Competition is one of those glistening ideals to which President Reagan seems devoted in theory but has a hard time swallowing in practice. Consistency is not necessarily a virtue, but this inconsistency strikes at the heart of his prospects for fashioning a workable economic program.
A central problem of modern democratic governments is their apparent inability to fight inflation with anything but tight money, slow growth and high unemployment. These are weak weapons. Democratic governments find it difficult to stomach the accompanying hardships for sufficiently long periods to squeeze inflation out of the system. So policy remains paralyzed: Anti-inflation crusades sputter out after only half succeeding, but faster growth falters because it rekindles inflation.
No one has found a clear exit from this trap. Much of inflation's momentum seems to stem from modern economic institutions, which provide protection against the normal disciplines of free markets. The system becomes immunized against anti-inflationary medicine. Restoring some discipline may represent the only hope of making the medicine work quicker and, therefore, better.
The White House does not yet seem to have grasped this. It is too prone to make short-term political accommodations at the expense of added competition. The first glaring example was the administration's heavy-handed effort to compel the Japanese to adopt "voluntary" quotas on auto exports. And now comes the nomination of Reese H. Taylor as chairman of the Interstate Commerce Commission.
Ordinarily, the Taylor selection would hardly merit notice. The ICC is a tiny agency (its 1981 budget is $79 million and its staff 1,900) that regulates trucking, railroad, bus and pipeline transportation. But the agency's current efforts to loosen regulation of trucking have major implications for inflation, and Taylor could slow or even reverse these policies.
Trucking isn't like other businesses. Ever since 1935, when Congress imposed ICC regulation, you couldn't simply buy a truck and offer to haul goods from one point to another at whatever price you chose.
First you had to get a certificate from the ICC that said what you could haul and where you could haul it. Few firms had nationwide authority. And then you had to file your rates with the ICC, which could approve or disapprove. Certain types of trucking were excluded from regulation, primarily the transportation of farm goods and the hauling by companies of their own goods. But these allowed to compete for other types of freight.
All this led to a mind-boggling compartmentalization of trucking into various specalties differentiated by their regulatory status. There were a lot of trucking firms (18,000 at last count), but competition was limited by the ICC regulations.
Regulations also created a protected enclave for the Teamsters Union, which is hevily represented among the big general freight truckers. The union customarily negotiated a national contract with many of the large truckers. These truckers then filed collective rate increases with the ICC -- a form of price-fixing sanctioned by the agency -- to cover the higher labor costs. This encouraged a vicious wage-price spiral.
What the ICC has done in the past few years -- first on its own and last year with the encouragement of Congress, which passed the Motor Carrier Act -- is to break down the artificial restrictions on competition. The agency has granted more operating certificates to truckers. New firms have entered and, more important, old ones have been unburdened of the silly limits on where they could travel and what they could carry. At the same time, the agency relaxed regulation.
The results have clearly justified the changes.
Facing competition, many truckers now offer large discounts for volume business -- from 6 percent to 20 percent, according to shipper reports. Many shippers now consolidate more freight into full truckload lots and divert business away from higher-cost "less-than truckload" operators. These truckers typically fill their trucks with a variety of smaller shipments.
One feared consequence of less regulation has not materalized: Service to small towns has not detiorated. Indeed, it may have improved. An ICC survey of companies in small communities reported that 13 percent found more freight service after Congress enacted the new trucking a law compared with 2 percent that found less service (85 percent saw no change).
The losers in this reform have been some of the older truckers and the Teamsters, and no one should be surprised by their loud complaints.
Shippers now can turn to nonunionized carriers if union firms are too expensive. They often are. Straight-time pay (excluding fringes and overtime) now exceeds $26,000 a year for drivers and, in the first two years of the current three-year contract, wages -- boosted by a generous cost-of-living clause -- have risen 35 percent. The Teamsters risk pricing themselves into oblivion; the union estimates that one-fifth of its truckers are on layoff (although many probably have jobs elsewhere).
All this works to the administration's advantage. Next year is a critical one in labor negotiations. Teamsters, auto workers, steel workers, electrical workers and rubber workers will negotiate contracts. Anything that induces more modest settlements will slow the wage-price spiral. And company savings in transportation costs will diminish pressures for price increases.
But instead of fostering these changes, Reagan is frustrating them. Taylor, a Nevada lawyer, is by his own description not a devotee of aggressive deregulation; in long-winded answers to a Senate committee's questions, he gave the impression of being conventinal and plodding. That he is also the choice of the Teamsters casts a further cloud over his selection.
The pattern set in both this appointment and in the auto import episode is to throw bones to powerful interest groups whose loyalty (or neutrality) the administration wishes to preserve. Perhaps the president and his advisers think this is shrewd politics.
If so, they are wrong. Inflation is slowing, but so is the economy. In May, the unemployment rate rose to 7.6 percent. The shrewdest politics is to make the economy work better: to do all the little things that slow the wage-price spiral. By taking the pressure off tight money as the only weapon against inflation, that may help the country out of the trap of stagnation.