walkitout (walkitout) wrote,

railroads are the secret history of (business in) America

As requested by a friend.

I've remarked that the history of railroads are the secret history of business in America, and have been asked recently to expand upon this idea.

(1) Why do we have automobile-only suburbs?

European cities never saw the same sprawly suburbanization/exurbanization and rise of the automobile that is so characteristic of the United States. It didn't start as early. It didn't persist as persistently in the wake of the 1970s price spikes. It's worth noting that those countries nationalized their railroads. We didn't. We regulated them instead.

Taxation + hoary and irrelevant and anti-innovation work rules + rate regulation in a socio-political environment in which railroads = pots of gold resulted in railroads unable to make any money, in fact _lost_ significant amounts of money on commuter rail EVEN WITH PACKED TRAINS. People make irresponsible claim about how commuter rail will make money if you just get enough people to ride it. Railroads originally made money on commuter rail with trains with "spare capacity": club cars and so forth. Over the decades, that changed, and it's worth trying to understand why.

If I were running a railroad, and there was a segment of my business where I was _guaranteed_ to lose money, and there was no way to innovate around it, raise rates, change labor arrangements, etc., the _rational_ thing to do would be to get out of that business. And that is _exactly_ what the railroads did. As commuter rail became increasingly dangerous, unreliable and unappealing, people wanted alternatives, and they got them in the form of publicly subsidized roads and private automobiles. The whole car thing? That was an attempt to _solve_ a problem. It didn't work -- that's why we're where we are now.

Commuter rail transferred from railroads to quasi-public entities in the early 1970s. It took a while to restore reliability/safety and to make them appealing and for people to realize they were again a viable option (the first rule of railroads: change happens slowly). As soon as commuter rail returned as a real choice, city migration reversed.

(2) Why didn't the railroads do something about stupid regulation/union work rules/bad accounting?

Railroads were so allergic to government after the nationalization crisis (Europe: nationalized; US: did not) that railroads failed to use democratic process to ensure their continued survival. They didn't argue against subsidies for competing transport (airlines, airports, asphalt roads at all levels); they didn't argue for subsidies for themselves; they didn't argue against tax exemptions for competing transport; they didn't argue for tax exemptions for themselves. They had been laid low by strikes that froze the country, but neither rallied that to rationalize their unions and/or work rules or to break the unions entirely until virtually all other unions in the country had been broken first. And even then, the railroads that gamed the system to get around the work rules were attacked by the major railroads. (The second rule of railroads: railroads think only of each other, until they're forced to pay attention to non-railroads. Forced.)

(3) Post war conglomerates gang raped railroads. Sort of a metaphor for the number they did on our culture as a whole, actually.

Railroads had natural resources from their land grants: timber, gold mines, etc. Conglomerates (the oh so popular roll-ups of the 1960s or thereabouts, and were just as useless and parasitic as the more recent and thus more familiar roll-ups of our day, such as Tyco) gang-raped railroads. When one bought a railroad (or railroad management created a holding company above it):

(a) the natural resources were sold off to generate cash for "investments" or to pay off debt incurred in the acquisition or to line the pockets of the dealmaker(s)
(b) Railroads have to have great wads of cash (massive, I mean, really fucking huge) to pay for maintenance of right of way, roadbed, track, signals, running stock, blah, blah, bleeping blah. You can delay maintenance of anything, but the first rule of railroads (change happens slowly) means you can delay maintenance for a decade or more before things go to hell permanently. Virtually every railroad had this happen to some degree during the 1960s and/or 1970s.
(c) Because railroads are inherently large and expensive, they have a lot of capital on their balance sheets. As a result of completely screwed up depreciation and other accounting problems imposed upon them by their regulators (and that's not even mentioning the tax implications, and this is a tax tail wagging the railroad dog thing), the already massive capital was represented as larger than it should have been. Conglomerates borrowed against this capital (while it was not being maintained. Yes. Believe it. I know. It is hard.).

Railroad specific accounting rules were not created by their regulator, but they were prevented from updating them to match Everyone Else's Rules by their regulator. Worse, as near as I can tell, there wasn't anything to stop a conglomerate/holding company/wtf from taking or at least borrowing against sinking funds to buy frozen food corporations. And they did.

Once (most of) this nonsense was corrected (it took a while, and oddly, we get to thank Reagan's reworking of the tax code for some of it), the conglomerates no longer made sense and the (abused) railroads were revealed as more valuable than everything that had been bought with cash that should have been maintaining and expanding the railroad. The conglomerates sold the frozen food companies.

Elements 1-3 of the railroads as the secret history of (business in) America are not to be found addressed directly in any of the books I've read. They're my own invention. ;-)

I'm still working on the fourth item, which is the complete lack of railroad exposure in the academy: b-schools don't focus on railroads, except occasionally from the shipper's perspective. There are rail historians, but they are a weird bunch of people. In fact, they're weird for historians and weird for railfans, and that's saying _a lot_. Civil engineering does a bit with railroads, but not much, and more as a case of the general than anything else. Transportation majors? It is to laugh! I have a textbook, and it's like railroads don't exist. (For that matter, it's like freight doesn't exist, so there are bigger problems here. Possibly because the DOT was Nixon's version of Homeland Security: a stupid roll up from which to dole out patronage, exercise one's will, and find a home for the Coast Guard. Note to future self: any cabinet level agency that includes the Coast Guard is suspect. I wonder why?) I've been unable to find much at all about railroad fiction, an apparently significant popular fiction genre at one point and one I strongly suspect is the antecedent for science fiction. I got a computer science degree in 1991 and spent an embarrassing amount of time surfing through software engineering papers; never saw a word about railroad signalling systems as an interesting control systems problem -- which may explain why we've never standardized it in this country and now that we're starting to, we're going with automobile traffic lights as a model.

Academics rarely make things better for industry/business/whatever. But they're really good at pointing out where the problems are, and explaining how they got that way. No exposure in academia contributes to the invisibility of railroads. And probably does not help railroads get talent in the management suites.

I'm sure I'll have more to say someday.
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