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BUSINESS--A PROFESSION Chapter 17
THE NEW HAVEN—AN UNREGULATED MONOPOLY
Published in the "Boston Journal," December 13, 1912.
The breakdown of transportation in New England under the New Haven monopoly has become obvious. Demoralized and curtailed freight service, antiquated equipment, frequent wrecks, discontented employees, heavy depreciation in the market value of securities, and huge borrowing on short-time notes at high interest are the accumulated evidences of that deterioration in our transportation system which has been in process during the past eight years of aggressive monopolization.
The demand for a remedy is loud and urgent. What remedy shall we apply? Shall the monopoly now breaking down be broken up, or shall we attempt to patch it up by regulation?
Let us consider first the causes of our present ills.
These ills result from monopoly. But, while the policy of monopoly is the fundamental cause of the deterioration of our transportation system, it has itself bred subsidiary causes; and of these subsidiary causes excessive bigness is probably the most potent.
Excessive bigness often attends monopoly; but the evils of excessive bigness are something distinct from and additional to the evils of monopoly. A business may be too big to be efficient without being a monopoly; and it may be a monopoly and yet (so far as concerns size) may be well within the limits of efficiency. Unfortunately, the so-called New Haven system suffers from both excessive bigness and from monopoly.
The New Haven monopoly of transportation in New England, now substantially complete, rests upon ownership or legal control of an effective interest in:
First. Substantially all the railroads in Maine, New Hampshire, Massachusetts, Rhode Island and Connecticut, except the Grand Trunk's line from Canada to New London and to Portland, the Canadian Pacific Line through northern Maine, and the Bangor and Aroostook.
Second. Substantially all the trolley lines in Rhode Island and Connecticut, the most important in western and central Massachusetts, and some in Maine, New Hampshire, Vermont and New York.
Third. Substantially all the steamship lines from any of the New England States to New York or Philadelphia or Baltimore.
The control which the New Haven, a privately owned corporation, holds over Boston is without parallel in the whole world. All railroads entering Boston (unless the Boston, Revere Beach and Lynn be called a railroad and is independent) are either owned by the New Haven, or controlled legally or through an effective interest; for it has such a partnership interest also in the Boston and Albany. All the coastwise steamship lines sailing from Boston for New York, Philadelphia or Baltimore are owned or controlled legally or influenced through an effective interest.
Among the American cities Boston ranks second in assessed wealth. Among the American seaports Boston ranks second in foreign commerce. Among the American centers of population Boston (including suburbs) ranks fourth. But Boston, alone of all the large cities of the United States, is in the grip of a railroad monopoly. The following is the position of the other large cities:
|New York has 8||Milwaukee has 5|
|Chicago has 19||Cincinnati has 6|
|Philadelphia has 3||Newark has 5|
|St. Louis has 17||New Orleans has 5|
|Cleveland has 5||Minneapolis has 8|
|Baltimore has 3||Kansas City has 10|
|Pittsburg has 5||Louisville has 7|
|Detroit has 7||Denver has 6|
|Buffalo has 9||Seattle has 5|
|San Francisco has 4||One railroad system has Boston|
A DELUSIVE COMPARISON
Advocates of monopoly urge that the days of competition are passed; that to insist upon competition is to go backward, not forward; that (at least as to railroads and our public-service corporations) the path of progress lies in regulation, and that this remedy should be relied upon with respect to the New Haven.
The contention rests upon a half-truth and a misconception. Undoubtedly we need effective regulation of railroads as well as of other public-service corporations, whether they be monopolies or competitive concerns.
Undoubtedly, also, certain public services, local in character, like those supplying gas or water, will, on the whole, be best performed by monopolies, if effectively regulated; or, as in the case of the telephone, may as monopolies best serve the public convenience. But the instances of desirable private monopolies are exceptional; and the transportation service (other than local) is not within the exception. The difference is clearer.
1. When a local gas company (as in Boston) is given a monopoly, it is a monopoly only in gas, and not a monopoly in all lighting. The gas company is subjected to the competition of electric light and to the competition of oil.
Indeed, where a monopoly in gas and electric lighting is combined in the same company, the results are clearly less satisfactory than they are where the gas company and the electric light company compete vigorously (as in Boston) with one another.
2. There is also this marked difference between such a local monopoly, even if complete, and a monopoly like the New Haven:
A local monopoly, like a gas company or electric light company or a street railway company, is but a creature, a servant of the State, and as such wholly subject to the control of the State within which it is situated.
In Massachusetts, where such local monopolies have been satisfactorily conducted, the company has at all times been absolutely subject to the will, not only of the State, but even largely to the will of the particular community which it serves.
Its whole business is dependent upon the license to use the streets; and this license is terminable at the will of the people. In other words, the street railways of Massachusetts and the gas and electric light companies of Massachusetts are practically permitted to perform as agents of the State public functions during good behavior.
If they do not properly serve the community, the community may at any time terminate their franchises or license without even paying compensation.
Furthermore, these Massachusetts public-service corporations cannot issue any securities without the consent of the Commonwealth. They cannot pass under the control of a foreign corporation without their charter becoming liable to forfeiture. The control of the State is absolute.
This reserved power in the community is an effective weapon by which the community may compel the corporation to supply the service it needs. Thus it compelled the West End Street Railway to lease the Tremont Street subway and to remove the surface tracks from Tremont Street. It compelled the Boston Elevated to lease the line beyond Forest Hills and give five-cent fare to Boston. It compelled recently the consolidation of the West End and Elevated and the leasing of the Boylston Street and Dorchester subways. Eighty-cent gas and the recent satisfactory gas service were obtained by a like struggle and the threat of municipal gas as an alternative.
THE NEW HAVEN SUPERIOR TO OUR LAW
Between a street railway, gas or electric light monopoly, existing under such conditions, and the New Haven monopoly in transportation there is no real resemblance. The New Haven claims rights under the laws of seven States and, in addition, under acts of Congress. Massachusetts has, except in strictly local matters, no effective legal control over the company. Neither the Massachusetts legislature, nor any commission it may create, can regulate the New Haven in any of its important functions. Any statute attempting to do so would be void as interfering with interstate commerce.
And Massachusetts cannot enforce her will even as to intrastate matters, as it does in the case of street railways, gas and other street-using corporations; because the railroad franchises cannot be taken without paying compensation. Massachusetts prohibited the New Haven from issuing stock without the consent of the railroad commissioners. The New Haven disobeyed the laws with impunity. Massachusetts laws prohibited the New Haven from issuing more bonds than stock. The New Haven disobeyed the laws with impunity. Massachusetts laws prohibited the New Haven from acquiring steamship lines. The New Haven disobeyed the laws with impunity. Massachusetts laws prohibited the New Haven from consolidating with other companies. The New Haven disobeyed the laws with impunity. In each instance these prohibitions were a part of Massachusetts' plan for regulating railroad companies; but the New Haven claimed the right to act under the laws of another State, and successfully defied Massachusetts.
And the recent Grand Trunk incident furnished another and a striking instance of our inability to regulate this monopoly. The New Haven, having been unable to prevent the passing of the enabling act providing for this competition, nullified the law by an arrangement with the Grand Trunk.
A DIVIDED LOYALTY
There is, however, another and very important respect in which local monopolies, like gas and electric light and street railways, differ from the interstate monopolies. The prosperity of the local monopoly is absolutely dependent upon the prosperity of the community in which it is situated. Self-interest demands that the company owning the local monopoly should endeavor to advance the prosperity of the community which it serves. But in the case of the New Haven monopoly there are several communities served and there is a distinct diversity of interest between those communities. The interests of Boston and northern New England are in many respects directly opposed to the interests of New York City. The interests of our merchants and manufacturers are in many respects directly opposed to the interests of the Wall Street financiers, who control the destinies of the New Haven. Northern New England might suffer by the New Haven serving New York, Connecticut and Rhode Island in preference to this Commonwealth. The prosperity of Massachusetts and northern New England is at present absolutely dependent on the New Haven; but the New Haven's prosperity is not absolutely dependent upon Massachusetts and northern New England.
THE LIMITS OF REGULATION
The policy of regulating public-service companies is sound; but it must not be overworked. The scope of any possible effective regulation of an interstate railroad, either by the federal or by State commissions, is limited to a relatively narrow sphere. Regulation may prevent positive abuses, like discriminations, or rebating, or excessive rates. Regulation may prevent persistent disregard of definite public demands, like that for specific trains or for stops at certain stations. Regulation may compel the correction of definite evils, like the use of unsanitary cars. But regulation cannot make an inefficient business efficient. Regulation cannot convert a poorly managed railroad into a well-managed railroad. Regulation cannot supply initiative or energy. Regulation cannot infuse into railroad executives the will to please the people. Regulation cannot overcome the anæmia or wasting-sickness which attends monopoly. Regulation may curb, but it cannot develop the action of railroad officials. For no commission, however broad its powers, however able, fearless and diligent its members, can perform the functions of general manager and the board of directors of a railroad system; or supply the incentive and the eagerness to please the public and that development which results from the necessities of competition. It is to lack of efficiency, to the lack of appreciation of the community's needs, and to the lack of this eagerness to please its customers that our demoralized transportation service is in large measure due.
For instance, bad freight service has seriously impaired the prosperity of New England. Deliveries of freight have been almost incredibly slow and unreliable. The effect upon the business concerns has been very serious. Success of individual businesses has been imperilled. Prosperity of all New England has been retarded. All this has happened in a period in which the country has been blessed with an able, fearless and upright Interstate Commerce Commission, possessing broad legal powers. The recent hearings before that commission have disclosed the evils from which the community suffers. The recent public disclosures will undoubtedly result in correcting some specific evils which have been pointed out; but the commission cannot by any order make the railroads give the shippers good service. Regulation cannot produce efficient and enlightened railroad operation in the interests of the public; and without that the community cannot get satisfactory service.
The efficiency of regulation, even within its acknowledged sphere, is quite limited. The Bridgeport wreck of 1911 was caused, as the Interstate Commerce Commission found, by the maintenance of a short crossover. It was undoubtedly lack of judgment in the railroad originally to establish such a short crossover. When the short crossover was found to be the cause of the accident, the commission recommended its abolition. The recommendation was ignored by the railroad; the change was not made. And the terrible Westport accident of 1912 was the result of ignoring the recommendation. The Interstate Commerce Commission surely performed its full duty of regulation in this connection; and yet the community was subjected to this serious result of inefficiency in railroading.
THE NEED OF COMPETITION
No one has recognized more fully than members of the Interstate Commerce Commission the limitation of accomplishment through railroad regulation. No one recognizes better than they the continuing need of competition to secure satisfactory service.
This appears very clearly from Chairman Prouty's letter to the President, written March 12, 1912, referring to the proposal to permit railroad-owned ships to use the Panama Canal, but referring generally to all water transportation, in which he says:
"The commission, after consideration, is unanimously of the opinion that if the waterways of this country are to be of any substantial benefit in the way of reducing the rates of transportation, it is absolutely essential that rail carriers be prohibited from owning or controlling, directly or indirectly, competing water carriers."
Congress, also, by an overwhelming majority, testified to its conviction that the Interstate Commerce Commission was right in declaring such competition in transportation to be essential to our prosperity; for it not only prohibited railroad-owned steamships from using the Panama Canal, but insisted upon inserting in the Canal Act a general provision by which all railroads engaged in interstate commerce are prohibited from owning or operating any competing water lines on any routes after July 1, 1914, unless the commission should, upon investigation of the particular line, find that is operation is of advantage to the convenience and commerce of the people; or that such service would not retard competition by other vessels on the water route under consideration.
Of course, competition between carriers is not synonymous with rate-cutting. New England longs for good service even more than for lower rates. The Interstate Commerce Commission may effectively prevent increases in rates; and may protect the community by enforcing reductions.
But even in its admitted field care must always be taken not to overwork the Interstate Commerce Commission by creating conditions of monopoly under which burdens would develop greater than it could probably bear. The excellent work which the Commission has so far done has been possible only because existing competition between railroads has to a large extent produced development and supply of reasonable facilities, and, in the main, reasonable rates; each railroad acting, to a certain extent, as a check upon the other. Such is the condition in Wisconsin, where the best success in regulation of railroads has been attained. To abandon competition in transportation and rely upon regulation as a safeguard against the evils of monopoly would be like surrendering liberty and regulating despotism.
THE MONOPOLY UNCONTROLLABLE
The Grand Trunk incident shows clearly that a powerful interstate monopoly like the New Haven with its banking affiliations is uncontrollable, so long as the monopoly is allowed to continue. The people of Massachusetts and of Rhode Island, after some unsatisfactory experience with the New Haven's monopoly of transportation, determined to secure competition. The Boston Chamber of Commerce and other trade organizations of these States insisted that the Grand Trunk should be permitted to secure an independent entrance into Boston and into Providence. The governors of these sovereign States, the mayors of their chief cities, recommended the necessary legislation. The legislatures, after long deliberation, passed the required acts in spite of all the opposition which the New Haven could interpose. Construction of the line through Massachusetts to Providence was commenced, and, despite the obstacles presented by the New Haven, was nearing completion. Contracts were let for the new line of Grand Trunk boats from Providence to New York. Surveys for the Grand Trunk railroad into Boston were being made.
Then the powerful New Haven monopoly, by threat, bribe or other influence, stopped construction and secured the abandonment of the competitive project. The laws of Massachusetts and of Rhode Island were nullified; the will of the people of two supposedly sovereign States was defied; and there is no power of regulation now possessed by, or which can be conferred upon, any State railroad commission or the Interstate Commerce Commission which could prevent or redress such a wrong to the people.
THE CURSE OF BIGNESS
But even if it were possible to really regulate the New Haven monopoly, efficient and satisfactory transportation would be unattainable because the New Haven suffers not only from monopoly, but also from excessive bigness.
The New Haven is not strictly a system; it is an agglomeration of properties. Its huge bulk was attained, not by normal growth, but by acquisition. It represents not so much a development as a putting together. Furthermore, it is an agglomeration, not of railroads merely, but of railroads, steamships, trolleys and other properties.
Here are some of the properties which the New Haven railroad, with 2,006 miles of line has purchased or acquired control of, or an effective interest in, during the last eight years of aggressive monopolization:
MILES OF LINE
|Boston and Maine system||
|Montpelier and Wells River and the Barre railroads||
|Maine Central system||
|Sandy River and Rangeley Lakes||
|Bridgeton and Saco||
|Sebasticook and Moosehead||
|Rangeley Lakes and Megantic||
|New York, Ontario and Western||
|Central New England||
|New York, Westchester and Boston||
These railroads have a total of 7,245 nines of track.
The New Haven acquired also:
1. One-half the New York Central holdings of preferred stock (and would have acquired all but for adverse legal proceedings) in the Rutland Railroad, with 415 miles of line.
2. One-half interest in the results of operating the Boston and Albany, with 392 miles of line.
MILES OF LINE
|In Connecticut, 37 trolley lines||
|In Rhode Island, 12 trolleys||
|In Massachusetts, 19 trolley lines||
|(The New Haven claims to have divested itself of control of a large part of these.)|
|In New York, 3 trolley lines||
|In New Hampshire, 2 trolley lines||
|In Vermont, 1 trolley line||
|(3) STEAMSHIP LINES|
|Hartford and New York Transportation Company.|
|Maine Steamship Line (now merged in Eastern Steamship Company).|
|Metropolitan Steamship Company (now merged in Eastern Steamship Company).|
|Boston and Philadelphia (now merged in Merchants' and Miners').|
To acquire the mere control or interest in new properties, the New Haven invested, during the last ten years of aggressive monopolization, about $250,000,000. In that period the New Haven increased its own capitalization and other direct and contingent liabilities nearly sixfold, or from $87,000,000 to $530,000,000.
Before the New Haven acquired control of these properties they were in large part operated independently and by different groups of executive officers. Since the acquisition, and as a necessary incident of incorporating them into the so-called system, a few New Haven officials have, in effect, been charged with the management of them all. For a few men to manage all these properties well surpasses human capacity.
The bulk of the New Haven properties is huge; but it is not the huge bulk alone which renders impossible the task of efficient management. The New Haven properties are diverse in character and widely scattered; but it is not these facts which present the most serious difficulty in their operation. The insuperable obstacle to efficient management of the New Haven properties, in addition to the status of monopoly, lies in the fact that almost each one of these many diverse properties, agglomerated into a so-called system, presents many problems which are not only important, but are individual to the particular property and to the particular community served by it. That results necessarily from the conditions surrounding transportation in New England.
For the solution of each of these problems there is required, not only separate investigation, but careful weighing of relevant facts. In order to secure unity of purpose and action, all these problems must be passed upon ultimately by the same chief executives. Now, the number of such decisions which any man can make, however able and hard-working he may be, and the extent of supervision which any man can effectively apply, are obviously very limited. Organization may accomplish much in extending the scope of work possible for an executive; but there is an obvious limit, also, to the efficacy of organization; for the success of the whole enterprise demands that the executive must be able to comprehend all the important facts bearing upon the properties. Real efficiency in any business in which conditions are ever changing must ultimately depend, in large measure, upon the correctness of judgment formed from day to day on the problems as they arise. And it is an essential of sound judgment that the executives have time to know and correlate the facts.
MERE CHANGE OF MANAGEMENT NO REMEDY
Men of good judgment must necessarily make many errors if they work under the conditions with which the high New Haven officials have been confronted during the past eight years. If the conditions remain the same, the New Haven cannot, by removing present officials and substituting others, escape from making similar errors in the future; nor can we aid the matter materially by regulation, state or federal. Present ills are due, in the main, to the fundamental error of adopting the policy of monopoly. The ills can be remedied only by abandoning that policy. Present conditions make bad management inevitable. Bad management of the New Haven can be avoided in the future only by changing the controlling conditions under which the properties are to be operated; and that involves reducing the so-called system to a size consistent with efficiency, and subjecting those who manage it to that constant incentive and education which come from having "to make good" in competitive business.
It has been urged that the so-called New Haven system is not too large; and some other large railroad systems have been referred to as evidence of this. It may be answered, in the first place, that none of those systems are monopolies; and that few of them own any trolleys and relatively few are operating steamship lines. Furthermore, several of them appear also to have exceeded the limit of greatest efficiency. But no comparison can properly be made between other large systems and the so-called New Haven system. With a few notable exceptions the size of most of the other systems was, in the main attained by gradual growth. Their main line was built, then extended, and branches were constructed in various directions in obedience largely to actual necessities of the States or of the railroads. Their problems were important and were difficult; but as compared with the problems arising from operation in New England they were relatively few and simple. In the West the same problem is repeated on many parts of the line; there a general rule can frequently be laid down. Here nearly every grave problem is an individual one. New England railroading is done in an old and settled community; the population is congested; and here, to a certain extent, conditions became fixed even before the days of railroading.
The great growth of population and of business in New England has brought with it many problems, individual in character, but which are nevertheless of a nature to require consideration by the high executives. Indeed, this difference between the railroad situation in other parts of the country and that of the East has been frequently urged by the railroad officials themselves. Railroading, to be done efficiently and prosperously in New England, must be done far more intensively than in newer sections of the country. New England railroading may, perhaps, be likened to our intensive market gardening, or to tobacco growing in the Connecticut valley, in contrast to the big wheat farms of the West.
ENDING OF MONOPOLY IMPERATIVE
Even if the size of the so-called New Haven system were much reduced, yet the efficient service demanded by the public could not be attained so long as a monopoly in transportation is permitted to exist. Competition, except in purely local traffic, subject to complete regulation as above described, should be introduced so far as possible everywhere. But, as above explained, this does not mean rate-cutting. Competition is not possible everywhere on the New Haven system; but a broad field of healthy competition is open to New England. Bordering largely on the Atlantic Ocean, blessed with fine harbors, we should have the full benefit of water competition and of the low rates which are consistent with reasonable profit to those engaged in water transportation. Being a thickly settled community, we should have the full benefit of competition through interurban electrics. The New Haven has robbed New England of the benefit both of water competition and of trolley competition.
In order to attain its transportation monopoly the New Haven bought up at huge cost not only competing railroads, but water and trolley lines. To secure satisfactory transportation conditions in New England, water and trolley competition must be reestablished. Connecticut, Rhode Island and Massachusetts should insist upon separate ownership of rail, water and trolley lines, which are naturally competitive.
But the establishment of competing water and trolley lines would not afford complete relief. Neither steamships nor trolleys could break the monopoly in a large part of our traffic. To do that railroad competition is essential. To this end the Boston and Maine must be completely separated from the New Haven. Such separation would reinstate important competition in transportation within the State; and without such separation adequate competition is unattainable in the most important interstate traffic; for instance, to Chicago, St. Louis and the West.
Without establishing an important absolutely independent railroad system in our community, the New Haven and the community will be deprived of that opportunity of comparing standards of operation which is essential to the best accomplishment in any department of business.
Unless the Boston and Maine is separated from the New Haven, Massachusetts and northern New England will be without a railroad system wholly devoted to its interests.
The recent decision of the United States Supreme Court, holding the Union-Southern Pacific merger illegal, may lead the administration to bring proceedings to end this huge New Haven monopoly by reinstituting the proceedings commenced in 1908 by President Roosevelt and dismissed by the new administration in 1909, after the Boston Railroad Holding Company bill was passed. And so far as concerns the water lines, relief may also be afforded through the Interstate Commerce Commission under the provisions of the recent act of Congress.
But proper transportation conditions will probably not be secured unless the States also take appropriate action. The States can effect the separation of the trolley lines. Rhode Island seems inclined to acquire and complete the railroad line which the Grand Trunk was induced by the New Haven to abandon. And at present the most certain and expeditious method of securing the separation of the Boston and Maine from the New Haven appears to be for the Commonwealth of Massachusetts to exercise the right reserved to it in the Massachusetts act of 1909, incorporating the Boston Railroad Holding Company (the New Haven's subsidiary which holds for it the Boston and Maine stock). That act provides:
"The Commonwealth may at any time, by act of the Legislature upon one year's notice, take or require the securities."
The New Haven is clearly bound by the provisions of this statute, as the act expressly provides:
"The acquisition by any railroad corporation...of any bonds, stocks, notes, or other evidence of indebtedness of said Boston Railroad Holding Company shall be deemed to be an acceptance by said railroad corporation of all the terms and provisions of this act."
The legislature of Massachusetts passed the holding company bill upon the assurance of Governor Draper and of the Attorney General that by so doing the Commonwealth would acquire potential control over the Boston and Maine. The aggressions of private monopoly compel it now to exercise this reserved power to take the stock. After the Commonwealth has acquired the stock, it may retain the same and assume the responsibility of a majority owner in a corporation to choose its managing officials; or it may transfer the stock under proper safeguards to others, who will operate it in the interest of Massachusetts and northern New England. But action by the State to take over the stock seems necessary now.
"A condition and not a theory confronts us."
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