The Consequence of Government Regulation
What Happens When Government Regulates Industry
Fascinating article in today's (Sep 13) "Financial Times" - "US Railroads Creak Under Weight of 21st Century". Couple of extracts from the article.
"But much of the rail infrastructure in the US dates back many decades. Some of the lines are single track, built to move troops during the Civil War, unsuited to the modern era in which trains generally use double tracks that allow travel in both directions.
The rail system's weaknesses have been cruelly exposed this year as the US experiences all-time record freight volumes."
Basically, the rail system is suffering from a massive lack of investment. And the reason for this?
"The STB acknowledges that the rail industry cannot invest on a large scale, pointing out that its cost of capital is about 9.4 per cent, yet its return on invested capital is only 6.8 per cent."
The STB is the government regulator, the "Surface Transportation Board". For decades, if not more, the industry has been hobbled by government regulation with restrictions on profitability. Not surprisingly, if a business is not allowed to make an acceptable profit, people will not invest! We're now seeing the result.
The same dynamic is at work in other industries such as the power business. The blackouts in the USA earlier this year were largely the result of lack of investment as a consequence of government regulation.
The consequences of over-government and the welfare state are starting to emerge and the bills from past folly are starting to be presented.
Fascinating article in today's (Sep 13) "Financial Times" - "US Railroads Creak Under Weight of 21st Century". Couple of extracts from the article.
"But much of the rail infrastructure in the US dates back many decades. Some of the lines are single track, built to move troops during the Civil War, unsuited to the modern era in which trains generally use double tracks that allow travel in both directions.
The rail system's weaknesses have been cruelly exposed this year as the US experiences all-time record freight volumes."
Basically, the rail system is suffering from a massive lack of investment. And the reason for this?
"The STB acknowledges that the rail industry cannot invest on a large scale, pointing out that its cost of capital is about 9.4 per cent, yet its return on invested capital is only 6.8 per cent."
The STB is the government regulator, the "Surface Transportation Board". For decades, if not more, the industry has been hobbled by government regulation with restrictions on profitability. Not surprisingly, if a business is not allowed to make an acceptable profit, people will not invest! We're now seeing the result.
The same dynamic is at work in other industries such as the power business. The blackouts in the USA earlier this year were largely the result of lack of investment as a consequence of government regulation.
The consequences of over-government and the welfare state are starting to emerge and the bills from past folly are starting to be presented.
posted by Kevin Francis at
5:02 pm
