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&nb
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.
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…
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 investigat
I’m not sure I agree 100% with the thought that the government got their money back. Everything I’ve ever read about Conrail suggests that the government poured millions of dollars into infrastructure and subsidized operations for many years. The railroad was then turning an operational profit- if you didn’t count all that money that Conrail owed to the government. Conrail was then sold. Uncle Sam was never paid back.
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.
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.
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 situatio
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.
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.
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.