Another thread, about passenger trains had a few comments that gave me pause to wonder. In recent times, there was a lot of discussion about whether GM should have been left to go bankrupt. What about Conrail? Was it neccesary for the federal government to step in, take over the railroad operations in the northeast, and infuse billions of dollars in tax money to revitalize railroad operations? Had that not been done, would the free market have taken care of the problem on it's own? What do you think?
Thanks to Chris / CopCarSS for my avatar.
Murphy Siding Another thread, about passenger trains had a few comments that gave me pause to wonder. In recent times, there was a lot of discussion about whether GM should have been left to go bankrupt. What about Conrail? Was it neccesary for the federal government to step in, take over the railroad operations in the northeast, and infuse billions of dollars in tax money to revitalize railroad operations? Had that not been done, would the free market have taken care of the problem on it's own? What do you think?
When Conrail was formed there was no such thing as a "Free Market" in railroading and it was very necessary for rail freight service to continue. The government had backed itself in to a corner and the only way out was to throw taxpayer's money at the problem.
The role of the railroads in the nation's transportation system had changed dramatically with the advent of motor transport and air transport. The railroads were perfectly capable of making the needed changes and sought to do so, only to be blocked and inhibited by obsolete regulations and regulators who had little, if any, understanding of what was going on.
When the resultant financial collapse occured the only alternatives were: 1) allow the freight trains to stop running or, 2) throw taxpayer money at the problem. If the trains would have stopped the result would have been auto plant closures, mine closures, steel mill closures, etc. So, we got Conrail.
Simply having the government take over the rail lines didn't stop the red ink. Faced with the prospect of Conrail being a permanent drain on the US Treasury, the Federal Government was forced to remove much of the economic regulation. (It helped a great deal that economists were basically saying that the economic regulation was nuts.)
Removal of much of the inane regulation and modernization of obsolete union work rules allowed Conrail, and the rest of the freight rail industry, to become financially healthy. The government was then able to sell off Conrail. And that railroad, as we know, eventually became the object of a bidding war between NS and CSX.
Conrail was a necessary transition step. The politicians would never have dealt with the situation absent a crisis. (The Commerce Department knew things weren't working as early as 1954, but they weren't in charge.) It's unfortunate that the railroads were not allowed to make free market adjustments to the changing transportation environment on an as needed basis. It would have better served the economy and the American people had the rail industry been allowed to adjust as needed instead of being forced into a financial abyss.
It also didn't help that the physical plant of the RR's got run down in WW2 due to the high level of traffic causing maintenance to be deferred, and forced to pay tax on the "income" resulting from the deferred maintenance. This was particularly a problem for the lines that made up Conrail.
- Erik
P.S. Paul D. North posted some PRR ads from late WW2 referring to the tax on deferred maintenance.
Those who made the mess were forced to pay for and clean it up under the moniker of Conrail.
Victrola1 Those who made the mess were forced to pay for and clean it up under the moniker of Conrail.
Oh, I don't think so.
The mess was basically made by politicians and bureaucrats. I don't think any of those folks forked over too much money to make things right.
Joe Six Pack was the guy who paid. He always does.
The good news about Conrail was that the government got their money back. Once the system was pared down and rebuilt, Conrail was a profitable operation - Something the Federal government is not really accustomed to.
The final sale of Conrail to NS & CSX was very successful - Now if we can get our money out of GM....
Jim
Modeling BNSF and Milwaukee Road in SW Wisconsin
There is plenty of blame to go around as to "who made the mess" that emerged as Conrail The US regulatory climate brought about in the late 1800's by the Granges who felt monopolistic railroads were over charging for captive products which led to the ICC. The ICC did fairly well and then were charged with regulating motor trucks and buses, too. The highway lobby got hold of the ICC and the American imagination which led to a very cumbersome and antiquated processing of claims and applications which stifled both inter and intra mode competition. Investor money took over railroads again in the 50's as the value of their land sparkled in the eyes of moneymen. Thus investments were made for the land and equipment values rather than the income return on operating a railroad. The Illinois Central is a good example of real estate holdings, grocery store distributors and chains, etc. before the railroad was split off from those properties. The New York Central and Pennsylvania Railroad's capitalists saw a chance to gain great real estate portfolios in major cities and were not really interested in "playing with trains". Thus when the plant and equipment went to literal hell under Penn Central until there was no money left to fix or operate the railroad. The cost to the country would have bee devestating if highways had to absorb all the freight and passenger services provided by PC. Similar fates were befalling other eastern railroads for some of the same reasons or because of PC's problems...Other problems came from the St. Lawrence Seaway and the Eisenhower Highways draining traffic from railroads and by industry moving south and west in the US or overseas for cheaper manufacturing costs. Investors were not interested in the low rates of return on investment nor interested or knew anything about running railroads. So the US had to step in to control the situation. The USRA was empowered to investigate and hear and come up with a plan: thus Conrail.
RIDEWITHMEHENRY is the name for our almost monthly day of riding trains and transit in either the NYCity or Philadelphia areas including all commuter lines, Amtrak, subways, light rail and trolleys, bus and ferries when warranted. No fees, just let us know you want to join the ride and pay your fares. Ask to be on our email list or find us on FB as RIDEWITHMEHENRY (all caps) to get descriptions of each outing.
jrbernier The good news about Conrail was that the government got their money back. Once the system was pared down and rebuilt, Conrail was a profitable operation - Something the Federal government is not really accustomed to. The final sale of Conrail to NS & CSX was very successful - Now if we can get our money out of GM.... Jim
No...the government did get its money back. It got it when they sold the stock for more than what they put into it to acquire and operate. Just like any other investor/business deal. Plus the value of not having to build and maintain new roads and services to take up whatever would have been needed because there was no CR to pick up the traffic. I know there are some political points of view that would have you think different, but, no, the government didn't lose in the deal.
Henry- I'll agree with you, that the government saved money on roads because of Conrail. But no- the government did not get back all the money put into Conrail. Give me some time, and I'll dig up the numbers again for you.
Read Rush Loving's "The Men Who Loved Trains."
Mike
Purchase price. Operating Costs. Operating income. Selling income. Money saved by not having to build highways; saved jobs on railroad and other industries. I think it was an excellent call by the government, one that did much, much more good than bad. And I don't want any political BS slanting anything.
henry6 There is plenty of blame to go around as to "who made the mess" that emerged as Conrail The US regulatory climate brought about in the late 1800's by the Granges who felt monopolistic railroads were over charging for captive products which led to the ICC. The ICC did fairly well and then were charged with regulating motor trucks and buses, too. The highway lobby got hold of the ICC and the American imagination which led to a very cumbersome and antiquated processing of claims and applications which stifled both inter and intra mode competition. Investor money took over railroads again in the 50's as the value of their land sparkled in the eyes of moneymen. Thus investments were made for the land and equipment values rather than the income return on operating a railroad. The Illinois Central is a good example of real estate holdings, grocery store distributors and chains, etc. before the railroad was split off from those properties. The New York Central and Pennsylvania Railroad's capitalists saw a chance to gain great real estate portfolios in major cities and were not really interested in "playing with trains". Thus when the plant and equipment went to literal hell under Penn Central until there was no money left to fix or operate the railroad. The cost to the country would have bee devestating if highways had to absorb all the freight and passenger services provided by PC. Similar fates were befalling other eastern railroads for some of the same reasons or because of PC's problems...Other problems came from the St. Lawrence Seaway and the Eisenhower Highways draining traffic from railroads and by industry moving south and west in the US or overseas for cheaper manufacturing costs. Investors were not interested in the low rates of return on investment nor interested or knew anything about running railroads. So the US had to step in to control the situation. The USRA was empowered to investigate and hear and come up with a plan: thus Conrail.
I'd like to say that I disagree with this, but there's precious little coherency here to actually deal with.
This is just a ramble of fabrications ("The highway lobby got hold of the ICC..") and disjouinted irrelevancies that goes nowhere.
Just what did the ICC ever do "fairly well" in terms of economic regulation?
The proof is in the results. Under strict goverment (ICC) economic regulation the US rail network deteriorted badly in terms of financial stability and service offering. When the regulation was greatly lessened the railroads services and financial health got significantly better.
The only other significant changes were: 1) ratiionalization of union work rules, and 2) removal of the passenger burden.
Capitalist can still invest in real estate and diversify corporate holdings. That hasn't changed. But the rail network physlical plant is now in excellent shape. What changed was the the ICC was euthanized.
henry6 Purchase price. Operating Costs. Operating income. Selling income. Money saved by not having to build highways; saved jobs on railroad and other industries. I think it was an excellent call by the government, one that did much, much more good than bad. And I don't want any political BS slanting anything.
I like blue engines.
It's been fun. But it isn't much fun anymore. Signing off for now.
The opinions expressed here represent my own and not those of my employer, any other railroad, company, or person.t fun any
Greyhounds, I'm not sure what you are debating, me or what I presented. You are also looking at what you know from your lifetime but not at what happened in the late 1800's. It appears you don't know the industrial history of the US from the mid 1800's to the mid to end of the 1900's. And I am not disputing what capitalists can and cannot do. But the truth is that railroads were taken over either by investors or holding companies who were more interested in holding real estate rather than running railroads. The Illinois Central is an example I gave above some place, but so was that the concern of the Penn Central people taring down Pennsylvania Station in NY, selling the air rights and designing a building to cover GCT, and treasuring PennCentral Plaza in Philadelphia for starters. As for the present condition of the railroad plant, it is not because of PC or Conrail but because of the market conditions for railroads and the products they haul and managements dedicated to the business of transportation and not real estate holdings.. In effect, you are supporting my statements.
henry6 As for the present condition of the railroad plant, it is not because of PC or Conrail but because of the market conditions for railroads and the products they haul and managements dedicated to the business of transportation and not real estate holdings.
The only way this makes any sense if you define the term "market conditions" broadly enough to include "pricing power". The railroads had virtually no pricing power in the 20th century until the 4R Act (1976) and the Staggers Act (1980) were implemented. That was the start of the turning point for today's economically viable railroads. Greyhounds is correct.
http://en.wikipedia.org/wiki/Staggers_Rail_Act
Murphy Siding Best information I can readily find, is that the government spent $7 billion to make Conrail profitable. Sale of Conrail netted about $1.9 billion.
Yes, and that's not the half of it.
The real damage and cost to the American economy and the American people was from the transportation inefficiencies caused by the regulations and the regulators.
Intermodal? Almost totally blocked for decades. Unit trains, not allowed for decades. And much, much more. The cost to the economy far exceeded $7 billion.
Murphy Siding What about Conrail? Was it neccesary for the federal government to step in, take over the railroad operations in the northeast, and infuse billions of dollars in tax money to revitalize railroad operations? Had that not been done, would the free market have taken care of the problem on it's own? What do you think?
Since you ask,
Had the government not stepped in with Conrail there would have been an immediate loss of much of the eastern freight rail network. Conrail was the government's way of keeping the now bankrupt lines operating. The alternative would have been to auction them off to the highest bidder with the proceeds going to the creditors. Once broken up and sold it is hard to see how the free market would have "taken care of the problem" other than by shipping all freight by truck. I suppose some relatively short lines might have been carved out of the carcass provided they were able to connect to other solvent roads; however much of the railroad system would have been lost.
Some observers point out we have lost much of our railroad system that back in the 60's went bankrupt. However, with reform of our railroad legislation (especially the Staggers Act) today we really do not have enough railroads and our whole economy is worse off because of it.
zugmann I like blue engines.
Could you see them in the fog?
Any argument carried far enough will end up in Semantics--Hartz's law of rhetoric Emerald. Leemer and Southern The route of the Sceptre Express Barry
I just started my blog site...more stuff to come...
http://modeltrainswithmusic.blogspot.ca/
blownout cylinder Could you see them in the fog?
Sure, esp. if you turned the red markers on.
I think all the contributions thus far are accurate, but overlooked has been the mess that was at the core of Conrail, the PC. That railroad's disastrous merger history is well known. But even more telling was the overbuilt nature and the general over capacity of rail lines in the east and northeast. This flew in the face of a rapidly changing and declining industrial base, which had been the case for years prior to the collapse of the PC.
C&NW, CA&E, MILW, CGW and IC fan
schlimmBut even more telling was the overbuilt nature and the general over capacity of rail lines in the east and northeast.
In the case of the New York Central Alfred Perlman was trying to deal with that. He was tearing out rail lines and automating as quickly as he could. But he also saw he was fighting a losing battle against the New York Thruway and other new highways.
Had Perlman been in charge--genuinely in charge--of the merged Penn Central things might have been different. But he wasn't.
Far too many route miles that removal of multiple tracks couldn't solve. The NY/NJ to Buffalo territory is illustrative. There were five different routes. In 1929 Wm. Z. Ripley authored an ICC plan for railroad mergers, primarily for, though not limited to the NE.
John WR schlimmBut even more telling was the overbuilt nature and the general over capacity of rail lines in the east and northeast. In the case of the New York Central Alfred Perlman was trying to deal with that. He was tearing out rail lines and automating as quickly as he could. But he also saw he was fighting a losing battle against the New York Thruway and other new highways. Had Perlman been in charge--genuinely in charge--of the merged Penn Central things might have been different. But he wasn't.
The railroading industry knew that somewhere there was going to be a "Penn Central". The government was the thorn that did them in, by not allowing them to do what was necessary to survive and unfair taxing codes from WWII that were never repealed. When the PC failed the domino's started falling, so were there that many rail managers who were failures...no, their hands were tied.
Passenger heavy rail lines were doomed. The government said the frieght profits can cover any passenger losses, now that's good business sense. Anyone knows if its not paying the bills, eliminate it.
The PC, in a matter of a few week had the government do an about face on a loan for millions of dollars, then they had to take on the obligation of the NH and its millions of debt. The PC predicessors were great railroad men, I don't care who was in charge there was simply too much to over come.
Conrail, saved railroading. A lot of people woke up and ultimately did what the railroads had been asking for years.
There are several books written on the Penn Central (including the NH) disaster, such as: .The Wreck of the Penn Central, The Fallen Colossus, The Untold Story of the Survival of the Penn Central Company,and No Way to Run a Railroad . There were many factors beyond the ICC and passenger losses. And then there are the problems of the LV, Erie Lackawanna, Ann Arbor, Reading, Jersey Central and L&HR.
Rader Sidetrack henry6 As for the present condition of the railroad plant, it is not because of PC or Conrail but because of the market conditions for railroads and the products they haul and managements dedicated to the business of transportation and not real estate holdings. The only way this makes any sense if you define the term "market conditions" broadly enough to include "pricing power". The railroads had virtually no pricing power in the 20th century until the 4R Act (1976) and the Staggers Act (1980) were implemented. That was the start of the turning point for today's economically viable railroads. Greyhounds is correct. http://en.wikipedia.org/wiki/Staggers_Rail_Act
I would say that I understand what I am talking about enough here about "marketing conditions" to mean pricing power along with any and all connotations and practices of the term, including today's recession which has allowed smart railroaders to build, rebuild, and repair their infrastructure and equipment. In fact, they have been adding employees and building traffic steadily since before Obama took office.
K4sPRRThe PC predicessors were great railroad men, I don't care who was in charge there was simply too much to over come.
Most of them were decent hard working human beings. But in my (not very) humble opinion Alfred Perlman stood head and shoulders above them. But even he could not overcome the ICC and the highways together.
Our community is FREE to join. To participate you must either login or register for an account.