At the end of the 1960s, the US possessed a well-run rail-freight system, but one whose quasi-public management by the Interstate Commerce Commission was under attack by private-industry forces anxious to offset the growing competition of the trucking and airline industries, and hungry for a return to maximum profitability without the interference of government rules and directives.
Then, in the late 1970s, the modern era of deregulation arrived, engineered largely by economic conservatives in the Jimmy Carter administration at the behest of industry lobbyists and over the objections of ICC professionals. A series of laws encouraged consolidation of the freight-rail business and gradually dismantled federalized collective rate-making, while opposition to industry mergers was set aside.
The capstone was the Staggers Rail Act of 1980, named for kept rail-industry advocate Rep. Harley Staggers (D-W.Va.), which completed the deregulation process by fully ending the ICC rate-making structure. It gave rail carriers the freedom to set any rate, establish long-term shipping contracts with no ICC review, and engage in outright rate discrimination vis-à-vis shippers, as in the bad old 19th century. The new dispensation also gave rail companies the unilateral right to abandon tracks and shed workers at will.
Rate deregulation proceeded in tandem with federal abandonment of antitrust enforcement, especially in the Clintonian 1990s, permitting accelerated mega-mergers, so that the number of Class I American railroads had been cut from 40 in 1980 to seven within two decades, only four of them (Union Pacific and Burlington Northern Santa Fe, or BNSF, in the West and CSX and Norfolk Southern in the East) considered important. A Fortune magazine analysis concluded in 2011 that, by then, the Big Four (21,000-plus miles of track each) claimed over 90% of all US rail-freight revenues, an even higher level of industry concentration than existed pre-1910.
The growing deregulated rail monopoly, cheered on by Wall Street, has chalked up soaring industrywide profits — margins up 121% overall from 2004 to 2011 per investment bank Citigroup. One of the Big Four, Union Pacific, realized an annual profit rate of 25% over roughly that period, says Fortune. Another, CSX, has seen its stock price rise 300% in the past 10 years, according to a New York Times report, while the seven largest carriers (CSX included) had a combined net income of $27 billion last year, double a decade ago.
Along the way, the fortunate seven spent $146 billion on stock buybacks and shareholder dividends, far exceeding their investments in track and equipment. Overall, the rail giants, which were limited to an annual 2% or 3% return on capital in the price-controlled 1970s, were rewarding their shareholders with stock values appreciating at a cumulative average of $40 billion a year by the deregulated 2000s.
It all resembles a free-enterprise fever dream, if you draw the curtain here. Indeed, for those who own what’s left of American railroads, the era of deregulation and monopoly is exactly that, an unprecedentedly euphoric narrative, but it’s not that for several key industry stakeholders; namely, the nation itself, the freight shippers, and (in particular) the railway workers.
The shift in favor of capitalist ownership was produced by several factors, but the transition was formalized legislatively in 1995 with the final demise of laissez-faire railroading’s old enemy, the ICC. In that year, Congress enacted the Interstate Commerce Commission Termination Act, which abolished the ICC and replaced it with the largely hands-off Surface Transportation Board (STB), an obscure US Transportation Department agency considerably friendlier to the rail monopolists, as things have turned out.
For the nation as a whole the deregulatory developments of the last 40-plus years have produced a diminished shell of our former rail system. Like the airlines, the railroads are no longer mandated to maintain a unified national transportation network; they’re no longer required to serve all parts of the country, merely those sections where a substantial profit can be made. Economic deregulation specifically expanded freedom of entry and exit from rail markets, allowing communities to either lose freight access or be subjected to the whims of a single carrier. In fact, one-third of all rail shippers are now served by only one competition-free railroad.
Besides being captive customers, rail shippers pay monopoly prices resulting from the mergers the STB, which passes on rail mergers, has passively allowed to go forward since its inception, such as the massive 1996 purchase of Southern Pacific by Union Pacific that critics charged would annually cost customers $800 million. Shipping rates, after declining briefly following deregulation, soon reversed course rapidly in the new economic environment, rising 96% from 2002 through 2019, according to a 2022 Transportation Department study, an average of 6% a year.
Theoretically, the STB can reverse provably excessive or monopolistic prices, but seldom does; the agency, Fortune magazine revealed in 2011, has a history of rulings favoring the liberated railroads, and its staffers benefit from a lucrative “revolving door” relationship with the big carriers. It’s just another part of a deregulated industry in action.
This brings us to the people at the bottom of the economic ladder: the railway workers who just tried to strike. Under deregulation, they have little protection beyond what their unions can provide, and that, it’s been established, is insufficient. Along with rail customers, they’re presently victimized by a diabolical industry business model deregulation has encouraged; it’s called “precision scheduled railroading,” or PSR.
The brainchild of an efficiency-obsessed rail executive named Hunter Harrison, PSR is an offshoot of deregulation’s drive for cost-cutting and enhanced profits imposed on both rail customers and workers. Harrison, described as ruthlessly single-minded by contemporaries, introduced PSR at Illinois Central Railroad in the 1990s, then brought it to Canadian Pacific in 2012 and CSX in 2017, from where it spread throughout the industry; its hallmarks are inflexible shipping schedules, mixed freight cargoes, less equipment, dangerously longer trains, and an estimated 30% fewer employees doing the same work.
Investors and Wall Street love PSR; customers and rail hands hate it. The latter must be on call for days or weeks at a time, work 12-hour shifts, sacrifice their weekends, and risk suspension if they report sick. And, of course, they lack paid medical leave.
It’s a Dickensian system on rails, and conservative Democrats, who historically facilitated its development, have a lot of retrospective answering to do.
[Editor’s note: The 3/15/23 column noted Marty Walsh was stepping down as labor secretary to become executive director of the National Hockey League. He actually is becoming executive director of the NHL Players’ Association.]
Wayne O’Leary is a writer in Orono, Maine, specializing in political economy. He holds a doctorate in American history and is the author of two prizewinning books.
From The Progressive Populist, April 1, 2023
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