- Historic Sites
One hundred and eight years of managing a problem that might have been solved at the outset with a single law
May/June 1996 | Volume 47, Issue 3
After Wabash Railroad v. Illinois , therefore, the fight to change the behavior of railroads moved to Washington. But while the federal government, thanks to the commerce clause, had the undoubted power to regulate what had become a national transportation network, there was a good deal of question about whether it had the ability. After all, Congress was faced with an aroused public on the one hand and the most powerful, not to mention the richest, corporations in the country on the other. In those circumstances politicians will always try to split the difference and make enough people happy to win the next election. The best solution will always rank far behind the most expedient.
What resulted, after a year of intense political sausage making, was, in the words of one historian, “a bargain in which no one interest predominated except perhaps the legislators’ interest in finally getting the conflict . . . off their backs and shifting it to a commission and the courts.”
A railroad commission, similar to those that had failed at the state level, was the only proposal seriously on the table. The rising political left instinctively looked to government, not markets, to protect its interests, and the railroads themselves were not averse to the idea, provided, of course, their own interests were carefully considered. Their economic and political power assured that they would be.
As early as 1884 a vice president of the Pennsylvania Railroad, perhaps the most powerful railroad company in the country, had written that “a large majority of the railroads in the United States would be delighted if a railroad commission or any other power could make rates upon their traffic which would insure them six per cent dividends, and I have no doubt, with such a guarantee, they would be very glad to come under the direct supervision and operation of the National Government.”
Congress was faced with an aroused public on the one hand and the richest corporations in the country on the other.
In other words, the railroads would have been perfectly happy to have a government-sponsored and -enforced cartel. The anti-railroad forces, of course, wanted a commission that would set rates in the public interest, not the railroads’ interest. The result, in the words of one congressman of the day, was “a bill that no one wants . . . and everybody will vote for.”
The bill required that “all charges . . . shall be reasonable and just” but did not define what that might mean. And the commission that was set up had to use the courts to enforce any orders, a costly and time-consuming process. Even when the law was much strengthened in the Theodore Roosevelt administration and the ICC given the power to set rates, the railroads quickly learned how to manipulate it in their own interests, just as they had the old state commissions. American railroads began their long, slow decline.
The monopoly on long-distance freight hauling was broken in the 1930s by the nascent trucking industry, which from its birth was regulated by the ICC. In the 1970s—the nation’s transportation industry by then a monument to inefficiency—the Carter administration removed most of the commission’s power to set rates. In 1995 it finally expired, having had nothing to do for twenty years. Even The New York Times , hardly the most passionate advocate of free markets, was not sorry to see it go. “As the decades wore on,” a Times editorial that marked its passing noted, “it took as its interest the economic well-being of the industries under its purview. Its regulations jacked up prices and blocked entry by low-priced truckers and joint rail and truck services.” In other words, the ICC had become precisely what the mighty Pennsylvania Railroad had wanted it to be in the 1880s, the leader of a cartel. That is no small part of the reason that both the ICC and the Pennsylvania Railroad are now on the ash heap of history together.
What might Congress, in a perfect world, have done instead? A self-enforcing solution would have been easy to craft. Congress could simply have required that each railroad publish a schedule of its freight rates for each commodity, on a per-mile basis, and that those rates be uniform throughout the railroad’s entire system and for each customer, providing severe penalties for under-the-table rebates.
Then the market forces that determined prices on the trunk lines would have been brought to bear on the branch lines, and the playing field would have been leveled by competition, not bureaucrats. And the inevitable co-opting of the regulators by the regulated would have been avoided for the simple reason that there would have been no regulators to co-opt.