Railroad consolidation

“ It is easily within the mark to say that the delay which railway consolidation has suffered up to the present, from business exigencies as distinct from the mechanical circumstances of the case, amounts to an average of at least twenty years. Ever since railroading began in this country there has been going on a process of reluctant consolidation, in which the movements of the business men in control have tardily followed up the opportunities for economy and efficient service which the railroad industry has offered. ”

“ In our opinion the best results will be achieved by leaving all initiative in the matter to the railroads themselves, * * *.'
The Transportation Act of 1940-Congress' last word on the subject of consolidation-essentially rejected the recommendations of the Committee of Three and adopted those of the Committee of Six. The Commission was finally relieved of its duty to promulgate a national consolidation plan, and the power to initiate mergers and consolidations was left completely in the hands of the carriers. ”

“ Their most advanced form is found in France, where each road is practically protected from dangerous competition by means of a division of territory. In the United States we are still in the midst of a fierce competition for territory and business, and, as pooling is forbidden, the railroad companies will be in unstable equilibrium until consolidation takes place. As that goes on, and large and rich corporations are formed, with prospects of stability in management and in business, we may hope to see similar relations established between our companies and their employees. ”

“ Employees of the constituent railroads would, it has been feared, almost certainly be adversely affected. Shippers and communities adequately served by railroad A may suddenly find themselves unfavorably dependent upon railroad B. Investors in one railroad would, contrary to their expectations, find their holdings transmuted into securities of a different railroad. As the Commission in its 1938 Annual Report said of consolidation:
'Projects of this character cannot be crammed down the throats of those who must carry them out or conform to them. ”

“ The construction of extensive railways, however, and particularly the consolidation of small, experimental lines into large systems, dates from the days of the discovery of gold in California. ”

“ For few practical railroaders will deny certain vast advantages to be gained by the complete centralization of our rail properties—not only in financing and in rate-making, but also in traffic solicitation and control, in expert staff study of mechanical and operating problems, and in the production of proper personnel, particularly for the filling of future executive positions. All of these functions and more too, the United States Railroad could and would undertake. ”

“ There is a great tendency on the part of the public, however, to look with fear and disfavor on further railway consolidation. And because this is so, it is greatly to be desired that the beneficial effects of consolidation should be better understood. The most important benefits are included under one head, the saving in expense and the avoidance of waste, and this is effected in very many different ways. Suppose a great system like the Pennsylvania or the Chicago & Northwestern were cut up into fifty or sixty independent roads, each with its own complete staff of officers. ”

“ And the obvious war-time economies—the direct routing of traffic, the pooling and interchange of equipment, the joint representations and the like—came into being.
To accomplish these things nationally and permanently, to lessen competition rather than to increase it (no sane man imagines that we are ever to succeed entirely in removing the [Pg 271] competitive element) , may yet mean the complete reorganization of our national railroad system. Yet even so radical a step need not be regarded as either fatal or impossible. ”

“ Consequently the consolidation of the railways into larger units for the purpose of securing the substantial values to the public which will come from larger operation has been the logical conclusion of Congress in its previous enactments, and is also supported by the best opinion in the country. Such consolidation will assure not only a greater element of competition as to service, but it will afford economy in operation, greater stability in railway earnings, and more economical financing. ”

“ We have determined upon a national policy of consolidation of the railways as a necessity of more stable and more economically operated transportation. Further legislation is necessary to facilitate such consolidation. In the public interest we should strengthen the railways that they may meet our future needs. ”

“ This was the fate of the old New York and New England railway, finally purchased by the New Haven system; of the West Shore and Nickel Plate lines; and of the Kansas Pacific, unloaded on the Union Pacific by Jay Gould. The nature of railway competition is indeed such that no other result than consolidation or pooling can ensue. Weyl is right in his observation that,—"Strictly speaking, permanent competition can exist, not between railroads struggling for the same traffic; but solely between those railroads which have no territory in common." ”

“ This cessation of development did not change for the better until the resumption of general prosperity in 1878. The net result of ten years building was, nevertheless, considerable, represented by an expansion from 53,000 to upwards of 93,000 miles of line. Railroad building, in fact, increased about two and one-half times as fast as population. So that by 1880 the United States was already more amply furnished with transportation mileage than any country in Europe. ”

“ We have been donating millions of acres of land to new railroads. It is important that the tracks should be laid with steel rails, that the companies should get the rails as cheaply as they can; it is equally as important that the old roads, when repaired, should be repaired with steel rails. This is the only mode by which the railroads can ultimately become laid with these rails. It is estimated that a railroad needs a renewal of the rails once in ten years. ”

“ The earning power of the system cannot yet, therefore, be said to be secure. Moreover, the capitalization of almost $72,000 per mile,400 as well as the less dense railroad business in the South, the slight construction of many of the Southern Railway lines, the lack of adequate facilities which compels an operating ratio of 76 per cent, and the absorption of minor roads less prosperous than the main stem,—all these factors have kept down the net surplus from operation. ”

“ If the title from each land owner could be procured only by negotiation and purchase, no railroad could be constructed, for the reason that a direct or continuous line for a road could rarely be secured. Railroads are constructed to aid in the transportation of freight and passengers from one part of the country to another; to promote commerce throughout the whole country; to supply the wants of a people, just as a mill or factory supplies the wants of a particular locality. ”

“ Transportation salesmanship?
Properly played it is one of the most subtle games in the world, and one of the most fascinating—and for the railroad, one of the most profitable.
We have seen a good deal in the public prints in the last few years about the prime necessity of nationalizing the railroad in the United States in a far more thorough fashion than has ever before been even attempted. One of the potential dangers which forever faces a land as physically great as ours is the inherent possibility of its falling apart through its sheer size and weight. ”

“ Another element that is effective in the direction of causing a gradual reduction in rates, if the railroads are left reasonably free, is the fact that railroad transportation cannot be stored up and saved for future use. The railroad-owner and manager never can strike an exact balance between the demand for transportation and the supply. ”

“ The splendid reach of this inhibitory work of the captain of industry, as well as of his aggressive work of consolidation, is well shown, for instance, in the history and present position of the railway industry in America. It is and has for a long term of years been obvious that a very comprehensive unification or consolidation, in respect of the mechanical work to be done by the railway system, is eminently desirable and feasible, - consolidation of a scope not only equalling, but far out reaching, the coalitions which have lately been effected or attempted. ”

“ The other cause of co-operation among the railways was the necessity of regulating competition. This cause first became potent after the process of consolidation had brought about the formation of numerous large railway systems, and had inaugurated the violent competition which led to discriminations in transportation charges, rate wars, and the other evils which have combined to produce "the railway question." ”

“ No limit of time is fixed within which the construction of railroads should begin or be completed. Without such limitations speculating corporations would be enabled to seek out and secure the right of way over the natural and most feasible routes, with no present intention of constructing railroads along such lines, but with the view of holding their advantageous easements for disposal at some future time to some other corporation for a valuable consideration. In this way the construction of needed railroad facilities in that country could be hereafter greatly obstructed and retarded. ”

“ The building of railroads offered an opening for surplus capital; the opportunity for fortune and fame was attractive; but above all the people were crazed with the idea of improvement; every town wanted to grow bigger and a railroad was an absolute necessity; scores of companies were formed with the intention of beginning construction, then deeding the improvement to some established line to operate. Many communities subscribed stock, others voted bonds, others paid for right of way by private subscription in order to secure a railroad. ”

“ Not many new steam railroad companies are now needed even in the West. It must be confessed that the recently authorized extension of the Grand Trunk Railway into the heart of New England shows how persistent is the demand for new roads even in the East. But whoever may build, let them learn the lesson, so often forgotten, that honest management and conservative financing, to the end that solid credit be first established, has far more to do with facilitating development than non-interference by law. ”

“ These scattered bits of road here and there were, in after years, as the possibilities of railroad development began to dawn upon the minds of far-seeing men, united by connecting links and reorganized into roads of much greater length. In fact some of the most difficult features of the railroad problem of the present day grew out of the failure of projectors of railroads{435} in the early days to grasp the meaning of the system which they were instituting. France, Germany, Belgium and other European cities have had no serious railway problem. ”

“ All provisions forbidding or hindering the various forms of consolidation of parallel or connecting railways, whether contained in State Constitutions or in Federal or State statutes, should be repealed, and public and legislative encouragement so far as practicable should be generously accorded to every step that tends toward the complete harmonization of the railway system. If this somewhat radical change in the attitude toward the railway monopoly can be effected it will not be long before favoritism will become as rare in railway rates as in the rates of taxation. ”

“ Every existing railway company is bound to permit new railroad lines to be connected with it, at the expense of these latter. All laws granting existing railway companies the right of injunction against the building of parallel or competition lines are hereby abolished throughout the Empire, without detriment to rights already acquired. ”

“ Experience has abundantly shown that it is possible for railroads to maintain a large part of their identity, even reserving to themselves the power to make rates independently, under a pool, in exceptional cases, without thereby entirely nullifying the steadying influences of such traffic agreements. Consolidation, however, necessarily involves the unification of all interests as between railroads. ... In brief, pooling may still permit competition in respect to facilities. ”

“ Even if we are not going into virgin territory to give whole townships and counties their first sight of the locomotive, but are going to strike into a community already provided with railroad facilities but seemingly offering fair opportunity for profit in a competitive traffic, we shall find capital ready to stand back of us. A railroad will cost much money, the mere cost of single-track construction generally running far in excess of $35,000 a mile ”

“ By 1850 the railroad had proved to the American people, and particularly to those who had money to invest, that it was far faster, cheaper and more adaptable to the country’s transportation needs than either turnpikes or canals. As investment flowed in ever-increasing amounts into railroads, the funds available for extending or even maintaining the old horsedrawn facilities became less and less and finally dried up altogether. ”