WHAT SHALL WE DO WITH THE RAILROADS ?

The general principles to be used in the solution of the railroad problem are simple, but attempts to apply them give rise to bewildering complexities. Our whole industrial organization is based on transportation. The threatened strike before the passing of the Adamson Law brought vividly to the attention of the public the extent to which we had become dependent upon railroad transportation. In so far as we are to depend on railroads for transportation, we wish to have adequate service, with rates as low as possible.

The historical development of railroads and regulation has helped to complicate the problem. The railroads in the United States have assisted in developing the country. They were frequently built ahead of the traffic. They were developed by private enterprise aided by government land grants or subsidies of money. The first effective regulation of railroads came in the seventies and was state regulation. Later, in 1887, Congress passed the Interstate Commerce Law, and federal regulation under the Interstate Commerce Commission began. For a long while this regulation was not effective, but Congress gave the Interstate Commerce Commission more and more power, until after 1910 they could control practically all features of the railroad business.

The regulation under the Interstate Commerce Commission has been successful in ending most personal and commodity discriminations. Place discriminations have been less generally remedied. Many place discriminations of old standing have not yet been corrected. Practically no progress has been made in the determination of what is a fair general level of rates. When the burden of proof was on the shippers they could not prove that the general level of rates was too high, and since the burden of proof has been shifted to the railroads they have been unable to prove that the general level of rates was too low. The difficulty has been in agreeing upon the amount upon which the railroads are entitled to earn a return. The Interstate Commerce Commission is now valuing the railroads. The law required them to compute the value on numerous different bases, such as original cost and cost of reproduction, new and with depreciation; but the law does not say which basis of valuation shall be used for rate-making.

For many years the roads have been attempting to increase rates to compensate for the increased cost of materials and the increased wages which in many cases were the result of semiofficial determination by arbitration boards; but the Interstate Commerce Commission refused to grant any substantial increase in rates.

As

a result railroad building almost ceased, and the amount of equipment was not kept up.

The European war brought increased traffic to the roads and greatly increased wages (some due to the Adamson Law and others to the competition with high wages in war industries) and high costs of material, especially steel and coal.

After the declaration of war by the United States the railroad presidents met in Washington and adopted a resolution agreeing to co-ordinate their operations and to subordinate everything to the task of getting the maximum of efficiency in transportation. They perfected an organization called the Railroads' War Board, which did much to promote the effective use of the railroads. The volume of traffic handled in 1917 was about the same as that handled by the Railroad Administration in 1918.

President Wilson took over the railroads on December 28, 1918, on the ground that the step was necessary for the public defense.

The proclamation said that the roads should get as compensation the average net operating income for the three-year period ending June 30, 1917.

The necessity for taking the roads over resulted partly from the limitations on co-operation on the part of the railroads, particularly the prohibition against pooling in the Interstate Commerce Law and the restriction against pooling and rate agreements by the Sherman Anti-Trust Law as interpreted by the courts, and partly from the conflicting use or rather abuse of priorities by the various government departments and war agencies.

Some of the necessity arose from difficulties inherent in the private ownership of the roads. Roads which with foresight had provided adequate terminals at great cost could not see why they should share them with roads which lacked either the foresight or the means to provide the terminals. The management as trustees for the stockholders were forced to promote the interest of their own roads.

In spite of the fact that the President's proclamation seemed to include all of the railroads of the United States, many of the socalled "short lines" were not taken over.

Mr. McAdoo, on being appointed Director General of Railroads, at once raised freight rates 25 per cent and raised passenger fares to 3 cents a mile and set aside state-made rates which conflicted. At first the operating staffs of the railroads were not changed; later, federal managers were appointed. Wage increases amounting to $583,000,000 for 1918 were granted to employees, and the salaries of some of the higher officials were cut. Another saving consisted in abolishing the off-line offices and setting the traffic department at other tasks. It was thought that under unified control it would not be necessary to solicit traffic. A regional plan of operation was adopted. Starting with three regions, it has developed into nine regions and districts.

Congress finally passed the law setting the amount of compensation suggested in the President's proclamation. The contracts with the roads were to provide that the roads should be returned in substantially as good repair and as fully equipped as when taken over. The law said that federal control should continue for the

period of the war and might be extended for twenty-one months after the proclamation of peace.

A. H. Smith, director of the eastern region, has indicated some of the ways in which they increased the efficiency of operation:1

1. Unessential passenger trains were eliminated.

2. French, Russian, and western locomotives were given to eastern lines. 3. Transfer of power.

4. Use of less congested routes.

5. Company fuel and material were handled by direct routes.

6. Common use of terminals.

7. Interchange of labor to eliminate 1.c.l. accumulations.

8. Restriction of equipment to certain classes of loading.

9. Freight trains run straight through to the West.

10. Co-ordination of harbor facilities.

II. Sailing days for 1.c.l. freight.

12. Routing freight by the line reaching the pier from which it is to be shipped.

13. Using roads with the best grades.

14. Use of shops to repair locomotives of other roads.

15. Use of the same locomotive over several roads.

16. Sending freight through the Pennsylvania R.R. tubes.

17. Placing coal cars on team tracks in New York.

18. Sending bituminous coal direct to New York piers.

Much time was spent agreeing on the terms of a standard contract. By the end of the year comparatively few contracts had been signed.

Results of the year's operation compared with the previous year are given in the accompanying table.'

The earnings indicate a deficit of about $210,000,000 compared with the return guaranteed to the roads.

The armistice put an end to the war emergency. In his address to Congress, President Wilson said that the railroad problem gave him great concern and he turned to Congress for counsel, as he had no solution of his own. He declared that unless there was prospect of a legislative solution he would release the roads quickly. He stated as possible alternatives: to go back to the old conditions, to have complete government control, or to have private control with government regulation permitting unified operation, possibly with regional corporations combining the railroads in a definite area into a single system. He did not favor going back to the old conditions but did not pass judgment on the other plans.

The indecision of the President was not shared by many others. Of the many plans proposed, we shall consider in turn the ones suggested by the United States Railroad Administration, the Interstate Commerce Commission, the railroad executives, the railway supply men, railroad labor, the shippers, the state railroad commissions, and the security owners. We shall attempt to state briefly the proposals brought forward and then, without presuming to pass judgment on the plan as a whole, take up some of the novel points of the plan, often arguing that the changes proposed are undesirable. Finally we shall bring together the suggestions which seem to have merit.

THE UNITED STATES RAILROAD ADMINISTRATION

Mr. McAdoo, as his solution, proposed that federal control be continued until January 1, 1924. He gives as his reasons:

This extension would take the railroad question out of politics for a reasonable period. It would give composure to railroad officers and employees. It would admit of preparation and carrying out of a comprehensive program of the improvement of the railroads and their terminal facilities which would immensely increase the efficiency of the transportation machine. It would put back of the railroads the credit of the United States during the five-year period so that the financing of these improvements could be successfully carried out. It would offer the necessary opportunity under proper conditions to test the value of unified control, and the experience thus gained would of itself indicate the permanent solution of the railroad problem.