Our Railroads To-Morrow Part 4

The fact remains, nevertheless, that Mr. Hines had in his stewardship a very thankless job at the best; it is always hard to follow a prima donna upon the stage. And McAdoo was some prima donna! Yet in loyalty and in energy Hines gave place to no one. He took the thankless job and made the best of it. He undermined his health by his devotion to it and received no praise from any quarter. His best reward must come in his own knowledge that, all in all, he did a good job, with difficult timber--the best of the subordinates of the Railroad Administration already were leaving it for future peace-time jobs of permanency--and with no encouragement whatsoever. And when the United States Railroad Administration ceased its active career upon March 1, 1920, and handed the railroads back to their owners for operation, I fancy that none was more rejoiced than Walker D.

Hines.

What then was the net result of our first--and possibly our last--national experiment in the government operation of our huge railroad plant?

Even to-day, fully twenty-four months removed from the experiment itself, that is a difficult question to answer quickly and fairly. It is even difficult to say that, regarded merely as an experiment, it was a fair test. Certainly no laboratory expert deliberately would choose the critical final hours of a great war as an ideal time for dispa.s.sionate experimentation. It was in such hours that McAdoo, who was the head and front of the entire experiment, worked. When his successor came to high office the entire country was in the "let-down" that swept across the land as the very natural sequence of great national tension and endeavor.

The distinguished writer upon railroad economies, William J. Cunningham, James J. Hill professor of transportation at Harvard and himself for a time a subordinate executive of the Railroad Administration, does not believe that the experiment was a success. In a recent issue of the "Quarterly Journal of Economics" he says:

Finally we ask ourselves whether our recent experiment in Federal control affords an adequate test of the desirability of a permanent policy of public ownership and management. The answer is plainly in the negative. The results in 1918 were favorable. In 1919 they were unfavorable. They were favorable in 1918 because at that time we were actively engaged in war, every influence of patriotism supported the Railroad Administration, and the organization was held at concert pitch by the critical military needs. The unfavorable results in 1919 may be attributed in greater part to the p.r.o.nounced reaction from war-time strain, to the serious decline in traffic, and to the disintegration of the organization in a too prolonged closing period.

No one should question the expediency of the Government's action in taking the railroads in the emergency. The centralization of power and the more effective coordination with other branches of the Government in the crisis made possible effective results in the utilization of equipment and facilities, which would have been much more difficult under private management. But it is not proper to treat that period as the test of what might be expected under normal conditions. As regards the unfavorable year, 1919, it would be as unfair to make that a test of government operation as it would be to take the present period of subnormal traffic and disturbed economic conditions as the final test of private management.

Those who advocate nationalization and look upon the results of both years as favorable to government operation must concede that they are to be credited to railroad men who rose to the emergency. The proponents of nationalization who are disappointed in the results of the two years attribute the failures to the fact that the real management during the greater part of Federal control was in the hands of men who were brought up under private management and who therefore could not or would not avail themselves of the advantages of unification.

It is plain therefore that nothing definite can be proved from the results of 1918-19. A real test of government operation is possible only if carried on over a longer period--one in which business conditions are normal and in which political expediency would have normal play. The period under review was so abnormal that the results are valueless as guides to what might be expected from similar control or complete government ownership when normal conditions return.

I do not agree entirely with Professor Cunningham. I am not a "government ownership (or operation) man," but I feel that the experiment of the United States Railroad Administration, despite the tremendously difficult conditions under which it was operated, and also despite the fact that it was made at a very inopportune and inappropriate time, did have much real value. Unquestionably the time set for the experiment was far too short.

Both Mr. McAdoo and Mr. Hines went on public record as saying that there be at least five years of peace to show their plan at its full worth.

But even in twenty-six brief and hectic months many things were developed that should be, that must be eventually, of great value to the present private operators of our railroads. Of many of these things as well as the possibilities for their development, this book will have to tell. The Railroad Administration at least pointed the way to them. In view of that, shall we not be broad enough to overlook its errors and its mistakes, and yet call it a real advance toward the solution of a national problem that advances sluggishly to that end?

CHAPTER IV

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--pa.s.sed 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 a.s.sured 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 a.s.sume 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 pa.s.senger 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 pa.s.senger 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 cla.s.s 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 pa.s.senger 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 pa.s.ses which had been given rather freely to the henchmen of that branch of Federal service. Other roads quickly ended the life of those pa.s.ses; 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 pa.s.s, 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 pa.s.senger-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.