Protecting the Public from Competition

Government regulation is often sold as a way to protect the public from harm, but the case of a Grand Rapids company that may soon close its doors tells a very different story.

Federal Armored Service, Inc. provides intrastate armored car deliveries of coin, currency, and valuables as well as courier service of documents such as cash, letters, payrolls, and commercial papers. It's in deep trouble because of Michigan's utterly ridiculous and anti-competitive trucking regulations.

In this state and in 41 others which regulate trucking, the "authority" to haul goods is granted by state government-the Michigan Public Service Commission (PSC) in our case. The PSC is empowered to determine who can be in the trucking business, what goods they can and can't transport, where they can haul them, and what rates (called "tariffs" in the trade) they can charge their customers. Doing business as a Michigan trucker means playing an elaborate and costly game of "Mother, May I?" with state bureaucrats- filing forms and begging permission every step of the way.

The regulatory apparatus, moreover, is routinely used by some of the regulated firms in an effort to discourage newcomers and keep rates artificially high. In many respects, the system bears striking resemblance to the guilds of the Middle Ages-trade associations that were protected by law from real competition.

In September, 1992, one of Federal Armored's largest competitors filed a complaint with the PSC, alleging that Federal had served customers it had no authority to serve, had failed to charge customers in accordance with its published tariffs, had given rebates, had billed on a monthly basis instead of every seven days as the PSC requires, and had violated a number of other regulations. The motive of this competitor was obvious-if Federal were found guilty of these charges, it would be declared "unfit" to hold authority and then its customers would be up for grabs. What this competitor couldn't achieve in the marketplace, it hoped to achieve through the bureaucracy.

Federal Armored's president, Harry Larkin, spent 14 days on the witness stand and his firm's attorney fees for the case exceeded $600,000. After 15 months of deliberations, 6,600 pages of transcripts and 458 exhibits, the PSC made its decision known on December 20, 1993: Federal was found to have committed at least 23,975 violations of the Motor Carrier Act. Yet, there were no public health or safety questions involved, no alleged fraud, and no complaints against Federal Armored by any of its customers. As cited by Detroit News columnist Jon Pepper on February 6, the PSC actually affirmed, "The absence of shipper objection . . . is irrelevant to Federal Armored's fitness."

What were the company's crimes? For one, it was found to have served customers without "authority" to do so. Many banks it served had undergone mergers and name changes but the firm had continued to serve them without filing the "appropriate" paperwork. Each time it transported materials for its old customers, even to and from the same locations, it was breaking the law because the bureaucrats weren't informed of the name changes and hadn't been asked, "Mother, May I?"

Much of Federal Armored's business involved carrying coin and currency to and from the Detroit Federal Reserve branch bank for commercial banks. The company would bill its customers for the round trip, but the regulations required that it bill for the prescribed amount each way. Federal Armored was guilty of giving its customers unauthorized "rebates" by only charging them half the fixed rate.

The PSC's opinion states that rebates are "one of the more egregious violations of the Act" because they undermine the "ability for competitive carriers to compete on an even playing field." So the ugly truth is out: these trucking regulations are not intended to protect the public; they are intended instead to protect existing truckers from the aggressive competition that inevitably accompanies a free market.

The punishment which the PSC has meted out-the suspension of all but two of Federal Armored's "authorities" to do business and fines that will approximate the firm's entire retained earnings-will cause at least 150 Michigan workers to lose their jobs. It may very well bring about the demise of the entire company. It will also inconvenience numerous banks which had utilized the company's services.

If there is some deep and compelling public reason why trucking firms shouldn't be allowed to make contracts to serve willing customers, it has yet to be revealed. Meanwhile, 22 full-time staffers at the PSC are wasting taxpayer money in regulatory witch-hunts. Why shouldn't Michigan follow the lead of the eight progressive states that have seen fit to leave trucking to the marketplace?