rate publication that we are concerned about. Mr. ADAMS. Thank you. Mr. Chairman, I have no further questions. Mr. JARMAN. Our final witnesses today sitting as an environmental consumer panel, are Mr. Leonard Lane of the Sierra Club, Mr. Allen Ferguson, economist, representing the Public Interest Economic Center, and Miss Aileen Gorman, representing the National Consumer Congress. STATEMENTS OF ALLEN R. FERGUSON, PRESIDENT, PUBLIC INTEREST ECONOMICS CENTER; LEONARD LANE, IN BEHALF OF THE SIERRA CLUB, ENVIRONMENTAL POLICY CENTER, AND FRIENDS OF THE EARTH; AND BRIAN LEDERER, NATIONAL CONSUMERS CONGRESS Mr. LANE. Mr. Chairman, I am Leonard Lane, Washington Representative of Sierra Club. To my left is Allen Ferguson. Hopefully Mr. Brian Lederer, representing the National Consumers Congress will be here briefly. The changes in the subcommittee schedule have necessitated some changes in our own schedule. Mr. JARMAN. I understand. You may proceed in your own style. Mr. LANE. I believe it might be best if Dr. Ferguson, who is going to address some of the specific questions concerning the legislation before the committee, begin our presentation. Mr. JARMAN. Dr. Ferguson. Mr. FERGUSON. Mr. Chairman, I will make no effort to read this long statement I have. I would like to summarize it and try to hit some of the highlights. As you see, I still have some of my professorial proclivities when it comes to prose. Mr. JARMAN. The committee will be glad to make the statement a part of the record in full [see p. 726]. STATEMENT OF ALLEN R. FERGUSON Mr. FERGUSON. I am Allen R. Ferguson. I am president of the Public Interest Economics Center here in Washington. I have spent most of my professional life in what one might call policy economics with more emphasis on transportation than any other field. I have had various university and governmental and private and for profit and not for profit corporation experiences. I will not burden you with the details. Public Interest Economics Center is a not for profit public interest corporation and its purpose is to involve economies systematically in various aspects of public policy decisions with the intent of advancing the public interest as we see it. Its activities fall into four main categories, research, education, liaison function, and legislative program which has involved in the past presenting panels of economists to testify before congressional committees. It is obvious that there is no unique definition of the public interest. We have no golden tablets in the backroom that have that definition. emblazoned upon them. What we try to do is to present high quality economic testimony from professionals who have no financial or other material interest in whatever the issue at hand may be, in the hope that this will provide a somewhat different and hopefully some better level of dialog than is often available. In my testimony I shall attempt to answer three questions pertaining to the surface transportationable and the Transportation Improvement Act: What changes are now needed to help the Nation out of its present transportation problem and to assure a more efficient transportation system in the future? How well do these two bills meet these needs? And how can the bills be improved to better serve the public interest? In doing so I shall concentrate on TIA rather than STA. There is no point in going over the history of what is wrong with the problems of the railroad industry now but let me simply point out that the most traumatic problem at the moment is the fact that the railroad system in the industrial Northeast is bankrupted and that there is some danger of massive abandonments and even liquidation of this whole system. This raises a tremendously intriguing question and that is how has national policy performed this black magic of turning a vital economic asset into a nonviable economic system? I think at this point there are really only three choices that the Nation has. We can continue to sort of muddle along, doing the best we can with patches here and there or we can move toward nationalization which would impose on the taxpayers as a whole the cost of the inefficiency of the existing system and which would simultaneously assume the present owner and creditors and their heirs of unearned income at public expense in the indefinite future. The third option is that we can try to make the market system work effectively in the transportation sector. It is my personal judgment that at this time the third is clearly the best of the options. Furthermore, even if we were to move to nationalization, many of the same kinds of things would have to be done if a nationalized system were in fact going to operate in the public interest. There are several very specific needs in the area of regulation. In general there is a need for greater flexibility, in particular rate flexibility, also in entry and exit, particularly entry of new carriers into transportation markets and I would say particularly in that area of the motor carriage. Abandonment should be facilitated but with economically sound ratemaking most of the rail lines that are candidates for abandonment, and which are important to the communities they serve would in fact be made profitable. There are some other things besides ratemaking that are important but that is one of the key considerations. In addition to regulatory reform there is need to reduce the subsidization of carriers competing with the railroads and to find ways of reducing inefficient use of manpower while protecting the legitimate interest of present employees. I shall not in fact go into those two things in any depth this morning. Now, the question is how does STA and TIA cope with these real problems. TIA is a small basically sound step in the right direction. STA, I think, is counterproductive in large part in the area where it disagrees or is different from TIA. Neither bill deals with the problem of subsidization of competing modes or with the problem of internal inefficiency of the carriers. I just want to say a couple of things about STA. First, I think it is worth making explicit the fact that it is a little bizarre to have the Congress of the United States seriously considering STA. This is a bill which was prepared by those groups which stand to gain financially from the changes that are under discussion. Yet, it is presented seriously for public consideration. In title I it provides financial support for the proponents of the bill. Titles II and VI eliminate some standard irritants and they may be quite all right. Titles IV and V really seek to prevent effective competition and hence to prevent efficient operation of the transportation system. Title III deals with railroad abandonments. STA ignores the fact that regulation has prevented effective competition and has contributed to the present threatened demise of each of the railroad systems. Its chief section on rates calls for raising them and calls for doing so in what is a most inefficient way. Section 406 may be useful. With regard to TIA, I want to emphasize first that it is widely agreed among disinterested students of transportation that regulation as it is currently practiced is grossly inefficient and inequitable. Public Economics Center circulated to 450 economists throughout the country, and of all political persuasions, a statement about regulation and the TIA. That statement I want to read from and it is appended to my formal statement. It was signed by 94 economists. One economist objected to it and one economist suggested what I consider to be a minor modification. Both the objection and the modification are included with the statement that I have submitted for the record. I would like to read that statement, keeping in mind that it got favorable response from nearly 25 percent of the economists to whom it was circulated. The regulatory practices of the Interstate Commerce Commission, as authorized and required in the Interstate Commerce Act, have contributed to gross inefficiency in the Nation's transportation system and, consequently, in the economy as a whole. ICC's meticulous regulation of railroad rates and charges has delayed and often blocked efforts of railroad management to meet competition from other modes, to introduce cost-saving technological change, to adjust to the dynamics of the market for transportation services, and in general to exploit the inherent advantages of rail transportation. The rate bureaus, as legalized cartels, have contributed to inefficiency by seeking to maintain monopolistic rates and by increasing greatly the rigidities of rates. The policies of imposing excessive regulation and of legalizing the rate bureaus have contributed to the situation in which several important railroads are now seeking Federal financial assistance. There is evidence that much of the financial difficulties of the railroads derive from being required to charge rates that are too high. Such excessively high rates tend both to force traffic off the railroads and deprive communities and shippers and consumers of rail service that could have been economically provided. Two important bills proposing changes in the economic regulation of transportation have been introduced, one by the administration, the Transportation Improvement Act of 1972 (TIA), and one by the regulated rail, motor and water carriers, the Surface Transportation Act (STA), which with some modifications by the House Commerce Committee has been introduced as H.R. 5385. The TIA is a modest step in the right direction; the STA is more an effort to forestall change than to induce improvement. Indeed, STA's solution to a policy that does not work is to strengthen that policy. We urge that Congress reject the STA, and while we approve the thrust of the TIA, we cannot offer an endorsement without the amendments suggested below. We believe that TIA retains several undesirable aspects of regulation and introduces some new ones. Therefore we oppose, and urge Congress to reject, those parts of TIA that: Permit the ICC to suspend rate decreases or to find rates too low on the grounds that they are unduly preferential or discriminatory under sections 2 and 3 of the Interstate Commerce Act. In other words, economists are basically urging if I may interrupt, Mr. Adams, what I am reading from is attached to my statement. Mr. ADAMS. That is what I was looking for. Mr. FERGUSON. Do you not have it? Mr. ADAMS. I did not. I do now. Mr. FERGUSON. I am sorry. Let me begin with the last three lines on page 1 of that statement then. We are urging that Congress reject those parts of TIA that, first, permit the ICC so suspend rate decreases or to find rates too low on |