The Railroad Problem Part 1

The Railroad Problem.

by Edward Hungerford.

CHAPTER I

THE SICK MAN OF AMERICAN BUSINESS

On a certain estate there dwells a large family of brothers and sisters.

There are many of them and there is great variety in their ages. They are indifferent to their neighbors; they deem themselves quite self-sufficient. But, for the most part they are an industrious family.

They are a family of growing wealth--in fact, in every material sense they may already be called rich. And their great estate is slowly beginning to reach its full development.

In this family there are several older brothers who long since attained a strength and dominance over some of the younger members of the family. It is one of these brothers about whom this book is written. It does not a.s.sume to be a story of his life. That story has been told by abler pens.

It merely aims to be a brief recital of his present condition. For, truth to tell, this older brother has come upon hard times. After a long life of hard work, at a time when his service should be of greatest value to the estate, he has broken down. He has begun to fail--and in an hour when the greedy neighbors grow contentious and he may be of greatest service to his own big family.

The Railroad is the great sick man of the American business family. He is a very sick man. Doctors may disagree as to the cause, sometimes as to the nature, of his ailment; they may quarrel even as to the remedies they deem necessary for his recovery. But there is no question to the fact that he is ill. Just at this time, owing to the extraordinary and abnormal prosperity that has come to the United States, largely because of the great war in Europe, he has rallied temporarily. But his illness continues, far too deep-seated to be thrown off in a moment. And the recent extraordinary legislation pa.s.sed by Congress has done nothing to alleviate the condition of the sufferer. On the contrary, it has been a great aggravation.

I make no pretense as a doctor. But in the course of ten years of study of our American railroads certain conditions have forced themselves upon my attention--time and time again. I have had the opportunity to see the difficulties under which the railroads labor and some of the difficulties which the railroads have carved for themselves. I have had the chance to see how a ma.s.s of transportation legislation has acted and reacted upon these great properties. I have known and talked with their employees--of every station. And I have made up my own mind as to the great opportunity that still awaits the railroad in America. For I am firmly convinced that the great transportation organism of the United States has but scratched the surface of its usefulness. It is this last phase of the railroad that is, or should be, of greatest interest to every American.

Within the short s.p.a.ce of the pages of this book, I am going to try to show first the financial plight that has overtaken the overland carriers of our country. I am less of a financier than physician. But the figures upon which my premises are builded have been obtained by a veteran railroader; they have been carefully checked by expert auditors and railroad statisticians, and as such they may be called fundamental.

Given first the financial and the physical plight of our railroads as it exists today, we shall come to another great phase of its weakness--the labor question. Partly because of a disposition to put off the real solution of this problem to a later and apparently easier day, and partly because of conditions over which the railroads have had no control whatsoever, this problem has grown from one of transportation to one of politics--politics of the most vexed and complicated sort. We shall look at this labor question from the most engrossing angle--the human one--and we shall try to look upon it from the economic and financial angle as well. And we shall reserve our real opinion as to its solution until we have had the opportunity to look from the depressing picture of the railroad of today to the picture--by no means conceived in entire fancy--of the railroad of tomorrow.

Upon that second picture we shall build our opinion as to the present necessities of the railroads. Because, in my own mind, it is only as the railroad seeks opportunity, as it seeks to enlarge its vision, that it will be given the chance to live as a privately owned and managed inst.i.tution. It is today close to the parting of the ways, and the men who control it have come now to the point where they will have to choose--the one path or the other. It will no longer be possible to delay the decision of a really vital economic question to a later, and an easier, day.

Around the bedside of this sick man of our great estate are gathered the physicians and the nurses. They are a motley lot. One of the nurses is called Labor, and at first thought you will think him well worth watching.

Another nurse is more appealing at first sight. She is a slender _spirituelle_ thing. We call her Regulation. Perhaps she is worth watching, too. Perhaps her ways should be mended. She is not bad at heart; oh, no! but she has had bad advisers. Of that you may be sure--at the beginning.

And it is quite certain that until she does mend her manners, until Labor, the other nurse, does likewise, the caller who stands around the corner will not come in the sick room. The invalid constantly calls for him. The man around the corner is known as Capital. He holds a golden purse. But you may be quite sure that he will not come to the sick man and thrust the purse within his fingers until both Labor and Regulation have changed their manners.

There are no two sides to such an argument.

With which statement let us turn from parables and toward plainer speaking. Let us begin consideration of the plight of the railroad.

CHAPTER II

THE PLIGHT OF THE RAILROAD

Remember that the Railroad is the big man in the American business family, the very head of the house, you may say. Sick or well, he dominates his brothers--even that cool, calculating fellow whom we delight to call "the Banking Interests." All America pays toll to transportation. And, inasmuch as the steam railroads are its dominating form of transportation, the entire country hangs upon them. In the long run this country can prosper only when its railroads prosper.

Do you wish to dispute them? Before the facts your contention will not hold very long. According to the last census more than 1,700,000 persons were directly employed upon the steam railroads of the United States; some 2,400,000 in industries bearing directly upon the railroads--lumber, car and locomotive building, iron and steel production, and the mining of coal. It is a goodly number of folk whose livelihood, or a large portion of it, comes from an indirect relation to the railroad. It has been said, with a large degree of statistical accuracy, that one person in every ten in the United States derives his or her living from the railroad.

Perhaps you are not one of this great family of 10,500,000 persons--more folk than dwell in the great state of New York, including the second largest city upon the face of the world. Granted this--then probably you are one of the 10,000,000 savings-bank depositors in the United States. If you are, you are an indirect holder of railroad securities. The savings-banks of this country have many, many million dollars of their savings invested in railroad bonds. If you have not even a savings-bank account let me a.s.sume that you have a life-insurance policy; there are three life-insurance policy-holders for every savings-bank depositor. The value of every one of those 34,000,000 policies depends on the wealth that is locked up within the strong boxes of the life-insurance companies. And a very great proportion of that wealth is expressed in the stocks and bonds of railroad companies.

Try as you may, you cannot escape the dominance of the railroad in financial and industrial America. You might have neither savings-bank account nor insurance policy of any sort, yet the railroad would touch you constantly, through both your income and your outgo. If you were a city man, it would touch you not only in the prices that you pay for milk and meat and vegetables, but for the rent of your house or apartment. As I write, the entire East is panic-stricken for fear of a coal famine, faces steadily rising prices. The production at the mines, despite a scarcity of labor, has not been far from normal. But the railroad has failed in its part of the problem--the providing of sufficient cars to transport the coal from the mines to the consumer. It has been hard put to find cars to move the munitions of war from the interior to the seaboard towns. And the coal mines, because of the lack of railroad cars, have been unable to relieve the situation. So panic has resulted. Upon its heels have come similar, if somewhat lesser panics over the congestion and lack of delivery of foodstuffs--conditions which have been reflected in rises in the prices, if not in the value of most foods. These prices already have reached higher figures than at any time since the Civil War. Today they are nearly even with those which prevailed during the dark days of the sixties. And even if they are due directly to crop shortages and abnormal exports they still are a reflex of the railroad's intimate touch with every man, woman, and child all the way across the land.

Sitting on the porch of his home at dusk, the farmer looks out over his broad acres, sees the great industrial aids that American invention has given him for the growing and the harvesting of his crops and forgets, perhaps, that on each of these mechanical devices he has paid a toll to the railroad. But when he looks to his wheatlands he must recall that it is the railroad that carries forth their crops--not only to the cities and towns of the United States, but to the bread-hungry land, far overseas. In those markets he competes with the wheat from lands so far distant that they seem like mere names wrenched from the pages of the geography book--Argentina, India, Australia. Because of this alone, it is nationally important that the steel highways which lead from our seaport gateways inland to the wheat and corn fields be kept healthy and efficient. They have become integral parts of that broad national policy which says that the United States is no longer isolated or insular but one of the mighty company of world nations.

Will you permit me for a moment to enlarge upon this point--this compet.i.tion between our farmer of the West and the farmer of the Argentine Republic, of India, of Australia, and of the nations of the Baltic Sea in the market of the consuming nations of the world? As the wheat fields of each of these nations are nearer tidewater than the wheat fields of the United States, it long ago became necessary for our railroads to lower the transportation rate for grain in order that the American farmer might not become submerged in this great international compet.i.tion. That this has been done, a single ill.u.s.tration will show:

A bushel of wheat today is transported from the center of the great granary country of our Northwest or Southwest to tidewater--an average distance of 1,700 miles--for 27 cents. This is at the rate of .53 of a cent--a minute fraction over half a cent--per ton-mile. The average ton-mile rate in Great Britain, 2.30 cents, as applied to our average grain haul in the United States of 1,700 miles, would make the transportation cost of American wheat four and one-half times as much, or $1.21. The American farmer owes a far greater debt to the railroad than he sometimes may believe. He may have suffered under the oppressions and injustices of badly managed roads--may yet be smarting from these oppressions and injustices. But how much greater would be the oppression and injustice of a high grain rate such as I have just shown? And if such a rate were imposed upon him, would he be able in an average year to grow wheat at a profit, to say nothing of being able to compete with it in the broad markets of the entire world?

A minute ago and we were speaking of the abnormal prosperity of the railroads. The flood first descended in October, 1915. It rapidly mounted in volume. The railroads declared embargoes, first against this cla.s.s of freight and then against that. Solicitation ceased. The bright young men of their traffic forces were set to work helping the overworked operating departments, tracing lost cars and the like. The backs of their operating departments were all but broken. I myself saw last winter on the railroads for a hundred miles out of Pittsburgh long lines of freight cars laden with war munitions and other freight making their slow and tedious ways toward tidewater. I saw Bridgeport a nightmare, the railroad yards of every other Connecticut town, congested almost overnight, it seemed. The New York terminals were even worse. For a long time it seemed as if relief might never reach them.

It seemed wonderful, but it was not. It seemed like millions in railroad earnings, but it was not. Translated into the unfeeling barometage of percentages it all represented but five and one-half per cent on the actual value of the railroads of the United States. And that, compared with the long season of lean years that had gone before, was as nothing.

Take the season of years from 1907 to 1914--a season for which the statistical records are now complete. Despite the great financial panic of 1907, these were, in some lines of business, mighty prosperous years. The output of automobiles was to be measured not in hours but in the very fractions of minutes. You might figure the earnings of the "movies" well into the millions each twelvemonth; they were building new theaters in all the cities and the bigger towns, almost overnight it seemed. Manufacturing and selling, nationally speaking, were up to the average. Yet in those very years, it was necessary for some of our very best railroads--the best operated and the best financed, if you please--to dip into their previously acc.u.mulated a.s.sets to pay the dividends which they had promised to their stockholders, in several cases to either lower or omit dividends.

And some of the best of these were also compelled to pinch their maintenance expenses to a point that brought them close to the safety line in operation, or even beyond it.

And what of the weaker roads--the roads upon which whole communities, whole states, if you please, are frequently absolutely dependent? What did these roads do in such an emergency? The record speaks for itself. The best of these second-cla.s.s railroads made no secret of the fact that they were cutting down on maintenance in order to pay their dividends or the interest upon their mortgage bonds. The worst of them simply marched down the highway to bankruptcy. At no time in the history of this country has as much of its railroad mileage been in the hands of receivers as today.

If you are in that glorious company of self-appointed patriots who violently proclaim themselves at every possible opportunity "anti-railroad," you may be asking me now why so many of our roads have entered bankruptcy. You may be asking me if it is not due in some cases to bad location, and in others to inefficient or dishonest management. I shall reply to you by saying that perhaps fifty per cent of the railroads which are in bankruptcy today are there because they never should have been constructed in the first place and because of the financial management. The lack of judgment, ofttimes the sinister motives that brought them into being are now being paid for and paid for dearly. And in the second place, I will take no issue with you as to either carelessness or dishonesty in management of some of our railroads.

"Why is it that every investigation of a railroad nowadays shows such a rotten condition throughout its affairs?" asked a distinguished economist at a dinner in Chicago last winter.

E. P. Ripley, the veteran president of the Santa Fe, answered that question.

"It is because a road is never investigated until it is morally certain that its affairs are rotten," said he, and then told how but one or two rotten apples would send their foul odors through an entire barrel and so seemingly contaminate its entire contents. Would you blacken a whole company because a few of its members have erred? Take another instance. A club for a while shelters a genuine blackleg. Are we to say that, because of this mere fact, its other members are not as good as any of us? So it is with the railroads. You cannot point even the finger of suspicion to such properties as the Santa Fe, the Burlington, the Pennsylvania, the North Western, or the Baltimore and Ohio railroads--to mention a few out of many, many instances. These are good roads; in some instances because they have been extraordinarily well located, but in most instances because of their continuous enlightened management. Yet some of them have been hard put to it of late to maintain their dividend obligations to their stockholders. And many roads have been compelled to lower or else suspend entirely the dividends paid in the years gone before.

"How about efficiency?" you may interject.

You are not the first to ask that question. It was asked several years ago by a distinguished citizen of Boston--Louis D. Brandeis, now a justice of the Supreme Court at Washington. In the course of a rate hearing in which he appeared as counsel, Brandeis asked the question, then answered it himself.

"I could save the railroads of the United States a million dollars a day, by applying the principles of modern efficiency to their operations," was his quiet answer to his own interrogation.

The remark was a distinct shock to the railroad executives, to put it mildly. Some of them were angered by it. The wiser ones, however, went home and sent their secretaries scurrying out after all the books on the then new science of efficiency that could be found.

The more they studied efficiency the less these wise men were inclined to anger against Brandeis. Some of them found that they had been practicing efficiency on their properties for a long time past--only they had not known it by that name. They had been rebuilding whole divisions of their lines, relocating and reconstructing them so as to lower grades and iron out curves--all to the ultimate of a more economical operation of their roads. A bettered railroad means invariably a cheaper one to operate. The saving in grades and curves--no matter what may be the initial cost--means a more than proportionate saving in fuel cost, as well as in wear and tear upon the track and cars.

Remember, if you will, that one of the biggest things that efficiency spells is economy. And economy is always a popular virtue in railroading, particularly among those gentlemen whose only interest in the railroads arises from the fact that they own them. If greater efficiency meant greater economy--well, perhaps it was just as well that that smart attorney from Boston made his remark at the rate hearing, only perhaps he might have phrased it in a little less violent fashion.

That is why a man like Daniel Willard, the remarkably efficient president of the Baltimore and Ohio Railroad--the man who has done so much toward rehabilitating that one-time minstrel-show joke into one of the best railroad properties in the United States--spent days and nights reading every sc.r.a.p about efficiency that could be brought to his attention, why he brought Harrington Emerson, one of the best-known of the efficiency experts into his own offices and staff, why, beginning with his great car and engine repair and construction shops, he is gradually extending the principles of modern scientific efficiency to every corner of the railroad which he heads. Willard's example has been followed by other railroad executives. And it is because of these and other efficiency principles that the best of our railroads have been enabled to crawl through the hard years of the past decade, without going into bankruptcy.

It is a gloomy record--these lean years in Egypt. They came succeeding a decade of apparent prosperity for most of the railroads. I say "apparent"

advisedly. For, when you get well under the surface of things, you will find that even the first six or seven years of the present century were not genuinely prosperous for the overland carriers. Dip into statistics for a moment. They are dry and generally uninteresting things but nevertheless they are the straws which will show the way the wind is blowing. Look at these: