Earlier this year, the federal council responsible for overseeing America’s railroad system called a audience to discuss widespread complaints about higher costs and poor service. Predictably, railroad executives have sought to blame the pandemic and labor shortages for issues such as traffic jams and supply chain disruptions. But America’s railroad dysfunction is neither a product of COVID-19 nor the result of nebulous constructs like the so-called “Great Resignation.” As Matthew Buck explained earlier this year in a article for the American perspectivethe main contributors have been corporate monopoly and financialization – both of which have contributed to the appalling working conditions in the center of the recent showdown in Congress.
Thanks in large part to the deregulation of the Jimmy Carter and Ronald Reagan era, American rail has gradually consolidated – the number of major carriers has shrunk from forty to just seven between 1980 and today. Unsurprisingly, there is little evidence that this change has made rail transport more efficient. He did, however, make the railway business incredibly lucrative. In an effort to squeeze as much profit as possible from the railroads, the corporate barons in turn cut costs, laid off workers and introduced a host of other changes ostensibly focused on improving the quality of the service. At the heart of this project is what is called the “Precision Planned Railroad” (PSR), the brainchild of the late executive Hunter Harrison. Under PSR, as Buck explains:
The job of railroad management is to reduce the “operating ratio”, or operating expenses as a percentage of revenue. In other words, Wall Street judges the success of railroads partly on whether they spend less money running the railroad and more on stock buybacks or dividends. Theoretically, focusing on reducing operating ratios pushes railways to be more efficient, to do more with less. But when the railways have the market power they have today, they can instead “do less with less,” as shippers and workers put it.
The result, in addition to appalling conditions for an ever-shrinking workforce, is that the railways – a basic public service that millions of people rely on every day for commerce and transportation – are now treated more than ever as an asset to be operated for profit rather than a service structured to meet needs.
For the shareholders, the whole arrangement worked brilliantly. While companies like Union Pacific have laid off tens of thousands of workers, income exploded and billions were paid out in dividends. Measured against more relevant metrics, of course, this has been a disaster: even before the pandemic, both overall productivity and usable track kilometers were down. However, when COVID-19 led to backlogs, derailments and higher costs, it became clear that the railway cutbacks driven by their hyper-financialization made them a significant weak point in the country’s supply chain. .
A lesson from all of this is that a business can be profitable – and therefore “efficient” in the narrow business sense – without actually performing particularly well or operating efficiently to meet the needs around which it is ostensibly built. This is true in most industries, but it has always been particularly applicable in the case of rail. As historian Tony Judt lamented Explainthe very idea of competitive or market-based railways is, for very simple reasons, fundamentally inconsistent:
You cannot run trains competitively. Railways — like agriculture or the post office — are both an economic activity and an essential public good. Moreover, you cannot make a railway system more efficient by placing two trains on the same track and waiting to see which performs better: the railways are a natural monopoly. . . . Trains, like buses, are above all a social service.
Judt was writing primarily about British railways, but much of his argument applies to American railways as well. Real “competition” is a non-sequential when it comes to railroads and rightly private monopoly has left a handful of railroad giants with what are essentially non-competitive fiefdoms in different corners of the country. Deregulation has additionally allowed the small handful of remaining companies to discontinue service on unprofitable routes, leaving entire regions cut off. With greater control and fewer constraints on the terms of their operations, they were also free to raise prices and introduce new fees. In fact, bottlenecks often provide other opportunities for such price increases – one executive boasting of a 2019 earnings call that Union Pacific is able to “price fairly robustly in the market” (i.e. charge more regardless of efficiency or quality of service).
Another corollary, of course, is that those who actually run the trains and keep the tracks running are increasingly expected to do more with less and endure a brutal work culture that no reasonable person could defend: having gone three years without a raise, many railway workers are now required to be on call more or less 24 hours a day and must report for shifts of up to eighty hours with as much notice as just ninety minutes. Unable to be absent even in an emergency, many also face punitive attendance policies who can see them suspended or fired if they can’t show up for work.
Freshly reimposed by a democratically controlled Congress with no substantive changes, these horrific conditions are a powerful symbol of what happens when an essential public good like railroads is turned over to Wall Street. Breaking up monopolies, introducing stricter regulation and giving workers paid leave would certainly be a good start. However, for the sake of its supply chain, its transportation needs, and its fundamental economic fairness, what America ultimately needs is a single national railroad, owned and operated in the public interest.
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