Gary Allen - What a Way to Run a Railroad (Railroad Monopoly in America)(1976)

8/12/2019 Gary Allen - What a Way to Run a Railroad (Railroad Monopoly in America)(1976)

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Gary Allen, a graduate of Stanford, is author of the best-seller None Dare Call It

Conspiracy. Mr. Allen has just published a new book, The Rockefeller File.

TRADITIONALLY the first step in na-

t ional i z ing industry has been a takeoverof the railroads. Today, almost all of themajor railroads of the world are owned bygovernments. While service varies fromgood to atrocious, all are plagued byperennial deficits.

Canada has a unique situationwith two major railroads operating

within her borders one, the Canadian

National, is owned and operated bygovernment; the other, the CanadianPacific, is privately owned and operated. In1973 the private carrier made $32.6million after taxes. Canadian National,"owned by the people of Canada," lost$46.7 million. The difference FreeEnterprise made was a mere $79.3 million.In

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1971, government railroading lost $219million in Britain, $111 million in TheNetherlands, $1,595 billion in Germany,$1,184 billion in France, and $1,133bi ll ion in Japan.

The U.S. railroads, with all their union-inspired featherbedding, employ 2.7employees for each mile of track. But inthose countries where the governmentoperates the railroads the number ofworkers required for each mile of track isalmost beyond belief. It takes 20.7Englishmen. 12.9 Frenchmen. 22.1Germans, and 19 Ita l ians for each mile of

track in t h e i r respective countries. Sincefeatherbedding is the Number One problemwith American railroads, it is clear that thegovernment-owned railroad systems abroadrepresent Parkinson's Law run amok. Inevery instance, nationalization has createda bottomless pit into which the taxpayershave been required to pour an endlessstream of money.

Yet many of America's privately ownedrailroads are also staring financial disasterin the face. The primary reason is theunions, which exercise their political cloutin Washington and the various statecapitals to maintain inefficient and archaicwork rules. Yet practically nobody,including railroad management, isadvocating the abolition of feather-bedding

to restore the nation's railways to financialhealth. Almost everybody is looking to thegovernment to bail out the sinking railroadsby putting the taxpayers in perpetual hock.The government is only too happy tocomply. The Washington Post reported oneof the typical plans on February 24, 1975:

Federal planners will recommend this

week virtual nationalization of all majorrail roadbeds and tracks in the Midwest andNortheast with federal ownership,rehabilitation and

maintenance of the currently dilapidatedsystem for the rest of the century.

While a number of plans have beenproposed, much like the one cited above, allhave the common vice of nationalization.The first major move came in 1971 with thecreation of Amtrak, which took over thepassenger business nationwide from theprivate companies. The railroads had longsought to get out of the passenger business,since it was almost universally unprofitable,but the Interstate CommerceCommission (I.C.C.) had refused to permitthis, forcing the railroads to lose consider-able sums. Finally, Amtrak was welcomedby the railway companies as a means ofescaping a suffocating burden.

Amtrak proponents claimed thatrailroads deliberately provided poorpassenger service, and that if clean, moderntrains, offering efficient, rapid service, wereavailable, the public would come flockingback to the trains. It was nonsense. If therailroads could have made a profit haulingpeople, they would have been only toohappy to do so. The brutal truth is that theairlines provide faster service and theautomobile provides greater flexibility.There are simply not enough people whowant to travel by train to pay for the cost ofpassenger service. But the politicians,

bureaucrats, and government planners ever eager for more power decided totake control and require the people who donot want to travel by train to subsidize thefares for those who do.

For example, it costs $14.50 to take thetrain between New York and Washington,but the actual cost of delivering your bodybetween the two points by train is double

that figure. The difference is made up bythe

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Track at left is Perm Central, at right Florida East Coast. The F.E.C. canafford such maintenance because it threw out featherbedding. Had PennCentral done so it would have had $387 million profit instead of $273 millionloss.

taxpayers, most of whom live in placesAmtrak never visits. During 1974, Amtrakposted operating revenues of $257 millionand losses of .$273 million, up seventy-two percent from the previous year. Inother words, passenger revenues were lessthan half the expenses. Can you imagineGeneral Motors selling Chev-rolets forhalf the cost of manufacturing them?

Writing in the Los Angeles Times,economics journalist Robert Samuel-sonobserves: "Now four years old, Amtrak isa dismal failure. It is a giant (and growing)rat hole into which the government which is to say, the taxpayer is pouringhundreds of millions of dollars, with littleprospect that the money will evercontribute significantly to solving e i t h erthe nation's energy or transportationproblems." Samuel-

son concludes by lamenting: "There seemsto be no light at the end of the rat hole."

Now the federal government, havingfailed to produce the instant Nirvana itpromised with Amtrak, is moving intofreight hauling. While airplanes, busses,and cars have rendered most rail passengerbusiness unprofitable, the railroads dowant to haul freight. For hauling heavyfreight long distances in a free market youcan't beat the railroad. But, as we shall see,there is no free market, and many of thenation's railroads, even with the monkey ofthe passenger business off their backs, arestill facing bankruptcy.

Rather than deal with the causes of thisinsolvency, the government is preparing togo into the railroad business through whatis known as Con-rail (Consolidated HailCorporation).

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A newly chartered government corporationcalled the U.S. Railway Associationpresented the Conrail plan in July toconsolidate seven financially ailingrailroads into one huge government-ownedoperation. Con-rail will nationalize thePenn Central. the Ann Arbor, ErieLackawanna. Reading. Central of NewJersey, Lehigh Valley, and the Lehigh &Hudson River. This megasystem will spanthe industrial Northeast betweenChicago and St. Louis on the west andWashington. Philadelphia, New York, andBoston on the east.

The Conrail plan is the largest corporate

reorganization in history and willencompass fifteen thousand miles of track.The package carries an initial price tag of$6.5 billion and only the most gulliblebelieve that is anything but the beginning.Conrail is scheduled to begin operation thisspring. The First National City Bank hasalready submitted a grim assessment of thesystem's future to the House

Transportation Subcommittee. The reportfrom the analysts at Citibank calculates themoney needed to restructure the bankruptNortheast railroads at fifteen billiondollars.

Citibank also studied some seventyrailroads outside the Conrail System andprojected cash needs over the next ten yearsat twenty-two billion dollars more thanexpected revenues. The New York Timesreported: "Although the cost of the Conrail

program has long been a matter of dispute,Citibank's analysis of the looming financialproblems of the railroad industry as a wholestruck members of the House subcommitteeas particularly sobering."

Sobering, indeed. One can imagine acloning of Conrails or an expansion ofConrail until it swallows up every railroadin the nation. It is almost impossible to

imagine the government not throwing theprofitable railroads into the pot with the un-profitable ones. After all. the politicians donot want anything as embarrassing as thesituation in Canada where the CanadianPacific runs a profitable operation side byside with the money-losing CanadianNational. Our politicians eventually will de-mand that the greedy profitable companies

share their earnings with their unfortunatebrothers to offset the ever-expandingConrail losses.

Ed Ball challenged unions and they struck; he eliminated featherbeddingand runs F.E.C. more efficiently with 900 workers than with union-required2,200. In 1974 the F.E.C. had $6 million net income after paying $8.2million taxes.


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Yet, as bleak as the future looks for therailroads, it need not be so. The railroadscould be healthy and prosperous,providing ever better service to theircustomers at increasingly competitiverates. This is not just theory. Right now the

management of an American Class Irailroad is proving by example what canbe done. That railroad is the Florida EastCoast (F.E.C.), which runs fromJacksonville near the Georgia border downto Miami at the bottom of the state.

The inspiring story of the Florida EastCoast and its battles against politicians andunion leaders reads like a plot from an

Ayn Rand novel. In an era whenbusinessmen are surrendering to pressuresfrom Washington with the regularity ofsunrise and sunset, it is exciting to find anorganization which is standing up to BigBrother and the union goon squads. Indoing so, the F.E.C. has shown whathappens where liberty and competition areallowed to follow their natural course, free

from the dictates of politicians, bureau-crats, and labor monopolists.

The Florida East Coast was anoffspring of Henry Flagler, a partner ofJohn D. Rockefeller in the originalStandard Oil Company. Flagler discoveredFlorida in the late 1880s whilehoneymooning in Jacksonville.Captivated, he became interested indeveloping the state as a tourist area towhich snowbound Yankees might journeyin the winter to enjoy balmy breezes andan attractive climate. Henry Flagler beganbuilding luxury hotels along Florida's eastcoast and constructed a railroad to takevisitors to his hotels. Dreaming of anAmerican Riviera, he was responsible forthe prosperous development of manyFlorida cities including Miami.

During the great Florida land

Edward Ball

Winfred Thornton

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boom of the 1920s, the F.E.C. went intodebt to the tune of forty-five milliondollars to finance the double tracking of itsmain line between Jacksonville andMiami. Then the Great Depression buriedthe Florida land boom lower than the DowJones averages. The F.E.C. was unable to

meet the interest payments on its bondsand the railroad was thrown intoreceivership. The Interstate CommerceCommission would not let the railroad stoprunning so it chugged along in receivershipfor an incredible thirty years while variousgroups battled for control of the impover-ished line.

It was during this period that the hero

of our story, Mr. Edward Ball, decided tobecome involved. Both Ball's admirers anddetractors admit that he is an American ofanother age. This is understandable sincehe is. Edward Ball was born in Virginia in1888. and today he is a spry eighty-eightyears old. Even his most committedenemies admit, however, that the Fox ofJacksonville is as shrewd and effective as

ever. He still puts in a full eight-hourworkday and begins every evening withhis favor-

ite toast: "Confusion to the enemy!" Ballcomes from one of the first families ofVirginia. Like many other proud familiesin the South, his suffered hard times afterthe Civil War. His father was a lawyer andwanted his son to go to college, but youngEd already had a keen eye for a dollar and

persuaded the elder Ball to let him go intobusiness at age thirteen. His first businessventure involved cutting down walnuttrees and hauling them to Baltimore forsale to furniture manufacturers.

After serving in the Army in World WarI, Ed Ball heard the knocking ofopportunity in California where he soldautomobiles and cash registers. Then,

deciding that opportunity was even greaterin Florida he decided to go wrestle alliga-tors. Edward Ball left a job paying eighteenthousand dollars a year to take a five-thousand-dollar job trying to pull a canningplant out of the red for his brother-in-law,Alfred I. Du Pont, the maverick of theDelaware chemical family who had fallenin love with Florida. He soon informed Du

Pont that the canning

Under union featherbedding rules it required three 5-man crews to make 9-hour run from Jacksonville to Miami. Today the job is done more safely withtwo men. Under the union system, two men work while thirteen ride thefeatherbed.


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plant was a lost cause and was asked tostay on as the millionaire's Man Friday. Itwas one of the smartest decisions AlfredDu Pont ever made.

When Du Pont passed away in 1935, EdBall was appointed to manage his brother-in-law's thirty-five million dollar trust.Apparently he has done a rather good jobof it as newspaper accounts say that todaythe trust has assets in the neighborhood oftwo billion dollars. Ball put the Du Ponttrust into real estate, banking, and papermanufacturing. It was through Du Pont'sSt. Joe Paper Company that Ball began hisefforts to gain control of the flounderingF.E.C. by buying up the road's defaultedbonds.

Even though Edward Ball hadcontrolling interest in the railway on paperby the early Forties, the F.E.C. remained inreceivership as factions fought over theright of way. Finally, in 1959, a districtcourt approved a reorganization plan whichsoon put the F.E.C. under the control of EdBall, who at age seventy-two took on thejob of rejuvenating a railroad which hadbeen in limbo for nearly thirty years. In1960 he began serving

as chairman of the board at the staggeringwage of one dollar per year. Tranquilityreigned . . . briefly.

By 1962 the non-operating railwayunions were clamoring for a wage hike. InMarch of that year, President Kennedyestablished a special emergency board towork out a settlement and prevent anationwide rail strike. Two months laterthe board recommended a 10.28-cent-an-hour pay raise. The unions and 192 of thenation's 193 Class I railroads accepted thegovernment's recommendation. Mr. Balland the Florida East Coast respectfullydeclined.

In view of the spiraling inflation whichhas taken place in the past fifteen years, theamount seems a pittance. But to the F.E.C.at the time it was not. Ed Ball explained toyour reporter that he had a number ofreasons for rejecting the government'sdecision. The line had lost money intwenty-eight of the previous thirty years. Inthe ten years previous, the railroad had losta total of twenty-three million dollars. Mr.Ball felt it was foolhardy to raise wages.The F.E.C. had only been out ofreceivership one year and was

Making a profit, the Florida East Coast can afford to spend twice as much asthe average railroad on maintaining right of way and, without featherbedding inname of safety, has 75 percent fewer accidents than the industry average.


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struggling to get into the black. Thesituation was made worse by the fact thatfreight-traffic heading for, and comingfrom, Cuba was now shut off by theembargo on Castro. That lost traffic hadbeen worth four million dollars a year inrevenue to the Florida East Coast.

There were other factors besides thepoor financial condition of the F.E.C.which led Ed Ball to reject the union'sdemands. He did not feel it was right torequire his business to be bound bybargains it had no hand in reaching. Eachrailroad, he noted, faced differentcircumstances, and it was thereforeridiculous for ail roads to pay exactly thesame wages. The cost of living in Floridawas well below that of other sections of thecountry. The railway was paying $2.06 perhour to unskilled labor at the same time theState of Florida was paying its unskilledlabor $1.20 to S1.40 an hour. Because ofthe differences in pay scales between Flor-ida and other states, the F.E.C. believed theunions were "in reality asking for asubstantial allowance above that of otherrailroads."

The union bosses did not see it thatway. A union spokesman declared that theFlorida East Coast railroad should go alongwith the wage hike despite its precariousfinancial situation "since other Class Icarriers in worse financial condition thanthe F.E.C. agreed to the wage increase."Many of those who surrendered are now inWashington with their tin cups beggingConrail to save them from disaster.

The unions were of course adamantabout not settling separately with theF.E.C. As G.E. Leighty, chairman of theRailway Labor Executives Association, putit: "We don't propose to have a littlerailroad like the Florida East Coast set thepattern for the entire industry." The

railroad made a compromise offer whichwould have provided a larger pay raise, butspread it out over a longer period of time toallow the company to get back on itsfinancial feet. The union said "no dice" andannounced a strike for January 1963 unlessthe F.E.C. went along with its demands.

The strike was to prove the longest inrailroad history, and before long that tencents an hour raise in wages had beenovershadowed by much bigger issues.

The workers were warned before thestrike began that anyone who went outwould be considered to have quit the job.After all, why should an employer hold ajob open for a man who has refused toshow up for work? Apparently the unionbosses thought Ed Ball was kidding.Nobody had taken an attitude like that inyears. The workers were led to believe thatthe strike would be short and relativelypainless. Strikers would receive fifty-onedollars a week from the RailwayRetirement Fund plus another fifteendollars a week from a national strike fund.This tax-free sixty-six dollars represented asubstantial percentage of a worker's take-home pay after taxes and union dues hadbeen deducted. The unions felt they couldafford to hold out longer than the railroad.

On January 23, 1963, the non-operatingF.E.C. workers officially struck. Theoperating workers those who worked onmoving trains refused to cross the picketlines and were, for practical purposes, onstrike also. For ten days all was quiet on theFlorida front. Then the Florida East Coastdid a startling thing. It ran a train.Supervisory personnel

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served as a train crew to take twenty emptyfreight cars from Jacksonville to Miamiwhere they would be interchanged withother railroads.* The union leadersridiculed the effort. "They'll never make asuccess by running trains with supervisory

crews," strike leader Jack Hadley told thepress. Ball clipped the story for futurereference.

Within a few days the Florida BastCoast had one train running daily each waybetween Jacksonville and Miami. By themiddle of February, fifteen percent of thepre-strike freight level had been reached.Ball, and the railroad's operations manager,

Win Thornton (now president of theF.E.C.), found that running a railroadwithout union employees was not as toughas they had been Jed to believe. TheFlorida East Coast began hiring studentsout of the local colleges, and factoryworkers who found that the railroad wasoffering better wages than could be madeon the assembly line. The new workers

were given a crash training course and putto work.

With a twinkle in his eye, Ed Ball toldyour reporter: "All this propaganda about ittaking years of experience to become alocomotive engineer is a lot of bunk. Ittakes at least all morning to learn how torun one competently. A locomotive is ac-tually much easier to run than an

automobile. About the only thing youreally have to know is how soon to startapplying the brakes so you don't shoot yourtrain a couple of miles

*A railroad must pay a rental fee called de-murrage to the owner of a freight car for everyday the car sits empty on its tracks. When thestrike started, there were approximately two

thousand freight cars on F.E.C. tracks whichbelonged to other railroads. Mr. Ball was mostanxious to return those cars to their ownersrather than pay demurrage through a long strike.

past the station at which you are supposedto stop." If he was exaggerating it was notcriminal hyperbole.

Now the strike was getting serious. Theunion leaders who had laughed at the ideathat the railroad's owners could run the linewith supervisory personnel realized thatBall meant what he said about replacingstrikers who did not want to work for thewages being offered. The cries of "Scab"were drowned out by the rumble of wheelsas the trains rolled on the east coast ofFlorida. At the beginning of April theoperating workers, who were not officiallyon strike but had not crossed the picketlines, formally joined the strike astheir"Scab" replacements highballed freightup and down the line. By August theF.E.C.'s freight service had been restored toninety-five percent of normal.

The strike had turned out to be ablessing in disguise. For years the railroadsand the unions had been going round andround over the issue of featherbedding. Theunions had claimed that large crews werenecessary safely to run the trains. Thatclaim was about to be knocked into acocked hat.

The union bosses, reactionaries that theyare, have forced the railroads to operateunder archaic work rules. During the lastcentury a hundred-mile trip was a full day'swork, but with today's faster trains a hun-dred-mile trip might take only two hours.Nonetheless, at the end of the hundredmiles, the train stops and a new crew istaken aboard. Before the strike it took threefull five-man crews to take a train threehundred fifty miles from Jacksonville toMiami. Each crew earned a full day's wagesfor its hundred-mile run. This meant thatfifteen men were paid a full day's wages forthe nine-hour

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trip. With the union out on strike, theF.E.C. began using one three-man crew tomake the entire trip. This saved therailroad seventy-eight percent in wages over two mi l l ion dollars per year.

Since that time, the F.E.C. has foundthat it does not need the third man andmakes its runs with only two. So two menare efficiently doing the job the union saidrequired fifteen. Under union work rulestwo men work while thirteen ride thefeatherbed. Is it any wonder that ourrailroads are in financial trouble asrailroads whose managements haven't thecourage of Ed Ball and his team at FloridaEast Coast pay and pay? Unionfeatherbedding has forced the nation'smarginal railroads into bankruptcy anddriven freight rates well above what theywould be in a competitive market.

When the strike began the F.E.C. hadtwenty-two hundred employees.Management soon learned that it couldoperate the railroad very efficiently withnine hundred. According to Ed Ball:"When I took over the road in January1962, we had thirty-three hundredemployees. I thought I had done a great jobin paring the work force down to twenty-two hundred by the time the strike started.We had no idea of the total extent offeatherbedding that had been built in overthe years."

Cutting the train crew from fifteen totwo, as the F.E.C. did, was only abeginning. Under the union's work rules aseparate train, a local, was required to setout and pick up cars along the main line.Now the regular through freights did this.Yard-crew workers were cut back toseventy-two from the 191 required by theunion under the old featherbed rules. Road-crew workers were cut from 152 to fifty-two, and did a better job. Dismantling themake-

work rules, F.E.C. also terminated theentrenched "craft union" status of the non-operating workers. Where formerly, forexample, a secretary couldn't change alight bulb but had to call in an electrician,any worker might now do any job forwhich he was qualified. For eight hourspay a worker now did eight hours work.The union screamed as if the railroad haddeclared war on God, motherhood, anddraught beer. The national labor papercried that Ball and Thornton were "wipingout employees' rights" and "turning backthe clock forty years in the labormovement."

Before the strike was many monthsold the union realized that the battle wouldhave to be won by-other means. TheFlorida East Coast was running better thanever and, thanks to the efficiency of itsmanagement in dealing with the strike,operating expenses were being slashed bymillions. Some frustrated union membersturned to violence. During the first yearand a half of the strike over four hundredincidents of sabotage were perpetratedagainst the railroad.

The violence started with cutting airhoses; signal wires and cables were shot intwo; a bridge walkway was set afire; an oiltank was drained; cargo was damaged andthe tires of workers' cars were punctured.Switches in yards were jammed, causingfreight cars to derail. The F.B.I. arrestedthree union members in connection withthe alleged planting of fifteen sticks ofdynamite on F.E.C. tracks near Fort Pierce.Later a fourth man, an officer of a unionlocal, was arrested.

During the first six months of the strike,the vandals assumed the stance of a boxer,feinting and warming up for the bigbarrage. As negotiations toward asettlement waned, things got rougher. Therail-

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road tabulated eighty-three incidents inMay, June, and July. Employees scornedas "Scabs" were now targeted for violence.A section fore-man was beaten and kicked(one attacker was convicted), an engineerwas cut by Hying glass in his cab, the lifeof a railroad policeman was threatened,and another railway officer was pulledfrom his moving car and assaulted.Molotov cocktails, lead pellets, rocks, andpaint bombs were hurled at employees'homes or cars.

Beginning in 1964, things really turnednasty as saboteurs began dynamiting trains,stacking up freight cars like cordwood. Inall, eight trains were dynamited. Law-enforcement officers were stymied, and theonly instance in which a sabotage plot wasthwarted in advance was when four boysspotted a massive dynamite charge underthe tracks near Titusviile and jerked loosethe detonator wires minutes before afreight train rolled by. Miraculously, noone was injured in any of these explosions.

The dynamitings came to an end whenthe saboteurs made the mistake of settingoff two bombs in one day as LyndonJohnson was on a speaking tour of Florida.The President was infuriated when one ofthe explosions occurred within earshot ofwhere he was delivering his oration.Reading the newspaper headlines thatovershadowed the report of his visit, thePresident called F.B.I. Director J. EdgarHoover and told him to put a squad ofagents on the case. Thirty F.B.I. agentsswarmed over Florida and soon fourstrikers were in custody. Union leaders haddenied that their members had anything todo with the dynamitings, but the denialswere hushed to a whisper with the arrestand subsequent conviction of the four.

The railroad was by now forced tospend $350,000 a year for security guardsto ride shotgun on its trains. Armed guardsrode ahead of each freight in a "hi-rail"car a converted station wagon fittedwith four small rail-size wheels that kept iton the track. This "scouting" of the trackhelped spot sabotage. Guards in the "hi-rail" stayed in constant radiocommunication with the freight highballingalong behind them. The wagon wasequipped with "track sweeps" to pushchains or other objects off the rails. It wasall a big nuisance and very expensive, but itkept the trains rolling.

What the unions could not win on thepicket line, and through violence andsabotage, they tried to achieve through thegovernment and the courts. They sought toapply their enormous political power toforce Ball to compromise. In the firstweeks of the strike, the National MediationBoard sent two mediators to the railroad'sheadquarters in St. Augustine to determinewhether management and the strikers couldbe brought together. They departed minutesafter arriving when Ed Ball insisted that theconversations be tape recorded.

In mid-May of 1963, Secretary of LaborWillard Wirtz, brother of an IllinoisCommunist Party organizer, asked Ball andthe workers to submit to bindingarbitration. Ed Ball was not born yesterdayeither figuratively or literally. He replied:"The railroad does not desire to submit theissue to non-interested parties to settle thequestion in dispute . . . ." Mr. Ball was wellaware that the government-appointedarbitrators would be "about as neutral asyour mother-in-law acting as a judge inyour divorce hearings."

Mr. Ball quickly became the target ofmore invective from the union

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leadership and "Liberal" newspapers. Inthis day and age management is notsupposed to stand on principle, but to be"reasonable" and surrender. When itbecame obvious that Ball would notsurrender in whole, he was called upon tosurrender in part. After all, everybody elsecompromises. Who the Hell did Ed Ballthink he was?

After the Florida East Coast refused toaccept arbitration. Secretary Wirtzrequested that President Kennedy appoint aspecial board to study the situation andmake recommendations. The board wascreated by Executive Order 1127. It wasformed on the legal fiction that the strikewas now an "emergency," a situation theNational Mediation Board had previouslydenied. Win Thornton observed thatgovernment intervention came after morethan ninety percent of pre-strike freightservice had been restored. The government,he said, "is applying the federal iron handwithout its usual velvet glove." Accordingto the F.E.C. operations officer: "The only'emergency' is that the unions have lost thestrike and want the government to pull theirchestnuts out of the fire."

The supposedly impartial governmentboard suggested (surprise!) that Ed Ballshould pay the 10.28-cent hourly increase,discharge his efficient new employees, andrehire the strikers. Thornton and Ball werenot about to do that. "I certainly expect tostand by these men," Ed declared. "Theyhave operated the railroad while the othersabandoned it. It seems to me the [union]employees have struck themselves out of ajob."

Eighteen lawsuits were filed against theFlorida East Coast during this period bythe government and unions. Some verdictswent in favor of the railroad and someagainst. But

the F.E.C. won the big one in the SupremeCourt when that body ruled that a railroad,despite federal regulations, could legallyhire non-union workers to continue itsoperations when union employees went onstrike.

Barron's, the national business andfinancial weekly, observed: "To the annalsof private enterprise, the Florida East CoastRailway had contributed an inspiringchapter. Despite widespread hostility andlawlessness, management steadfastly hasrefused to bow to what it condemns asunreasonable union demands. In theprocess it has given the industry, and thewhole country, an impressivedemonstration of how efficiently andsensibly a railroad can be run. Last weekMr. Ball and his associates scored perhapstheir most noteworthy triumph. By aseven-to-one majority, the U.S. SupremeCourt upheld the carrier's right, undercertain conditions, to operate with its ownpersonnel and by its own rules. In short, inresponse to its plea, the High Courtreaffirmed the doctrine of self-help. Thevictory may win Mr. Ball scant kudos frombusinessmen who, in the name ofpartnership, willingly surrender theirprerogatives to government. However,among those who still cherish the freedomto manage their affairs, it counts formuch."

The strike by the non-operating unionsagainst the Florida East Coast was settledmore than nine years after it began. Thestrike by the operating unions over(non)work rules goes on, in theory, to thisday. By the time the strike was settled,only one hundred of the original twothousand strikers were still holding out.The others had already returned to work indefiance of the labor bosses, retired, movedelsewhere, or taken jobs on other railroadsor in other industries. A disillusionedworker re-

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rebuilt, as have the locomotive shop atNew Smyrna Beach and the car shop atJacksonville. Gross expenditures for capitalimprovements since 1961 have been overfifty-one million dollars. Yet the long-standing debt of the railroad has beenreduced from approximately fifty milliondollars to eighteen million. From 1960 to1974, freight revenues increased from$22.3 million to forty-six million. In 1960there was not sufficient income available tocover fixed charges, but in 1974 there wasa net income of six million dollars afterpaying an $8.3 million tax bill, including afederal income tax of $4.2 million.

Meanwhile, the efficient F.E.C. spendstwice as much (on a percentage basis) onmaintenance of the right of way as does theaverage railroad. Many railroads (of whichthe giant Penn Central is the primeexample) have had to let their tracksdegenerate to the point where they are sodangerous that train speed has had to be

reduced to ten or fifteen miles per hour because after financing unionfeatherbedding there are just no funds leftfor proper maintenance.

The unions have traditionally justifiedtheir featherbedding on the ground that itwas necessary for safety. This is anotherself-serving fraud which the F.E.C. hasburied beneath an avalanche of reality.

Over the past five years, train accidents permillion train miles have been seventy-fivepercent less on the Florida East Coast thanthe industry average. Thornton ascribes thisto the road's efficient supervisory systemand the fact that the road has investedmillions of dollars in modern track andelectronic safety devices which preventwrecks and accidents. Over the past five

years the F.E.C. has finished eitherNumber One or

Two for the nationwide Harriman SafetyAward.

The boys in Florida East Coast'saccounting department have figured outhow much better the deficit-ridden railroadsof the country would have done if they hadoperated under the F.E.C.'s work rules.They did this by comparing transportationratios arrived at by dividing labor costs intototal operating revenues. The Florida EastCoast's transportation ratio for 1974 was24.9. The ratio of the failing Penn Centralwas nearly double that at 46.2. For the year,the F.E.C. made a profit of $3.9 millionwhile the Penn Central lost $91.5 million(almost two million dollars per week). Ifthe Penn Central operated with the sameefficient work rules as the F.E.C, that $91.5million loss would have been turned into anafter-tax profit of $387 million.

If the Penn Central was generating $387million in profits each year, the railroadbusiness would suddenly be a growthindustry instead of a depressed sectorbegging for alms from the taxpayers. Itwould mean that the railroads would behelping to support government by theirtaxes instead of vice versa. It would meanlower taxes for the rest of us, better freightservice, and lower freight costs forAmerican consumers. Every product youbuy has to include in its price the costs oftransporting it and everything that went intoit. The higher the freight rates the more youpay for everything.

While Ball and Thornton are justlyproud of their accomplishments, they areextremely disappointed that their successhas not lent courage to other railroads to dothe same thing. The lamentable truth is thatno other railroad management, not one, has

sought out Florida East Coast officials todiscuss the subject of ending

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featherbedding. Thornton reports sadly:"They feel overwhelmed by the unions.They have a defeatist attitude."

Win Thornton says that with bettermanagement and efficient work rules the

railroads could run more efficientschedules and substantially improve theirability to deliver more freight morequickly, increasing their competitiveposition. This alone, he explains, wouldinstantly erase the freight-car shortage andwould clear congested freight yards. "It'sunderstandable that some unions wouldlike to sweep this under the rug," says

Thornton. "But I'm disappointed that Ihaven't heard from managers of otherlines."

With hundreds of millions of dollars inpotential railroad profits at stake, not tomention billions more in tax monies, thisdoes seem odd. But Win Thornton thinksF.E.C.'s effort to publicize the terribleexpense the consumers must pay to finance

"antiquated work rules" is useless unlessrail management speaks out with acollective voice. And, lest you thinkFlorida East Coast's education campaign isa ballet of altruism, consider Thornton'sexplanation: "The F.E.C. is losing trafficevery single day because the Penn Centralis not doing its job."

Why are the mighty captains of the

railroad industry so cowardly? Apparentlythere are several reasons. Basically theyhave been defeated psychologically byhaving spent years on their knees beforeunion bullies who are backed up by thefederal government. Corporate bureaucratsare happy to throw in the towel to uniondemands and then get a rate hike from theInterstate Commerce Commission. And

when the increase

does not prove to be enough to keep theline going, they know they can call fornationalization via Conrail. Just as theAmerican Medical Association has madeits peace with socialized medicine, figuring

that the government will need the A.M.A.to manage and administer governmentmedicine, so the rail chiefs are convincedthey will be needed to run the government-owned railroads.

Conrail satisfies both the union fat catsand the management fraidy cats. It furtherinstitutionalizes, all of the out-of-date workrules which the F.E.C. has eliminated so

profitably. It perpetuates the inefficiencies,which will probably be multiplied asnationalized railroads pass increased costsalong to browbeaten taxpayers andconsumers.

This madness will not stop until enoughheat is put on Congress to stop the LaborDepartment and the Interstate CommerceCommission from fleecing the consumers

and taxpayers by playing ball with theunion bosses and cooperating corporatebureaucrats who run so many of therailroads. Many Congressmen haveprivately told Messrs. Thornton and Ballthat while their approach to running arailroad is obviously the only sane one, itwould be political suicide for aCongressman to support it. So it is back to

the boards for the Americanists. We cansolve the railroad problem when there isenough understanding at the grassrootslevel to elect Congressmen who will do theright thing.

Meanwhile, Win Thornton and Ed Ballwill have to forgive us if we embarrassthem with our thanks for proving that theAmerican system still works when men

have sufficient courage to try freedom.

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Gary Allen - What a Way to Run a Railroad (Railroad Monopoly in America)(1976)

Documents

Transcript of Gary Allen - What a Way to Run a Railroad (Railroad Monopoly in America)(1976)