The Best Transportation System in the World, in book form

[greyhounds]

This post is a book review.  The book's title comes from a claim by companies that benefited from government regulation of transportation.  Many trucking companies had a gold mine created by regulation.  Any time someone would suggest changing things they'd claim that there was no reason to change "The Best Transportation System in the Word".

I don't think most of you would like to read this book.  But it's a fascinating part of my interest in railroading and some few of you might like it.  Be advised, it was written by three academic historians who document what happened, but fail to provide background on the economic and commercial aspects of their subject..  Beyond the political, they don't really explain "Why" in economic or commercial terms.  And I'm a guy who like to know "Why".

Transportation is an economic activity that has been greatly shaped by political activity.  That's their focus.  In my opinion, they do cover and explain the political shaping of the US transportation system in the 20th Century fairly well.

In 1916, while appropriating funds for the Army, the US government authorized itself to seize the railroads.  Having authorized itself to grab power all the government needed was an excuse to do just that.  They got the excuse with the First World War.  Government operation of the railroads really didn't improve anything but did result in much higher shipping charges.  These higher charges were basically a tax increase.  All costs are eventually borne by the end user.

(I have read many excuses for the government takeover of the railroads.  But the fact remains that government operation didn't really improve anything and did result in much higher freight rates.  The government didn't stop with seizing the railroads.  They grabbed the telephone system and all operating radio stations.  The US Post Office simply would not deliver periodicals that opposed government polices.   "The Progressive Era" was a very dangerous time.)

The authors basically pick up with the passage of the "Transportation Act of 1920".  This legislation did two things:  1) it returned the railroads to private ownership, and 2) it set up a regulatory structure for the railroads.  The act was out of date before the ink was dry.  It was based on a railroad domination of transportation, a domination that would be rapidly destroyed by motor and air transport beginning in the 1920's.  But the law passed in 1920 would basically govern the railroads for 60 long years.

The act treated railroads as a monopoly public utility, not as components of a competitive transportation market.  It set a targeted rate of return on invested capital and seized  money a railroad earned beyond that target.  The targeted rate of return was either 5.5% or 6.0% per year on the "Valuation" of the railroad.   The project to determine "Valuation" was a cruel joke. There is no way to accurately determine the value of a cut, a fill, a tunnel, etc.  But such a determination was written in to law and lawyers got rich arguing over the values of cuts, fills, tunnels, etc. in courts.  Eventually the government abandoned this lunacy, after about 20 years.

The big surprise in the book for me was that the fact that something was drastically wrong was recognized in the first term of the Eisenhower Administration.   Eisenhower's Secretary of Commerce recognized that the 1920 regulatory structure was destroying the US railroad network.   Congress punted.

After Eisenhower, every president, of every political stripe, supported railroad deregulation until it became an accomplished fact.  I didn't know that.

Before being forced by facts to deregulate congress at first acted in its usual manner.  It appropriated billions of dollars to "Help" the railroads, but did nothing to really fix the problem.  Finally, the 1920 regulations were largely removed and the US railroads became a financially healthy, growing industry.  (We do need more of those!)

One huge misfire by the authors is their homage to my all time favorite regulatory villain who is one Joseph B. Eastman.  They continually say that Eastman wanted to bring all modes of transport under one regulatory agency so that they could be "coordinated".  This is their economic failing.

The modes would "coordinate" quite well if just left alone.  A railroad company would use trucking when, and if, trucking was more efficient.  Same with a bus.  A bus would be used to augment or replace a passenger train if the bus was more economical.    Eastman's  idea of coordination was government allocation of freight to a mode in lieu of market allocation of f freight to a mode.  He didn't like competition.   Events proved Eastman to be a fool.

Eastman had his chance.  He was a senior member of the Interstate Commerce Commission, which regulated all railroading and a good chunk of trucking.  He did nothing to "coordinate" rail and truck services.  In fact, the ICC actually blocked such coordination in many, many ways.

I got a used copy of the book off Amazon for about $20.

 

 

 

[henry6]

Need book title, authors, publisher, date to find more.

Of course the history of railroads and regulation did not start with WWI nor 1920.  Charters, bonds, bonding authority, grants, land grants, eminent domain, etc. all go back to the virtual beginning of railroads.  Actual ICC in the late 1800s the result of farmers through the Grange complaining enough about monopolistic rates and unfair shipping practices by the railroads.   If none of that background is covered or mentioned, then there is probably a lot of flaws in their premise and conclusions I fear.

 

[DSchmitt]

I did a google search "The Best Transportation System in the World"

First link is free pdf download from Publisher (Ohio State University Press) website  (not the whole book- see next post by Paul North)

http://www.ohiostatepress.org/books/book%20pdfs/rose%20best.pdf

Second link hardcover book (c2006) at amazon.com

http://www.amazon.com/BEST-TRANSPORTATION-SYSTEM-WORLD-HISTORICAL/dp/0814210368

Mark H Rose (Author), Bruce E. Seely (Author), Paul F. Barrett (Author) , Publisher: Ohio State University Press

Softcover  published by University of Pennsylvania Press, 2010 is also available from Amazon.

"About the author (2010)

Mark H. Rose is Professor of History at Florida Atlantic University. Bruce E. Seely is Professor of History at Michigan Technological University. Paul F. Barrett was Professor of History and Chair of the Department of Humanities at Illinois Institute of Technology"

[Paul_D_North_Jr]

Details on the 2010 paperback edition of the book - 

The Best Transportation System in the World
Railroads, Trucks, Airlines, and American Public Policy in the Twentieth Century

by Mark H. Rose, Bruce E. Seely, and Paul F. Barrett

344 pages | 6 x 9 | 17 illus.
Paper 2010 | ISBN 978-0-8122-2116-9 | $24.95s 

can be found here:

http://www.upenn.edu/pennpress/book/14760.html 

The 2006 hardcover version can be purchased here:

http://www.amazon.com/BEST-TRANSPORTATION-SYSTEM-WORLD-HISTORICAL/dp/0814210368 

Selected pages - 132 of them, which includes the Table of Contents, Index, the Preface and Acknowledgments, the (foot) Notes (60 pages worth, 241- 300), and Chapter 1 (i.e., basically everything except Chapters 2 - 9) - are available on-line here:

http://www.ohiostatepress.org/books/book%20pdfs/rose%20best.pdf 

At least portions of this book also appear to be available on-line through Google Books as a result of a search for some of the key terms or concepts. 

To emphasize what greyhounds wrote above - all 3 authors are Professors of History. 

For my college senior year history class on "Modern American History - 1920 to date", my term paper was on the Transportation Act of 1956 (as best as I can recall), which was an attempt at deregulation during the Eisenhower Administration that was sidetracked by a ethical scandal involving his Chief of Staff, Sherman Adams (as best as I can recall - see: http://en.wikipedia.org/wiki/Sherman_Adams ).  It was based on a report by his Secretary of Commerce, Sinclair Weeks, which is discussed at pages 100 - 104. 

Here are also links to other interesting discussions of this: 

http://www.econlib.org/library/Enc/SurfaceFreightTransportationDeregulation.html 

http://www.freedomworks.org/reports/081205.pdf 

http://www.jstor.org/pss/3145141 

Thanks for the post, greyhounds (I think - something else to spend $ on . . .      ). 

- Paul North.   

[greyhounds]

henry6

Need book title, authors, publisher, date to find more.

Of course the history of railroads and regulation did not start with WWI nor 1920.  Charters, bonds, bonding authority, grants, land grants, eminent domain, etc. all go back to the virtual beginning of railroads.  Actual ICC in the late 1800s the result of farmers through the Grange complaining enough about monopolistic rates and unfair shipping practices by the railroads.   If none of that background is covered or mentioned, then there is probably a lot of flaws in their premise and conclusions I fear.

 

Oh, pshaw.

The book is not about railroads and regulation.  It's a book about how public policy (AKA politics) shaped all US transportation in the 20th Century.  It's interesting that you dis a book you haven't read.

What is your evidence that the farmers and the Grange brought about the ICC?   I have yet to see any valid complaint  the farmers had against the railroads.  They thought the railroads charged too much.  So what?  I think the restaurant where I had dinner this evening charged too much.  There's always a conflict between a buyer and a seller.   That's natural and healthy.  The buyer keeps looking for better value and the seller wants more for what he delivers.  It keeps everyone on their toes.

What I said was that the authors "Basically" pick up with the Transportation Act of 1920.  I did not say that they did not deal with anything prior to 1920.  They do deal with the farmers.  They correctly point out that the railroads had developed a rate structure that gave a break to farmers.  Early on the railroads realized that they could not charge the same amount for moving a ton of a very low value commodity such as grain as they could for moving a ton a a higher value commodity such as machinery.   If they charged the same amount per ton they could easily double the delivered price of the grain while having much less of an impact on the delivered price of the machinery.  So a pricing structure based on the value of the freight transported developed.  Such a structure gave a break to producers of low value commodities.  That included the farmers.  This "Value of Commodity" pricing structure became obsolete when a shipper could use his own truck to deliver his product.

Ever the ungrateful lot, when farmers found themselves in a declining economic segment after the Civil War they looked for someone else to blame for their problems.  They blamed a lot of folks, but the railroads were a primary target.  As I said, I have yet to see a valid complaint they had against the railroads.  (As information, my father was a Illinois farmer who was displaced from his farm the year I was born. He never quit being a farmer at heart.  I grew up in a small town with my friends being "Farm Kids". )

1920 is a good place for the authors to "Basically" pick up the story.  I know of only one historical work that starts with "In the Beginning".  That would be the Bible.  Unless you're going back to The Creation, you gotta' pick someplace to start and someplace to end.    The book does a good job telling the story of how the US Government screwed up transportation in the 20th Century by segregating the modes and preventing integration of the modes.

1920, with the passage of its incredibly silly Transportation Act (I've read it.  It's silly.  I think it still holds the record for the use of the term "Just and Reasonable".   A term that will mean whatever your want it to mean.) and the arrival in force of the Transportation Tsunami caused by the internal combustion engine is a very appropriate place to "Basically" start a history book.

 

 

 

 

 

[Dragoman]

greyhounds -- a few thoughts:

1)  Whether or not the farmers had any valid complaint, it appears that they were complaining.  Whether or not their complaints, and the lobbying efforts of the Grange, had some sort of impact on Congress in creating the ICC, I don't know, but wouldn't be surprised.

2)  Legislative drafting is a complex process.  Overly detailed language raises cries of too-tight governmental regulation (and makes it easier for the regulated to make only trivial changes to circumvent the rule).  Overly broad language raises complaints such as yours -- it "will mean whatever you want ti to mean."  I personally prefer the latter approach -- as long as the rule is interpreted by the Executive and enforced by the Judicial in a "Just and Reasonable" manner!

3)  Did you ever consider that "by segregating the modes and preventing integration of the modes", they fostered the growth of the then-fledgling air and highway transportation industries, by protecting  them from the monopolistic transport goliaths of the day -- the railroads?  Otherwise, we might well today have only 7 "integrated" transportation companies in North America (NS Rail, NS Air, NS Trucking, NS Steamship Lines, & maybe NS Bus, for example), rather than 7 Class I RR's (plus Amtrak), 19 major air carriers, 1 national bus company, at least 13 major trucking companies -- most all independent and competing with each other.  Just saying ...

[henry6]

STOP PUTTING WORDS IN MY POSTINGS I DIDN'T SAY....I DID NOT DIS THE BOOK.  I COULDN'T DIS THE BOOK BECAUSE YOU DID NOT TELL ME THE TITLE OF THE BOOK NOR ITS AUTHORS.  OF COURSE I HAVEN'T READ THE BOOK IF ONLY BECAUSE I DON'T KNOW WHAT THE BOOK IS!  DON'T MAKE ME OUT TO BE A DIMWIT WHEN YOU DIDN'T GIVE THE TITLE AND AUTHOR!

[greyhounds]

henry6

STOP PUTTING WORDS IN MY POSTINGS I DIDN'T SAY....I DID NOT DIS THE BOOK.  I COULDN'T DIS THE BOOK BECAUSE YOU DID NOT TELL ME THE TITLE OF THE BOOK NOR ITS AUTHORS.  OF COURSE I HAVEN'T READ THE BOOK IF ONLY BECAUSE I DON'T KNOW WHAT THE BOOK IS!  DON'T MAKE ME OUT TO BE A DIMWIT WHEN YOU DIDN'T GIVE THE TITLE AND AUTHOR!

Well, some other folks understood that the title of the book was "The Best Transportation System in the World."

 

[greyhounds]

Dragoman

greyhounds -- a few thoughts:

1)  Whether or not the farmers had any valid complaint, it appears that they were complaining.  Whether or not their complaints, and the lobbying efforts of the Grange, had some sort of impact on Congress in creating the ICC, I don't know, but wouldn't be surprised.

2)  Legislative drafting is a complex process.  Overly detailed language raises cries of too-tight governmental regulation (and makes it easier for the regulated to make only trivial changes to circumvent the rule).  Overly broad language raises complaints such as yours -- it "will mean whatever you want ti to mean."  I personally prefer the latter approach -- as long as the rule is interpreted by the Executive and enforced by the Judicial in a "Just and Reasonable" manner!

3)  Did you ever consider that "by segregating the modes and preventing integration of the modes", they fostered the growth of the then-fledgling air and highway transportation industries, by protecting  them from the monopolistic transport goliaths of the day -- the railroads?  Otherwise, we might well today have only 7 "integrated" transportation companies in North America (NS Rail, NS Air, NS Trucking, NS Steamship Lines, & maybe NS Bus, for example), rather than 7 Class I RR's (plus Amtrak), 19 major air carriers, 1 national bus company, at least 13 major trucking companies -- most all independent and competing with each other.  Just saying ...

Those are good, intelligent points.  I think you're speculating, but I think it's intelligent speculation.

1)  The "Grange" or "Granger Movement" was short lived.  It came about largely due to a downturn in the farm economy after the Civil War.  The farmers sought a villain to blame for their misfortune and the railroads did just fine as that villain.  It certainly would have been in the railroads' best interest to have the farm economy doing well with farmers expanding and buying more stuff.  There is no logical reason the railroads would have hurt themselves by intentionally impoverishing farmers.  But, the railroads couldn't control the economy and it's always tempting to blame someone else for your problems.

The Granger Movement declined rapidly after around 1875.  The Interstate Commerce Commission wasn't established until 1887, some 12 years after the movement's peak membership.  I don't doubt that farmers were complaining, they're still very good at that, but the assertion I challenged was that the Grange caused the creation of the ICC.  I've seen no evidence of that. 

From what I've read, the ICC was established to stabilize railroad cartels.  Railroads would get in to rate wars and eventually some of them would go into bankruptcy.  This upset the investors.  The money men got the Federal Government to try to limit price competition.  If anyone has any real evidence that the Grange brought the ICC about, I'd like to see it.

2)  I do not agree that drafting legislation is necessarily a complex process.  I've never done it, but I have written railroad contracts, tariff items, etc.   If you've got a clear idea of what you need to do and a decent command of the English language it's really not all that complex.

The problem with the Transportation Act of 1920 was that the government tried to do something it could not reasonably do.  There is no way they could administer every price charged by a railroad.  Or at least there was no way for them to do that well.  But the fact that they really couldn't do it to any good effect didn't deter the politicians.  They just wrote "Just and Reasonable" many times in the act and left it to others to figure out what they meant.  The result was a financial and physical destruction of a large part of the US railroad network which greatly harmed the American economy and the American people.

There are very real limitations on what a government can accomplish.  Some of these limitations are in the Constitution.  But most of the limitations come from the harsh reality that some things simply can not be accomplished by passing a law.  

Congress only had a vague idea of what it wanted to accomplish with the Transportation Act of 1920.  They wanted railroad rates to be "Just and Reasonable".  The resultant interpretation of "Just and Reasonable" lead to great harm to this country.

3)  This is really speculation on your part.  First, it is necessary to understand that the "Large" trucking companies have a very small part of the market.  Most truck freight is moved by small trucking firms that have 10 or fewer trucks.  There are some economies of scale in trucking, but they're not significant enough to cause a concentration of business with the larger carriers.

Second, there are minimal barriers to entry in to trucking.  All you need is a CDL, insurance and a truck and you're a trucking company.  There is no reason to believe that the NS or any other railroad could dominate trucking.  What the NS, and other railroads, are doing now is providing an integrated transportation service that combines the best features of rail and truck.  When this integrated service is the most economical method of moving the freight it gets the load.  If a guy and his truck can do it for less, he gets the load.

That competition keeps our logistics cost down and improves the lot of the American people.  That system has been developing since deregulation in the early 1980's.  It would have been developing since the 1920's if the dang politicians hadn't tried to do something they could not reasonably do.

"A man's got to know his limitations" - once said by the mayor of Carmel, CA.