CONRAIL, the railroad that the federal government owns, is to be sold, and now Congress must decide to whom. There are two bidders. One, the Norfolk Southern, would merge Conrail with its present railroad to create a powerful system extending from Florida to Massachusetts and westward to Missouri. The other bidder, a group of investors headed by the New York firm of Morgan Stanley, would run it as an independent line serving the Northeast and Midwest. That's the choice.

Both sides are devoting major efforts to the lobbying, and with good reason. The price is $1.2 billion, payable in cash, and even at that figure there could be large profits for the winner. But the public interest here is far broader. Conrail is the line that the government put together out of the collapsed Penn Central and six other bankrupt railroads. Over the past decade Congress, considering rail service to be essential to the region's industry, has poured several billion dollars of public money into rebuilding and re-equipping it. The quality of service on Conrail's lines over the years will have a powerful effect on economic development throughout the 17 states that it serves.

There are two key issues for Congress to decide here. First: is it likely that Conrail will stay healthy, profitable and financially stable over the long term as an independent line? If you're sure of it, you ought to support Morgan Stanley and keep it independent. But there are good reasons to doubt it. Second: if Conrail is merged with the Norfolk Southern, does that threaten fair competition and give the railroad too much power in dealing with the shippers who depend on it? If you think so, once again your vote ought to go to the Morgan Stanley group. But most of the evidence points the other way.

Conrail serves a region that is changing. Its economy is shifting away from the heavy industry that was the mainstay of its railroads. Freight on the lines that are now Conrail's has been declining for a long time. Conrail's management, which wants to stay independent, argues that the decline has now ended. But there's no compelling reason to think so. And if that hopeful forecast should turn out to be wrong, the railroad -- under independent ownership, run by stockholders who want dividends -- would soon enter a descending spiral, abandoning lines and selling off property to make ends meet, with service steadily declining.

Merger with the Norfolk Southern conveys two important advantages. Joined to a large partner the Conrail lines would get more long-haul traffic, and it's the long hauls that make money. There's also an important financial stabilizer in the Norfolk Southern. It carries a lot of coal, and the coal business fluctuates less in recessions than shipments from Conrail's northeastern industrial customers.

How serious is the competition issue? The chief competition to any railroad today comes from trucks. Most of Conrail's freight could move by truck -- and will, if the rail rates go too high. That's the answer to the charges of monopoly.

Congress' responsibility here is to the public, which has put billions more tax dollars into Conrail than the sale will return to the government. It's a public investment for the benefit of the northeastern economy and all the people who earn their livings from it. The railroad is now to be returned to private ownership. Which ownership? The right choice is the one that provides the best assurance of efficient and reliable service, with assured financial strength behind it, for decades to come. That means selling Conrail to the Norfolk Southern.