The Danger of Politicians Arrogating To Themselves Power Over Business

The Association of American Railroads reports that the first inter-city railroad was the 13-mile Baltimore and Ohio, finished in 1830. Notable about the completion of this then technological marvel, it proved a magnet for investment meant to capitalize on what was set to transform work and living standards.

The result was that by 1850, there was 9,000 miles worth of railroad in the U.S. It’s all a reminder of what’s still true today: if a business idea has potential, or if the evolution of a business has potential, investors seeking to create the future in return for a return, will find it.

This is worth thinking about now as railroad companies that were the Googles, Apples and Amazons of the 19^th century aim to prosper in the 21^st. As evidenced by their ongoing existence, the railroad companies have shareholders (including Warren Buffett) who think they have a powerful and prosperous role to play near two hundred years after they first wowed Americans.

That’s why it’s so puzzling that Republican Rep. Troy Nehls is so aggressively promoting The Railway Safety Enhancement Act (RSEA). Billed as legislation meant to enhance – yes – railway safety, it’s easy to see from the title of the legislation alone that it’s superfluous. Really, what railway would ever be purposefully lax on safety to begin with? Think of the costs associated with a failure to maintain safe operating conditions, not to mention how readily investors like Buffett would exit the sector if management were turning a blind to measures necessary to protect railway employees and customers alike.

In reality, the RSEA is yet another power grab from Washington where politicians, aiming to please unions, are imposing all sorts of demands on railroad companies in relation to crew size, train length, and even how fast the trains can travel. Translated for readers, Nehls et al are legislating huge operating-cost increases for railroads. Which means railway shareholders will suffer lower returns so that politicians and unions can arrogate to themselves more muscular operating power over private businesses.

About politicians legislating how businesses operate, including Republican politicians, please stop and think about this vis-à-vis intrepid investors like Buffett. It can’t be stressed enough that they’re risking precious capital on the ongoing ability of railroads to prosper, only for politicians and unions lacking proverbial “skin” or operating experience to step in and demand costly changes. Might these governmental demands cause investors to rethink their capital commitments? Hopefully the question answers itself.

The reality is that government intervention in commerce has a lousy track record when it comes to returns. Conversely, Warren Buffett has a very good record of placing capital with the right businesses.

The problem now is that politicians and unions are using political force to raise the cost of investing in a business sector aiming to thrive in the 21^st century as it did in the 19^th. Which raises a simple question about whether shareholders, employees and customers of railroads would prefer Buffett’s oversight, or that of Nehls and friends? Hopefully this question really answers itself.