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The Hustle

by Jace Sat Feb 19th, 2011 at 09:09:32 AM EST

The United States is a nation of hucksters. Sure we grow those amber waves of grain and we've got this thing about our 'weapons', but in our heart of hearts we're really just a bunch of promoters, hustlers, salesmen. And you name it, we'll sell it! Land, plants, animals, our beloved guns, hell, we'll even sell off our entire industrial base if the price is right. But since we dropped the bomb and became the big man on the block, we've been selling one thing more than anything else: ideas. Part of our nature is that we don't sell small, and it's no different with ideas; we go for the big concepts like freedom and the American Dream. Naturally you've got to periodically repackage these things to keep them moving. You can't keep hawking the same old capitalism and expect it to sell year after year without some sort of embellishment. So in the 1980's we tweaked the product and came up with a real seller: deregulation.

Now to sell anything, especially ideas, you need a good story with that happy ending. In the case of deregulation, that story has been the deregulation of the transport industry. Not only was this the first major industry to be freed from government control, it was also a smashing success. The results, as the pitch goes, speak for themselves.

Yet perhaps there just might be a little more to this story than what you've heard. In this diary and a couple of others that follow, I'll take a look at the deregulation of the rail, trucking and possibly the airline industry (if I can figure that one out), focusing on how and why deregulation came about in the first place.


The Railroads
The Rock Island line is a mighty good road, or at least it still was when this song was written in 1934. The country of course was deep in the depression at that point but the railroads were still in good physical if not financial shape. The 1920's were after all the golden years for the industry with high levels of investment in plant and rolling stock and little competition for either freight or passengers. Like many other rail industry statistics, mileage peaked at that time with a total of about 250,000 miles of track in 1920. After that it was all downhill.

A granger road from the start, the Rock Island was built to haul midwestern agriculture to the markets. Its lines went west from Chicago to the eastern edge of the Great Plains. Being tied so closely to agriculture meant two things for the Rock: highly seasonal traffic and a lot of miles of track. The goal then was to spread the high fixed costs out as much as possible. This meant ever longer trains made up of increasingly heavier cars.

Both before and after the Civil War, the U.S. was far too poor to publicly finance the railroad expansion it so desired. The best it could do was give away land or guarantee some traffic to entice private investment. It worked.  Capital poured in with new railroads forming practically every day. The result was the speculative bubble of its day. Once all these railroads were built, price wars and predatory competition ensued; the industry was in turmoil. It got so bad that railroads were even building lines out of spite. The only way out of this mess was regulation, so that's exactly what they asked for.  

Railroad regulation meant just that: the industry would be regulated, stable, secure. The status quo would be protected. And it was, things didn't change much after the ICC was created. Investment continued into the 1920's, but rather than growing, the industry filled out by double and triple tracking routes and of course by operating longer and heavier trains. As reproduced here, it was the age of Superpower. Then came the depression years with no investment at all and even some abandonments of the weakest lines. The war years brought in record traffic levels with the system straining to keep up. After the war, everything was pretty much shot. New cars, locomotives and track were desperately needed. Once again, but in quite a different manner, the government had lit the match for investment. The industry responded by re-equipping their fleets with big shiny new diesels, freight and passenger cars, mechanized maintenance equipment and heavy duty mainline track. But this time it would be different, this time there was competition.

Facing new competition from cars and trucks on the highways and airplanes overhead, traffic soon starting drying up for the Rock. High cost passenger service was the first to go with only the routes still enjoying US Mail contracts being kept alive. On the freight side, first 70 then 100 ton capacity cars were added, the only problem being that the cars and the locomotives that pulled them were too heavy for the seriously under maintained track. Derailments became all too common. In some places, the track was so bad that the cars didn't even need to move to derail, a phenomenon that came to be known as the "standing derailment".

Desperately needing track upgrades and other forms of subsidies, the railroads started to look once again for government help. One of the first steps taken was the creation of Amtrak in 1971 which allowed almost all railroads to unload their remaining passenger services on the government. This relatively small step was soon followed up by first the Three R and then, adding another R, the Four R act. These two laws brought about direct government ownership of several bankrupt railroads in the east. The dreaded Nationalization had come, under a Republican administration no less!

Throughout all this railroad labor remained essentially untouched. Firemen continued to sit in the now diesel powered locomotives even though no fire was being lit outside the engine's cylinders. Full crews of five and six men continued to pull the trains just as they've done for decades. Unionization on the railroads is different than most other industries. Autoworkers, steelworkers, miners had and generally still have industry wide unions representing all workers within that particular sector. Railroads on the other hand are organized by crafts. The engineers have their own union as do the clerks, conductors and track workers. The key to making this work is that all the crafts stick up for each other: if one guy walked, everyone followed. The Florida East Coast tested union solidarity in the 1960's shortly after it was taken over by the DuPont family. Management said that they could no longer afford full crews and forced labor into either taking the concessions they demanded or to lose their jobs. What followed was one of the longest, bitterest and most violent strikes in the history of the industry if not the entire country. Acts of sabotage attributed to both the unions and to management goons occurred frequently. It truly was a war with rails removed, bridges blown up and replacement crews sprayed with bullets. The unions stuck together throughout, but in the end thanks to various federal court rulings, the FEC won the battle. The cost was high; it took 14 long, hard years.

The Rock Island struggled through the 1960's and 1970's, its last profit coming in 1965. The government saw merging the road with a more prosperous rival, the Union Pacific, as a way out.  After years of discussion and intrigue, the merger was finally approved in 1974 but by then the Rock was too busted to fix. The UP walked away from the merger.  With no where else to go, the Rock did the best they could but they soon were bankrupt. By 1979 things were getting ugly when management asked the unions for major concessions. Two of the three major crafts accepted them but one held out and called for a strike. Everyone walked out except management who now had to run the trains. The unions appealed to the government for help but even with a Democrat in the White House, all they got was nothing. To keep grain traffic moving, the ICC ordered another railroad to help operate the trains. This was to be short lived as in 1980 the federal judge presiding over the bankruptcy decided that reorganization was hopeless. The Rock was no longer the road to ride. It would be rubbed out, liquidated.

The government did not and would not support the unions. They were broken and management knew it. Caboose-less trains, two and three man crews, things they longed for but could not afford suddenly became possible. Soon after every railroad piled on and labor took a blood bath as shown, again, by the vaunted increase in labor productivity seen throughout the 1980's and 90's.

Oh, while all this was happening, the celebrated Staggers Act was passed in 1980 deregulating price controls and easing the ability to enter or leave the market. A wave of abandonments followed leading to those lovely rail trails. All that excess track added 100 years earlier during the boom years was finally gone!

But the government wasn't through lighting matches. After spending billions rebuilding the eastern railroads, Congress passed the Clean Air Act amendments of 1990 opening up the Powder River Basin coal field to full scale exploitation. Who better than the locals would understand the significance of this act of government intervention for both themselves and for the railroads hauling out these mountains of coal.

In the end, direct and indirect subsidies coupled with broken unions saved the industry but somehow, through coincidence more than anything else, railroad deregulation was declared the winner. And with that the neoliberals of the Reagan administration had their success story to sell to the world.

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The Rock Island was officially the Chicago, Rock Island and Pacific railway, abbreviated CRI&P, CRIP for short.
by Jace on Sat Feb 19th, 2011 at 10:35:47 AM EST
My first public musical performance was the song Rock Island Line (courtesy of Lonnie Donegan). I was 13 and accompanied myself on the ukelele. The audience was the inhabitants of a Leonard Cheshire home for the war-disabled - an institution my father supported by providing light entertainment. No-one ever forgets the rush of their first applause.

My knowledge of music at the time revolved around songs about railroads - John Henry, Wreck of the Old 97, Wabash Cannonball, Midnight Special etc etc.

You can't be me, I'm taken

by Sven Triloqvist on Sat Feb 19th, 2011 at 10:58:30 AM EST
Last Train to San Fernando? The 6.5 Special?
by afew (afew(a in a circle)eurotrib_dot_com) on Sat Feb 19th, 2011 at 12:10:12 PM EST
[ Parent ]
Cumberland Gap, Muleskinner Blues, Casey Jones.

I was so enamoured of all those songs and the world they conjured up that I got my father's big atlas and looked up all the places mentioned. And from then on, any railroad scenes in westerns or other movies had my complete attention.

But I kidnap the thread - apologies....

You can't be me, I'm taken

by Sven Triloqvist on Sat Feb 19th, 2011 at 12:54:29 PM EST
[ Parent ]
Of course the "productivity" analysis totally neglects the service component -- especially the shrinkage of the same -- especially passenger service. We need Bruce McF's "Brawny Recovery" badly. (Jace, check Bruce's Sunday Train Diaries here. Also see DoDo's many train diaries here) It should be a centrally planned, unified effort to provide nationwide electric rail transport for passenger and freight. At least we need if we want to remain, functionally, a continental sized nation and market.

Or at least some in the US government seem to think so:


"It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Sat Feb 19th, 2011 at 11:15:04 PM EST
The service side has undoubtedly changed. Industry consolidation, as evidenced by the decline in class 1 railroads and more productive unit (or block) trains (double stack and high capacity coal trains) are the two drivers here but those didn't impact productivity until the 1990's. The vast majority of the productivity gains in the 1980's were simply due to crew size reductions. Interestingly, if you compare US to Canadian rail industry trends, the gains that can be attributed to deregulation almost disappear. The relative gains made by the US can instead be attributed to service changes and coal fed volume growth.

Passenger service has been so insignificant relative to the freight industry that I doubt that it would have any impact on overall industry trends. Besides, Amtrak has not had near the gains experienced by the freight industry. The one factor that might show up would be when one of the major railroads, Conrail, dumped the NY and Philadelphia area commuter operations on to the states in 1983 but that was a one time gain.

Central planning has been sorely lacking throughout, which is one of the points of this story. The industry responds positively to strong government intervention (including funding) every time. But they continue to believe in the free market dogma. Not to surprising to think they did it all by themselves without any help from the Man. The American myth is alive and well. But this is and will continue to be a hindrance to HSR development as the major railroads ask for major concessions from any would be government sponsored passenger operator who wants to share track or right of way.

Thanks for the links. I've read a number of those stories. They are in fact how I found about Eurotrib in the first place! There is a decided emphasis on passenger trains, so I wanted to expand into the freight sector a little. Plus I think the story of deregulation here is a particularly apt tale given how Europe has been slowly nudging the industry into the 'free' market. What the American story ultimately shows is that deregulation had at best a marginal impact on the railroads and that instead government subsidies coupled with breaking the unions were the true drivers of change.

by Jace on Sun Feb 20th, 2011 at 07:54:42 AM EST
[ Parent ]


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