Big Government is Back. What Does it Mean for Industry?
The COVID-19 crisis has rekindled America’s episodic and sometimes misguided love affair with massive government.
U.S. lawmakers thus far have spent $3 trillion (and counting) on emergency stimulus measures in response to the unprecedented economic shutdown. Still, despite the price tag and deficit impact, pollsters note that Americans are supportive of even more activism. A recent USA Today/Suffolk University poll found that 45 percent of respondents thought that government was doing too little. That is a margin of more than the 10% of respondents who felt government was doing too much.
Experts can quibble about the pros and cons of such government largesse — after all, it is not the business community’s fault that the virus shuttered much of the U.S. and global economies. But what is not up for debate is that our nation will be forever altered. Many firms will not survive, and many of those that do survive will bear deep scars and a kind of financial torpor that will dog their slow rise back to solvency.
With so much taxpayer treasure already distributed to businesses, and more likely to follow, it begs the question: Which industries have not received massive cash infusions? And further, why have these industries not needed taxpayer treasure, and what can we learn from them to be better prepared for the next crisis?
The answer is complicated, but those major sectors surviving the crisis are generally doing so thanks to a mix of sound public policies that have allowed an industry to operate efficiently both before and during the crisis, effective and nimble corporate management, and the ability to maintain social distancing among workers. Some examples to consider are package delivery services, as well as the broadband industry, “big tech” and information technology services.
As many employees work from home, students use broadband for distance learning, and consumers go online to shop, engage in video conferencing services and use telehealth services, Internet Service Providers (ISPs) and tech firms have met surging demand. This comes two years after the FCC reversed utility-style regulations that would have crippled industry investment and slowed industry nimbleness. Last week, these firms pledged to the FCC for a second time not to cut off broadband consumers for non-payment.
Another industry also stands out: private freight railroads that are deemed essential and continue to operate, despite sweeping impact to their sector. While railroads reel from a dramatic a decline in shipments and lost revenue, several freight railroads are reporting substantial liquidity, which is acting as a financial cushion against the free fall in the economy writ large.
Union Pacific officials project second-quarter carload volumes will be down 25 percent compared to the same period last year. “Although the situation remains unclear, UP expects to maintain sufficient liquidity to sustain an extended period of lower volumes,” the company said. The story is similar for other carriers.
This liquidity — which saves U.S. consumers and taxpayers from bailing out railroads to date — is no accident. It is the product of a regulatory system, led by the U.S. Surface Transportation Board, that to date has avoided utility-style rate or earnings regulation in the sector.
But that could change in the era of renewed government activism and if the governing elite confuse stepped-up regulations with actions that can nurture the recovery. Before the crisis struck, the agency was weighing a scheme whereby regulators determine how much money a railroad “should” earn in a year, and if that threshold is met then the government would begin imposing across-the-board utility-style rate regulation. The concern is that, post recovery, activists will use the opportunity to push it through.
When utility-style regulation of ISPs was reversed to FCC two ago, industry investment increased by billions of dollars. For railroads, the impact of imposing these regulations would have a devasting effect on liquidity. Railroads, like ISPs, are privately held companies and must invest billions of dollars annually to sustain the privately-owned network. Unlike highways, they receive no federal infrastructure assistance. But if rate caps are imposed, if railroads can’t earn enough revenue, then it stands to reason that investment in the rail network would fall, and quite likely so would its dependability and efficiency — just as companies that ship over rail will need those qualities during the hard slog back to economic recovery.
In short, unfettered by onerous regulations, traffic is moving across cyberspace and freight is being delivered. Looking across some key sectors that appear to be holding up as the economy plummets, it is clear that the nation’s supply chain would be in shambles if it were not for light-touch regulations that encourage investment and provide market stability. As some look to the government for solutions, it would be a mistake of historic proportions to tinker with what works and what keeps electronic and physical goods flowing across the country during this unprecedented epoch.
Steve Pociask is president for the American Consumer Institute, a non-profit educational and research organization. For more information about the Institute, visit www.TheAmericanConsumer.Org or follow us on Twitter @ConsumerPal.