THE RETURN OF PRIVATE OPERATION
Before the roads could be actually handed back to their owners for
operation once more, it was highly necessary of course that a definite
plan be formulated, not only for the method of transfer but for the
protection of the roads against the deficit that was piling up steadily
against them. Congress, which hates to be definite about anything,
wrestled with the problem through dreary and seemingly endless weeks, and
then in the last few days--nay, even hours--before the date set for the
return of the properties--March 1, 1920--passed the hastily constructed
and far from satisfactory Transportation Act, which speedily went to
President Wilson at the White House and there was signed by him.
There has been so much discussion, so much argument pro and con, about
this measure that I am going to present a carefully made resume of it,
originally prepared for a group of business men who sought to make a most
impartial study of the measure. The act itself provides that the railroads
of the United States shall be operated by private corporations under a
comprehensive system of government regulation. One of the very best things
about the act is that in its very essence it represents a fair
interpretation of the feeling of the majority of the American people after
two years of government operation. That that majority did not take into
account the great difficulties under which both McAdoo and Hines worked is
not germane to the present point. It saw their mistakes--the waste as well
as the many efficiencies of the Railroad Administration--and it demanded a
prompt return to private operation. Under the pressure of this public
opinion--some of it very skilfully aided, to be sure, by inspired
propagandists--the members of Congress who framed the Transportation Act
were almost unanimous in their honest belief that in the hands of private
corporations the railroads could be operated more economically and more
efficiently and would give better service than would be possible under
government operation. The Transportation Act came as a very natural
sequence to such a belief.
* * * * *
The most important provisions of the act are:
(1) That on March 1, 1920, Federal operation shall cease and the
railroads shall be returned to private operation.
(2) That under a new rule of rate-making the railroads shall be
assured adequate revenues; and adequacy shall be defined in the first
two years as a net return of 5-1/2 or 6 per cent. on the fair value of
the property as determined by governmental authority.
(3) That during the transition period the Government shall aid in
restoring the financial stability and the credit of the railroads:
(a) by continuing the government guaranty of a standard return for
six months after the roads are returned to their owners;
(b) by creating a revolving fund of $300,000,000 from which the
roads may obtain under certain conditions short-term loans to meet
their most pressing needs;
(c) by extending the carrier indebtedness for capital expenditures
made by the government during Federal control for a period of ten
years with interest at 6 per cent.; and
(d) by the creation of a reserve fund containing one-half of the
excess earnings of those railroads whose net earnings exceed the 6
per cent. specified in the rule of rate-making.
(4) That the rates and services of interstate carriers shall continue
to be regulated by the Interstate Commerce Commission; that the
commission shall be enlarged by the addition of two new members,
making eleven in all; and that the commission shall have authority:
(a) to make inquiry continuously concerning the transportation
facilities and services of the whole country, and when and how they
should be improved; the state of the credit of all common carriers;
and the new capital which the public interest may require any
carrier to secure;
(b) to permit the consolidation of two or more carriers provided
that such consolidation is in harmony with a comprehensive plan
(previously adopted by the commission) for consolidating all of the
railroads of the country in a limited number of strong competing
systems, and also provided that, in the opinion of the commission,
the proposed consolidation is in the public interest;
(c) to fix interstate rates that shall be just, reasonable, and
adequate;
(d) to determine the valuation of railroad property;
(e) to prescribe a uniform accounting system for all carriers;
(f) to exercise exclusive jurisdiction over capital expenditures and
the issuance of securities by carriers;
(g) to prohibit the extension of present lines or the construction
or acquisition of new lines by any carrier until it has obtained
from the commission a certificate of public necessity and
convenience;
(h) to require the construction of docks and rail connections
between rail and water carriers;
(i) to provide when necessary for the redistribution of traffic and
for joint use of terminals;
(j) to exercise jurisdiction over the use, control, and supply as
well as the movement, distribution, and interchange of locomotives
and cars and also over the supply, movement, and operation of
trains; and
(k) to order a carrier to install automatic train-stop or
train-control devices.
(5) That the wages and working conditions of railroad employees shall
be regulated by a Railroad Labor Board composed of three
representatives of the carriers, three representatives of the
employees, and three representatives of the public; and that disputes
between the carriers and their employees in regard to rules or working
conditions may be referred to railroad boards of labor
adjustment--local, regional, or national--voluntarily organized
between the roads and their employees, or if such boards are not
voluntarily formed, such disputes shall be decided by the Railroad
Labor Board.
Like almost all hastily constructed and compromise measures the
Transportation Act falls considerably short of being an entirely
satisfactory solution of a difficult problem. Perhaps the best that can be
said of it is that it is probably the best that could be expected out of
Congress. It is not fair as yet to assume that it is a failure. But on the
other hand how can it be to-day accounted a real success? It has not
returned to the carriers its promised 6 per cent. upon their capital.
Please notice that I say "promised," not "guaranteed." The last word is
incorrectly used in too many instances. The Transportation Act endeavors
to fix rates that will bring in 5-1/2 or 6 per cent. to the railroads; at
no time does it _guarantee_ them. And even this set figure of 5-1/2 to 6
per cent. expired March 1, 1922, two years after the enactment of the
statute. Thereafter the adequacy of the return is left to the judgment of
the Interstate Commerce Commission. Quite a difference from a 6 per cent.
guarantee!
To-day railroad stocks lie virtually inert within the market. Gun-shy
investors in Wall Street, and elsewhere too, will have nothing of them.
They know the facts. Despite the radical advances made in both passenger
and freight-rates since the adoption of the much-heralded Transportation
Act, earnings have not measurably increased. The slight net return earned
in the last ten months of 1920--but 3.3 per cent., as against the expected
6 per cent.--was wiped out by the poor business of the first two months of
1921; with the result that the net result of the first twelvemonth of
private operation was an actual slight deficit. As a year, 1921 was
absolutely the worst in the history of American railroading. The total net
return for the twelve months ending November 1, 1921, was less than 2.75
per cent.--considerably less than the promised 6, or even 5-1/2.
The situation to-day is hardly improved, despite desperate efforts on the
part of the roads to reduce their operating expenses. What they have
accomplished along these lines, aside from a further lowering of the
reduced service that they are rendering these days, is shown in the fact
that by June, 1921, they had brought their wages and transportation costs
to eighty-two cents out of each dollar that they earn, and by October it
was seventy-four cents. Less than a year before this was slightly over
ninety-five cents. By the present time it is just above seventy. The roads
themselves are now inclined to attribute much of their financial
depression to two things; to the vast industrial slump with its obvious
effect upon their revenues, and to their huge pay-rolls. Ingeniously they
argued this last point before the Railroad Labor Board out at Chicago in
the early summer of 1921 and succeeded in getting a cut of some
$500,000,000 in their huge annual wage-bill. But the average railroader of
the rank and file still is paid considerably over 100 per cent. more than
in 1913. (In exact figures his average pay to-day--on an eight-hour day
basis--is $1700 for the twelvemonth, as compared with $761 nine years
ago.) This is the figure, along with the figures representing his
increased fuel and tax and material costs, that he uses when he justifies
the increase of his carrying charges.
Yet the potent fact remains that the high rates are not only not
attracting business but actually are driving it away. The long-haul use of
the motor-truck, to which I shall refer in more detail in due time, is not
due in these days of industrial depression to a lack of box-cars or to
yard congestion, but is a protest against the existing rates. And that the
railroads themselves are not deaf to these protests is shown by the fact
that under the guise of "revising" their freight charges they are actually
beginning to lower them. I am inclined to the belief that the partial
failure at least of the Transportation Act must have taught all the wise
men at Washington, and also a goodly number of our fairly wise
railroaders, one distinct thing: You can lead a horse to water but you
cannot make him drink. Which, being freely translated, means that you can
raise railroad rates to a point where traffic begins to fade away, to find
other pathways for itself, or to cease altogether. This is particularly
true of passenger rates. A nation-wide rate of more than three and
one-half cents a mile, with a heavy increase in the Pullman rates to keep
pace, is not a particular inducement to travelers. Moreover the persistent
refusal of our railroads to create a lower class of fares than the
standard, with a slightly lowered quality of service, give the would-be
traveler of modest means no alternative whatever, except possibly to ride
in a small motor-car, or to stay at home. A good many of them are riding
in motor-cars these days; and a good many more are staying at home. The
passenger revenue of our railroads in 1921 was 23 per cent. less than in
the preceding year. Which is commended to the attention of official
Washington.
Consider now the railroads handed back on March 1, 1920, to their old-time
owners--Fairfax Harrison returning from his temporary habitat at Richmond
to his familiar offices in the Southern Railway building in the city of
Washington, Mr. Rea, Mr. Willard, Mr. Underwood, and others who were
temporarily deposed from power triumphantly returning to it. Triumph is
the word. The Southern signalized its return to its own by having its new
time-tables, fashioned with their familiar yellow covers and with the
odious words, "United States Railroad Administration," glaringly missing,
ready upon that memorable first day of March. It did more. Upon its lines
it terminated instanter the use of the Railroad's Administration passes
which had been given rather freely to the henchmen of that branch of
Federal service. Other roads quickly ended the life of those passes; but
generally gave their holders time to get home with them. Not so with the
Southern. For it the U. S. R. A. cardboards ended their value at midnight
on February 29, 1920. After that they were good as souvenirs, and as
nothing else. The unlucky wight who chanced to hold one, and no other
pass, paid his fare from midnight on.
Personal feelings again came into play. One Federal manager of an Eastern
railroad, who had had the audacity to move his former chief, the
corporation's president, out of an office that the old man loved, lost his
job for his temerity. He was not the only executive who lost his job. R.
H. Aishton, who had been president of the Chicago and Northwestern railway
at the time of the creation of the United States Railroad Administration,
and whose rare ability as an operating executive had been recognized by
McAdoo in his appointment to the post of the regional director at Chicago,
did not return to his old position. It is understood that he incurred the
disfavor of Marvin Hughitt.
Mr. Hughitt is the last of the old guard of American railroad executives.
He was born near Auburn, New York, in 1837, has lived in Illinois since
1854, and at eighty-five years of age is still the active controlling
influence in the great Northwestern property. He has, to my knowledge, but
one senior in the whole business, Chauncey M. Depew, chairman of the board
of the New York Central railroad, who is eighty-nine years old; but Mr.
Depew long since was very glad to relinquish the reins of operating detail
of that great Vanderbilt property to younger and more energetic men.
Not so with Mr. Hughitt. His grip upon the Northwestern has been a firm
one indeed. He has held his road to many old-time traditions. The
lemon-yellow color of its passenger-coaches; the English fashion that it
has of running its trains to the left upon double-track and not to the
right, as is the ordinary American fashion; its generous, not to say
profuse, local and suburban service--all of these are Hughitt. Since the
death of the late Henry Clay Frick of Pittsburg and New York some years
ago, there has been no one to oppose him. Frick could and frequently did.
It is hard to conceive of any one successfully opposing Mr. Frick.
With Mr. Hughitt absolute dictator of Chicago and Northwestern there was
none to oppose his arbitrary dictum in regard to Mr. Aishton. The fact
that Aishton had been reared upon the property, that his record upon it
was not only good but great, apparently counted for nothing. He was
dropped. He had offended "the old man." That was a heinous offense for
which there was no possible excuse. Aishton's powerful friends in the
railroad world rallied to his defense. They elected him president of the
American Railway Association at a salary reputed to be equal to that paid
him by the Northwestern.
Apparently it is not only McAdoo who can afford to indulge his whim in
personalities.
Before the Railroad Administration ceased its actual operation of the
roads it began the restoration of much of the pre-war service,
particularly of the passenger service. Soon after the signing of the
Armistice and the removal of military pressure upon the carriers the
important through trains that had been removed--the Broadway Limited and
the Congressional chief among them--were returned to their former
schedules, although not in every case with the same high degree of service
as before. It was not, for instance, until the return of private control
that the fastest trains between Chicago and the Pacific coast brought to
their pre-war standard of approximately sixty-nine hours. The McAdoo
administration as a war measure had lengthened this schedule to
seventy-two hours.
Yet it was McAdoo who, once the war emergency was passed, removed the
half-cent-a-mile extra charge that he had established against people who
rode in Pullmans or other forms of sleeping and parlor-cars and left the
fare at a flat three cents a mile--where it should have been suffered to
remain in the interest of the railroads themselves.
The Interstate Commerce Commission raised it to 3.6 cents a mile, upon
hints from the private operators of the roads. It is but fair to add,
however, that there are certain members of the commission who long ago had
conceived the idea that the passenger-rates were not bearing their proper
burden of the costs of railroad operation. It is these men who have to-day
steeled their hearts against any lowering of passenger-rates to a point
where the service might at least have some competitive attraction against
that of the automobile, publicly or privately owned or operated. In all
this discussion at the moment of the possible lowering of freight-rates
nothing whatever is being breathed of a readjustment of passenger-fares,
with the single exception of a recent bill passed in the United States
Senate for the enactment of a Federal statute compelling the roads to sell
mileage-books at a low wholesale rate. This neglect of itself is, I think,
a most unhealthy sign. While the 23 per cent. lowering of passenger
revenues in 1921 as against 1920 is a fairly definite expression of that
unhealthiness.
To my mind this is not entirely a question of the proper equalization of
operating costs to revenues; the question of setting the tariffs of
charges to a point where business shall again be attracted to the
railroads, to my way of thought, is the real kernel of the problem. That
is the way that the average merchant or manufacturer would look at the
similar problems that confront him. To get the business the rates must be
made attractive. If it then becomes necessary to reduce operating costs so
as to exist at the lowered revenues, then the business man will move
heaven and earth to reduce his costs.
Apparently the Interstate Commerce Commission does not see the question in
this light. One understanding the complexion of its membership would
hardly expect it so to see it. The commission is absolutely honest and, to
a large extent, able; but it is generally dull. It has no traffic sense;
no sense of salesmanship. It has no vision. It always looks backward,
rarely forward. Being composed almost exclusively of lawyers,--long ago it
was recognized apparently that it would be a fearful thing to place an
honest, far-sighted, energetic railroad executive in its personnel,--it
spends a great deal of time seeking for precedent. Therefore it hardly can
be expected to look forward.
"What _is_ the precedent?" it keeps asking. "How has it always been done
in the past?"
This is one of the very great reasons why our railroads to-day are not
marching forward in step with the progress of the other great businesses
of America, why so often they are called, and with such a deadly truth,
"the sick man of American business," why they have lost so much of public
confidence and of public support, why the morale not only of the rank and
file but of many of the executives as well has come to so low a pass.
The railroads of the United States to-day, deprived of so much of their
initiative by the Government, should at least be able to look to that
Government for some real qualities of inspiration and of leadership. Such
qualities they need. Such qualities are not being given to them. The sick
man needs medicine, physical and mental, not abuse. The Interstate
Commerce Commission should be made into a doctor who can cure as most good
doctors do cure these days, not by nostrums alone, but by good cheer and
inspiration.
* * * * *
One or two things more, if you please, before we are done with this
chapter.
The railroads generally wormed themselves out of the joint terminal
arrangements which McAdoo had made for them, and made in almost every
instance to the great comfort of the traveling public. The Southern
Pacific expelled the offensive big Santa Fe and the almost equally
offensive little Western Pacific from its ancient station and "mole" at
Oakland opposite San Francisco. The Pennsylvania prepared to do the same
thing with the Baltimore and Ohio and the Lehigh Valley at its station in
New York. This last move was not carried out. I had something to do myself
with preventing it.
The question arose in my mind at the termination of Federal operation:
What will the Pennsylvania do with its chief competitor there in its fine
station upon Manhattan Island? Will it do the obviously competitive thing
and thrust the Baltimore and Ohio out, along with the Lehigh Valley into
the bargain? A little questioning developed the fact that that was its
precise plan. The question of rental charges did not enter into the
situation. The Pennsylvania was not direct in its explanation; it did not
say, as it might honestly have said: "We built this big, expensive station
as a competitive move, and we do not purpose to share the fruits of our
enterprise with a competitor who did not share the great risk of the
undertaking." It merely said that there was not room in the station for
the fourteen daily trains of the Baltimore and Ohio and the eight of the
little Lehigh Valley. It was handling 175 of its own trains there, and
about 275 of the Long Island in addition, but it could not find room for
twenty-two other trains.
Here was railroad competition showing its most disagreeable side to the
public weal. The man who lived at Martinsburg, West Virginia, or
Cumberland, Maryland, or virtually any of the other non-competitive points
of the Baltimore and Ohio was to be penalized henceforth in the name of
competition. Having enjoyed great comfort and facility under the
non-competitive plan of the United States Railroad Administration in the
use of the Pennsylvania Station in the heart of Manhattan, he was now to
be shoved back into the old station at Communipaw, just below Jersey City,
with its slow and cumbersome ferry connections across the Hudson River. It
was not likely that he would henceforth become an enthusiast over the
competitive system of railroading.
The whole thing seemed so absurd that I took it upon myself to mention it
in the public prints. That apparently did the trick. Publicity ofttimes
does. The Pennsylvania changed its position; in a big and graceful and
generous way it waived what apparently were its obvious competitive rights
in the situation, and invited both the Baltimore and Ohio and the Lehigh
Valley to remain at least for some years to come in its great New York
passenger terminal. The invitation was accepted with alacrity.
Most of the consolidated ticket-offices still remain, although there is a
constant disposition among the more independent of our separate railroads
to break away from them. Theoretically offering far better facilities to
the traveler than the separate city offices, practically they rarely do
this. For one thing, despite their brave show of mahogany and other fine
forms of office fittings, they frequently are under-manned, particularly
in seasons of heavy travel. And a man in a hurry going to one of them
frequently is compelled to wait an outrageously long time. The fact also
remains that the so-called weaker lines that use them seem so submerged as
hardly to have a fair chance at the competitive traffic. A small railroad
can make a large showing with an attractive office in the heart of a big
city. Relatively it outshadows its neighbor.
Where the individual roads have remained in the consolidated offices up to
the present time, it has been largely the result of a laudable desire to
stand by their fellows. The Railroad Administration forced some one line
in each large city to assume the rental of the consolidated offices. In
Chicago, for instance, the ten-year lease (at $65,000 a year) of the
consolidated ticket-office fell upon the broad shoulders of the
Burlington. With the exception of the Northwestern system, which showed a
particular antipathy to the late Railroad Administration, virtually all
the large roads have remained with the Burlington.
There is moreover an economy argument in the consolidated office that is
not without its appeal to the railroad executive. The only question in the
mind of his traffic expert is whether the economy argument is not
completely overcome by the additional business to be gained by a red-hot
competitive little separate office. Of course if all the lines coming into
any large city should maintain red-hot competitive little separate offices
the gain would be theoretical rather than real. There might be some
passenger traffic actually created by the brave showing of the separate
offices, but I think that it would be negligible.
The convenient universally interchangeable mileage-book that McAdoo
installed (with his name printed upon each third tiny coupon) has been
retained with all of its universal privileges, up to the present time at
least. But no longer with the name of McAdoo brightly displayed. It still
represents no saving to the purchaser over the price of individual
separate tickets, though offering a certain convenience in the checking of
through baggage, in making Pullman reservations and the like. Yet the
putting through of the Senate bill authorizing the Interstate Commerce
Commission to reduce its price bids fair at last to lead toward a
correction of this precise phase of the situation. Gradually a pretty
well-defined feeling is being developed that railroad passenger-fares in
the United States to-day are entirely too high. "Not more fares but more
riders" is a slogan which a young man who is developing traffic for street
railways is using, with telling results. His slogan is quite as applicable
to the steam railroads. They apparently have brought their passenger-rates
to a point where the riding, always a variable and uncertain quantity, no
longer is attracted to their trains. And this is an hour when the
motor-car is steadily gaining strength as a competitor of the railroad.
The flat abolition of the stop-over privilege which some enthusiastic
railroad traffic expert urged upon McAdoo is now being slowly worn down
again, at least to the point where most of the stop-over privileges that
were in existence in pre-war days have now been restored. The traffic
departments of our various railroads all the way across the land at last
are beginning to unbend. The traveler is beginning to regain his old-time
privileges.
We do progress.