The Interstate Commerce Commission appears across three episodes of The Bob Zadek Show as the earliest federal body to set the rates and routes of a private industry, cited by guests as the origin of the public utility model and as a case study in regulatory capture.
Origins and the railroad rate question
In the 2019-07-21 episode with John Marini on Unmasking the Administrative State, Randall Holcombe places the Commission’s creation in 1887 alongside the Supreme Court’s Munn v. Illinois decision of 1877. He notes that before Munn v. Illinois, government had no right to interfere with private economic transactions between individuals, and that the case marked the first time the courts said the government had the right to dictate the terms of market transactions [[episodes/john_marini_on__unmasking_the_administrative_state|John Marini on Unmasking the Administrative State (2019)]]. The Interstate Commerce Act, passed in 1887 largely to regulate railroads, followed from the same idea, and Holcombe describes it as an effort in what was thought to be the interest of the general public: for the federal government to control rail rates and rail routes and so forth.
Holcombe then states the capture thesis directly. Because the general public does not have much knowledge and does not have the time to learn what is going on, the Interstate Commerce Commission, along with other government agencies, ends up being controlled by the economic elite, and he says it actually works against the general public [[episodes/john_marini_on__unmasking_the_administrative_state|John Marini on Unmasking the Administrative State (2019)]].
Bob Zadek’s framing in the same exchange treats Munn as a problem of majority voting: there were politically more farmer voters than grain elevator operators, so the grain elevators were denied the right to offer a service at a price the market would judge. He extends the logic to rent control and minimum wage law, cases where there are more renters than landlords and more voting employees than voting employers, calling the resulting policies a form of vote-buying [[episodes/john_marini_on__unmasking_the_administrative_state|John Marini on Unmasking the Administrative State (2019)]].
The Kingsbury Commitment and cross-subsidization
In the 2015-11-18 episode with Bill Frezza on the history of telecom innovation, Frezza describes a competitive telephone industry at the turn of the twentieth century, with dozens of companies wiring up the country and invention coming from all over. He recounts that the first electromechanical switch was developed by an undertaker — the Strowger switch — after the competing undertaker’s wife, who was the town’s phone operator, routed his calls to her husband Bill Frezza’s History of Telecom Innovation (and Not) (2015). All of this, he says, was vibrant and innovative until about 1913, the era of the trustbusters.
Frezza then explains AT&T’s strategy of buying up local phone companies by offering to connect them to its long-distance network while refusing to connect their competitors, which would die on the vine. Sued by the government for antitrust, AT&T made a deal called the Kingsbury Commitment, which Frezza calls the foundation of the public utility model in telecom, and then the electrical and gas industries, for basically a hundred years Bill Frezza’s History of Telecom Innovation (and Not) (2015). The deal, as he characterizes it, asked for a monopoly as the only legal phone company in the country in return for wiring up the whole country and charging the stockbroker downtown the same price as the farmer in Iowa, even though it costs ten times as much to serve the farmer, by cross-subsidizing the system. Frezza states that this was codified over time between 1913 and 1934, when the FCC was formed, and that the Interstate Commerce Commission got involved Bill Frezza’s History of Telecom Innovation (and Not) (2015).
Zadek calls the arrangement a huge cross-subsidy and a wealth transfer: the urban dweller or business person pays a hidden tax that is transferred to the farmer in Iowa and cannot do anything about it if they want a phone. He then asks whether the same structure underlies Obamacare and banking in America, arguing that governments learned long ago that private business can be made to do their bidding by having it be the tax collector Bill Frezza’s History of Telecom Innovation (and Not) (2015).
The Commission and the decline of passenger rail
In the 2020-04-24 episode with Randal O’Toole on transit nationalization, O’Toole says that in the late 1950s it was pretty clear intercity passenger trains were fading away and the railroads were losing money on them, and that the Interstate Commerce Commission had written that they expect they’ll all disappear by 1970 — which, he says, was almost true if it weren’t for the fact that the government took them over Never let a good crisis go to waste (2020).
O’Toole describes the sequence that followed: in 1958 Congress wrote a law making it easier for railroads to drop intercity passenger trains, expecting it to apply to trains like Chicago to New York or Chicago to Los Angeles, but railroads also used it to drop commuter trains in Boston, New York, Chicago and Philadelphia, among a few other cities. Downtown areas depended on those commuter trains because there were too many jobs downtown for people to come in by automobile, and O’Toole characterizes the resulting political response as a way to protect downtown property owners. Congress then passed a law to help subsidize any state or local government that took over those commuter trains, but since it could not pass a law protecting only four or five cities, it extended subsidies to any city or state that took over any public transit — buses, trains, cable cars, anything Never let a good crisis go to waste (2020).
O’Toole states that the law was passed in 1964, that as of that year the vast majority of the transit industry was private and profitable, and that within five years almost every city had taken over its transit system and subsidies started pouring in. He describes the later shift to building expensive rail lines to replace cheaper buses, and complains that transit agencies became land-use czars dictating where people could live and work so they might ride the trains. He calls the result a double subsidy, criticizes the $50 billion spent subsidizing transit, and argues the coronavirus exploded the myths around transit, which he says makes people more vulnerable to viruses, is more vulnerable to terrorist attacks, and does not help in natural disasters the way cars do Never let a good crisis go to waste (2020).
Across episodes: capture, not a single trajectory
The topic is argued in two distinct registers. The 2015-11-18 episode with Bill Frezza treats the Interstate Commerce Commission as one station in the codification of the utility monopoly model, arriving after the 1913 Kingsbury Commitment and before the FCC’s formation in 1934. The 2019-07-21 episode with Randall Holcombe and the 2020-04-24 episode with Randal O’Toole approach it instead through the capture thesis and through its forecast about passenger trains, respectively; the 2019-09-25 episode with Holcombe repeats the same Munn v. Illinois and Interstate Commerce Act passage, including his statement that the Commission ends up being controlled by the economic elite. The excerpts show no development in the argument between the earlier and later treatments: the same capture claim is advanced by Holcombe in both his appearances, while Frezza supplies the pre-FCC institutional history and O’Toole supplies the Commission’s expectation that intercity passenger trains would disappear by 1970.
What the sources do not cover
The excerpts do not describe the Commission’s internal structure, its membership, its formal statutory powers beyond the general phrases used by the guests, or the date of its abolition. They do not state what Munn v. Illinois held beyond the state of Illinois being permitted to regulate grain elevator rates, nor which constitutional provision any of the cited cases or statutes turned on. The final exchange in the 2015-11-18 episode breaks off mid-section, so the “Seven Apps” discussion is not available.