American Railroads: Decline and Renaissance in the Twentieth Century / by Robert Gallamore

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My new book with distinguished economist John R. Meyer (1927-2009) was released in June, 2014. It is a comprehensive history and analysis of the American Railroad industry throughout the last century.  It covers the initial years of regulation by the Interstate Commerce Commission, antitrust prosecution of the James J. Hill and E. H. Harriman empires, Federal control of railroads during World War I, and the efforts to consolidate railroads into fewer and larger systems in the 1920s.  Other adaptations were forced by the rise of rival modes of transportation, barges on inland waterways, Federal and state support for hard surface roads to "get the farmers out of the mud," and several kinds of assistance to the infant aviation industry -- development of military aircraft, Federal air mail contracts, management of the airways and air traffic control system, and metropolitan governments' construction and operation of airports.

World War II brought high traffic levels to the railroads, both passengers and freight, but what should have been a blessing was not.  Rates were held down to fight inflation, production controls kept railroads from renewing their fleets of locomotives and passenger cars, and the heavy traffic wore down track and equipment while windows for maintenance work were hard to find.  After the war, pent-up demand for consumer goods and housing triggered a great migration of industry and population south and west.  Returning servicemen wanted to go to school on the GI Bill, buy a new house and car, and settle in the suburbs.  Those new automobiles created some demand for rail freight, but drew passengers away from the rails; and demand for dual, limited access highways led to establishment of the Interstate Highway System. Trucking firms, initially owner-operators hauling agricultural goods exempt from regulation, and later long-haul truckload carriers operating in a deregulated environment, developed highly efficient and reliable networks, and took the cream of manufacturing traffic from the railroads.

Economic conditions deteriorated further in the 1970s.  The ICC kept its firm hold on railroad rates and services, despite inflation.  Approval of the Penn Central merger sharply limited competition in the Northeast, but it was an ill-starred match, and within a year and a half PC was bankrupt, dragging down a half-dozen other railroads with it.  Congress intervened in the 3R Act to establish a process for reorganizing service, abandoning many light density lines, setting up Conrail, funding rehabilitation of key lines and facilities, and paying the bankrupt Northeastern estates for their property conveyed to Conrail.  The newly federalized railroad continued to lose cash at the rate of about a million dollars a day, however, and it became evident that more lines would have to be dropped, more employees laid off, and commuter and Amtrak services would have to be transferred away from Conrail.  Most important of all, the old ICC regulatory system would have to be abolished and replaced with contracts negotiated between railroads and shippers, so that they could allow services and rates to be based on the fundamental laws of supply and demand.  This genuine reform -- after a series of half-hearted half-steps was finally accomplished in the Staggers Rail Act of 1980.

It is remarkable that the sweeping remedy of deregulation in the Staggers Act was in fact adopted, and that it worked better than almost anyone forecast.  Today the railroad industry has risen like Phoenix.  In 2000, US railroads generated more than ten times as many ton-miles annually as they had in 1900, with only 16.5 percent as many employees.  Under deregulation, rates have been cut in half, because railroads are more efficient and their employees and facilities are more productive. Technological advances have been built into nearly all aspects of industry operations, and the new facilities and operating methods have proven far safer. Fatalities and injuries continue their long-term decline since deregulation.  American Railroads details the legislative history of regulatory reform, explains its economic roots in economic theory, and defends deregulation against efforts by so-called "captive shippers" to re-regulate rail rates and services.