Throttling the Railroads; C. Carson

The Future of the Railroads is endemic around and within most cities of any size. Exhaust from the internal combustion engine used on automobiles, buses, and trucks principally is a major pol lutant of the atmosphere. Railroad unions are perennially on the verge of striking and tying up transportation throughout the length and breadth of the country. Highway building in the urban ized areas of the country goes on at a torrid pace and yet it always appears to be behind the rising demand for highways and streets. Disposal of waste - in some con siderable part a transportation problem - is a mounting burden. The decline of the railroads is not a development isolated from everything else in America; the effects extend outward to the much 39 40 THE FREEMAN January more comprehensive matter of all of transportation, and what hap pens to transportation affects the commercial and fraternal life of a people.

Proposed Remedies Proposals for doing something about the transportation situation have not been wanting. Govern ments at various levels have begun tentative and hesitant reversals of long term policy toward the rail roads within the last decade or so. Politicians have at long last ceased to talk of the railroads as if they were a menace that somehow has to be contained else it will destroy the country. They have begun to treat them more as if they were respected elderly grandparents, for whom some provision must be made in the period of their dotage. Subsidies are now being provided for various commuter trains and some for longer distance ones. The Federal government is about to commit itself to take over and run the remaining passenger trains, if the companies cannot do so. In a similar fashion,cities have been subsidizing or otherwise taking over street transportation sys tems. One proposal which has much support is that government should devote itself to coordinating the various modes of transportation within the country as well as the international carriers under its aut h 0 r i ty. In dee d , Con g r ess charged the Interstate Commerce Commission with some such task as this for surface· transportation in an act passed in 1940. The pre amble said: It is hereby declared to be the na tional transportation policy of the Congress to provide for fair and im partial regulation of all modes of transportation subject to the provi sions of this Act, so administered as to recognize and preserve the inher ent advantages of each; to promote safe, adequate, economical, and effi cient service and foster sound eco nomic conditions in transportation and among the several carriers; to encourage the establishment and maintenance of reasonable charges for transportation services, without unjust discrimination, undue prefer ences or advantages, or unfair or destructive competitive practices; to cooperate with the several States and the duly authorized officials thereof; and to encourage fair wages and equitable working conditions; all to the end of developing, coordi nating, and preserving a national transportation system by water, highway, and rail, as well as other means, adequate to meet the needs of the commerce of the United States, of the Postal Service, and of the national defense.!

1 Quoted in Marvin L. Fair and Ernest W. Williams, Jr., Economics of Transportation (New York: Harper, 1950), pp. 727-28.

1971 THE FUTURE OF THE RAILROADS 41 Politically Impossible All this may sound quite plausi bleon paper. Why, indeed, should the government not develop a na tional coordinated system of trans portation? Why could it not use the carrot and the stick, alternat ing with regulations and induce ments skillfully administered so as to achieve this national goal? The most direct reason why government cannot develop a co ordina ted transportation system is in the nature of politicf. Politi .. cians operate by conciliation and compromise. They attempt to bal ance interest against interest, re gion against region, rural popu lation against urban, and so on. Whichever interests are at the moment most clamorous and cru cial to election victories will 're ceive the most attention. It is diffi cult to see how this would be likely to result in coordinated economic activity. At a little deeper level, it can be seen why government would not succeed 'in this even if it could mirror the electorate much better than it usually does. Government intervention tends to fix relation ships in patterns that have existed at some, time in the past. This is so, not only because government action inhibits change and places obstacles in the way of adjust ments to new circumstances, but also because any sort of factual basis upon which men would oper ate to coordinate transportation would be taken from the past Le., would be historical. If all the data that might conceivably be brought to bear on transportation were fed into a computer, the an swers that could be obtained from the computer, so far as they would be factual, would be answers for some time in the past. To make the point concrete, it might be pos sible to construct a. model for a coordinated transportation system for 1925 on the basis of data now available. But none can be con structed now for 1975 except by extending current figures - that is, fixing it in the present pattern - or by 'speculating as to what will be needed in the future.

The Uncertain Future The deepest reason why govern ment cannot intervene so as to provide a coordinated system is that no one knows what modes of transportation are wanted iri what quantity and of which quality in the future. The present writer does not know how many passen ger trains between which points may be wanted in the future. He does not know whether there should be more or less than there are at the moment. He does not know how many hopper or grain cars will be needed next season, how many automobile carriers, 42 THE FREEMAN January how many gondolas, how many flat cars, where a new railroad should be laid and an old one dis continued, where new stations should be built and old ones aban doned, and so on. This writer does not know, nor does anyone else, what 'will be wanted in the future. If he did know, he could become fabulously rich by providing it at just the right time and right place.

But alas, such infallible foresight is denied to us mortals, whether we are clothed with the powers of government or not. This being the case, a coordi nated transportation system, if there is to be one, will have to be built by trial and error, by specu lation; and it will never be com pleted until all change has ceased. This means that there will be mal investment, that there will be waste, that some of the specula tions will not payoff. This is one of the central arguments for hav ing such speculations made by pri vate investors rather than govern ment. If government agents guess wrong, we all pay. If private in vestors guess wrong, they lose. Irresponsible Performance at Everybody's Expense But we do not all simply pay once and get it over with if those in government guess wrong about what is wanted; we may continue to pay and pay. Politicians do not readily give up when they are wrong; they frequently continue to throw our good money after their bad decision. They have fer tile imaginations when it comes to thinking of reasons for operat ingenterprises at a loss. If they operate passenger trains which have only an occasional passenger, they can still justify it on the grounds that if an all out war came the trains would still be needed, along with many other reasons of like character.

Past experience indicates, also, that if government enterprises do not succeed economically, the poli ticians rather than· blaming them selves will blame the people, or, more precisely, some portion of the people which can serve as a scapegoat .. Government power may then be used to make the people fit the procrustean bed of facilities that government has provided. It is easy to see how this might work with a coordinated transportation system. The more popular modes could be scheduled at inconvenient hours and the less popular ones at peak hours of transport need. In creasing restrictions on the use of private automobiles and trucks and airplanes would likely be made in efforts to make governmental facilities payoff. (Of course, pri vate companies like to have such aids as these from governments when they can get them.) 1971 THE FUTURE OF THE RAILROADS 43 Summation of Evidence But it is not necessary to resort to the imagination to examine the effects of intervention. This work has already explored many of these in detail in connection with the railroads. The main reason there is not now a coordinated sys tem of transportation in this coun try is government· intervention .. A summation of the conclusions from evidence already presented will make the point. Government inter vention in railroad activity has: 1. discouraged investment by limiting earnings and prescribing conditions of operation.

2. discouraged innovation not only by harassing investors but also by making railroads continue costly operations once they have been established. 3. discouraged consolidations that would have produced truly transcontinental systems by the long and short haul clause as well as other devices. 4. discouraged competition by establishing rates and service re quirements and by fostering con solidations among naturally com petitive lines. 5. subsidized and advanced other modes of transportation while in hibiting railroad competition by regulatory measures. 6. empowered railroad employ ees against the companies by sup porting unionization, by sponsoring collective bargaining, byestab lishing seniority systems and work rules, and by fixing an expensive retirement system on the rail roads. 7. produced bankruptcies, cod dled inefficiency, and adopted pen alties of one kind or another for the efficient.

8. fostered overconstruction at the outset, prevented the aban donment of unremunerative lines and facilities, and required the railroads to pay for expensive safety measures which are usually provided at taxpayer ,expense for other modes of transportation. 9. taken from railroad manage ments most of the authority for making entrepreneurial decisions but fastened upon them the re sponsibility for continued opera tion. The list could surely be extended but the point emerges: The present transportation mess is a result of government interven tion. The railroads have been greatly limited in their appointed task of helping to link the coun try together commercially and fra ternally. They have been .ham pered, restricted, limited, inhib ited, harassed, regulated, pushed, pulled, and controlled. The fact that some railroads can still oper ate profitably is testimony to the great economic advantages of this mode of transportation.

44 THE FREEMAN January Subsidies and Controls The Federal government is now proposing to take over and operate passenger trains if the companies will not continue them. Already subsidies are being provided for the Metroliners on the Penn Cen tral and for some commuter trains. There is a familiar pattern in this activity. Governments first adopt restrictions and regulations which· inhibit private enterprise in providing certain services. Then, they enter the field to pro vide the services. It has happened with city transportation systems. It has happened with housing. Once in the field, governments ex tend their domain, and taxpayers are called upon to make up the losses incurred by government operation. What community in America will not want a Metro liner? And what politician will not see votes in requiring the govern ment to provide it? Some railroads may see a bo nanza in all this. But they should long since have learned to beware of governments bearing gifts. It is easy to see that if government operates passenger trains, and private companies the freight trains, a contest will quickly· de velop over which shall bear what proportion of the costs. Govern ment can bankrupt line after line by shifting the costs toward freight, thus setting the stage for government takeover of the rail roads.

There is a way out of this mess, however, which promises much better results. It is a way that even the railroads may be too timid (or too fearful) to suggest. It is a way that promises much for investors, for management, for workers, and, above all, for con sumers. It is the way of freedom rather than control. It is the way of economy rather than waste. It is the way of service rather than servitude. It is the way of muster ing the ideas and abilities of nu merous men rather than the stulti fying concentration of .decision making power which now obtains. It is the way of prosperity rather than depression, of life rather than death for an industry. In short, turn the railroads loose! Remove the restrictions, limitations, controls, prescriptions, and regulations which now hamper and restrain them. Allow them to serve in whatever ways they can and will, profitably and felici tously. There is no reason why they should not be allowed to, and every reason why they should.

free the Market If what is wanted by Americans is a coordinated transportation system which will provide for their transportation needs, then one of the ways they can hope to 1971 THE FUTURE OF THE RAILROADS 45 have it provided is to turn the rail roads loose, turn them loose to charge market determined prices, turn them loose to form whatever combinations may appear to those involved to be desirable, turn them loose to extend services where they will and to abandon those that are unwanted, turn. them loose so that their managements can make the entrepreneurial decisions, turn them loose to hire whom they will at whatever wages are mutually agreeable between employer and employee, turn them loose from the grip of subsidized and privi leged competitors, turn them loose to take advantage of their low variable costs and allow them to increase their proportion of the traffic so as to meet their high fixed costs - in short, turn them loose from the ubiquitous grip of government.

The most direct way to accom plish this would be to repeal the vast century-long tangle of state and Federal legislation affecting the railroads. Abolish the Inter state Commerce Commission and the· various state regulatory com missions. Remove all prescriptions as to rates, service, investment, sale, abandonment, long and short hauls, new construction, and so on. This would leave the railroads free to manage their own affairs. Remove all the special privileges extended to labor unions .. Cease to subsidize competitors in various ways. Chaos Now Prevails Americans have been taught to believe over the years that chaos would result if this were done. It is true that we could expect many changes if railroads were freed from restrictive and inhibiting legislation. One of the things that might be expected is that under the prod of economic necessity rail road men would begin to shake off their lethargy and become more vigorous. Competition would re vive: among railroads, with ba.rges, with trucks, with automo biles, with airlines, and so on.

Railroad managers might be ex pected to cease thinking of ways to curtail service and to start thinking of ways to extend it. As some railroads began to be quite profitable, investors would be lured into putting more money in them. Stocks whose prices have been stagnant for decades might be ex pected to begin to fluctuate con siderably. Ima.ginative entrepre neurs would dream of nationwide rail systems and move to form them. Prices of rail services would fluctuate, differ from company to company and region to region. New sources of goods and services would be opened up to vie with established ones. Some services would be abandoned and new ones 46 THE FREEMAN January would be conceived. Truckers, barge lines, and airlines would feel the spur of competition. Com panies that could not compete suc cessfully would sell out or go out of business. If this be chaos, it has never been clear why the consumer should fear it. It is clear why all sorts of vested .interests might and do fear competition and en terprise,why those in the business fear competition for they may not be able to hold their own, why labor union leaders and those with seniority fear the competition of would-be workers, and why truck ers, barge lines, and airlines would fear freed railroads. But the worst the consumer - which is all of us - has to fear from competition is lower prices and better service. If the increase of choices and deci sions he is offered be chaos, then many would no doubt welcome such chaos.

Freedom Brings Order Actually, we have the chaos now, the chaotic tangle of legislation within which all commercial trans port operates, the chaotic patch work of railroads over which goods and people must pass to go from coast to coast, the chaotic situation on the streets and high ways as vehicles of a vast assort ment of shapes, sizes, and operat ing conditions vie with one another for limited space, a chaotic situation which results in the rending crashes which produce their annual huge tolls of dead and wounded bodies .and vehicle destruction, the imminent poten tial chaos which strikes perpetu ally threaten, the chaotic struc tures and facilities of a declining railroad industry unable to attract new capital, and so on. It is ironic to fear that freedom would result in chaos when we are confronted on every hand with chaos, both ac tual and potential, much of which has resulted from intervention.

Of course, the railroads are not the only means of transport that should be .freed. Others are re stricted and restrained by regula tion also. It is this restraint of commercial transport, while leav ing individual transport free, which has produced so much that is unwanted today, so many of the deaths and injuries on the high ... ways, so much of the congestion, so much of the pollution, and so much of the contest for limited space .. If we continue to inhibit commercial transport, we shall, no doubt, have to place increasing re strictions on individual transport. There is another way. It is to free all transport of any restraints that are not directly related to protecting life, liberty, and prop erty. Coordination will occur within the marketplace; profes1971 THE FUTURE OF THE RAILROADS 47 sionals will do much of the work of transport; the amount of con gestion and pollution will probably be greatly red uced; and the choices of means and quality of transport will increase. 8 uch a prognosis is warranted from past experience with the market.

As things stand, the future of IDEAS ON the railroads is bleak. 80 is the future of consumers of their ser vices. Over a period of about ninety years, virtually every sort of intervention has been tried intervention which has brought us to the present pass. It is time for yet another experiment - an ex periment with freedom. ~ LIBERTY An Orderly Universe WE THEREFORE BELIEVE in liberty be cause we believe in the harmony of the universe, that is, in God. Pro claiming in the name of faith, for mulating in the name of science, the divine laws, flexible and vital, of our dynamic moral order, we utterly re ject the narrow, unwieldy, and static institutions that some men in their blindness would heedlessly introduce into this admirable mechanism. It would be absurd for an atheist to say: Laissez faire! Leave it to chance! But we, who are believers, have the right to cry: Laissez passer!

Let God's order and justice prevail! Let human initiative, the marvelous and unfailing transmitter of all man's motive power, function freely! And freedom, thus understood, is no longer an anarchistic deification of individualism; what we worship, above and beyond man's activity, is God directing all. Editor's note by GEORGE B. DE HUSZAR, inspired by an unfinished passage in Frederic Bastiat's Economic Harmonies.