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Mr. Chairman, Mr. Mayor and Gentlemen:
I esteem it a real privilege to be here on this occasion to discuss with you some of the current problems of the railroad situation. I am particularly gratified at the presence of the boys from your high school, because the railroad problem is not merely one of the present but of the future, and unless we view it in its future aspects as well as its present aspects, we can get no conception of the propositions involved.
Mr. Mayor, in your very appropriate remarks, you mentioned the fact that to the railroads this transportation problem was of acute and vital interest. I venture to suggest that while it is of course of very great interest and importance to the railroads that the present difficulties be surmounted, it is of really greater interest and importance to the public itself.
The railroad situation is in a peculiar state. Some years ago, as you know, the Congress passed a law providing for the valuation of the railroad property of this country. There had been a great deal of talk about watered stock, and a great many people had supposed that our railroads did. not have anything like the value in them stated in the securities representing the property. This valuation has now proceeded to such a point that it is pretty clear that the actual intrinsic value is substantially greater than the outstanding security issues of the railroads of the country as a whole.
I would like to show you that many of the restrictions and difficulties surrounding the present railroad situation are the heritages of government control during the war. When Mr. McAdoo took over the railroads I think he honestly felt that the end of private management had come and that his job was to make government ownership a success.
I think he honestly felt that by cutting out the salaries of a lot of Presidents and combining freight offices and passenger offices in a lot of cities and by practicing a lot of obvious economies he could save a lot of money and enable the railroads to earn more money than they had under private management. He became disillusioned very quick and instead of making money, the two years of government operation will cost the government something over $1,000,000,000.
But the cost of operating the railroads in war times should not necessarily be an indictment against government ownership. I think that government ownership is always a failure, and particularly so under a democratic government. It has always proved so, but I do not think we ought to indict Mr. McAdoo necessarily for the extra cost during the war. I think that we should regard that item as a part of the cost of the war.
The cost of running our railroads during the war was not the most serious thing that Mr. McAdoo and the government attempt at operation did to this country. The most serious injury inflicted by the government was in the demoralization of the railroad personnel. When Mr. McAdoo took charge he sent out to the railroad personnel of this country a message the effect of which was this:
Hereafter your allegiance is to the United States government, not to the corporation for which you work or to its managers by whom you have been employed. If you have any injuries that you want redressed come to the United States government henceforth to get them fixed up; if you want any benefits, if you want any promotion, if you want any improvement in your working conditions, hereafter the United States government is the one to whom you should look.
I won't suggest that it was in Mr. McAdoo's mind that as a result of the gratitude for his efforts in their behalf the employees might feel themselves disposed to pick the Director General as the candidate for President, but if he did (not have that in his mind he was not a human being.
In addition to that Mr. McAdoo called down to Washington the heads of the great Railroad Labor Unions of the United States, and he practically dealt with the railroad employees of, this country through the representatives of the great Labor Unions assembled at Washington.
I am not for one moment suggesting any attack on the great railroad labor unions. I believe in them, but I believe they have their proper functions and their proper fields of activity; but let me say this: that putting in Washington the authority to deal from Washington with all the railroad employees of the country took away the power and advantage of experience of every local supervisory officer in obtaining morale and esprit de corps from his men, so that when the government withdrew from operating the railroads and turned them back to their private owners, they found the whole situation disorganized.
The spirit of loyalty had broken down and an entirely new spirit pervaded the men. The men had been taught by their organizations to object to the return to private ownership so that when private ownership again became a fact these men had no spirit or enthusiasm toward making it a success. Therefore, today, the greatest problem with which the railroads have to deal is to restore the old feeling of loyalty and esprit de corps on the part of the employees of the different lines.
There are 2,500,000 railroad employees in this country under normal conditions. These men are performing uncounted millions of tasks, many of them without supervision, and on the performance of each operation depends the success of the machine as a whole. If those 2,500,000 men do not want private ownership to succeed it cannot succeed because the margin between income and outgo with the railroads is necessarily very small and if those employees are careless, indifferent or hostile they can make that slight difference which is now in favor of income a very decided difference in favor of outgo. The great problem before the people and the great problem of the railroad management is to restore the right kind of attitude of the men toward their work in order to make the operation of our railroads as efficient as it ought to be.
There is one other matter which was a heritage from the government control, to which I would like to call your attention, and let me interject right here, what is often asked when addresses of this kind are made? Yes, we recognize what you say and there may be something in it. It does not look right. What of it, what can we do about it?
You can do this: If you find anything which I suggest that seems to be wrong and if you find on further inquiry that I am right, put it right up to your congressman and your senator, or write to any other man in public office and tell him how you feel about it. The laws which are placed on the statute books by Congress or by your state legislatures are put there because your representatives believe that you want them to vote for these particular things.
Those representatives of yours want to do what you want. If the railroad regulating system of this country is wrong in any particular the way to correct it is to have the citizens of this country make an expression to Congress and to the state governments of their views and it will take very little time to correct the evils.
So many things go on without our realizing what they mean. Let me mention to you two heritages from the government railroad administration which at the present time are embarrassing and of which very few people have any knowledge.
When the President took the railroads over he issued a proclamation to the effect that the security holders of the country could rest assured that the government in its management of the railroads would as scrupulously regard its trusteeship as would a board of directors and that each property would ultimately be returned in as good condition as if it had continued in control of its directors.
It was found, however, that due to war conditions it was impossible to keep the railroads up as they had been previously kept. Many kinds of material were not obtainable. For instance, it was found that there were not as many cross ties available as were needed or as had been put in during previous years because a great many million ties had to be sent to France. It was perfectly justifiable to skimp what we call "maintenance" on railroads to some extent during war times, but after the government had gotten through with the railroads, of course it was due the managers that their properties should be restored to them in as good condition as that in which they were taken over by the government.
The government, however, is today maintaining this attitude: that if it puts into the railroad treasury an amount of money equivalent to the sum paid by the railroad companies for this maintenance during the three years previous to which the government took them over, that would be a discharge of its moral and legal obligation. But in the meantime the price of rails, ballast, cross ties, etc., has gone up so that the paying to the railroads of that sum of money does not begin to restore the railroads to the condition in which they were before the government took them over. That is one of the questions which is seriously embarrassing the treasurers of the railroads
The third and last matter I want to bring to your attention is another heritage from government control. During the war it was, of course, necessary for the railroads to make improvements, buy locomotives and do other things, some necessary to take care of the ordinary commerce, some necessary to provide facilities to handle the war business. They were unable to raise money. The government was selling Liberty Bonds and had practically forbidden any private organizations to raise money. So the government said we want you to keep out of the market for money and we will give you the money you need and you can pay us back in the form of securities.
Under that plan the government advanced $1,200,000,000, which was put into improvements for the benefit of the public. A portion of that amount was "funded" as we say, or represented by temporary obligations on the part of the railroads to the government, but the larger portion of that sum, $800,000,000, I think, was not funded when the properties were returned, and Congress passed a law, the effect of which was that insofar as the railroads owed the government money for these capital improvements, that should be an offset against the amount of money the government owed the railroads as payment for the rent of property under government control.
This rental money was cash for payment of current expenses; it was part of the working capital; it was absolutely necessary for the railroads to meet their requirements. This capital expenditure was on account of money which if not obtained from the government would have been obtained from the security markets. So that the withholding by the government of this money due the railroads on account of their rentals because of this offset of advances for capital expenditures is a most serious situation and the railroads are today asking Congress to fund this into long time securities so that their capital can be put into working condition.
The Pennsylvania Railroad ordinarily has a working capital of $50,000,000, not a large sum. At the present time the Pennsylvania Railroad working capital is about $10,000,000 because the government has failed to pay to the railroad some $80,000,000. It is an unheard of thing in the history of that great property to delay for a moment the payment of a voucher after it is once approved, and because the government withholds the payment of $80,000,000, the company is compelled to withhold $10,000,000 due to suppliers of goods.
There are problems which you ought to consider and if you think they are not right I think you ought to tell your congressmen so, and I think your advice on the subject will be of very great value.
What we need in this country above all else in matters of relationship between business and government is the restoration of faith in our fellow men. The reason why there is so much need for regulation in this country is because the people had come to distrust a great many men in high places who were running our railroads. There were some instances of betrayal of public trust, but our railroads today are pretty well taken care of.
I know the railroad executives of this country intimately and I think you will find today there is no group of our citizens which is seeking to discharge its trusteeship to the public service on a higher standard than the railroad men. Look around you and if you find that the railroad men of this country are discharging their trusteeship in that spirit, get behind them and make them feel you are with them.
It is wise and necessary to have regulation but it is also wise and necessary to have the benefit of the years of experience and ripened judgment of practical railroad managers and you do not want to tie the hands of those railroad managers so that they cannot exercise their discretion and give the railroads and the public the benefit.
Make the managers of the railroads feel that you are behind them, that you want to see the railroads produce the best service at the lowest possible cost and you will find that the railroad situation is pretty nearly solved.
Transcribed by and courtesy of the Cooper Collection of U.S. Railroad History.