How Did the Railroads Survive and Prosper?

Maury Klein is author of "Union Pacific: The Reconfiguration: America's Greatest Railroad from 1969 to the Present" and professor emeritus of history at the University of Rhode Island.

Chances are that most Americans think railroads are a thing of the past, a nostalgic technology that once dominated the American scene before being upstaged by automobiles, trucks, and airplanes.  One major reason for this belief is that the railroad has simply passed out of their experience.  Relatively few people take trains, and the only other point of contact for most people is a track crossing where they might sit for some time waiting for a seemingly endless freight to go by.  In fact, the sheer length of such trains provides a clue that the railroads are still very much with us.  Far from being a moribund antique of an industry, it has evolved into a dynamic, prosperous one.

The modern railroad bears little resemblance to its predecessors.  The steam locomotive, that most iconic of symbols for the nineteenth century, is all but gone, replaced by more efficient diesels.  The caboose is long gone, and passenger travel has been consigned to Amtrak.  Trains are much longer, have far fewer crewmen, and depend almost entirely on computers and modern communication systems for their operation and maintenance.  The large number of railroads that once filled the railroad map have been reduced to four major systems, two east of the Mississippi River and two west of it, along with a host of smaller lines.  Of the four surviving giants—the Burlington Northern Santa Fe, CSX, Norfolk Southern, and Union Pacific—only the latter retains its original name.  Within the corporate cloak of all four companies can be found the ghosts of dozens of once-prominent railroads absorbed through mergers.

During the nineteenth century railroads literally reshaped the American landscape, connecting the opposite ends of the nation, opening vast new areas to settlement and economic exploitation, redistributing population on a grand scale, and propelling the growth of national markets.  As the nation’s first big business, they were pioneers in a variety of fields crucial to the emergence of industrialization.  They were the first industry to handle a large, widely scattered labor force and to be unionized on a large scale.  Railroads were also the first industry to be regulated by the federal government, beginning with the Interstate Commerce Act in 1886.  By the early twentieth century they found themselves increasingly restricted by work rules and regulation.

Between 1880 and 1920 fiercely competitive railroad wars expanded the amount of mileage at an incredible rate to more than 212,000 miles.  The overbuilt rail system could not sustain itself, and a large portion fell into bankruptcy during the depression of 1893-1897.  Although most major roads recovered or reorganized, there remained too many railroads with too much trackage chasing too little business in some parts of the country.  The Transportation Act of 1920 tried to rationalize the overall structure but instead only bound the roads in a tighter straitjacket of regulation just as their position in American transportation changed radically.  For a century the railroads owned overland transportation; by the 1920s they faced growing waves of competition from automobiles, trucks, buses, barges, pipelines, and airplanes.  A decade of depression during the 1930s weakened them further and sent many into another round of bankruptcies.

The coming of World War II reinvigorated the railroads.  Like many other industries, they changed almost overnight from groping desperately for business to hauling record numbers of people and goods, pushing their physical plants to exhaustion at a time when the materials for replacements could not be had.  The war restored their financial solvency but left them in poor physical shape.  By contrast the steady advance of wartime technology, especially in aviation and trucks, strengthened the modes of transportation that stood ready to seize even more business from the rails.  Airplanes and automobiles swept passenger traffic from railroads while trucks claimed ever larger shares of non-bulk freight.  Many railroads still had too many miles of increasingly unproductive mileage that they could neither shed nor make profitable.

By the 1960s the industry’s ills could no longer be ignored.  Ledgers bled red ink from passenger and other service that didn’t pay but which the government required them to maintain.  Labor costs soared even as the railroad’s share of freight traffic shrank before the onslaught of more nimble competitors.  One of the most capital intensive industries, most railroads fell short of earning their cost of capital.  As a new round of bankruptcies loomed, talk grew louder about possible nationalization.  Apart from Canada, the United States was the only major industrial nation where the railroads remained in private hands.  The shocking collapse of the Penn Central in 1970 forced Congress to act and started the rail industry on a long and painful road to rehabilitation.

During 1970 Amtrak finally relieved the railroads of the burden of passenger traffic.  A decade later the Staggers Act began the arduous task of deregulating the carriers, allowing them to compete effectively not only against each other but against other modes of transportation.  The railroad industry had always been notoriously conservative, an inbred, almost incestuous workplace that prized seniority and resented change at every level.  The financial and competitive pressures of the 1960s and 1970s forced them to reverse course almost entirely.  The advent of new technologies, especially the diesel locomotive, the computer, and microwave communications systems, brought outsiders into rail companies and broadened their cultures.  Slowly they learned how to market their services and how to rethink the logistics of their delivery.

Faced with enormous and intractable labor costs from the more than twenty unions that bargained with them, the railroads blazed a trail that many other industries would later follow.  They embraced a wide variety of new technologies that enabled them to do much more with far fewer people.  The power of the unions to get sweet deals for their members led to a radical shrinking of their membership as the railroads reduced their work forces.  Deregulation also allowed them to sell or abandon unprofitable mileage and rationalize their business models.  Through another round of mergers companies grew ever larger even as they sliced away employees.

The result today is a thoroughly modern industry that bears little resemblance to its ancestors or its popular image.  No aspect of its operation remains unchanged, and the ranks of its employees are far more diverse and specialized than ever before.  This most cautious of industries survived because it learned to embrace change and not remain a prisoner of its past.

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