As Interstate Commerce Commission Chairman Dan O'Neal said last week, another great debate about Americas "railroad problem" is underway and picking up steam.
He noted, correctly, that a focus of the debate will be the role of government in regulating the railroads. Specifically, O'Neal's own agency - the oldest federal regulatory body - is due for another of the cyclical doses of scrutiny that have led to calls for abolishing the ICC bureauracracy.
With passage in 1976 of a rail revitalization act, government planners declared than an initial goal of bringing about regulatory reform had been achieved, with railroads and the public as beneficiaries. Next in line was the airline industry, and the Carter administration picked up where Gerald Ford's deregulatory team left off.
Thanks to members of Congress who also favored an overhaul of air regulation, sweeping legislation that would virtually abolish the Civil Aeronautics Board in the mid-1980s could be on President Carter's desk this weekend. Administration and congressional leaders say their next target will be trucking.
But what about the railroads, with 500,000 employes and annual revenues of $20 billion from hauling more than 1.4 billion tons of freight a year?
The fact is that the 1976 rail legislation was not a piece of significant regulatory reform, because railroads did not want that. Now, a growing list of railroad companies are in trouble. Rail profits have been weak and another round of freight rate increases will be sought in the near future. Industry efficiency, as measured by utilization of freight cars, has declined.
This week, the Carter administration published its first full study of the railroad problem.
And, like the Ford team before it and policymakers in virtually every administration for two decades, Carter's men said something must be done about government regulation that is strangling a once proud industry.
According to Federal Railroad Administrator John Sullivan, the new study found that a continuation or current trends and policies will result within a decade in an industry facing enormous financial problems, competing only for bulk shipments of law value goods, lacking the resources needed for safe operation, and quite possibly operating under the financial control or ownership of government agencies.
Specifically, he called for a cutback in ICC regulation, more imaginative management, continuation of programs to restructure the industry, improved labor-management relations and more federal aid. The bottom line could be that railroads will fall short of their capital needs over the next decade by up to $16 billion.
Except for the new deficit forecast, the latest report on railroad problems offers little that hasn't been said before. At the beginning of this decade, after the Penn Central and other Northwest lines failed, the Senate Commerce Committee and Penn Central's own trustees-in-bankruptcy assessed railroad problems and reached the same conclusions in historic studies.
The definitive report was written for the Senate committee and O'Neal, the ICC chairman, had a major role in that study because he was transportation counsel to the Senate panel at the time.
Now, as he prepares for new attacks on the ICC, O'Neal says he is concerned about the quality of questions people ask about railroading and government controls.
"I see too much energy being expended on what I view as a narrow and consequently wrong question, 'How do we develop healthy railroads?" That question assumes so much and acknowledges so little. It suggests that no railroads are healthy today and that the health of the railroads is unrelated to other considerations," he told a meeting in California a week ago.
"It also suggests that, regardless of whether the rails are affected by the public interest, we should still care enough to send cash or tax breaks," O'Neal added.
By limiting inquiry, "we magnify the risk that our search for solutions will be too restricted," O'Neal cautioned. And the limiting scope of the 1976 act is becoming more evident every day.
There is not a little irony in the fact that Penn Central will be borne again later this month as a potentially healthy business enterprise, shorn of its money-losing rail lines.
Federal taxpayers, meanwhile, are struck with the railroad. Bankrupt lines were reorganized under a government blueprint into a company called Consolidated Rail Corp., which was promised up to $2.1 billion of government grants and loans. Government economic studies said these funds would keep Contail solvent until it began making money next year.
The 1976 legislation also included some very modest reforms of ICC regulation - requiring action on rail mergers in a specified period of time and allowing some rater to be increased or decreased without prior ICC approval.
Nothing has worked out. The economic forcasts were incorrect and Conrail now is back for some $1.2 billion of additional federal aid through 1962. There is reason to expect that Conrail will need more.
Although the legislation was designed to encourage railroad mergers, none have taken place.There has been a lot of talk and some stock purchases, but only one major merger proposal has progressed so far as the ICC - that proposed by Burlington Northern and Frisco. And that is being subjected to months and months of proceedings.
On freight rates, there has been little of substance as far as experiments supposed to be fostered by the 1976 act. The industry claims that the ICC still is too restrictive but the railroads, to date, have been fearful of trying bold rate structures on their own, without participation of other lines.
Why have attempts to make airlines more competitive, in an atmosphere of less and less federal controls, been such a sucess? And why did regulatory reform for railroads fail, as the industry continues to be weak?
A primary reason is the visibility of airlines in providing consumer services. The airlines carry people, and charge fares to which individuals may relate. The regulatory agency charged with watching those rates and industry activities, the CAB, has had no other job.
The airline issue has become one easily identified by dollars and cents for business and pleasure travelers. The agency involved has no other constituencies. And airline managements, prodded at first by mavericks, have discovered what revenues, profits and efficiency can be generated in a world of cut-rate fares, special promotions and mergers.
Ever since railroads decided to abandon mostly unprofitable passenger services, however, the industry has faced a difficult task of relating its freight business to the general public. The thousands of freight rate tariffs filed each year at the ICC deal with charges that have a much bigger impact on the national economy and the consumer pocketbook than de air fares. But there has been no public clamor for imaginative rate structures that might charge less for hauling goods during periods when rail business is slow.
Moreover, the ICC also is engaged in regulation of interstate trucking, bus lines and household movers. Any attempt to tinker with ICC controls over one industry lead to fears about precedents for the others.
There really is no need for more studies about railroads and government regulation. Whatever problems that exist will continue along with the ICC until several of the major railroads are willing to step out of line with their industry and attempt something innovative - whether it be rate cuts to spur business or a decision not to oppose a competing rail merger to such an extent that government action is dragged out for years.
Once a railroad makes an issue of regulation, pointing to possible follies as Freddie Laker did with North Atlantic air fares, the public will notice and maybe then the revolution will start. O'Neal is correct is calling on railroads to take the next step. As he said last week:
"Before the commission supports giving the railroads a blank check to raise rates, I think we and the Congress have some right to expect the railroads will make some effort to increase revenues through innovative marketing and pricing practices such as establishing separate rates for distinct services; filing seasonal, peak period and demand-sensitive rates; and by raising rates on noncompensatory traffic.
The carriers have been slow to initiate rates and other innovative rates and practices. If the carrier for some reason cannot raise revenue through these methods, they at least owe the commission, the Coh these methods, they at least owe the commission, the Congress and the public an explanation of why they can't.