mentally compatible, and politically secure ocean transportation system for importing petroleum and natural gas. Proposals to earmark part of U.S. petroleum imports for shipping in U.S. flag ships-so called cargo preference legislation-are currently the subject of considerable controversy because of potential costs to consumers. a. Maritime subsidies The Maritime Administration has spent over $3 billion since enactment of the Merchant Marine Act of 1936 for ship construction and operating differentials. These subsidy programs have been the object of consistent criticism almost from their inception. They have been blamed for the economic decline of the U.S. merchant fleet and shipbuilding industry. One observer claims that the 1936 act tried to do with subsidies what technology does for other American industries competing in the world market.15 A National Academy of Sciences study in 1960 concluded that the subsidy system, as it now stands, is actually hindering maritime progress, since there is little incentive for U.S. shipbuilders to undergo the rigors of cost cutting, capital formation, and bureaucratic entanglements when they receive subsidies in lieu of competition.16 Maritime programs follow a long history of Federal involvement in the U.S. merchant marine industry aimed at achieving national security and economic objectives. During World War I the Congress enacted the Shipping Act of 1916 which established a federally financed merchant ship construction program primarily for national defense purposes. During the economic depression of the mid-1930's, the Merchant Marine Act of 1936 expanded the Federal role to include economic assistance to the merchant marine. The present maritime programs grew out of programs established by the Merchant Marine Act of 1936. The Merchant Marine Act of 1970 was enacted by the Congress in response to the continued deterioration of the U.S. merchant marine. The 1970 act considerably modified Maritime's programs to encourage increased productivity and efficiency. Nevertheless there has been little progress in developing a self-sufficient, economically competitive U.S. maritime industry. The recent controversy over cargo preference legislation graphically illustrates the maritime industry's continuing dependence on Government subsidies as an essential element in its economic survival. Determining whether our national security and domestic economic objectives justify the continuation of maritime subsidies is a difficult issue, and is only partially clarified by economic analysis of financial costs and benefits. 8. PIPELINE REGULATION Although the pipeline industry carries one-fourth of all intercity freight ton miles as much as the trucking industry-it has received comparatively little public attention. In recent years, however, increased public attention has been given to the environmental aspects of 15 Kohlmeir, op. cit., p. 141. 16 Proposed Program for Maritime Administration Research, Vol. I: Summary, Prepared by the Maritime Research Advisory Committee, National Academy of Science-National Research Council, Washington, D.C. (1960). pipelines. Concern for the environment was a major factor in the controversy over the Alaska pipeline and is a current factor in the issue of coal slurry pipelines in the western United States-which might have adverse effects on scarce regional water supplies. The economic impact of pipelines on competitive modes such as the railroads has also become a topic of increased concern, most recently in the controversy over proposed Federal legislation giving eminent domain powers to coal slurry pipelines. Petroleum and coal slurry pipelines are regulated by the Interstate Commerce Commission, while natural gas pipelines are regulated by the Federal Energy Regulatory Commission. In general, economic regulation of pipeline transportation is less comprehensive than regulation of the motor carrier and railroad industries. For example, the Interstate Commerce Commission does not require petroleum pipelines to obtain certificates of public convenience and necessity in order to construct or operate pipelines. Petroleum pipelines are not subject to common carrier restrictions on carrying the products of their owners. Also, ICC does not exercise jurisdiction over such aspects of pipeline operation as issuing securities; forming interlocking directorates; mergers and consolidations; and abandoning lines. C. EFFECTIVENESS OF CURRENT STRUCTURE: SOME DEFICIENCIES Our survey of current issues demonstrates that the Nation's transportation problems are becoming increasingly complex and interdependent. Our national standards for the quality of transportation are substantially higher and more difficult to achieve than they were at past periods in our history-in such areas as personal mobility, speed and comfort, environmental cleanliness and compatibility, and safety. Meanwhile, the Nation's historically rapid growth in economic productivity and wealth has slowed, leaving a relatively smaller economic pie to divide among our growing population. Finally, many natural resources which formerly seemed abundant and cheap have become scarce and expensive-petroleum, clean air, clean water, and open land. One of the most obvious examples of the increasing complexity and interdependency of our transportation problems is found in the difficult transportation issues presented by the energy crisis. The close relationship between transportation and energy was dramatically illustrated by the October 1973 Arab embargo on oil shipinents to the United States. During the petroleum shortage which followed the oil embargo and the subsequent rapid escalation in gasoline prices, millions of American motorists received a painful lesson on the economic importance of energy for transportation. In the continuing energy crisis, the U.S. transportation system plays three important roles: (1) a vital economic sector for which adequate energy supplies at economically efficient prices must be assured; (2) a prime target for national energy conservation efforts; and (3) a major element in the energy materials distribution system. As the Arab oil embargo fuel shortage demonstrated, the supply of energy is an essential factor of production in transportation; without energy, the transportation system cannot function. But the price of energy also plays a major part in transportation industry economics. 24-275 O - 78 - 13 The substantial and sudden increases in gasoline prices in 1973 seriously affected consumer demand for new automobiles during the 1974 and 1975 model years and contributed to the economic recession. In the railroad industry, fuel and power costs doubled in size in 1974increasing by $582 million and reducing the industry's total 1974 net income by more than one-third. Price increases on aviation fuelfrom 12 cents per gallon in July 1973 to 36 cents per gallon in July 1977-have similarly contributed to recent aviation industry financial difficulties. Because transportation is a major user of energy resources, it has become a primary target in national efforts to conserve energy. The U.S. transportation system is the Nation's second largest consumer of energy, accounting for 31 percent of total net energy inputs. The automobile alone accounts for approximately 40 percent of U.S. petroleum consumption, and its fuel consumption characteristics offer significant opportunities for saving fuel. In addition, increasing public attention is being focused on the possibilities for energy conservation through increased use of energy-efficient transportation modes such as mass transit, railroads, and inland waterways. Finally, the U.S. transportation system plays a vitally important role in distributing energy materials throughout the economy. Railroads, pipelines, highways, inland waterways and supertankers form a complex transportation network through which coal, petroleum and natural gas are distributed to refineries, industries, utilities and consumers. Economic inefficiencies in the energy transportation network are inevitably reflected in the delivered price of energy materials, and thus in the price of energy as a factor of production. In the long run, the productivity of the U.S. economy will be strongly influenced by the efficiency with which we plan and operate the energy transportation network. Our complex and interdependent transportation energy problems illustrate why the Federal Government needs consistent transportation goals and a co-ordinated organizational structure. In our view, the fragmentation of Federal policies and agency responsibilities has played a major role in preventing comprehensive planning for transportation energy problems. For example, no single agency is primarily responsible for Federal planning and decision-making regarding the interdependencies and trade-offs among (1) auto fuel economy standards, (2) auto emission standards, and (3) auto safety standards. Responsibility for these interdependent problems is divided among the Department of Energy (energy conservation goals), the Environmental Protection Agency (emission standards), and the Department of Transportation (fuel economy and safety standards). None of these agencies is given the leadership role in developing a coordinated Federal response to auto fuel economy, emission and safety. Instead, each subject is addressed in a separate program guided by a separate Federal policy. The potential for conflict is immense, and has become a reality. For example, smaller cars get better gas mileage and are more vulnerable in high-speed accidents: cleaner cars get worse gas mileage. In short, ignoring the interdependencies among our transportation problems does not make them disappear-and frequently creates even worse problems. In reviewing the panorama of complex and interdependent transportation problems that currently face the Nation, and the responses that the Federal Government is making to those problems, we identified several deficiencies in the present structure of Federal transportation policies, agency jurisdiction and responsibilities. In our view, those deficiencies are preventing the Federal Government from responding effectively to our transportation problems, and must be corrected in order to meet our current and future national transportation needs. Deficiencies in considering multi-modal impacts First, the present policy and organizational structure does not require and tends to discourage, systematic consideration of intermodal and multimodal impacts in planning Federal transportation programs. For example, the Department of Transportation is responsible for financial assistance to the Nation's railroads under the Railroad Revitalization and Regulation Reform Act of 1976. But some of the most important Federal decisions bearing on the future economic viability of the railroads are not the responsibility of the Department of Transportation. Rather, they are the province of the independent Interstate Commerce Commission, which has forced railroads, in effect, to subsidize small shippers, shippers of some bulk commodities, and shippers on some lightly used branch lines, with freight rates lower than operating costs. Meanwhile, competition from trucks, pipelines and barges has made cross-subsidation economically unworkable, by diverting and forcing down freight rates on the profitable traffic and routes intended to provide the cross-subsidy. Decisions to improve the inland waterway system are the responsibility of the U.S. Army Corps of Engineers, but waterway improvements are likely to have major economic impacts on competing railroads. Similarly, the granting of eminent domain powers for coal slurry pipelines-which would seriously impact on railroad coal transportation plans-is the responsibility of the Secretary of Interior under legislation presently before the Congress (H.R. 1609). The Department of Transportation has interests in waterways and the coal slurry pipeline, but the Department lacks the authority to require systematic consideration of potential impacts on the railroads or any other mode by the Corps or the Secretary of the Interior in their planning and decision-making. Moreover, there is no generally applicable set of Federal goals and priorities against which such decisions can be measured. Each must be decided on the basis of separate and potentially conflicting policies for the inland waterway system, and for eminent domain through the public lands. As a result, Federal assistance for the railroads must be administered as if the development of inland waterways and of coal slurry pipelines are external, random and uncontrollable events— which the Department of Transportation can anticipate but cannot influence. Airline regulation by the CAB is another example of failure of overall planning. The CAB has never attempted to coordinate aviation policy with highway or railroad or waterways policy. Instead of planning for overall air transportation needs, the CAB has operated on a case-by-case basis, handing out routes "when airline business is good and refusing to hand out any when business is bad." 17 James M. Landis, in his landmark report on regulatory agencies prepared for President-elect John F. Kennedy, found that this approach has resulted in a "hodge-podge of routes;" 18 rather than a planned and coordinated system. Others believe that CAB regulation has retarded the development of aircraft technology, especially by preventing increased industry strength through merger of aircraft manufacturers and domestic airlines. It is also claimed that: "CAB regulations have discouraged the development of multimodal air transport companies.20 Some contend that multimodal companies could improve service to and from airports, but that the CAB has not urged the airlines to develop such service or to develop more efficient short haul, intercity airline service. Although short trips are uneconomic for large aircraft, the CAB has not been able to induce airlines, local governments, and aircraft producers to use smaller aircraft for more efficient service over these hauls.21 A recent report by the Comptroller General has concluded that the CAB subsidy program "needs complete revision." 22 It found that the program finances airline losses incurred in serving small communities "without regard to the appropriateness of routes..." or the adequacy of service from "unsubsidized airlines and its proximity to large airports." 23 The granting of subsidies apparently also ignores the existence of other modes of transportation service to particular cities. Little planning or thought is given to overall transportation policy when granting subsidies to a particular airline. Highways have cut into airline business in many cities, yet the CAB subsidy program for small communities continues unabated. One observer has remarked: There is no reason to believe that the conflict between highway and airway policy will, in the long run, be resolved other than by more Federal highway construction and larger Federal subsidies for airlines. Similarly, history offers no assurance that highway planning will be cut back because of the automobile's conflict with railroad transportation or urban transit. To the contrary, the solution to these conflicts already is being charted: more federal subsidies for the railroads and for urban mass transit.24 Deficiencies in budget allocations The present fragmented policy and agency structure tends to prevent an equitable and efficient balancing of national needs in the allocation of funds to Federal transportation programs. Although 17 Kohlmeier, op. cit. p. 166. 18 Landis, James M.: Report on Regulatory Agencies to the President-Elect, p. 42. 19 Almarin, Phillips, Technological Change in Regulated Industries, p. 130. Cited at p. 247, ACIR. Toward More Balanced Transportation. 20 Arthur D. Little, Inc. Aviation Development p. 79 ff. cited ACIR p. 48. 21 Ibid. Report to the Congress by the Comptroller General. Why the Federal Airline Subsidy Program Needs Revision (CED-77-114), Aug. 19, 1977. 23 Ibid. Kohlmeier, op. cit., p. 166. |