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report and in other public statements called attention to certain features which he believed should be given consideration. These features may be summarized as follows:
(1) It was not practicable to increase rates immediately when federal control began. The general increases in freight and passenger rates were made effective in June, 1918. The first general increase in wage rates, while announced in May, 1918, was made retroactive to January 1.
(2) During the first six months of 1919 there was an extraordinary slump in traffic.
(3) The coal strike in November and December, 1919, seriously affected revenues, and operating expenses were increased by the higher price of fuel.
Mr. Hines stated that the net operating income of 1918 would have been $494,000,000 greater if it had been practicable to increase rates on January 1, 1918, in the same degree that they were advanced in June. This additional revenue would have brought a surplus of nearly $250,000,000 in 1918, instead of a deficit of an approximately equal amount.
In referring to the disappointing results of 1919, Mr. Hines intimated that the serious decline in business during the first half of the year accounted for practically all of the deficit of $292,500,000 in that period. To the coal strike he attributed the deficit of $114,000,000 in November and December, 1919. He called attention also to the fact that the Federal Control Act required
the Government to assume one-sixth of the annual standard return as the rental for January and February, 1920, although the earning capacity in those two months is lower than the average for the year. In the test period the January and February proportions of the yearly railway operating income were 6.228% and 5.257% respectively, a total of 11.485% for the two months, whereas the “pro rata for each fractional part of a year of federal control” (required by the Federal Control Act) obligated the Administration to pay 16.667% of the annual rentals. This method of accounting added approximately $49,000,000 to the deficit for January and February, 1920.
It is proper, of course, to give due consideration to all of these adverse factors. At the same time it must be remembered that scarcely any period in railroad operation is free from similar factors which affect net income. The so-called "outlaw strikes” in 1920, for example, account for the larger part of the deficit during the first six months of resumed private operation while the Government guarantee was continued. The slump in traffic in 1921 accounts in greater part for the disappointing results of that year, and the extensive strikes of shopmen, miners, textile workers and others in 1922 seriously diminished the net revenue of that period.
Mr. Hines quite properly objected to the deficit during the 26 months being labeled as the "cost" of federal operation. As was pointed out in reviewing the financial results of the first period of Government control, the deficit in that period could have been avoided if the increase in freight and passenger rates had been greater. The larger deficit of the second period could similarly have been met if Mr. Hines had considered it expedient to initiate further rate increases during his régime. As it stands, the loss is borne by the public treasury. It might have been imposed in the first place upon shippers and travelers in higher transportation charges, but the ultimate net result would have been practically the same.
If private operation of railroads had continued during the war, it is probable that the railroads would have had to assume increases in expenses approximately as great as those assumed by the Government. Although it is probable that the restrictive rules of the national agreements would not have been adopted, a wage scale lower than that of the Railroad Administration could hardly have been maintained without intolerable interference with the movement of troops and war supplies. It is true that the railroads were turned back with diminished earning power; but it is doubtful whether the security holders would have been in any better position on March 1, 1920, if private operation had continued throughout the war.
HOW FAR THE POLICIES OF UNIFICATION
HAVE PROVED PERMANENT
T is not practicable to make a satisfactory appraisal of the economies made possible
through the unification policies of the Railroad Administration. These economies were entirely obscured or were offset in whole or in part by other factors which had an overpowering influence upon operating expenses. Among the adverse factors the two of greatest effect were (1) the necessity during the first year of giving primary attention to war-time transportation needs and but secondary consideration to operating costs, and (2) the lower efficiency of labor, especially among the employees with hom the national agreements were made. Further to be considered are the general advances in all wage rates, the general adoption of the eight-hour day in all branches of the service, the greater costs of materials, and the highly unsettled business conditions. Unfortunately there is no known test which if applied to the operating results of two periods would bring definite results from which the single factor of unification of facilities and equipment could be measured with any approximation of accuracy. The estimates which appear in the annual reports of the Administration are to be viewed with caution, as they tell but part of the story. Undoubtedly the common use of terminals and other facilities by roads which are normally in competition resulted in savings in operating costs. These, however, under the noncompetitive conditions of federal control, were not as important as was the increased capacity which such consolidations made possible when the railroad machine was taxed to its utmost by the demands of war transportation. During the year 1918 the unification policies and the centralized control, backed by patriotic cooperation from the whole organization, made it possible to produce a volume of transportation greater than that produced in 1917 (when all previous records had been broken) and to move the traffic with less congestion and delay. It should be noted, however, that in 1920, particularly during the second half of the year, when the railroads were again under private operation and when the policies of the Railroad Administration were not in effect, the volume of traffic exceeded even that of 1918, and it was moved with a freedom from congestion and delay that compares favorably with the record of the best months of the federal control period.
Since the termination of federal control many of the unification policies of the Railroad Administration have been materially modified or have been entirely abandoned. Many were applicable only to a period in which competition in service was eliminated. The absence of competition in service during federal control was distateful to the shipping and the traveling public. The pros