State & Stakeholders

(See front cover)

Dissatisfaction with a state-owned transportation system was what launched the Pennsylvania R. R. 86 years ago. Stretching from Philadelphia to Pittsburgh (at the head of navigation on the Ohio River) was an extraordinary series of state-owned railways, canals and skidways over the Alleghenies, built to compete with New York's booming Erie Canal. Canal boats, constructed in sections, were trundled through the streets of Philadelphia on low-wheel trucks, hauled to a railway, then chuffed, towed, pushed and slid over the 395 mi. of "State Works" to Pittsburgh. In winter when canals froze, all transportation ceased. It was a thoroughly unsatisfactory procedure, so a group of Philadelphians built the Pennsy.

The venture paid dividends the first year, has paid them every year since, including 1933. The Pennsy has paid out a total of over $1,000,000.000, is the biggest system in the U. S. and self-styled finest in the world. Last week the stock of this historic and lucrative enterprise was selling lower than it has sold since the bloody Pittsburgh Riots of 1877. But this was one railroad for which there were no fears that it would pull through, come what may. And when the U. S. Government, in an unprecedented call for testimony on the state of the nation, wanted to learn about the railroads, it turned naturally to Pennsylvania's William Wallace Atterbury (see p. 11).

The Government found him far from his dominion, of which he is the tenth ruler. But he was neither napping nor, except intermittently, loafing. With his famed vice president, Elisha Lee, and a staff of high executives, he was halfway through his annual survey tour of North America. Routing his private car on a great swing down through the Southwest to Mexico City and up the Pacific Coast where he was last week, he had planned to swing homeward through Canada. Then came his country's call for counsel and advice, and almost simultaneously an advance copy of the report of the National Transportation Committee.

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Ever since the Government handed them back (with bonuses) to their owners after the War, the railroads of the U. S. have been becoming a national Problem again, first as to regulation, next as to consolidation, lately as alleged sufferers from competition by trucks, buses, pipelines, airplanes. When their earnings contracted in Depression and not only dividends but bond interest became endangered, money was obtained from the R. F. C.--about $600,000,000 in all now--to bolster the railroads. And in September the biggest stakeholders, including 68 insurance, companies and four great universities, asked five leading citizens to head a committee of inquiry. Coolidge was named chairman. Alexander Legge (International Harvester) represented Republican industrialists. Alfred E Smith. Bernard Mannes Baruch and Clark Howell (Atlanta Constitution) were chosen as Democrats who would bear weight with Franklin Delano Roosevelt when it came to getting this National Transportation Committee's findings translated into law.

These findings, now published, imply that the railroad problem comes down simply to this: How to keep the roads, now financed by so much public money, in private hands and off the taxpayer's neck? The Committee considered its subject and made recommendations under subheads as follows:

Consolidation. "Parallel lines ... are wasteful and unnecessary. Regional consolidations should be hastened and where necessary enforced. . . . Neither holding companies nor any other device should be permitted to hinder. . . ."

Competition. For trucks & buses the Committee favored regulation "for public protection." but warned against restriction just for the railroads' sake. "We cannot solve the problem on the theory upon which horses are handicapped in a race." But the Committee urged that railroads be permitted to own and operate competing services in all fields, in fact chided the roads for not promoting them from the start.

The Committee recommended abandonment of government-owned barge lines and of all waterways unless proved self-supporting in the light of sound accounting practice. Airways they would leave alone for the present. On pipe lines they were mum.

Regulation. The Committee found for President-elect Roosevelt's "reconstituted I. C. C.," to embrace all forms of interstate transport, an I. C. C. less judicial and more executive. Clearly the point was made that the present Federal policy of preserving competition is obsolete.

Management. In no uncertain terms the Committee took U. S. railroad operators to task for not helping themselves before they asked for help, for not keeping up with the efficient pace set by other industries. The roads were urged to scrap unnecessary facilities, consolidate services and costly terminals, cease running crack (but empty) passenger trains to maintain prestige. The Committee suggested that if the U. S. railroad's plant and treasury were run as efficiently as they could be, there would be no railroad problem.

Capital Adjustment. Criticizing the top-heavy bonded debt of many roads, the crux of their present difficulties, the Committee said: "This condition cannot be cured by increasing rates to salvage old mistakes or by lending government money to preserve them. They require realistic reorganization in accordance with the facts. Some railroads can hope to survive only on drastic . . . scaling down of debt."

"Emergency Recommendations." 1) Revision of the bankruptcy laws to facilitate rail reorganizations without long and costly receiverships. 2) Repeal of the recapture clause retroactively. 3) Removal of the rate-making rule from a valuation basis to a basis of operating costs. 4) Liberal R. F. C. policy on collateral offered for rail loans.

Of the original five members only three signed the report. Calvin Coolidge was dead. Al Smith split with the others and issued a supplementary report. Onetime president of U. S. Trucking Corp., he wanted a hands-off policy on trucks & buses, recommended that the I. C. C. be scrapped in favor of a Department of Transportation or a bureau in the Department of Commerce. He saw no necessity for altering the rate-making rule, stood out against R. F. C. liberality on rail loans.

The death of Coolidge, the Smith schism and reports that Mr. Baruch and President-elect Roosevelt are not at one on Railroads, have detracted from the authority the Committee's report was intended to carry. It was read with deep interest as a major contribution to railroad thought--but not as a sure instrument of railroad salvation.

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In other lands (where railroads are usually state-owned) there are Railroad problems too. But they are chiefly operating problems. In France the problem is to keep the trains on the track as well as to keep them from wrecking the French budget. In Russia it is to run more trains faster-the Soviet budget having no particular balancing point.* Though critics insist that U. S. railroads have been technological laggards (compared to other U. S. industries), the fact remains that the U. S. railroad plant is the finest in the world. Of the world's 780,000 mi. of railways about one-third is in the U. S. Some say that the plant is too big, that the $26,000,000,000 it cost was too much, that the peak of its usefulness has passed. The reason it is in quicksand is not that its trains are not on time but because its managers never dreamed they would have so few trains to keep on time.

Few citizens can hope to grasp concretely what the whole amazing U. S. rail system is. But the biggest chunk of it, that part which laces and crisscrosses the vast factory between Chicago and Middle Atlantic Coast--is identified by four names:

New York Central, traditional rival of the Pennsy, boasts a "water level" route to Chicago. Its domination of the richest State in the Union dates back to the management of Cornelius Vanderbilt. For two generations the House of Morgan, George Fisher Baker's First National Bank and the Vanderbilt sons and grandsons have been at Central's throttle. But early this month a new force entered the Central when 74-year-old Leonor Fresnel Loree, the bush-bearded president of smallish Delaware & Hudson, triumphantly announced that he had bought 10% of Central's stock (TIME, Feb. 6). Last week he was trying to persuade the I. C. C. to let him have an official seat at Central's council table. Central's president, Frederick Ely Williamson, a Yaleman like Pennsylvania's Atterbury, has as his principal worry $80,000,000 in bank and R. F. C. loans, bond maturities in the next two years of $68,000,000.

Baltimore & Ohio, whose President Daniel Willard is most famed for his labor dealings, has solved its own great problem: a $63,000,000 bond maturity in March. Backed by R. F. C. funds, it has persuaded nearly all bondholders to swap their bonds for half cash, half new bonds. Testifying last fortnight before a Senate committee, Daniel Willard focused attention on what has happened to railroad labor since the Depression. The B. & 0., he said, had cut its force 50% since 1929 and the process is continuing. Last week B. & O. shut down all shops.

Chesapeake & Ohio-Nickel Plate has joined the haughty Big Four only in the last decade. The two roads with the Erie are the backbone of the Van Sweringen system. C. & O. is one of the four U. S. railroads still paying a regular dividend and the only road still paying at the 1929 rate. Head of this unique road is John J. Bernet, the Brothers Van Sweringen's crack operating man. His first big job was the Nickel Plate which he pulled out of the red and put (for a while) on a fancy dividend basis. Then the Van Sweringens set him to work on the Erie. He could not pull out dividends but he did pull the Erie together as a first class road. In 1929 he went to the C. & 0. Last week he completed the Van Sweringen circuit by taking on the Nickel Plate's presidency in addition to the C. & O.'s. And from a profit point of view he found it just about where it was when he went in first in 1916.

Pennsylvania. As a railroad system the Pennsy is by far the most mature of the Big Four. By the early 1870's it had already taken for its province almost all that it has now. At the turn of the century President Alexander Johnston Cassatt, "the brains of the Pennsylvania," launched the campaign that drove the Pennsy under the Hudson River and into Manhattan, then pushed it under the East River to its great gateway to New England, the Hell Gate Bridge. Presidents Samuel Rea and Atterbury continued the march north by gaining a working control of the New Haven and Boston & Maine. Then President Atterbury launched his greatest project--electrification of the Pennsy--completed last month from New York to Philadelphia, last week on down to Wilmington, soon to Baltimore and Washington.

Pennsylvania's 28,000 mi. of track, its $2,191,000,000 assets, give it undisputed claim to the title of "biggest U. S. railroad." Its 5,500 locomotives are one-tenth the U. S. total, its 270,000 freight cars 12%, its 7,000 passenger cars 14%. With this equipment it justifies its boast: "Carries' more passengers, hauls more freight than any railroad in America."

Despite its huge plant President Atterbury found in 1928 that Pennsylvania's eastern region had nearly reached traffic capacity under steam operations. He promptly started a $100,000.000 program to electrify all main lines from New York to Washington and west to Harrisburg. Some 6,000 men were set to work erecting 8,000 steel poles, stringing 38,000,000 Ib. of copper cable. At an average cost of $160,000 apiece, 150 electric locomotives were ordered. Electrification was coordinated with another $75,000,000 program of station and terminal improvement in Newark, Philadelphia and Baltimore.

Electrification west to Harrisburg has not begun. But when work now under way is finished the Pennsy can add another superlative to its long list: "Most electrified U. S. railroad."

Though Kuhn, Loeb & Co. have been its bankers, Pennsylvania has never been a banker's road. It is a Pennsylvania institution, socially, financially, politically. President Atterbury runs the road. He has been a Pennsy man since he left college in 1886. Son of a lawyer who quit a Detroit practice to become a Presbyterian preacher and who wanted his son to enter the ministry. President Atterbury started in the Pennsylvania's great Altoona shops. In 1903 President Cassatt jumped him to general manager of the eastern region, a key post. Thereafter his rise, like all railroadmen's, was slow. There are no young railroad presidents. William Wallace Atterbury, now 67, was just under 60 when he stepped into Samuel Rea's shoes.

When General Pershing cabled for the "best railroad man in the U. S." President Wilson sent him Atterbury, then vice president in charge of operations. Commissioned a brigadier general, he quickly brought order to the jumble of troops, trucks, guns, docks, railways and munitions that he found piled up in all the ports of France. Since then he has always been General Atterbury and he likes it. He has a military abruptness, a military insistence on having things done right. His clothes are always faultlessly cut, his shirt and starched collar always crisp, his ties always polkadot. He always dresses for dinner, even on his private car between New York and Philadelphia. It bothers him to see a friend light the wrong end of a cigar.

Tall, baldish, with piercing blue eyes and a cropped mustache, he keeps himself in as rigorous trim as when he was a locomotive mechanic in the Altoona shops. His big-toothed grin is familiar to all Pennsylvania's 115,000 employes. When at home (which is seldom) he lives simply in Radnor outside Philadelphia. He claims that his house is so furnished that he can put his feet up whenever he sits down. A railroad man to the core, he has only one automobile, a Cadillac which he turns in every August for a new model. His two younger sons take to railroading, but his eldest is determined to be a singer. Railroader Atterbury once remarked: "If you become the greatest musician in the world, what of it?" He reads very light novels, likes duckshooting, plays his own rules at contract with a stern righteousness and no little success. While working he smokes endless cigarets, whistles most of the time. Once on the coast of Alaska his 110-ft. yacht was boarded by revenue agents who seized his stock of rye whiskey and champagne. General Atterbury fumed.

General Atterbury will retire three years hence when he reaches the Pennsylvania's retiring age of 70. He will probably see the completion of his electrification program--his greatest job. He hopes most devoutly he will not live to see the day that the Pennsylvania, or any other big U. S. railroad, is state-owned.

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* Last week the Soviet upped fares 35% .to discourage idle passenger travel, permit heavier freight movements. The rise came on top ot other increases that have boosted fares in some regions 300% above a year ago.

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