A last important objection to public ownership is that it would cause rates to be rigid. Rates would be fixed for relatively long periods and by a supervisory agency, rather than automatically changing with business conditions as under private ownership. This rigidity would force business to adapt itself to rates, instead of allowing rates to adapt themselves to business needs.
350. GOVERNMENT CONTROL OF RAILROADS, 1917-1920.—Shortly after our entry into the World War, the congested condition of the railroads, together with the urgent need for a unified transportation system, led to a temporary abandonment of private control. On December 28, 1917, President Wilson took over the nation's railroads under powers conferred upon him by Congress. The roads were centralized under Director-General McAdoo, assisted by seven regional directors who administered the railroads in the different sections of the country.
The Act empowering the President to take over the railroads provided that such control should not extend beyond twenty-one months after the conclusion of the treaty of peace with Germany. But there has never been a well-organized movement for government ownership of railroads in this country, and when after the signing of the armistice in November, 1918, the immediate return of the roads to private control was demanded, there was little opposition. A number of plans proposing various combinations of public and private control were rejected, and on March 1, 1920, the roads were returned to their former owners.
351. RESULTS OF GOVERNMENT CONTROL DURING THE WORLD WAR.—Government control of the nation's railroads between 1917 and 1920 resulted in a number of important economies. Repair shops were co÷rdinated so as to be used more systematically and hence more economically. The consolidation of ticket offices in cities effected a substantial saving. The co÷rdination of terminals allowed a more economical use of equipment than had been possible under private control. The unification of the various railroad systems allowed a more direct routing of freight than would otherwise have been possible. There was also a reduction in some unnecessarily large managerial salaries.
On the other hand, the quality of railroad service declined under government control. The personal efficiency of many types of railroad employees also decreased. Most important of all, there was a sharp increase in both freight and passenger rates.
The period of war-time control was abnormal, hence the record of the roads under government control during this period cannot be taken as wholly indicative of what would happen under permanent government control in peace time. But it should be noted that, on the whole, the record of the Railroad Administration between 1917 and 1920 was good. That the above-mentioned economies were effected cannot be denied. Moreover, the decline in service and efficiency, as well as the increase in rates, is at least partially explained by abnormal conditions over which the Railroad Administration had no control. The winter of 1917-1918 was the most rigorous in railroad history. This circumstance, combined with the unusually heavy demands for the transportation of war equipment, helped to demoralize the service from the very beginning of the period of government control. For a number of years previous to 1917 there had been an acute shortage of box cars and other equipment, which also helps to explain the poor quality of service furnished during the war. The labor force was demoralized by the drafting for war service of many trained railroad employees. (It is claimed that certain railroad officials sought to discredit government control by hampering the administration of the roads, but this charge cannot be proved.)
352. THE TRANSPORTATION ACT OF 1920.—Government control in war time revealed the true status of the railroads as nothing else could. It was seen that up to the period of the World War Federal legislation on railroads had in some cases been too indulgent, but in other cases so severe as to work a hardship upon the roads. To pave the way for a fairer and more effective regulation of the nation's railroads, the Transportation Act of 1920 was passed. At present the railroads are privately owned, but publicly regulated by the Interstate Commerce Commission, according to the provisions of the Interstate Commerce Act of 1887, the Elkins Act of 1903, the Hepburn Law of 1906, the Mann- Elkins Act of 1910, and the Transportation Act of 1920.
353. SUMMARY OF PRESENT LEGISLATION ON RAILROADS.—At the present time all unfair discriminations are generally forbidden. But it is now recognized that under certain conditions a discrimination may be economically justified. Therefore, when the inability to levy a discriminatory rate would work a hardship upon a railroad, the Commission is authorized to suspend the rule. Pooling is likewise generally forbidden, but here again the Commission may authorize the practice at its discretion. Limitations are placed upon the power of railroads to transport commodities in which they are interested as producers.
All interstate rates are to be just and reasonable, and the Commission is empowered to say what constitutes just and reasonable rates. In order to prevent rate wars, the Commission is now empowered to fix minimum as well as maximum rates. The Act of 1920 also gives the Commission the power to establish intra-state rates, where such rates unjustly discriminate against interstate or foreign commerce. An intra-state rate, of course, is one which has to do only with freight or passenger movements which begin and end within the borders of a single state.
The Act of 1920 extended government control over the railroads in a number of important particulars. To check certain financial abuses, the Commission now has supervision over the issue of railroad securities. For the purpose of increasing the social value of the nation's railroads, the Act of 1920 instructs the Commission to plan the consolidation of existing roads into a limited number of systems. Another clause in the Act of 1920 provides that no railroad may abandon lines, build new lines, or extend old ones, without the consent of the Commission. In times of national emergency, moreover, the Commission may direct the routing of the nation's freight, without regard to the ownership of the lines involved. Lastly, the Act of 1920 made provision for a permanent arbitration board for the settlement of labor disputes in the railroad industry.