The Case For--and Against--Nationalization

SEVERAL years ago, Louis Armand, former head of the French national railways, lunched with seven U.S. railroad presidents. At that time, he recalls, "I remarked that sooner or later they would have to face up to the question of nationalizing American railroads. They all roared with laughter." Last week, in the midst of the Penn Central's financial fiasco, no one was laughing at the idea any more. Transportation Secretary John Volpe warned Congress that if the Administration's bill to guarantee loans for railroads fails to pass, and other roads fall into bankruptcy, the only alternative would be for the Government to nationalize the rails. The Transport Workers Union has already called for nationalization. Said James A. Schultz, vice president of the Association of American Railroads: "The country has got to have railroads. So you either have nationalization or Government participation and help."

Nationalization has its attractions. The U.S. is almost the only industrialized nation without it. Stalled and stymied by high operating costs, local taxes, labor featherbedding and Government regulation, 21 of the nation's major railroads ran in the red last year. Though the Government's past policies have often hurt the railroads, Washington seems to be the only power that has the potential, at least, of building a rational, balanced national rail system.

Compartments for Cardinals. That is just what has been done abroad. Americans who travel overseas marvel at the swift, efficient and inexpensive nationalized railroad service they encounter. In France, the Paris-Marseille-Riviera express made 182 trips in a three-month period last winter and was late a total of one minute and a half. Japan's 125-m.p.h. "bullet train" between Tokyo and Osaka is the technological wonder of the Eastern world.

But there are some curves in the track. The foreign systems follow a cost-be-damned philosophy and lose staggering sums. The Japanese railroads lose $1,000,000 a day. Many of the overseas systems are operated partly as make-work projects and are featherbedded to an extent that would shock even a U.S. rail unionist.

Foreign lines court popularity by keeping fares low. On the Italian railroads, 80% of the passengers ride at reduced rates or pay nothing at all; full fares are paid only by tourists and the few odd souls who do not fit into any of the categories in the eleven-column, fine-print list of those entitled to "special" rates. In the Italian railway hierarchy, cardinals rate free private compartments; judges and most government officials get free seats; bishops, crippled people and journalists qualify for 20% to 70% fare reductions.

$60 Billion for Openers. In the U.S., the costs of nationalization would be enormous. The current estimate is that the Government would have to pay $60 billion merely to buy the railroads. Then Washington would still face the tremendous task of running the roads effectively. With rare exceptions, such as the Tennessee Valley Authority, the record of Government management of business-type enterprises is, if anything, even less impressive than that of private management of the railroads.

If railroads were nationalized as the Post Office is, says University of Chicago Economist George Stigler, "the same political forces, the same million employees would be running things through Congress." Stigler foresees an even greater danger: federal juggling of freight rates could confer great boons on some areas and penalize others. "If you subsidize freight rates in the Pacific Northwest," says Stigler, "that means their lumber industry booms. Every section of the country that has powerful political representation will seek favors in the rate structure."

Yet the Government has an obligation to help the railroads. The U.S. needs what is by far its most heavily used form of intercity transportation, and besides, Washington is largely to blame for the sad state of the railroads. The Government has refused to permit roads to drop unprofitable lines, dragged its heels in approving sensible mergers or rate increases and subsidized the railroads' competitors by ladling out money for highway, airport and canal construction. "At present, the railroads have the worst of all possible worlds," says Ben Heineman, president of the North Western road's parent company. "The managements have the responsibility for running them, but Government has all the authority. I used to say that as a chief executive of a railroad I was able to make an important decision: I could decide whether to paint our freight cars red or green."

Fortunately the Government is now examining with sympathy some relatively radical proposals to improve rail service. One that interests the Department of Transportation is for the Government to buy stretches of track for nominal prices and make "federal rail highways" out of them. Trains would pay tolls, as trucks do on turnpikes, but any company could use the highways and travel anywhere along the system. The Federal Government would relieve the railroads of the cost of maintaining those stretches of track, and the highway concept would permit more flexibility and efficiency in rail operations. A Seaboard Coast Line train heading north, for example, would no longer have to change crews and engines at Washington, where its line now terminates; it could carry cargo straight from Florida to New York. An electric utility, if it desired, could run its own trains to the coal fields.

Much more than this would be needed to build an efficient, economic rail system. Short of full nationalization, the Government could:

TAKE OVER PASSENGER SERVICE. Railroad men are convinced that passenger service can never make a profit, and private enterprise simply cannot operate on that basis. The Senate already has passed a bill to create Railpax, a public corporation that would run the passenger service of any road that wanted to give it up. No improvement in passenger service can ever be expected from private railroad officials who regard that service as a despised orphan that they would like to be rid of. Railpax would at least put passengers in the care of a public corporation dedicated solely to serving them. With the Government's authority behind it, Railpax also would have a chance to drop some of the trains that few people ride. In addition, Washington would do well to encourage creation of metropolitan-area bodies to take over and run commuter services and to plan coordinated areawide systems.

REDUCE REGULATION OF FREIGHT. Railroads should be set free to charge any freight rates they wish, subject only to minimum supervision to guard against blatant discrimination. The present structure of rate regulation is a hangover from the 19th century, when railroads were big, rich monopolists. Today, intense competition from trucks, airlines, barges, pipelines--and the pressure of large shippers who often have much more financial clout than the railroads --can be trusted to "regulate" rates.

INTRODUCE A NATIONAL TRANSPORT POLICY. Such a policy should equalize subsidies and taxes among various forms of transportation and let the most efficient form prevail. A first priority should be removal of the legal barriers to creation of integrated transportation companies that could own railroads, airlines and truck lines, and move goods and people in the most economic manner. The fragmentation of transport today is costly. A shipper should be free to turn his goods over to, say, the Land-Sea-Air Transport Co., rather than having to negotiate separately with airlines, railroads, truckers.

What the railroads need is much less Government involvement in freight operations and much more Government involvement in passenger operations. That may seem like an odd coupling, but it would be far more sensible than the country's present inequitable transportation policies, which have led to delays, debts and delinquencies.

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