Railroads Under Pressure

THE railroad industry is now passing through the most difficult time in its history, and the breakdown of the system of private ownership and operation is threatened. This crisis has a significance broader than first appears. At no time in our history have there been greater scrutiny and criticism of the way in which the country carries on its business and industry. Where shall the great enterprises be poised between moderately regulated private ownership and management, and the point where an increasing public participation culminates in the totality of government ownership and operation? Are we really capable of the successful conduct of these great concerns by public management, whether it be in the form of government operation or of intensive governmental regulation of private operation? If there is to be greater public participation in the conduct of these businesses, is success actually attainable without fundamental changes in our traditions and attitudes?

Readers will generally believe, I suppose, that the railroads can present no problem so tangled that intelligence cannot solve it. A high intelligence can certainly work out the efficient conduct of such a business in a way fair to everybody concerned. But objective thinking, which rises above self or selves, is essentia! to the play of free intelligence. It is fundamental to the governmental administration of justice in the courts, and equally fundamental where the government acts either as a regulator of the railroads under private ownership and operation, or as their owner and operator. The right administration of such a business under either system must secure a fair apportionment of the benefits and burdens of the industry to capital, labor, management, and those who receive its service. This requires an administrative authority even-handed in its dispositions. Equality before the law must be the supreme desideratum. The problem is to prevent the obstruction of objective thinking by pressure groups dominated by definite and selfish motives. Can this be done in our democracy? Our experience in the administration of the railroad industry furnishes alarming evidence.

I

To sketch the unfoldment of the railroad problem with a broad brush: The railroads have been brought to the present crisis largely because of unintelligent policies with reference to competition. Almost no other business requires such great capital expenditures. They result in high capital costs, which are dangerous because they cannot be cut when traffic is reduced by the entrance of a competitor into the field. The investment is irrevocably committed to the venture; for a railroad, unlike a shoe factory, must continue to operate when times are bad and cannot be withdrawn from service and put to some other use in a way to save any substantial part of the investment. Consequently the building of a competing railroad line or concrete highway, like an intelligently directed cyclone, destroys a substantial part and sometimes all of a railroad’s property.

The public has been inclined to believe that the railroads could fairly be made to contend with heavy competition because they were rich, and has thought them rich because of the size of their investments. There is no animal so vulnerable and helpless as a whale in shallow water. It is income, not investment, that makes for wealth. Because railroad capital costs are so high, the public can be more economically served by a few systems handling intensive traffic (with resultant lower capital costs) than by many competitive lines unable to use their facilities to capacity. Since competition between railroads is unnatural and economically dangerous, no country in the world excepting Canada and the United States encourages and maintains competitive systems.

In our country the railroads, a generation ago, instinctively struggled to get free from competition. But when they tried to minimize destructive rate cutting by making agreements among themselves to maintain reasonable rates, the action was held illegal under the Sherman Antitrust Act, although admittedly the agreements resulted in no unreasonable restraint of trade. When they attempted to pool their traffic, in order to abolish wasteful operation due to the unnecessary building of competitive lines, their action was forbidden by the Act to Regulate Commerce. When they then turned to consolidations, they were stopped by the Supreme Court in the Northern Securities and other cases.

The purpose of the rigorous enforcement of these antitrust laws was to compel competition among businesses regarded as naturally competitive, as a means to provide fair prices by ensuring the free play of the forces of supply and demand, and to prohibit the impairment of that free play by the creation of monopolies or by lesser measures of restraint. On the other hand, the government has regulated railroad rates as though the railroads were naturally a monopoly. The fundamental justification for the regulation of railroad or other publicutility rates is that, owing to the monopolistic character of the enterprise, governmental control is necessary because the forces of supply and demand do not operate to fix the price of the product as they do for competitive enterprises.

The antitrust regulation and the rate regulation thus proceeded from contradictory hypotheses. They were both rigorously pressed, and an overregulation resulted. This was entirely natural; it had its genesis in the group antagonisms expressed in the Granger movement, and reflected the influence upon governmental policy of the opposition of the politically powerful agricultural and shipping classes to the absentee and politically ineffective owners of the railroads, which had been built primarily with money secured or controlled in the East, and which were directed by int erests regarded as alien to the agricultural communities. Railroad regulation has had, consequently, what is largely an emotional, rather than an economic, background. Had the population been entirely homogeneous and the railroads been built with the money of those who were most influential in their regulation, the governmental policy would not have reflected the antagonisms which proceeded from disunity, and pressure-group action would have been less effective.

The dangers of this overregulation began to be recognized by the experts as early as 1010. The industry had reached the all-time peak of its prosperity in the first decade of the century and was too vigorous for some years to show any marked effects of the maladministration. The sturdy farm lad could stand the country doctor’s kitchen-table operations. It was not until after the war that the country began to awaken to the situation. The government had operated the railroads during the war and returned them to their owners in such a weakened condition and with such increased operating expenses, due in part to wage increases, that it was obvious that government ownership could be averted only by the passage of legislation that would correct fundamental evils in the conduct of the railroads. Evidence of the possibilities of greater economy and efficiency through eliminating competition had been afforded by the consolidated operations under federal control during the war. The difficulty of the governmental operation of such a great enterprise, through the inclination of the politicians to operate the property to secure political effects, had been made apparent. The fear of a serious breakdown united almost all groups to support a comprehensive programme of constructive legislation, designed to stabilize private ownership — a programme written into the Transportation Act of 1920.

This act went far to reverse the national policy as to competition. With the purpose of unifying the railroads into a few strong systems, it authorized consolidations. Conventional thinking still prevented the full expression of a new attitude toward competition in this act. Consolidations were authorized, but were hamstrung by the provision that competition, even under effective commission regulation, was to be fully preserved; and consolidations were permissible only in accordance with a plan which the Interstate Commerce Commission was authorized to prescribe.

This provision was as impracticable as a eugenics scheme under which all mating must be done under a doctor’s orders. About such selections the young people still hold ideas of their own. Because the legislation was unskillful, few consolidations resulted; although the Commission, under this act, did approve three unifications forbidden in the ‘trust-busting’ days by the Supreme Court — in cases involving the merger of the Hill lines which had been dissolved in the Northern Securities case, the control of the Central Pacific by the Southern Pacific, and the control of the Delaware, Susquehanna & Schuylkill by the Lehigh Valley.

Although this legislation was a partial recognition of the need of abandoning the Congressional policy as to competition, the unwillingness to adopt a new policy fully and the consequent inaptitude of the legislation frustrated the intended improvement. Throughout this period the government had in every possible way stimulated the competition of non-railroad carriers. The declared purpose of Congress was to maintain unrestrained competition by the water carriers, both on intercoastal and inland water routes, and such carriers were subject to no regulation excepting as to the joint rates made with the railroads. Great sums were invested in the Panama Canal and in improving the canals and riverways, and the government subsidized the barge lines and itself operated them in competition with the railroads.

The railroads were now confronted with a new danger in the remarkable development of the sharply effective competition of the motor carriers and pipe fines. The increase in investment in all transportation facilities between 1920 and 1932 represented a capital outlay of substantially twenty-five billion dollars. The part of this additional outlay which was invested in non-railroad facilities was about equal to the recorded investment in railroad property in 1920. This great increase in the transportation plant came without any corresponding increase in business, and meant therefore a destruction of railroad investment values. There were, rather, decreases in the railroad business. The coal traffic of the railroads has been greatly curtailed by the incursions of fuel oil, natural gas, and the transmission of electric power; and the decentralization of the manufacturing business has reduced rail shipping. For large plants, formerly located in large centres of population and transporting their products to distant markets by long rail hauls, scattered small plants, whose products move shorter distances, largely by truck, have been substituted.

The development of this competition between the railroads and the other means of transportation removed the last vestige of any claim that it was necessary to continue the enforced competition among railroads. This new increase in transportation facilities requires a national policy fully recognizing that such competition is not required for the public good, and that the evils of a system of noncompetitive railroads can be effectively curbed through regulation and the competition of non-railroad carriers. A readaptation of railroad facilities was called for when the country’s transportation needs were revolutionized by the tremendous development of automotive transportation. Railroad systems, developed a generation ago in a competitive pattern which has remained substantially unchanged, require reorganization if they are to secure the economy and efficiency without which they cannot survive the new competition. In the transportation world, as elsewhere, the only permanence lies in change, and the static docs not endure.

II

Disinterested observers generally sustain the conclusion of the Interstate Commerce Commission, voiced in a recent report to the President, that salvation for the railroads does not lie in the reduction of fixed charges. While some roads have excessive capital structures, the capitalization of the railroads generally, judged by investment, is relatively low. This was conclusively demonstrated by the valuations made by the Commission at an expense of $185,000,000 under the Valuation Act of 1913. It is true that about nine tenths of the railroads are now unable to earn the fixed charges on their funded debt, but this does not indicate that the debt load is generally excessive or that a programme of debt reduction will solve the problem. About half of the railroads, including some of the finest properties in the country, are not even earning their operating expenses, much less fixed charges. Reducing their capitalization may benefit them, but will never stabilize them. When the ship is high and dry on the sands, you cannot float it by reducing its draft.

There is no remedy but to increase the net income. To do so, expenses have got to be cut. During these years of starvation, the railroads have cut operating expenses to the bone. But the competitive action is continued, and even intensified by the hard times. It has been proved beyond question that the competitive practices have led to great waste. The railroads were built, and are operated, as individual systems for the primary purpose of securing the greatest individual competitive advantage, regardless of any consequent duplication of facilities and service. And this excess of service and facilities has now been increased by the new facilities added by the non-railroad competitors. The railroads are operat ed by men for whom competition is the law of life, who give no quarter, and who are trained in the competitive practices which the law has cither required or not forbidden. It is only by the elimination of the competitive excesses that the industry can be stabilized and government ownership or subsidization prevented.

With full recognition of these elements of the problem, Congress passed the Emergency Railway Transportation Act of 1933, in a carefully developed attempt to stabilize the industry through the elimination of uneconomic competitive action. The act created the office of the Federal Coördinator of Transportation and gave the incumbent the task of working out the purposes of the statute. Joseph B, Eastman, a man of liberal tendencies and one of the best men in public life, was chosen to administer the act. It gave the Coördinator authority to compel coördinative action by the railroads where necessary, and granted relief from the burden of the antitrust laws in any action taken in compliance with this law. The act also required the Coördinator to make the investigations basic to any further legislation that might be needed for the concrete realization of the purposes of the act. Congress recognized that in dealing with these technical subjects it must write objective-minded legislation instead of hurriedly prepared statutes representing pressure-group action.

Competent and intensive research conducted by the staff of the Coordinator covered the entire range of possible coordinative action and the resultant economies — beginning with the joint use of passenger stations, or other simple facilities, and ending with coördination in the nth degree, which is consolidation into a single great system. Short of this extreme, there are various intermediates involving partial unifications — namely, the unification of the entire freight and passenger terminals of competing lines in the larger towns and cities; the pooling of less-than-carload freight operations of all carriers by means of national systems similar to the express companies; the pooling of all freight of all lines either on a regional or on a national basis; and the pooling of the cars of all lines in a manner similar to the Pullman Company unification of sleeping-car service.

Such coördinations would leave the present operating companies intact . But if any great number of such coördinations were put through, the result would be a highly cumbersome and complicated administrative organization. The great group of corporations now in the field would continue to exist. Each would separately carry on the uncoördinated part of its carrier activity, but a large part of its operations would be conducted by a number of joint agencies operating the coordinated facilities or services. The creature would continue to live, but with only partial control of its hands and feet. Consequently the weight of opinion among railroad men is against any effort to attain unifications by coördination. The way seems to lie through consolidations.

III

Consolidations were the means used to avoid government ownership of the British railroads and are now being seriously considered in Canada. The British statute which ordered the unifications required that, the 120 railroads be consolidated into four regional noncompetitive systems, and that the securities of the constituent roads be traded for the securities of the consolidated systems on a prescribed valuation basis, derived from the earning capacity of a year of good earnings immediately prior to the war. Within a year and a half the stipulated consolidations were accomplished and the securities were exchanged without litigation or even substantial dispute. It is generally agreed, moreover, that the exchange was abundantly fair. After the consolidations had been put into effect, the competitive traffic between the four systems was pooled, thus eliminating competition completely. Although the full economies resulting from the consolidations were slowly attained because of provisions that prevented the brunt of the elimination of surplus labor from falling upon the men, the systems are now operated with far greater economy than ever before, their solvency has been established, and government ownership averted.

This was one of the most brilliant exhibitions of administrative intelligence of which there is record. There is no evidence that the efficiency of the British action was due to the fact that the government’s power is less subject to constitutional limitations there than here. The adjustment of the securities was made on a fair basis which satisfied the security holders and the public, and the acceptance of the awards was due rather to the fairness of the administrative action than to any lack of constitutional protection against unfairness. High achievement in working out these difficult adjustments of human relationships by an administrative agency is attained, apparently, rather through the power which arises from good administrative intelligence than through any ‘right’ to act arbitrarily derived from a freedom from constitutional inhibitions, for magnanimity can lead to heights to which force cannot drive. In this distinction probably lies the obvious superiority of British administrative processes over ours. A people’s freedom and harmony fie in their magnanimity, not in their constitutional forms.

Yet consolidations had to be compulsory in England and would have to be here. Certainly Congress, acting well within constitutional boundaries, has full power to act effectively in setting up a compulsory consolidation programme. Experience under the Transportation Act of 1920 has demonstrated that if there are to be consolidations they must be compulsory, because the great individuality of the separate managements, controlled by men little inclined to forgo their personal positions, and who are loyal to their particular railroads above all else, is such that, in the present crisis, voluntary consolidations would lead to too great a delay. Furthermore, under any noncompulsory programme, it is certain that uneconomic and inefficient groupings would be formed — because of the inevitable inclination of the individual roads, if they control the pattern of the consolidations, to grab favorable lines in an effort, to build up their own power. This would, of course, leave the map strewn with scattered fragments of undesirable property. The general pattern must be prescribed by Congress, but as far as possible the working out of the details should be left to the initiative and enterprise of the managements. For the government to lead and to secure, with as little compulsion as possible, a result for the good of the public, without injury to the rights of the individual carrier, is a task sufficient to challenge the highest administrative capacities. But the English did it.

Consolidations should not be regarded as the sole means of straightening out the railroads, but as an important measure adopted, among others, in a general programme inaugurated by the government and designed to meet a complex problem which has other difficult aspects. It is very difficult to estimate what savings could lie accomplished by consolidations, since the amount saved will depend upon the nature and conditions of the plan and the circumstances under which it is inaugurated. The savings from a seven-system plan (without consideration of the temporary expense due to the protection of labor, hereafter discussed) have been estimated by those favoring such a plan at as high a figure as $743,000,000 a year. Officials of the railroads, who probably were ultraconservative because of their antagonism to such a programme, studied the estimate and reduced the figure by two thirds. But the savings attainable are unquestionably great and probably approach a figure as high as $500,000,000; although, for the reasons indicated, accurate estimation is extremely difficult.

What solution of this problem can be reached depends upon none of these considerations of administrative or managerial technique. Nor does it depend upon what, among the various alternatives, is best for the welfare of the country. It depends upon what happens in the field of practical politics, and, as Lloyd George has aptly observed, ‘politics doth not proceed by prayer alone.’ Because of the pressure upon Congress of railroad labor, the Emergency Transportation Act was dropped in the summer of 1936, on the eve of a national election when the Washington air was surcharged with politics. This abandonment of an aggressive and intelligent effort by the government to work out a solution of the railroad problem was aided and welcomed by the railroad managements. This was in the summer of 1936, when no recession was anticipated, and when they believed that returning good times would remove the crisis. But, speaking more fundamentally, the managements very naturally fear the hazards of any thorough reorganization of the railroad business through compulsion by the government and they are inclined to believe that what may be right by voluntary action becomes wrong when compelled.

Since the lapse of this legislation, Congress has made no effort; to declare a national railroad policy. In the meantime, because the government has shown no intention of stabilizing the situation, the railroads have drifted and sunk deeper into insolvency. In the summer of 1938, Congress, under the pressure of labor and on the eve of elections, declined to pass an act authorizing a liberalization of the terms under which loans can be made to the railroads by the Reconstruction Finance Corporation — and declined because the railroads would not consent to a provision stipulating that the recipients of loans would not reduce wages. Strangely enough, the creditor refused to lend if the debtors insisted upon following a course which would help to keep them solvent. Meanwhile the plight of the railroads (which are faced with rising costs and with the continuous further development of automotive competition) has become increasingly worse. The house already divided against itself has been brought to further desolation by a continuance of competitive excesses. Nearly one third of the railroad mileage of the country is now in the hands of the courts, bankrupt and paying no interest. About one half of the mileage has not earned enough this year to meet even its operating expenses and taxes. Nearly nine tenths of the mileage has not earned enough to meet operating expenses, taxes, and fixed charges. Only about one tenth of the mileage has earned anything for reserves, improvements, or dividends. Because there is no constructive national policy, the industry is thoroughly demoralized. When the government’s participation reaches a point where the government controls the essential pattern of the enterprise and that participation is either unenlightened or blocked, as the result of pressure-group action, the economic Substance of the property is soon dissipated. When governmental action is at the centre of an industry, the prosperity of that industry depends correspondingly upon the action taken by the government.

IV

Labor’s objection to coördinations and consolidations is natural enough; for, if the railroads can accomplish them, they will be able to dispense with a large amount of unnecessary labor. To illustrate: were the freight facilities in Chicago consolidated, 10,000 men could be released from work; in Kansas City, 1600; in cities like Portland, Oregon, about 250. There are now about 915,000 railroad employees. No exact figures are available, but large-scale consolidations, according to the best authority, would probably result in eliminating about 75,000 men.

No one thinks that these men should be turned out on the streets. Human thought frequently develops with no consistency. Were Congress to pass a law to-morrow forbidding bankrupt farmers to discharge their hired men, and requiring all bankrupt manufacturers, on consolidating their factories, not to discharge any employees, the reaction against such legislation would shake the country. Yet the Emergency Transportation Act of 1933 forbade the carriers, when they coördinated or consolidated their facilities or operations, to discharge any employees on the payrolls in 1933, and the country has hardly heard of it. Similar protection was given railroad employees by the British consolidation act. In the summer of 1936 the railroad unions and the managements in this country signed a contract, agreeable to both, under which very substantial protection — in the form of ‘dismissal compensation’ — was provided for railroad labor in any future coördinations or consolidations. Such action expresses more than the great political power of organized labor. It indicates a social consciousness awakened to the necessity of protecting employees, in some reasonable measure, against the loss of employment that accompanies improvements in the method of conducting the business. When an obsolete machine is junked, its trained operator is not to be junked along with it.

In all discussion of railroad unifications the need of a fair measure of such protection is generally taken for granted. But, as a result of the uneconomic operations maintained in order to prevent these men from going on relief (a burden which the investors in other industries were not forced to bear), those who have held the stocks and bonds of the railroads have had to make great sacrifices of their investments. It is clear that the employees should be protected, but it is not clear that these investors, instead of society as a whole, should bear the cost. So to require was clearly class legislation. If the industry is to bear the cost, the government should first provide by suitable regulation such earnings that the industry can bear the cost out of income, instead of by a sacrifice of capital.

While it is apparent that intelligent statesmanship could readily devise a means for the fair and adequate protection of labor, what that protection shall be is not now the issue at all. Railroad labor, in the fullness of its power, has decided to prevent all consolidations and coördinations, regardless of the issue. Thus, the unions secured the termination of the Emergency Transportation Act, even though the men employed as of the year 1933 were protected by its terms and although that protection was supplemented by the contract between the labor unions and the railway managements to which the unions had agreed.

It is important to observe the relative size of the groups of people that are involved. If the railroads were consolidated into seven or eight major systems, it is probable that about 75,000 men would lose their jobs. Even if no dismissal compensation were provided (as would not be the fact) such a loss of employment is not great compared with that caused by the depression and disorganization of the railroad business, as is shown by the fact that, owing in part to the recent recession of business and in part to a wage increase, the railway employment from July 1037 to June 1938 decreased from 1,174,000 to 914,000, or by 260,000 men. On the other hand, the stabilization of a great industry indirectly involves millions of our people. Forty per cent of our railroad bonds are in default. Over half of them are owned by insurance companies, savings banks, large and small town commercial banks, and educational institutions. There are 60,000,000 holders of insurance policies, and 15 per cent of the assets of the insurance companies arc in railway bonds. There are millions of railroad stock and bond holders. Furthermore, the depression of the railroads has a profound effect upon the so-called heavy industries. Whereas, ordinarily, the railroads are great purchasers of such things as lumber, coal, and steel, their purchases now are scant.

It is evident how small is the group of employees whose interest, as the result of pressure-group action, is made paramount over the interests of far greater groups of our people. The increased purchasing power of the country due to the continued employment of this small group seems to be entirely outweighed by the adverse consequences of the continued demoralization and disorganization of the railroad industry. The recovery of the whole nation is retarded.

In the last analysis the only assurance of the right conduct of the nation’s railroads, whether in private or public operation, lies in an enlightened and enforced public opinion. There are certain groups that are interested in the statesmanlike management of the railroad enterprise: the insurance companies, savings banks, and other such institutions, and their beneficiaries; the other investors and the shipping public. The ascendancy of organized labor in Congress is due to the inaction of such groups. They far exceed in number the labor or railroad management groups, but are either inarticulate or incapable of effective action. However it may have been a generation ago, in these days the legislator listens with little interest to a side as unpopular as that of the railroad corporations. The stock of a typical great railroad company is owned by thousands of holders, none holding more than 2 or 3 per cent of the total stock, most of whom are women, and who are disorganized, probably incapable of effective organization, and politically entirely ineffective. The legislators know it is only theoretically that the railroad executives represent these stockholders; that the mechanism of control of these great corporations is such that the stockholders ordinarily do not actually participate in the company’s affairs, and that the management is not actually selected by them. The insurance companies, savings banks, and educational institutions which own the majority of the railroad bonds are conservative institutions unaccustomed to political action.

Labor has had to fight, and is accustomed to fight for everything it gets. The railway unions are highly organized and extend throughout every part of the country. Their political strength depends upon their organization, not upon their numbers. The national leaders of these unions are intelligent and aggressive men. They drive with a hard hand. These officers are ordinarily more demanding and uncompromising than the men themselves; for in order to maintain their positions of leadership, which are elective, they must continually overplay their parts. Under such circumstances Congress, like a ball on a level floor, moves under the heaviest pressure applied, even when it comes from a minority, and congressional inaction on a technical problem involving class antagonisms can be readily secured by a minority group.

V

Certain things are clear. Fundamental to the sound public regulation of such a business is a just apportionment of the benefits and burdens of the conduct of the industry among capital, labor, management, and those who receive its service. Congressional determination of a question such as the extent to which the railroads shall be consolidated goes to the very root of the business and fixes its pattern. Such a determination makes or destroys the value of the property, and affects the jobs of the employees as well. No court ever decided a case involving sums of greater magnitude. When the government thus acts in a legislative capacity it is important that it proceed, if justice is to be done, with the same full recognition of the principle of equality before the law as when it acts judicially. The recognition of that equality is a fundamental principle of our democratic government.

Aside from any standpoint of ideals — that is, front a purely practical standpoint — the achievement of such equality before the law seems to be essential to the successful operation of the capitalistic system, or of any system short of that of a totalitarian government committed to overriding the minority interests. The capitalistic system cannot function successfully unless capital is given that protection which is its just due. What are called the ‘property rights’ of capital are actually human rights. The large ownership of railroad securities by fiduciary institutions and small investors cannot be disregarded on the mistaken assumption that ‘Wall Street owns the railroads.’ Similarly, labor must be rightly treated because its wages determine the extent to which men in its ranks can lead the abundant life. Elements of the highest human value are therefore involved. Both capital and labor must proceed under the full protection of the law administered in even-handed justice. These enterprises cannot be run primarily for the benefit of either capital or labor. Furthermore, the scientific management of such highly technical businesses requires, as we have said, the attitude which reflects that free intelligence attainable only by the objective-mindedness which is above domination by self or selfish groups.

Our government has now entered upon a new era; it has definitely undertaken what is a participation in business and, in some instances, the sole conduct of great social enterprises. It is now in the very centre, and not on the mere periphery, of their being. Forms of economy are proposed which involve, in a large measure, a socialization of business. If these socialized endeavors are to be established, it should be upon a basis that takes full cognizance of the social obligations which are involved, and there must be an even-handed administration of justice for all groups. Unless an attitude of objective-minded ness can be made to prevail, the country must face conflict and disorder in its conduct of these enterprises; and whether the people own them in the form of private or of government ownership will make no real difference. So far as our railroads are concerned, able and disinterested intelligence, if unobstructed, will make either form succeed; for achievement depends upon intelligence and not upon such forms. But a pressure-group domination of the present private ownership and operation, which has required uneconomic operation for the benefit of those groups, is very likely to be succeeded by a similar pressure-group domination of government ownership and operation; for the same groups will be benefited by operations conducted uneconomically under national operation.

Were there government ownership, great economies would be secured through consolidation, and steps to effect it would come first in any governmental programme. But under government operation the preservation of unnecessary jobs would be even more persuasively urged upon Congress than now. If there were government ownership it is not difficult to foresee the great political stress which would be used to secure preferred rates for certain states or regions, the construction of new lines and other facilities, and the continued operation of uneconomic property — all for the benefit of organized minority interests. Congress has always shown less power of resistance against pressure groups seeking advantage at the expense of the treasury than at the expense of private capital; and our people are now becoming accustomed to take government generosity toward such groups for granted.

Our democracy cannot live if it cannot work out the nation’s problems. How far it will solve its problems will depend upon how far its action can be objectiveminded and in accordance with principle. Deference to pressure groups means compromise, and compromise means departure from principle. The cure for the problems of democracy is not more democracy, as President Roosevelt has said, but more intelligence. Measure the intelligence demonstrated by a democracy and you will know how far that democracy can make its people free.