Railroads, Institutional Issues

by David S. Lawyer mailto:davylawyer1@gmail.com More transportation articles by David S. Lawyer

Written 1986 (not updated)





Copyright 2003 by David S. Lawyer. Feel free to make copies but commercial use of it is prohibited. For example, you can't (except to an insignificant degree) combine it with advertising on the Internet. Please let me know of any errors or suggestions for improvement.


The utilization of modern technology by railroads is inextricably intertwined with institutional issues: Should railroads be government owned? How should they be regulated? What labor policies should they employ? What college programs should be offered in the railroad field?

The introduction of labor-saving technology has often been thwarted by labor union rules. For example, almost a hundred years ago the automatic air brake was forced on the railroads by an act of Congress. In addition to making train operation safer, it eliminated the need for brakemen on most trains. Formerly, the brakeman's job was to walk from car to car (often along the roof of the cars) and set the hand brakes by turning wheels about the size of automobile steering wheels. However, brakemen were still kept on the payroll and exist to this day, two per train, although they now sometimes call themselves "trainmen". The blame for this waste lies not only with the labor unions but also with railroad management and government. In some states full crew laws made redundant brakemen mandatory. Management and government, for the most part, ignored the problem although management at times made much ado about the redundant firemen on locomotives who were not needed anymore to shovel coal after steam engines were replaced by diesel locomotives. The fireman issue was never satisfactorily resolved.

Computer control of trains and comprehensive scheduling of trains run head on into institutional issues. Labor union rules often require that a new crew take over the operation of a train as it enters a yard. This would not only increase cost but result in additional delay. The private railroad companies that exist today are under no obligation to coordinate their schedules or even to have any schedules at all. Many of them run most trains as "needed" to meet demand and call them "extras". Even a cursory examination of the railroad situation [see "The Railroad Situation" by Reebie Associates sponsored by the Federal Railroad Administration, U.S. Dept. of Transportation, 1979] indicates that major changes are needed to the institutional structure of railroads in order to achieve efficient operation of the railroad system in North America.

The problem of inefficient operation of railroads, including poor management and labor featherbedding, is not just endemic to the U.S. but is a world problem. In many other countries the operational efficiency of railroads is even worse than the U.S. The reasons for this are similar to the U.S. situation: The monopolistic aspects of railroads combined with a technology which is both susceptible to labor abuse and is difficult to optimally operate. While the U.S. was once (at the end of World War II) the world leader in rail freight transportation (both in ton-km and in technology) this is no longer true today. Today, the railways of the Soviet Union haul about three times the ton-km of U.S. railroads and most of this is now by electric traction on electrified railways. In fact the total ton-km on Soviet railways is greater than the ton-km for the entire rest of the world. However, Soviet Railways have many inefficiencies and problems such as traffic congestion. Much insight into institutional issues could be obtained by studying the history of the world's railroads, but a satisfactory comparative history (including efficiency, technology and labor policy issues) has yet to be written.

One might ask why the utility industry (electric, telephone, and natural gas), which are monopolies like the railroads, appears to be more efficiently operated than the railroads. There are various reasons for this. One is that many utilities initially started off (when they were founded) with better management. However, a major reason lies in the difference in the technology. Electricity and telephone calls are transmitted almost instantaneously and there is no delay at the interface between one company (or line) and another. For railroads, there are no physical laws that force coordination of schedules between different railroad companies (or even within the same company). What utilities send (electricity, gas, and phone calls) does not require a certain crew to send it a certain distance. Thus, labor union rules similar to the 100 mile rule (a full day's pay for 100 miles) on railroads were never imposed on the utility industry. That is, restrictive work rules such as imposing a fixed amount of employee pay per kilowatt-hour or per phone-call-minute were not imposed on utilities due to the weak link between employees and electrical (or gas) flow as contrasted to the strong link between railroad employees and train flow.

The problem of optimal scheduling of freight trains and sorting of cars is much more complicated than the utility industry problems of routing of their electrical or gas flows. At the same time, since utilities were often founded by engineers and established research departments, they were much more competent to deal with their problems than the railroads, which did little or no research. As a result, most railroad problems remained unsolved, much less seriously examined. This resulted in scheduling, sorting policies and technology so inferior that the average speed of a loaded freight car has remained at about 5 mi/hr for the past half century (or perhaps much longer). [see Federal Coordinator of Transportation: "Freight Traffic Report" U.S. government (in 6 volumes) 1935, 1936. See also Reebie Associates: "Toward an Effective Demurrage System". U.S. DOT, FRA 1972]. The Reebie data, when used with ICC statistics, results in a loaded car speed of only 3 mi/hr. This result is probably too low due possibly to biased sampling by Reebie. The true figure is likely closer to the 5 mi/hr figure found in 1933 by the Federal Coordinator.]


Outside of the U.S., railroads are generally government owned and are often also inefficiently operated. Government ownership is one option for attempting to improve rail freight transportation in the U.S. In the 1920's and 1930's there was much discussion of this option (both pro and con) and a number of journal article appeared on this topic [see Public Affairs Information Service indexes and the book: Buehler, E. C. (Ed.) "Government Ownership of Railroads". N.Y. Noble & Noble, l939]. Since then almost nothing has appeared on this topic with the exception of two recent muckraking books which are of little value [don't see Underwood, Adam E. "Let's Nationalize American Transportation Now". Philadelphia: Dorrance, l982. Roberts, Dick "American Railroads: The Case For Nationalization" New York: Pathfinder Press, l980.]. Even the chapter on government ownership was removed from a major textbook on transportation economics [Locklin, D. P. "Economics of Transportation" Homewood, IL: Richard D. Irwin. various editions]. Reasons for this silence include a decline in socialistic sentiments in the U.S. after the end of the Great Depression of the l930's as well a decrease of interest in railroad policy problems in general. This silence is unfortunate because in the past 50 years there has been a great deal of experience with government ownership of railroads in other countries, much of it unfavorable.

It is somewhat ironic that in spite of the silence on the topic, two quasi-government railroads were created in the U.S.: Amtrak and Conrail. Neither were actually under much government control and neither was financially successful. Conrail is about to be sold after becoming marginally profitable while the future of Amtrak is in jeopardy due to its huge deficits which the federal government is finding burdensome to subsidize.

Before discussing the pros and cons of government ownership it is first necessary to propose just how government owned railroads would be managed. Another major question is just how the government would obtain the railroads.

Government ownership does not eliminate the need for rate regulation since the levying of higher rates can lead to unearned monopoly profits. However rate regulation should be flexible, specifying a range of permissible rates, while eliminating entirely the commodity rates (which often are so worded that only one firm can use them). The main criteria for judging the performance of the government railroad would be profit. While rates would be immediately adjusted to account for inflation, there would be a time lag of several years in changing the rates due to profits being too high or too low. The railroad would establish a profit sharing plan with their employees and thus the desire for high profits would motivate employees to run the railroads in an efficient manner. The amount of profit sharing paid to each employee would depend in part on his performance evaluation.

A major problem with railroads in the non-communist world has been labor unions and featherbedding practices [for the U.S. situation see "The Railroad Situation" op. cit. pp.201-219: Railroad Labor]. Under government ownership, labor unions would be prohibited. Due to the monopoly aspect of railroading,, the existence of labor unions only permits labor to allocate monopoly profits to themselves thereby concealing the existence of monopoly profits to a naive person inspecting the balance sheets. However, the charter of the railroad would specify that the wages paid should be sufficient to attract and retain skilled and conscientious employees. To avoid favoritism in employee selection, competitive examinations would be used.

In addition to solving the labor problems by eliminating labor unions, government ownership would hopefully results in the selection of better managers. The existing railroad management has been severely criticized [see Wyckhoff, D. "Railroad Management" Lexington Books. see also "The Railroad Situation" op. cit. p. 444].