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—passed 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 resumÉ 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:

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 assume 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 5½ or 6 per cent. to the railroads; at no time does it guarantee them. And even this set figure of 5½ 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 passenger 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 5½.

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 passenger 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 class 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 passenger 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 passes which had been given rather freely to the henchmen of that branch of Federal service. Other roads quickly ended the life of those passes; 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 pass, 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 passenger-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.

With Mr. Hughitt absolute dictator of Chicago and Northwestern there was none to oppose his arbitrary dictum in regard to Mr. Aishton. The fact that Aishton had been reared upon the property, that his record upon it was not only good but great, apparently counted for nothing. He was dropped. He had offended “the old man.” That was a heinous offense for which there was no possible excuse. Aishton’s powerful friends in the railroad world rallied to his defense. They elected him president of the American Railway Association at a salary reputed to be equal to that paid him by the Northwestern.

Apparently it is not only McAdoo who can afford to indulge his whim in personalities.

Before the Railroad Administration ceased its actual operation of the roads it began the restoration of much of the pre-war service, particularly of the passenger service. Soon after the signing of the Armistice and the removal of military pressure upon the carriers the important through trains that had been removed—the Broadway Limited and the Congressional chief among them—were returned to their former schedules, although not in every case with the same high degree of service as before. It was not, for instance, until the return of private control that the fastest trains between Chicago and the Pacific coast brought to their pre-war standard of approximately sixty-nine hours. The McAdoo administration as a war measure had lengthened this schedule to seventy-two hours.

Yet it was McAdoo who, once the war emergency was passed, removed the half-cent-a-mile extra charge that he had established against people who rode in Pullmans or other forms of sleeping and parlor-cars and left the fare at a flat three cents a mile—where it should have been suffered to remain in the interest of the railroads themselves.

The Interstate Commerce Commission raised it to 3.6 cents a mile, upon hints from the private operators of the roads. It is but fair to add, however, that there are certain members of the commission who long ago had conceived the idea that the passenger-rates were not bearing their proper burden of the costs of railroad operation. It is these men who have to-day steeled their hearts against any lowering of passenger-rates to a point where the service might at least have some competitive attraction against that of the automobile, publicly or privately owned or operated. In all this discussion at the moment of the possible lowering of freight-rates nothing whatever is being breathed of a readjustment of passenger-fares, with the single exception of a recent bill passed in the United States Senate for the enactment of a Federal statute compelling the roads to sell mileage-books at a low wholesale rate. This neglect of itself is, I think, a most unhealthy sign. While the 23 per cent. lowering of passenger revenues in 1921 as against 1920 is a fairly definite expression of that unhealthiness.

To my mind this is not entirely a question of the proper equalization of operating costs to revenues; the question of setting the tariffs of charges to a point where business shall again be attracted to the railroads, to my way of thought, is the real kernel of the problem. That is the way that the average merchant or manufacturer would look at the similar problems that confront him. To get the business the rates must be made attractive. If it then becomes necessary to reduce operating costs so as to exist at the lowered revenues, then the business man will move heaven and earth to reduce his costs.

Apparently the Interstate Commerce Commission does not see the question in this light. One understanding the complexion of its membership would hardly expect it so to see it. The commission is absolutely honest and, to a large extent, able; but it is generally dull. It has no traffic sense; no sense of salesmanship. It has no vision. It always looks backward, rarely forward. Being composed almost exclusively of lawyers,—long ago it was recognized apparently that it would be a fearful thing to place an honest, far-sighted, energetic railroad executive in its personnel,—it spends a great deal of time seeking for precedent. Therefore it hardly can be expected to look forward.

“What is the precedent?” it keeps asking. “How has it always been done in the past?”

This is one of the very great reasons why our railroads to-day are not marching forward in step with the progress of the other great businesses of America, why so often they are called, and with such a deadly truth, “the sick man of American business,” why they have lost so much of public confidence and of public support, why the morale not only of the rank and file but of many of the executives as well has come to so low a pass.

The railroads of the United States to-day, deprived of so much of their initiative by the Government, should at least be able to look to that Government for some real qualities of inspiration and of leadership. Such qualities they need. Such qualities are not being given to them. The sick man needs medicine, physical and mental, not abuse. The Interstate Commerce Commission should be made into a doctor who can cure as most good doctors do cure these days, not by nostrums alone, but by good cheer and inspiration.

One or two things more, if you please, before we are done with this chapter.The railroads generally wormed themselves out of the joint terminal arrangements which McAdoo had made for them, and made in almost every instance to the great comfort of the traveling public. The Southern Pacific expelled the offensive big Santa FÉ and the almost equally offensive little Western Pacific from its ancient station and “mole” at Oakland opposite San Francisco. The Pennsylvania prepared to do the same thing with the Baltimore and Ohio and the Lehigh Valley at its station in New York. This last move was not carried out. I had something to do myself with preventing it.

The question arose in my mind at the termination of Federal operation: What will the Pennsylvania do with its chief competitor there in its fine station upon Manhattan Island? Will it do the obviously competitive thing and thrust the Baltimore and Ohio out, along with the Lehigh Valley into the bargain? A little questioning developed the fact that that was its precise plan. The question of rental charges did not enter into the situation. The Pennsylvania was not direct in its explanation; it did not say, as it might honestly have said: “We built this big, expensive station as a competitive move, and we do not purpose to share the fruits of our enterprise with a competitor who did not share the great risk of the undertaking.” It merely said that there was not room in the station for the fourteen daily trains of the Baltimore and Ohio and the eight of the little Lehigh Valley. It was handling 175 of its own trains there, and about 275 of the Long Island in addition, but it could not find room for twenty-two other trains.

Here was railroad competition showing its most disagreeable side to the public weal. The man who lived at Martinsburg, West Virginia, or Cumberland, Maryland, or virtually any of the other non-competitive points of the Baltimore and Ohio was to be penalized henceforth in the name of competition. Having enjoyed great comfort and facility under the non-competitive plan of the United States Railroad Administration in the use of the Pennsylvania Station in the heart of Manhattan, he was now to be shoved back into the old station at Communipaw, just below Jersey City, with its slow and cumbersome ferry connections across the Hudson River. It was not likely that he would henceforth become an enthusiast over the competitive system of railroading.

The whole thing seemed so absurd that I took it upon myself to mention it in the public prints. That apparently did the trick. Publicity ofttimes does. The Pennsylvania changed its position; in a big and graceful and generous way it waived what apparently were its obvious competitive rights in the situation, and invited both the Baltimore and Ohio and the Lehigh Valley to remain at least for some years to come in its great New York passenger terminal. The invitation was accepted with alacrity.

Most of the consolidated ticket-offices still remain, although there is a constant disposition among the more independent of our separate railroads to break away from them. Theoretically offering far better facilities to the traveler than the separate city offices, practically they rarely do this. For one thing, despite their brave show of mahogany and other fine forms of office fittings, they frequently are under-manned, particularly in seasons of heavy travel. And a man in a hurry going to one of them frequently is compelled to wait an outrageously long time. The fact also remains that the so-called weaker lines that use them seem so submerged as hardly to have a fair chance at the competitive traffic. A small railroad can make a large showing with an attractive office in the heart of a big city. Relatively it outshadows its neighbor.

Where the individual roads have remained in the consolidated offices up to the present time, it has been largely the result of a laudable desire to stand by their fellows. The Railroad Administration forced some one line in each large city to assume the rental of the consolidated offices. In Chicago, for instance, the ten-year lease (at $65,000 a year) of the consolidated ticket-office fell upon the broad shoulders of the Burlington. With the exception of the Northwestern system, which showed a particular antipathy to the late Railroad Administration, virtually all the large roads have remained with the Burlington.

There is moreover an economy argument in the consolidated office that is not without its appeal to the railroad executive. The only question in the mind of his traffic expert is whether the economy argument is not completely overcome by the additional business to be gained by a red-hot competitive little separate office. Of course if all the lines coming into any large city should maintain red-hot competitive little separate offices the gain would be theoretical rather than real. There might be some passenger traffic actually created by the brave showing of the separate offices, but I think that it would be negligible.

The convenient universally interchangeable mileage-book that McAdoo installed (with his name printed upon each third tiny coupon) has been retained with all of its universal privileges, up to the present time at least. But no longer with the name of McAdoo brightly displayed. It still represents no saving to the purchaser over the price of individual separate tickets, though offering a certain convenience in the checking of through baggage, in making Pullman reservations and the like. Yet the putting through of the Senate bill authorizing the Interstate Commerce Commission to reduce its price bids fair at last to lead toward a correction of this precise phase of the situation. Gradually a pretty well-defined feeling is being developed that railroad passenger-fares in the United States to-day are entirely too high. “Not more fares but more riders” is a slogan which a young man who is developing traffic for street railways is using, with telling results. His slogan is quite as applicable to the steam railroads. They apparently have brought their passenger-rates to a point where the riding, always a variable and uncertain quantity, no longer is attracted to their trains. And this is an hour when the motor-car is steadily gaining strength as a competitor of the railroad.The flat abolition of the stop-over privilege which some enthusiastic railroad traffic expert urged upon McAdoo is now being slowly worn down again, at least to the point where most of the stop-over privileges that were in existence in pre-war days have now been restored. The traffic departments of our various railroads all the way across the land at last are beginning to unbend. The traveler is beginning to regain his old-time privileges.

We do progress.