The Nature of Transport Policy

Author: Dr. Brian Slack and Dr. Theo Notteboom

1. Policy and Planning

The terms "policy" and "planning" are used very loosely and are frequently interchangeable in many transport studies. Mixing them together is misleading. Policy and planning represent separate parts of an overall process of intervention. There are circumstances where policy may be developed without any direct planning implications, and planning is frequently undertaken outside any of direct policy context. However, precise definitions are not easily come by. The following definitions are here used:

Transport policy deals with the development of a set of constructs and propositions that are established to achieve particular objectives relating to social, economic and environmental development, and the functioning and performance of the transport system.

Transport planning deals with the preparation and implementation of actions designed to address specific problems.

Thus, transport policy can be concomitantly a public and private endeavor, but governments are often the most involved in the policy process since they either own or manage many components of the transport system. Governments also often perceive that it is their role to manage transport systems due to the important public service they provide in addition to impose a regulatory framework. Yet, many transport systems, such as maritime and air transportation, are privately owned. The private sector thus has much leverage into the policy process through its asset allocation decisions, which reflects in new public transport policy paradigms.

Public policy is the means by which governments attempt to reconcile the social, political, economic and environmental goals and aspirations of society with reality. These goals and aspirations change as the society evolves, and thus a feature of policy is its changing form and character. Policy has to be dynamic and evolutionary.

A major distinction between the planning and policy is that the latter has a much stronger relation with legislation. Policies are frequently, though not exclusively, incorporated into laws and other legal instruments that serve as a framework for developing planning interventions. Planning does not necessarily involve legislative action, and is more focused on the means of achieving a particular goal.

2. The Relevance of Transport Policy

Transport policies arise because of the extreme importance of transport in virtually every aspect of economic, social and political activities of nation states. Transport is taken by governments of all types, from those that are interventionalist to the most liberal, as a vital factor in economic development. Transport is seen as a key mechanism in promoting, developing and shaping the national economy. Many regional development programs, such as the Appalachia Project in the US and the 1960s and the contemporary Trans-European Networks (TENs) policy in the EU are transport-based. Governments also seek to promote transportation infrastructure and services where private capital investment or services may not be forthcoming. Paradoxically, academics question the directness of the links between transport and economic development.

Transport frequently is an issue in national security. Policies are developed to establish sovereignty or to ensure control over national space and borders. The Interstate Highway Act of 1956, that provided the United States with its network of expressways, was formulated by President Eisenhower on the grounds of national security. Security was at the heart of the recent imposition of requirements on document clearance prior to the departure of freight from foreign countries to the US.

Transport raises many questions about public safety and the environment. Issues of public safety have for a long time led to the development of policies requiring driving licenses, limiting the hours of work of drivers, imposing equipment standards, establishing speed limits, mandating highway codes, seat belts and other accident controls. More recently, environmental standards and control measures are being instituted, in response to the growing awareness of the environmental impacts of transport. Examples include banning leaded gasoline and mandating catalytic converters in automobiles.

Transport policy has been developed to prevent or control the inherent monopolistic tendency of many transport modes. Unrestrained competition leads to market dominance by a company thereby achieving monopoly power. Such dominance brings into question many issues affecting the public interest such as access (in a port would smaller shipping lines be excluded?), availability (would smaller markets continue to receive air service by a monopoly carrier?) and price (would the monopolist be in a position to charge high prices?).

Other reasons for policy intervention include the desire to limit foreign ownership of such a vital industry for concerns that the system would be sidetracked to service more foreign than national interests. For example, the US limits the amount of foreign ownership of its domestic airlines to a maximum of 49%, with a maximum of 25% control. Other countries have similar restrictions.

In recent years, four trends had significant consequences over the context in which transport policy takes place:

Deregulation and privatization.
A more broad focus of policies, particularly in light of intermodalism and multimodalism.
A move towards social and political issues behind transport projects as opposed to technical and engineering issues.
Globalization increased interactions at the international level, both for freight and passengers.

3. Policy Instruments

Governments have a large number of instruments at their disposal to carry out transport policy. Some are direct, such as public ownership, while others are indirect such as safety standards:

An extremely important instrument is public ownership. The direct control by the state of transportation infrastructure, modes or terminals is very widespread. Most common is the provision by public agencies of transport infrastructure such as roads, ports, airports and canals. Public ownership also extends to include the operation of transport modes. In many countries airlines, railways, ferries and urban transit are owned and operated by public agencies.
Subsidies represent an important instrument used to pursue policy goals. Many transport modes and services are capital intensive, and thus policies seeking to promote services or infrastructure that the private sector are unwilling or unable to provide may be made commercially viable with the aid of subsidies. Private railroad companies in the Nineteenth Century received large land grants and cash payments from governments anxious to promote rail services. In the US, the Jones Act, that seeks to protect and sustain a US-flagged merchant fleet, subsidizes ship construction in US shipyards. Indirect subsidies were offered to the air carriers of many countries in the early years of commercial aviation through the awarding of mail contracts. Dredging of ship channels and the provision of other marine services such as pilotage and navigation aids are subsidies to facilitate shipping. Both public ownership and subsidies represent instruments that require the financial involvement of governments. Revenue generation is becoming an increasingly important instrument in transport policy.
Regulatory control represents a means of influencing the shape of transportation that is very widely employed. By setting up public agencies to oversee particular sections of the transport industry, governments can influence the entire character and performance of the industry. The agencies may exert control on entry and exit, controlling which firms can offer transportation services, at what prices, to which markets. Thus while the actual services may be offered by private firms, the regulator in fact plays a determining role. Regulatory agencies in the US such as the Civil Aeronautics Board played a critical role in shaping the US airline industry for decades.
Many governments are major promoters of research and development in transportation. Government research laboratories are direct products of state investments in R&D, and much university and industry R&D is sustained by government contracts and programs. The fruits of this research are extremely important to the industry. It is a vital source for innovation and the development of new technologies such as intelligent vehicles and intelligent highway systems.
Labor regulations pertaining to conditions of employment, training, and certification may not be directed purposefully at influencing transport, but as a policy they may exert a significant effects over the industry.
Safety and operating standards, such as speed limits, may have a similar effect. The restrictions on limiting the number of hours a truck driver may work may be instituted for safety reasons and for enhancing the working conditions of drivers, but they shape the economics of truck transport. In the same fashion speed limits help fix the distance of daily trips that one driver may undertake, thereby shaping the rate structure of the trucking industry.

4. Trends in Policy Development

Public policies reflect the interests of decision makers and their approaches to solving transport problems. These interests and approaches are both place specific (they apply to a particular area of jurisdiction) and time specific (they are established to reflect the conditions of transport and the intended solutions at a point in time). Policies change and evolve as conditions change and as new problems are recognized; they are dynamic. The dynamic nature of policy is reflected in the way the policy instruments have been employed over the years. In the Nineteenth Century, when many of the modern transport systems were being developed, the prevailing political economy was one of laissez-faire, in which it was believed that the private sector should be the provider of transport services and infrastructure. Examples of private transport provision include:

Turnpikes. The first British modern roads in the 18th century were the outcome of private trusts aiming a deriving income from tolls on roads they built and maintained. It was likely the first massive private involvement in transport infrastructure provision.
Canals. Many of the earliest canals were built with private capital. One of the first canals that helped spark the Industrial Revolution in Britain was the Bridgewater Canal, built by the Duke of Bridgewater between 1761 and 1765 to haul coal from his mines to the growing industrial city of Manchester.
Urban transit. In most North American cities public transit was operated by private firms. The earliest examples were horsecars that followed rail lines laid out on city streets. With electrification at the end of the 19th century, the horsecars were converted to streetcars and the network was greatly expanded. In the 20th century busses were introduced by private companies operating on very extensive route systems.
Ships. Most maritime shipping companies were private enterprises. Many were family businesses, some of which became large companies, such as the Cunard Line in the UK, MSC in Switzerland, or Maersk in Denmark. The main government involvement concerns military navies and ferries.
Railways. Railways were developed by private companies during the 19th century, including companies as Canadian Pacific and Union Pacific. In North America this has continued to the present day.

This situation was not completely without public policy involvement, however. The massive subsidies that were granted to US and Canadian railroads are an example of state intervention. In the early 20th the overprovision of rail lines, competition between carriers and market failures led to a crisis in many parts of the transport industry, particularly after 1918. This led to a growing degree of government involvement in the transport industry, both to offset market failures, jurisdictional conflicts and to ensure that services could be maintained for the sake of the "public good":

In many cities private bus companies were taken over by municipally controlled transit commissions in the 1930s and 1940s.
The airline industries in many countries were placed under the control of a national public carrier, for example Air France, Trans Canada Airlines, and British Overseas Airways Corporation.
Railways were nationalized in Europe after World War Two, and in the US, after the collapse of the Penn Central Railroad and several other lines, a publicly-funded passenger system (Amtrak) was set up, and a publicly owned freight railroad was established (Conrail).

Many segments of the private transport sector were eventually captured by the government. In addition to the public ownership of transport modes, there emerged in the 20th century a growing amount of regulatory control. The belief in liberal markets with little public interference was seriously reconsidered after the crash of 1929 and the economic downturn of the early 1930s. From that moment on governments were incited to extend the scope of their responsibilities. The public sector was an important trigger for the reconstruction of Europe in the aftermath of World War II (e.g. the Marshall plan), for the modernization of the industrial structure and for economic growth. Economic and social measures were directed towards the creation of the welfare state. The period from the 1940s to the 1970s were characterized by nationalization when socialist ideology was put into practice throughout the world. For example, the European transport industry saw the emergence of large national companies in public transport, freight rail, ferry services, deepsea shipping and the airline industry. These large nationalized companies could mobilize new sources and technologies, thereby contributing to the national objectives of economic growth and full employment.

While centrally planned economic systems (such as the Soviet Union, Eastern Europe and China) involved a complete control by the public sector, governments in Western Europe and North America were also major players in the market through market control systems up to the full nationalization of industries considered to be of strategic importance to economic development and external trade. The airline and the trucking industries saw entry limited by permits, and routes and rates were fixed by regulatory boards that had been set up to control the industries. At the same time greater safety regulations were being imposed and working conditions were increasingly being shaped by labor legislation.

By the 1960s, therefore, transportation had become under the sway of public policy initiatives that exerted an enormous influence on the industries and their spatial structures. At the same time, there was also a growing body of evidence that indicated that public ownerships and regulation were not always in the public interest. Transportation costs that were fixed by the regulatory authorities were maintained at higher levels than were necessary. Research demonstrated that many regulatory boards had been "captured" by those they were supposedly regulating, so that they were frequently acting to protect the industries rather than the public. At the same time there was a crisis of public finances in many countries, where the costs of operating the state owned transportation industry were seen to be unsustainable. The theory of contestability repudiated traditional economic theory concerning monopoly power by arguing that the threat of entry of a new actor was sufficient to thwart a monopolist’s ability to impose monopoly pricing. The key, therefore, is to relax entry thresholds, by allowing new firms to start up, a process that regulatory boards were impeding.

This evidence was brought into the public policy arena by politicians who espoused market-oriented views, notably President Reagan in the US and Prime Minister Thatcher in the UK. Although President Carter had initiated the first steps towards deregulation in the US in the mid-1970s, it was in the 1980s during the Reagan presidency that trucking, the airline industry, and the railways were largely deregulated. In the UK, in addition there has been a massive move to privatize most sectors of the transport industry, including state and most municipally-owned bus companies, the national airline, trucking, the railway, airports and most seaports.

Deregulation and privatization policies have spread, unequally, to many other parts of the world. New Zealand has perhaps the most open transport policy, but many others, such as Canada and Australia have made significant steps in this direction. In the EU, the pace of deregulation and privatization is proceeding unevenly. Subsidies to state owned transport companies have been terminated and many airlines have been privatized. The government-owned railroads still exist in France, Germany, Italy and Spain, but the tracks have been separated from the traction and rail service operations, and have been opened up to new service providers. In Latin America, most of the state-owned transport sector has been deregulated. While the former centrally-planned states have had to make the furthest adjustments to a more open market economy, several, such as China, have opened up large sections of the transport industry to joint ventures with foreign private enterprises. In China, many new highways and most of the major ports are being developed with private capital. Thus, at the beginning of the 21st Century, transportation is under less direct government economic control worldwide than at any period over the last 100 years.

5. Changing Nature of Policy Interventions

The recent trends in transport policy towards liberalization and privatization have not necessarily weakened government interventions. Controls over monopoly power are still in place, and even in the most liberal of economies there is still strong evidence of public policy intervention even in such capitalist countries as the US, for example:

Ownership of ports and airports. Terminals continue to be largely under State or municipal ownership, but concession agreements to private operators are common. Thus, the Port of Los Angeles is a department of the City of Los Angeles; the port of Hampton Roads is owned by the Virginia Port Authority; New York’s three major airports are owned by the Port Authority of New York and New Jersey.
Highway provision, upgrade and maintenance remains one of the most significant and enduring commitment of public funds. However, the general public tends to perceive infrastructure investment as a waste of public funds mainly because of an history of earmarks and allocation to trivial or even frivolous projects.
Urban transit systems remain dominantly publically owned and operated. Intercity is mostly private, which brings the question about if city transportation would gain to be privatized.
Mergers and acquisitions between large private or public entities in the transport sector are commonly subject to regulatory approval. The Surface Transportation Board, the regulatory agency controlling the railways, refused to sanction the proposed merger between Canadian National and Burlington Northern and Sante Fe Railroads in 2002. This was the first time in 20 years that the regulator had turned down an application for merger. It cited concerns of concentration of ownership.

Government policy orientations have changed, however. Governments are beginning to exert greater control over environmental and security concerns, issues that are replacing former preoccupations with economic matters. For instance, because of biofuel policies aiming at ethanol production using corn, the unintended consequence was a surge on global food prices as more agricultural land was devoted for energy production instead of food production. The environment is becoming a significant issue for government intervention. Coastal zone legislation has made it increasingly difficult for ports to develop new sites in the US. Air quality is a major factor influencing the allocation of US federal funds for urban transport infrastructure. In Europe, environmental issues are having an even greater influence on transport policy. The EU Commission is promoting rail and short sea shipping as alternatives to road freight transport. Projects are assessed on the basis of CO2 reduction. All transportation projects are subject to extensive environmental assessments, which may lead to a rejection of proposals, despite strong economic justification. As a major source of atmospheric pollution and environmental degradation, the transportation industry can anticipate many further government environmental policy interventions.

Safety has always been a policy issue. Legislation imposing speed limits, mandating seat belts, and other measures have sought to make travel safer. These continue to proliferate. However, it is the area of security that the most recent set of policy initiatives have been drawn. Screening of people and freight has become a major concern since 9/11. Both the US government and such international organizations as the International Maritime organization (IMO) and the International Civil Aviation Authority (ICAO) have instituted new measures that impact on operations, and represent additional costs to the transport industry.

While there may have been some reduction of policy involvement involving economic regulations, the influence of public policy on transport overall is still powerful but contentious at times. It must be acknowledged that capital investment by government in transport infrastructure commonly follows multiple and sometimes conflicting policy goals. For instance, short terms policy goals of job creation are usually incompatible with long term goals such as economic growth and energy efficiency. The usual outcome is that projects with multiple policy goals reduce their economic benefit.