The Railroad Regulation Issue.
Recent Increase in Freight Tariff Had Brought About a Condition Which
Required Action - Senate Divided Into Supporters of an Effective and
Supporters of an Ineffective Measure - Manipulation by Which Measures
Were Placed in Hands of a Machine-Controlled Committee.
Some one has very well said that the real test of a Legislature is its
action on railroad measures. The Legislature of 1909, if estimated by
this standard would not appear to advantage. But to condemn the
Legislature of 1909 for its failure to give the State an effective
railroad regulation law, is to condemn every Legislature that has sat in
California since the present State Constitution went into effect thirty
years ago. The Constitution empowers the Legislature to pass effective
railroad regulation measures, but up to the session of 1909, the
machine, or system, or organization - one name is as fragrant as another
- had prevented the passage, if we exclude the ineffective Act of 1880,
of any railroad regulation law at all. The machine has ever moved
against the interests of the people and in the interest of its
dominating factor and at the same time its chief beneficiary, the
Southern Pacific Railroad Company. It has so manipulated the nomination
and election of Railroad Commissioners as to keep in that office men
utterly dominated by railroad influences.
With weak and corrupt men as Railroad Commissioners, and
machine-dominated Legislatures which have neglected to pass laws which
would have made the Commission effective, or even provide funds for the
Commission to carry on its work, even had the Commissioners been so
inclined, California has been left helpless to oppose any extortion
which the railroad might see fit to exact. The system of charging all
that the traffic will bear has governed utterly. For this the Southern
Pacific Company can thank, and the People of California condemn, the
machine.
The cost to the people has been enormous. It was pretty conclusively
shown at the Legislative investigation into the cause of recent advance
of freight rates, that upwards of $10,000,000[62] a year has in this one
instance been added to the freight charges exacted from the people of
the Pacific Coast. The added burden falls upon the Pacific Coast
manufacturer, merchant, farmer, fruit grower, consumer. All from the
highest to the lowest help pay the tribute. Thirty years is a long
period, and the arm of the railroad tribute-taker far-reaching. The vast
sums which, unrestricted, the Southern Pacific has been able to exact
run into enormous totals. From a dollar and cent standpoint, it has paid
the Southern Pacific Company to control the machine.
But the railroad's absolute domination of the State could not continue
forever without protest that would eventually force a hearing. This
protest came toward the close of 1908. The increase in freight rates
made just before the Legislature of 1909 convened emphasized the
necessity for the enactment of a law that should galvanize the Railroad
Commission into activity; ensure the enforcement of constitutional
provisions for the protection of the public against dominant
transportation companies; in a word, provide effective railroad
regulation.
Governor Gillett in his biennial message to the Legislature, and
Attorney General Webb in his biennial report gave expression to this
aroused public sentiment.
General Webb, after reviewing railroad conditions in California, on page
13 of his report says: "It is thus apparent that the shippers of the
State are practically helpless."
"I believe," continues the Attorney General, "that this review of the
situation will show the imperative necessity of prompt legislation on
this subject, and under the Constitution of this State, the Legislature
has ample authority to enact the required legislation."
Governor Gillett, in his biennial message, takes practically the same
stand as does Attorney General Webb.
"Our State," says the Governor on page 12 of his message, "has not kept
pace with the majority of the States of the Union in the enactment of
laws regulating railroads in their business as common carriers."
"I can virtually promise you," said General Webb at a meeting of the
Senate Committee on Corporations, held on the evening of January 25th,
"that in the event of this (the Stetson Railroad Regulation bill)
becoming a law, and the Railroad Commission refusing or neglecting to
act under its provisions, the Governor will call the Legislature
together in extraordinary session for their impeachment."[63]
There was no question of the aroused public sentiment in favor of the
passage of a railroad regulation measure. Even before the Legislature
convened it became evident that some sort of a measure would have to be
passed; even the railroad lobby saw that. The Legislature accordingly
divided on the question. As the fight was carried on in the Senate - the
Assembly in the rush of the closing hours of the session merely putting
its "O. K." on what the Senate had done - the division in the Senate
alone will be considered. The division in that body was:
(1) The minority, made up of the out and out machine Republicans and
Democrats, who were prepared to pass a measure which under the name
railroad regulation would leave the railroads practically independent of
effective State supervision.
(2) The majority, which stood for the passage of an effective law.
The minority had the best captains in the Senate and was backed by the
machine lobby made up principally of Southern Pacific attorneys.
The majority was poor in generals. But it had the backing of the
shippers of - the State, who sent able counsel to Sacramento to present
the shippers' side.
And in the end the machine minority wore out and defeated the majority.
A comparatively effective railroad regulation bill was rejected and an
ineffective measure passed.
Three railroad regulation measures were introduced in the Senate, their
authors being Campbell, Stetson, and Wright.
The Campbell bill had much to commend it, but was rejected without much
consideration by either side. Campbell was not in the program of either
railroad or shippers. But before the session was over Campbell had made
himself felt. He had, too, introduced a Constitutional Amendment for the
correction of railroad abuses, which was to figure later on, but his
bill was scarcely considered. The attorney for the shippers, in speaking
before the Senate Committee on Corporations, confessed that he had not
read the Campbell bill.
The attorney for the Southern Pacific Company, however, attempted to
split the anti-machine forces by praising the Campbell bill, and setting
the anti-machine Senators to disputing over the relative merits of the
Campbell and Stetson bills. But nothing came of this graceful little
coup. Campbell and his followers were too sensible to be caught by any
such trickery. They gave their loyal support to the Stetson bill, and
the Campbell bill was allowed to die in the Senate Judiciary Committee.
This narrowed the fight down to the Stetson bill and the Wright bill.
The Stetson bill had been prepared in the office of Attorney General
Webb, and at the instigation of Governor Gillett. As originally
introduced it contained certain defects, which were afterwards
corrected, but such Senators as Cutten, Caminetti, Black, Campbell,
Miller, Cartwright, Bell and Thompson, admitted that the measure could
be made the basis of as effective a law as could be prepared under the
present constitutional provisions for the regulation of transportation
companies.
The original measure was particularly weak in the section providing for
demurrage charges. This was finally corrected by the passage of a
separate reciprocal demurrage bill, which had been introduced by Miller.
Another weakness in the Stetson bill as originally introduced was that
the Railroad Commission was made a sort of barrier between the Courts
and those who had grievances against the transportation companies. This
objection was corrected by amendments.
Numerous other amendments adopted from time to time made the Stetson
bill probably as effective as a California railroad regulation law can
be made, under the Constitutional provision which places extraordinary
powers in the hands of the State Board of Railroad Commissioners.
Just where the Wright bill originated nobody seems to know for
certainty. But Senator Wright introduced it. Senator Wright was well
selected for the job. For two years he had been groomed as the reformer
who would introduce the State-saving Direct Primary Bill. So a railroad
regulation measure introduced by Senator Wright might at least be
calculated to bear the stamp of respectability.
Like the Stetson bill, the Wright bill was based on the constitutional
provisions which make the State Board of Railroad Commissioners the
center of railroad regulation in California. And here the parallel ends.
Comparison of the two measures is not at all to the advantage of the
Wright bill.
The Stetson bill provided fine and imprisonment as penalty for
infringement of its provisions; the Wright bill provided fine only.
The Stetson bill had a definite anti-pass provision; the Wright bill as
originally introduced had no such provision.
The Stetson bill authorized not only the Attorney-General, but the
District Attorney of any county of the State to proceed to enforce its
provisions; the Wright bill granted the Attorney-General alone such
authority.
The Stetson bill required the Railroad Commissioners to meet at least
once in every two weeks; the Wright bill provided that such meetings
should be held monthly.
The Stetson bill gave the Railroad Commissioners authority to make
physical valuation of railroad properties; the Wright bill contained no
such provision.
The Stetson bill recognized all discriminations to be unjust; the Wright
bill provided that no interference should be instituted unless the
discriminations complained of were shown to be unjust.
And finally, the Stetson bill provided that the State Board of Railroad
Commissioners should have power to fix absolute rates, thus insuring
stability of rate schedules, while the Wright bill provided that the
Commissioners should fix maximum rates only, thus permitting the famous
"fluidity" of schedules advocated by machine lobby and Southern Pacific
attorneys.
The contest between the supporters of the Wright and the supporters of
the Stetson bill, finally narrowed down to the question of providing for
absolute or maximum rates.
The provision for the maximum rate in Senator Wright's bill, authorized
the railroad regulating Commission to fix the highest charge which a
railroad may exact from a shipper. This is called the maximum rate. The
transportation company is authorized to lower the rate at will, but it
cannot charge a rate beyond the maximum as fixed by the Commission. This
leaves the railroads to fix a sliding schedule of rates, so long as they
do not exceed the maximum. It gives the railroads the advantage of that
"fluidity" of schedules, which railroad attorneys insist is necessary
for railroad prosperity.
The maximum rate is provided in the Interstate Commerce Act, but the
Interstate Commerce Commissioners, finding it impracticable, have for
years been clamoring for Congress to authorize the fixing of absolute
rates. The cry of the Interstate Commerce Commission has been taken up
by the shipping interests, and from one end of the country to the other
there is growing demand that authority be placed somewhere to make
railroad rates, when fixed by a regulating Commission, absolute.
The absolute rate, or the fixed rate as it is better called, which was
provided in the Stetson bill, can neither be lowered nor raised by the
railroads. Once fixed by the regulating Commission, it must remain until
the Commission grants permission for its change. The railroads cannot
lower it any more than they can raise it.
The advantages of the absolute rate are many. In the first place, where
the absolute rate is established, there can be no discrimination,
because the rate is known, it can neither be raised nor lowered, and the
railroads have no opportunity to favor one shipper at the expense of
another.
In the second place, the shipper is guaranteed a stability of rate
schedules which is deemed necessary for settled business conditions. The
merchant, for example, includes transportation charges in the cost price
of the goods in which he deals. But if the transportation charges on the
same class of goods are subject to frequent change, the merchant can
never tell when his competitor is to be given the advantage of a sudden
lowering in freight rates. This uncertainty unsettles business. The
merchant holds that transportation rates should be just as stable as
tariff rates. On this account, the merchant advocates fixed rates and
stability of schedules as against maximum rates and constantly shifting
schedules.
The supporters of the Stetson bill, then, backed the shipping and
merchant classes; while the supporters of the Wright bill backed the
contentions of the transportation companies.
The Campbell and the Stetson bills had been originally referred to the
Senate Judiciary Committee, while the Wright bill had been referred to
the Senate Committee on Corporations. For the first few weeks of the
session, no particular note had been taken of the Wright bill, attention
being centered on the amendment of the Stetson bill.
Things were going swimmingly with the Stetson bill, when the machine
lobby awoke to the fact that something was wrong in the Senate. There
was at least some indication that the Senate would pass an effective
railroad regulation measure.
And then, before the advocates of the Stetson measure could tell exactly
what was happening, the railroad regulation measures were taken from the
Judiciary Committee and placed in the hands of the Committee on
Corporations.
A glance at the personnel of the two Committees at least suggests why
this was done.
The members of the Judiciary Committee were Willis, Wolfe, Wright,
McCartney, Savage, Boynton, Anthony, Burnett, Cutten, Estudillo,
Martinelli, Roseberry, Stetson, Thompson, Curtin, Cartwright, Caminetti,
Miller, Campbell.
The nine Senators whose names are printed in Italics, when the issue
came to vote on the floor of the Senate, voted against the Stetson bill
and for the Wright bill; nine of the ten whose names are printed in
ordinary letters voted for the Stetson bill and against the Wright bill.
The tenth, Roseberry, was absent, but when he found that the vote had
been taken, stated that had he been present he would have voted for the
Stetson bill and against the Wright bill.
Furthermore, Estudillo, who finally voted for the Wright bill, did not
approve the measure and voted for it because he feared the absolute rate
feature of the Stetson bill to be unconstitutional.
Thus at the time the Stetson and the Campbell bills were taken from the
Judiciary Committee, the Committee was regarded as standing:
For the Wright bill - 8.
Against the Wright bill - 11.
For the Stetson bill - 11.
Against the Stetson bill - 8.
It was certainly not in the interest of the Stetson bill that the
measure was taken from the Judiciary Committee and sent to the Committee
on Corporations.
A glance at the personnel of the Committee on Corporations reveals a
significant state of affairs. The Committee consisted of the following
Senators: Bates, Welch, Wright, McCartney, Burnett, Bills, Walker,
Roseberry, Finn, Miller, Kennedy.
When the test came on the floor of the Senate, the nine of the eleven
Senators whose names are printed in italics voted for the Wright bill
and against the Stetson bill. The two members whose names are printed in
ordinary letters, voted for the Stetson bill, and against the Wright
bill.
The line-up of the Committee on Corporations, when the measures were
taken from the Judiciary Committee and sent to the Committee on
Corporations, was then:
For the Wright Bill - 9.
Against the Wright Bill - 2.
For the Stetson Bill - 2.
Against the Stetson Bill - 9.
The change was certainly not made in the interest of the Stetson bill.
The incident stirred up Campbell and other anti-machine Senators to the
fighting pitch. An arrangement was made, however, by which the measures
were to be sent back to the Judiciary Committee after the Committee on
Corporations got through with them that the Judiciary Committee might
pass upon their constitutionality. The arrangement had two effects - it
silenced the unquieting protest of the anti-machine Senators, and it
delayed consideration of the bills. But, as the sequel showed, the
arrangement did not help the Stetson bill in the least.
[62] The testimony was that of George J. Bradley, traffic manager of the
Merchants' and Manufacturers' Traffic Association of Sacramento. It was
as follows:
It is estimated on conservative figures that the increase in eastbound
California products, or Pacific Coast products, I should correctly say,
which is composed of canned fruits, canned vegetables and canned salmon,
of which there are several million cases, go from the North Pacific
coast through either San Francisco or through the North Pacific coast,
the minimum being forty thousand pounds to the car, and the increase
being ten cents per hundred pounds, means forty dollars a car increase.
Now, taking the number of cars of all those products that are shipped,
it amounted to about - and leather and other products - it amounted to
about four million dollars eastbound. Now, when the question of
westbound comes out, of course, it is practically impossible for any man
to say just exactly what that increase will mean in dollars and cents,
and the only way, therefore, to arrive at it is to take the percentage
of proportion now in their westbound tariff, which is composed of about
between eight hundred and a thousand items. They have raised the rates
from 10 to 25 cents on over two hundred articles, all of which move in
quantities; in other words, the process by which the tariff has been
amended has been that in every instance where there was a commodity
moving in quantities the rate has been advanced; wherever there was no
movement and they wished to encourage a movement, they reduced the rate.
Now, you take the five transcontinental lines that operate on the
Pacific Coast, namely, the Northern Pacific and the Great Northern on
the north and the Canadian Pacific; the Southern Pacific and the Santa
Fe and the San Pedro and Los Angeles on the south, give you six trunk
lines operating on the Pacific Coast. If you will take their gross
earnings, which amount to over four hundred millions, segregate that by
allowing fifty per cent of that to passenger service, which is a very
conservative estimate, because the passenger service does not amount to
that, leaves two hundred million dollars of gross freight earnings. Take
five per cent of that for terminal business, and business is based on
terminal rates from the coast, plus the local back, because the rate, of
course, is felt everywhere, the rates to the interior points are made on
the terminal rate, plus the local back. Take five per cent of that and
their increase in every instance has been 10 per cent, and in some cases
16 2/3 and 20 per cent; but take a very liberal conservative estimate
and put it at five per cent and you have ten million dollars; now, split
that in two and take two and a half per cent of it and you have got five
millions of dollars. Now, that and your four million dollars on
eastbound freight and you have nine millions of dollars increase in
freight rates, and I believe that that is a conservative estimate. I
don't see how you could get at it any closer, because every man, it
doesn't make any difference where he is, every man that buys pays that
ten to twenty per cent increase.
[63] Senator Caminetti on February 12 introduced a concurrent resolution
calling for the removal of the present Board of Railroad Commissioners
from office. The Committee on Corporations reported adversely, and on
March 15th the resolution was finally rejected.