The Railroad Question Part 22

Under these circ.u.mstances no reform movement has any prospect of success unless it is supported by public opinion. It should therefore be the princ.i.p.al endeavor of all advocates of railroad reform to create public opinion in favor of the measures proposed by them. With an intelligent public on the alert, the Government may be relied upon to pursue a healthy and progressive railroad policy. Unfortunately, there are times when public opinion upon great questions is dormant, while pecuniary interests, like the force of gravity, never suspend their action. To arouse the ma.s.ses at such times, we must rely largely upon an honest, independent and courageous press, not influenced by gift or patronage.

Many plans have been proposed for a better control of railroads. Some of these are merely theoretical; others have been tried in part, and a few have been tried in their entirety, but under circ.u.mstances radically different from those surrounding us. A system which may be well adapted to a monarchy with a centralization of governmental powers would probably prove a failure here, when brought in contact with the principles of dual sovereignty and local rule. Unless a revolution should change our system of government, a dual system of railroad control will always be necessary in the United States; for it is not at all likely that the individual States will ever voluntarily give up their right to regulate commerce carried on within their respective borders. On the other hand, the common welfare requires that the commerce which is carried on between the States should not be hampered by local interference, but should be regulated only by Congress. Our experience as a nation has shown that such a quality of sovereignty is not inconsistent with strength or efficiency, nor need it be productive of rivalry or friction. The fact that a certain mode of railroad management has been successful elsewhere is not sufficient proof that it would be successful here, nor is the fact that it has not been successful elsewhere sufficient proof that it would not be successful here. The more the conditions which exist here resemble those under which it was tested, the greater is the probability that it can be adapted to our circ.u.mstances. Independent thought and action is an essential element of progress, yet it is the part of wisdom to profit by the speculation and experience of others.

The following are the princ.i.p.al methods that have been tried or proposed for the control and management of railroads:

_1. Publicity of the railroad business._

It is held by some that the secrecy with which railroad business is at present transacted is the source of all evils. It is contended that if railroads were required to report to the public every item of income and expenditure, discrimination and extortion, as well as bribery and corrupt subsidizing, would soon cease. If the companies were compelled to render an account of all receipts, special rates and drawbacks could not safely be granted by railroad managers, or, if granted, would soon lose their charm for recipients, for it would be but a short time until others would demand and even exact the same privileges. An attorney would, as a member of the legislature, be slow to accept a retaining fee if the amount of such fee were made known to his const.i.tuents.

Publishers would hesitate to apply for railroad subsidies if the companies were compelled to render periodically an itemized account of such expenditures, and railroad companies would, under similar circ.u.mstances, hesitate to pay subsidies, for the subsidized journal would soon be without patrons. If the items annually expended upon railroad lobbies were reported, these lobbies would soon be frowned, or even hissed, out of legislative halls. There can be no doubt that full and complete publicity in railroad business would correct a large number of existing abuses, and it should therefore be insisted upon as one of the first and essential features of railroad reform. It is questionable, however, whether railroad managers are so sensitive to public opinion that publicity could be relied upon as a cure for all railroad evils. To what extent it is desirable to supplement publicity by other measures of State control will be considered hereafter.

It will, of course, be urged by railroad managers that the State has no right to pry into the privacy of their business and that they should be guaranteed the same protection against intrusion that is enjoyed by other branches of business. To this we must reply that not even banks or insurance companies are permitted to conduct their business as private, and that controlling the highway and levying a transportation tax upon every article of commerce pa.s.sing over it is essentially public business and unquestionably subject to public control. Every citizen is as much interested in it as he is in the transactions of the custom-house, or of the public treasury, and any transaction of a railroad manager that shuns public inspection can be set down as a public evil and should be suppressed. It may safely be laid down as a general rule that the refusal of a railroad company to give publicity to its transactions is presumptive evidence of wrong. The people are not alone interested in such publicity. Stockholders have likewise a right to be protected against the sinister manipulations of dishonest managers, and publicity furnishes them the best guarantee of honest management.

Stockholders should attend the meetings of their companies and should obtain full knowledge of the management of their affairs. If they will make thorough examination and get at bottom facts the chances are that contracts will be found with owners of patents, white lines, blue lines, refrigerator car lines, coal companies, ferry companies, manufacturing companies, packing companies and other kindred organizations, by which hundreds of millions of dollars are diverted from the treasuries of the railroad companies to the pockets of influential persons connected with the management of the roads.

It has recently come to light that the officers of a Pennsylvania railroad company, during fifteen years, by some means of secret rebates and other allowances, have taken about $100,000,000 out of the treasury of the company and distributed it as largesses to about half a dozen iron and steel establishments.

This is a method of getting wealthy at the expense of others not unknown to many another great fortune acc.u.mulated in the last twenty years.

Railroad discriminations have been a fruitful source of those gross inequalities in wealth distribution which now agitate society and call people's parties and the like into existence. The modern millionaire appears to be an entirely natural creation. Perhaps this money taken in special rates from the Pennsylvania railroad's treasury, or, rather, from the pockets of the road's other patrons, and of the men who may have sought, without special rates, to compete with the favored ones in their business, only to be crushed in financial ruin, will be spent in a praiseworthy way, in accord with the principles of "the gospel of wealth." What we need now is the gospel of distribution of facilities for the acc.u.mulation of wealth, as well as the gospel of distribution of great fortunes.

Whether inspired by a bull or a bear interest or neither, all will concede the ability of Mr. Henry Clews to picture the evils of railroad management; and his lack of generosity in accrediting ability or honesty to legislators who are called upon to provide remedies for the wrongs that he so well depicts will not deter me from indorsing the following statement made by him in a magazine article which is pertinent to this discussion:

"One great difficulty that present railroad legislators have to contend with is the evil methods of railroad building and extension. A great deal of the mileage of the last two years has been premature, and doubtless for speculative purposes.

Most of it has been constructed, however, by old companies who had good credit to float bonds and could raise all the money required. Hence there has been but little financial embarra.s.sment arising from the too rapid construction. But people are beginning to find out that a great deal of this building has been in the interest of speculative directors and their friends, who, for a mere song, had bought up barren lands considered worthless because there was no means of transportation. But these lands soon become immensely valuable for sites of villages, towns and cities. The construction companies, by which these roads were generally built, raised the cost to the highest possible figures, in order, I fear, to make dividends for the construction stockholders. It is noteworthy that the directors connected with these construction schemes have been exceedingly prosperous, while the stockholders of the roads have grown poor in an inverse ratio. The dividends of the latter have disappeared. The new mileage, much of which, I apprehend, has been made on this principle, was about twenty-one thousand miles, which is greater than the entire mileage of Great Britain. There should be additions to the Interstate Law, or a special law regulating the methods of construction companies, which are probably doing more to demoralize the railroad system--and doing it very insidiously, too--than any other factor connected with these great arteries of the country's prosperity.

"Legislative reform is greatly needed in the matter of railroad reports, especially for the safety of investors, and to prevent speculative abuses among railroad officials and their friends and favorites. There should be statements issued annually, or perhaps more frequently, upon the truth of which everybody might rely. These should be sworn statements, and should bear the signatures of at least three of the directors. These directors should be required to call to their aid expert accountants, and should have placed at their disposal all the books of the company or corporation and all the other papers necessary to verify the accuracy of their report. The correctness of the statement, when issued, would then be a foregone conclusion, and an investor in London, Paris or Berlin could buy or sell on his own judgment, an experiment which, under existing arrangements, might prove very costly. It is proverbial that a railroad statement now is defective in the most essential particulars, and, to put it mildly, usually covers a mult.i.tude of sins. According to one plan approved by railroad companies, the statement published to-day, for instance, is made to show a surplus of many millions, but there is nothing said about an open construction account to which the surplus is debtor. On this favorable showing (with this _suppressio veri_) the stock goes up and the insiders quickly unload upon the investment public. The following statement, which comes out six months later, shows that the surplus has been used to settle the construction indebtedness. The surplus has disappeared; consequently the stock suffers a serious decline. Those who bought on the strength of the large surplus sell out, on being informed of its distribution. Then the inside sharks come forward again and purchase at reduced prices, probably at a depreciation of from ten to fifteen points or more, and keep their stock until the next periodical appearance of the bogus surplus.

Thus the insiders grow rich, while the outsiders become poor. The only remedy for this abuse is a sworn statement at regular intervals, and if the directors should commit perjury they would render themselves liable to State prison.

If a few of them should be tempted to fall into the trap, and be made examples of in this way, nothing would do more to work a speedy reform in this contemptible method of book-keeping.

"I would also suggest a change in the character of the directors. Those usually chosen for this office now are men who have vast interests of their own, more than sufficient to absorb their entire time and thoughts. They are selected mainly on account of their high-sounding names, to give tone to the corporation and solidify its credit, in order that the lambs of speculation may have proper objects in whom confidence can be reposed and no questions asked. The management of the affairs of the corporation is frequently intrusted to one man, who runs the business to suit his own individual interests."

We can appreciate the force of the above remarks when we consider that last year seventy-five companies realized a gross income of $846,888,000, which is equal to about 80 per cent. of the total income received by all of the railroads of the United States.

_2. Free compet.i.tion upon all railroads._

Mr. Hudson, in his excellent work, "The Railways and the Republic,"

recommends the following remedy:

"Legislation should restore the character of public highways to the railways, by securing to all persons the right to run trains over their tracks upon proper regulations, and by defining the distinction between the proprietors.h.i.+p and maintenance of the railway and the business of common carriers."

Mr. Hudson proposes to leave the track in the possession of its present owners, but to permit any individual or company to run, upon the payment of a fixed toll, trains and cars over it, under the control of a train-dispatcher stationed at a central point. This train-dispatcher is to be notified by telegraph of the movement of each train, and is to give his orders to the officers in charge of each train, as to what points they are to go, where to pa.s.s one train and where to wait for another. Each transportation company is to own, load and forward its own trains; it is to be required to run its regular train on schedule time or to have it follow another train as an extra. They are to be liable to their s.h.i.+ppers as well as to the railway company for all damages caused by their neglect, while the railroad company is to be held responsible for the condition of its track. It will not be necessary to go into the details of Mr. Hudson's plan. Suffice it to say that he proposes to establish free compet.i.tion in the railway business by making the use of the railway track as free as that of the turnpike or ca.n.a.l, subject only to such control on the part of the public train-dispatcher as the paramount considerations of speed and safety may require.

The adoption of Mr. Hudson's plan would simply be a return to the first principle of railroad transportation. It has already been shown that the first English charters permitted the public to use their own vehicles and motive power upon the railroad track, but that s.h.i.+ppers and independent carriers could not avail themselves of these provisions of the early charters because it was in the power of the railroad companies to make their tolls prohibitory. There is but little question as to the practicability of Mr. Hudson's plan from a purely technical standpoint, and its adoption might be advisable if it should be demonstrated that a monopoly of the track is inconsistent with the operation of the railways for the public good. It is seriously doubted, however, whether such ideal compet.i.tion as Mr. Hudson desires to bring about could be secured except at the expense of true economy. Concentration, or, rather, consolidation in the railroad business has, under proper legal restriction, always resulted in a saving of operating expenses, and usually in a reduction of rates. Any step in the opposite direction, whatever other merits it may possess, is in the end not likely to give lower rates. If it is a settled principle that railroads are only ent.i.tled to a fair compensation for their services, it must be evident that what would be a fair compensation for the same or similar services to a large, well-organized, well-regulated and well-managed company cannot be sufficient compensation to an individual carrier or a small company, whose expenses will always be comparatively larger than those of its better-equipped rival. Monopoly and extortion need not necessarily be synonymous. In fact, States and munic.i.p.alities in their public works often prefer monopoly to compet.i.tion as the cheaper of the two. Nevertheless, should it ever be found that monopolies cannot be reconciled with justice and economy, a return to the first principles of railroading may become advisable.

_3. State owners.h.i.+p and management._

A number of European states, notably Prussia, France and Belgium, as well as Australia, British India and the British colonies in Southern Africa, have adopted government owners.h.i.+p of railroads. The motives which led to this step in the various countries differ greatly. While in Europe military and political considerations predominated, in Africa and Australia it was more the want of private capital and energy which led the government to engage in railroad enterprises. There has in most of these states been a desire to avoid the evils usually connected with private management. The experiment of state owners.h.i.+p and management of railroads has been longest tried in Belgium, and with the best results.

With an excellent service the rates of the Belgian state roads are the lowest in Europe. Their first-cla.s.s pa.s.senger tariffs are, next to the zone tariff recently adopted on the state roads of Hungary, the lowest in the world, and are, for the same distance, lower than those of American roads. In Prussia the state service, upon the whole, is also superior to that of private companies, and is probably equal to the public demand. In France the government only owns and operates less important lines, but furnishes upon these a more efficient and cheaper service than private companies would either be able or disposed to furnish. The oft-repeated statement of those opposed to government regulation to the contrary notwithstanding, government owners.h.i.+p and management of railroads is a decided success in Europe, Mr. Jeans says of state railroads:

"Notwithstanding the superior financial result, the lines worked by the state are those kept in the best order, and the working of which gives the greatest satisfaction to the commercial world and the public in general as regards regularity of conveyance, cheapness of transit and the comfort of travelers."

It is difficult to see how any unbiased person can travel on any of the state roads of Europe without coming to the same conclusion. State management offers certainly some decided advantages to the public. Above all, the business of the roads is not conducted for the pecuniary advantage of a few, but for the common good. Commerce is not arbitrarily disturbed to aid unscrupulous managers in their stock speculations. New lines are not built for speculative purposes, but for the development of the country. Rates are based more upon the cost of service than upon what the traffic will bear, and the ultimate object of the state's policy is not high profits, but a healthy growth of the country's commerce, while the sole aim of a private company is to get the largest revenue possible. The permanent way of the state road is kept in better condition, the public safety and convenience being paramount considerations. Rates are stable and uniform, instead of being changeable and discriminating, and all persons and places are as equal before the railroad tax collector as before the law. It may be laid down as a general rule that under private management of railroads efforts will be made to secure the highest rates possible, while it is the aim of the Government to grant the lowest rates possible. Mr. Jeans proves by statistics that the cost of maintenance of way is generally higher on the state lines, and that traffic expenses are higher on the lines of private companies. In commenting upon this difference he says:

"It might easily be contended, and even proved beyond all doubt, that the first characteristic is a result of the better condition in which the state keeps the permanent way; and, so far as this is the case, the public convenience, safety and general advantage are promoted.

"The highest range of traffic expenses on companies' lines undoubtedly argues greater laxity of management, since, as we have already shown, this is one of the most elastic of items, and may be either very high or very low, according as economy or extravagance is the prevailing system.... The experience of Continental Europe points unmistakably to the exercise of greater economy in state management."

Judge Dillon, of the United States Court, in his order appointing Hon.

J. B. Grinnell receiver for the Central Railroad of Iowa, in 1876, said:

"The railroads in the hands of the court--and in the circuit there are eight or ten--have all been run with less expense, and have made more money, than when they were operated by the companies; and we hope and believe under your supervision that this road will prove no exception, and that the property will be worth more at the end of the litigation."

Upon Mr. Grinnell's resignation, after nearly three years of service, Judge Grant said, in asking for the discharge of his bondsmen:

"I concur entirely in the opinion of the State commissioners that he has very much improved the condition of the road, and he left it in far superior condition to that in which he received it."

Yet Government owners.h.i.+p and management of railroads also has its drawbacks. It is claimed by some that such management is more expensive than that of lines owned by private companies. It has already been shown that the permanent way is kept in better condition by the state than by private corporations. In Russia, Germany, Austria-Hungary, France and Italy the state expends from 15 to 30 per cent. more for the maintenance of the permanent way than the private companies. It is perhaps also true that the rank and file of railroad employes fare, on an average, better under government than they do under private management; but, as an offset to this, it should be remembered that quite a saving is effected by the state in the salary account of general officers. The people will not consent to pay the manager of a railroad line a salary six times as large as that of a cabinet officer, and provide at the same time sinecures for his sons, brothers, nephews and cousins.

It is furthermore claimed that, as government is organized, it cannot, all other things being equal, respond to the demands of commerce as promptly as private companies. This feature, however, may be an advantage to the country at large rather than a detriment. But the strongest argument that can be produced against state owners.h.i.+p of railroads is that under a democratic form of government it might exert a demoralizing influence in politics. The 1,700 railroad companies of the United States have at present an army of about 800,000 employes. This number is constantly increasing, and it is more than probable that before the end of the present century it will have reached a million.

When it is considered what importance is at present attached to the political influence of a hundred thousand Federal officers, it is not surprising that conservative citizens should hesitate to add to the ranks of these officeholders a six or seven times larger force.

Dangerous as the railroad influence now is in politics, it would be ten times more dangerous if under a system of Government management considerations of self-interest should induce a million railroad employes to act as a political unit and political parties should vie with each other in bidding for the railroad vote. Could our civil service ever be so organized as to divest it entirely of political power, state management of railroads might still offer the best solution of the railroad problem.

Mr. T. B. Blackstone, president of the Chicago and Alton Railroad Company, has recently created somewhat of a surprise by declaring in favor of Government owners.h.i.+p of railroads. That Mr. Blackstone's programme will eventually receive the approval of a large number of his colleagues there can be but little doubt. With the people wide-awake upon this subject, the opportunities for railroad speculation are lessening, and the scheme to early unload the railroads of the country on the Government at a highly inflated value speaks well for the financial farsightedness of its author. Mr. Blackstone proposes to have railroad stockholders do here what the former owners of the telegraph did in Great Britain, _i. e._, dispose of their property to the Government, at a price representing several times its original cost or even several times the cost of duplication.

Mr. C. Wood Davis, formerly general freight and pa.s.senger agent of one of the leading roads east from Chicago, is one of the best informed and clearest-headed writers upon the railroad question. He has, after much experience and long study, been converted to the advocacy of national owners.h.i.+p as a solution of the railroad problem. In a recent article published by the Arena Publis.h.i.+ng Company, ent.i.tled "Should the Nation own the Railways?" he presents the objections and advantages of national owners.h.i.+p. He says:

"The objections to national owners.h.i.+p are many, that most frequently advanced, and having the most force, being the possibility that, by reason of its control of a vastly increased number of civil servants, the party in possession of the Federal administration at the time such owners.h.i.+p was a.s.sumed would be able to perpetuate its power indefinitely.... This objection would seem to be well taken, and indicates serious and far-reaching results unless some way can be devised to neutralize the political power of such a vast addition to the official army.... In the military service we have a body of men that exerts little or no political power, as the moment a citizen enters the army he divests himself of political functions; and it is not hazardous to say that 700,000 capable and efficient men can be found who, for the sake of employment, to be continued so long as they are capable and well behaved, will forego the right to take part in political affairs. If a sufficient number of such men can be found, this objection would, by proper legislation, be divested of all its force....

"2. That there would be constant political pressure to make places for the strikers of the party in power, thus adding a vast number of useless men to the force, and rendering it progressively more difficult to effect a change in the political complexion of the administration.

"That this objection has much less force than is claimed is clear from the conduct of the postal department, which is unquestionably a political adjunct of the administration; yet but few useless men are employed, while its conduct of the mail service is a model of efficiency after which the corporate-managed railways might well pattern. Moreover, if the railways are put under non-partisan control, this objection will lose nearly, if not quite, all its force.

"3. That the service would be less efficient and cost more than with continued corporate owners.h.i.+p. This appears to be bare a.s.sertion, as from the very nature of the case there can be no data outside those furnished by the government-owned railways of the British colonies, and such data negative these a.s.sertions; and the advocates of national owners.h.i.+p are justified in a.s.serting that such owners.h.i.+p would materially lessen the cost, as any expert can readily point out many ways in which the enormous costs of corporate management would be lessened. With those familiar with present methods, and not interested in their perpetuation, this objection has no force whatever.

"4. That with constant political pressure unnecessary lines would be built for political ends. This is also bare a.s.sertion, although it is not impossible that such results would follow; yet such has not been the case in the British colonies where the governments have had control of construction....

"5. That, with the amount of red tape that will be in use, it will be impossible to secure the building of needed lines. While such objection is inconsistent with the fourth, it may have some force, but as the greater part of the country is already provided with all the railways that will be needed for a generation, it is not a very serious objection even if it is as difficult as a.s.serted to procure the building of the new lines. It is not probable, however, that the Government would refuse to build any line that would clearly subserve public, convenience, the conduct of the postal service negativing such a supposition....

"6. That lines built by the Government would cost much more than if built by corporations. Possibly this would be true, but they would be much better built and cost far less for maintenance and betterments, and would represent no more than actual cost; and such lines as the Kansas Midland, costing but $10,200 per mile, would not, as now, be capitalized at $53,024 per mile, nor would the president of the Union Pacific (as does Sidney Dillon, in the _North American Review_ for April) say that "a citizen, simply as a citizen, commits an impertinence when he questions the right of a corporation to capitalize its properties at any sum whatever," as then there would be no Sidney Dillons who would be presidents of corporations, pretending to own railways built wholly from Government moneys and lands, and who have never invested a dollar in the construction of a property which they have now capitalized at the modest sum of $106,000 per mile....

"7. That they are incapable of as progressive improvement as are corporate-owned ones, and will not keep pace with the progress of the nation in other respects; and in his _Forum_ article Mr. Acworth lays great stress upon this phase of the question and argues that as a result the service would be far less satisfactory.

"There may be force in this objection, but the evidence points to an opposite conclusion. When the nation owns the railways trains will run into union depots, the equipment will become uniform and of the best character, and so sufficient that the traffic in no part of the country would have to wait while the worthless locomotives of some bankrupt corporation were being patched up, nor would there be the present difficulties in obtaining freight cars growing out of the poverty of corporations which have been plundered by the manipulators, and improvements would not be hindered by the diverse ideas of the managers of various lines in relation to the adoption of devices intended to render life more secure or to add to the public convenience.... Existing evidence all negatives Mr.

Acworth's postulate that "state railway systems are incapable of vigorous life."

"8. An objection to national owners.h.i.+p which the writer has not seen advanced is that States, counties, cities, towns.h.i.+ps and school districts would lose some $27,000,000 of revenue derived from taxes upon railways. While this would be a serious loss to some communities, there would be compensating advantages for the public, as the cost of transportation could be lessened in like measure.

"Many believe stringent laws, enforced by commissions having judicial power, will serve the desired end, and the writer was long hopeful of the efficacy of regulation by State and National commissions; but close observation of their endeavors and of the constant efforts--too often successful--of the corporations to place their tools on such commissions, and to evade all laws and regulations, have convinced him that such control is and must continue to be ineffective and that the only hope of just and impartial treatment for railway users is to exercise the 'right of eminent domain,' condemn the railways, and pay their owners what it would cost to duplicate them; and in this connection it may be well to state what valuations some of the corporations place upon their properties.

"Some years since the Santa Fe filed in the counties on its line a statement showing that at the then price of labor and materials--rails were double the present price--their road could be duplicated for $9,685 per mile, and, the materials being much worn, the actual cash value of the road did not exceed $7,725 per mile.