[Railroads are prioritizing payments to Wall Street stockholders
over everything else, including serving the public interest.]
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THE AVERTED NATIONAL RAIL STRIKE IS A PARABLE OF CONTEMPORARY
AMERICAN CAPITALISM  
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John Cassidy
December 6, 2022
The New Yorker
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_ Railroads are prioritizing payments to Wall Street stockholders
over everything else, including serving the public interest. _

The legislation, which would impose a labor agreement between rail
companies and workers amid threat of a strike, is now cleared to be
signed by President Biden., Haiyun Jiang/The New York Times

 

In our click-driven world, the threatened strike at America’s
freight railroads, and President Biden’s intervention to prevent it,
represents last week’s news. But there are two groups for which the
averted strike is still very much front and center: the hundred and
fifteen thousand rail workers who will be forced to work under the
terms of the contract agreement that the White House and Congress
imposed upon them after some rail unions rebuffed a deal mediated by
the Administration, and the managers and owners of the railroads, who
will get back to running what, these days, is an immensely lucrative,
and suspiciously monopolistic, business.

Much of the news coverage of the contract dispute focussed on the
railroads’ refusal to grant their workers paid sick leave. But this
intransigence was only one aspect of a larger parable of modern
American capitalism. Unfolding in one of the country’s oldest and
most far-flung industries, it is a story of deregulation,
consolidation, downsizing, under-investment, and intensification of
work practices. Most of all, though, it is a story of
financialization, and of prioritizing payments to wealthy stockholders
over everything else, including serving the public interest.

During the lockdowns early in the coronavirus
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accelerated their job cuts and capacity reductions. When demand
rebounded last year, many shippers faced chronic delays,
cancellations, and, in one case, a temporary suspension of service on
key routes between the West Coast and Chicago. “Freight-railroad
service is abysmal,” Representative Peter DeFazio, the chair of the
House Committee on Transportation and Infrastructure, complained, at a
hearing earlier this year. “This appalling service is forcing
shippers to recoup their extra costs downstream, and Americans are
paying for it—with increased food costs and at the gas pump.”

The modern rail-freight industry dates back to 1980, when Congress
partially dismantled a strict system of regulation that had been
introduced in the late nineteenth century following a catalogue of
abuses by the companies of the original railroad barons, men like Jay
Gould, James Hill, and Edward Henry Harriman. The Staggers Rail Act of
1980—named after the Democratic congressman Harley O. Staggers,
Sr.—gave the railroads much more freedom to run their operations,
including closing down unprofitable lines and setting their own
freight rates, which the federal government had previously determined
through the Interstate Commerce Commission. For a time, deregulation
appeared to work as planned. Thanks to healthy competition in many
areas, prices fell and shipments increased. After decades of losing
out to trucking, the rail industry started to win back market share,
which was good news for its workers and owners, and for the
environment. (Rail transportation is much less carbon-intensive than
trucking.)

Similarly to what happened in the decades after the Carter
Administration deregulated the airline industry, the era of vigorous
rail competition gradually gave way to consolidation and tacit
collusion. After a long series of mergers, there are now just seven
large, or Class I, railroads, compared with thirty-three in 1980, and
between them they control more than eighty per cent of the freight
market. “CSX and Norfolk Southern have a duopoly on traffic east of
Chicago, while Union Pacific and BNSF have a duopoly on traffic west
of Chicago,” Matthew Jinoo Buck, a senior fellow at the American
Economic Liberties Project, pointed out, in an illuminating article
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for _The American Prospect_ earlier this year. “Canadian Pacific,
Canadian National, and Kansas City Southern run much traffic going
north-south through the Midwest.”

Rather than expanding their operations for a greener age, the big
railroads have been doing what unregulated or lightly regulated
monopolists (and duopolists) tend to do: rationalizing their
operations, reducing their workforces, and charging prices well above
their costs. According to the Surface Transportation Board, which
replaced the defunct Interstate Commerce Commission in 1996,
inflation-adjusted freight rates have risen by thirty per cent since
2004, and over-all freight traffic—in terms of carloads and
tonnages—has been declining since 2006. In recent years, the
industry has slashed its workforce by roughly a third. “Operating
the railroads with that many fewer employees makes it difficult to
avoid cuts in service, provide more reliable service, and reduce poor
on-time performance that does not compete well with trucks.” Martin
J. Oberman, the current chair of the Surface Transportation Board,
noted, in a speech last year.

 
 
Meanwhile, industry profitability and payments to shareholders have
been soaring. Between 2011 and 2021, according to Oberman, the big
railroads spent a hundred and ninety-one billion dollars on dividends
and stock buybacks, which was far more than the hundred and
thirty-eight billion dollars they spent on capital investments in the
industry’s infrastructure. “Where would rail customers, rail
workers, and the public be if a meaningful portion of that hundred and
ninety-one billion dollars had been reinvested in expanding service
and making service more predictable, reliable, and on time?” Oberman
asked.

Much of the impetus for the cost cuts and layoffs has come from Wall
Street, where activist investors have taken stakes in railroads and
demanded changes and higher profits. The process began more than a
decade ago, when the Children’s Investment Fund Management, a
London-based hedge fund, invested in C.S.X., and it is still ongoing.
Earlier this year, Bill Ackman, a billionaire hedge-fund manager who
had previously invested in Canadian Pacific, purchased another stake
in the company. Oberman described the pressure that Wall Street exerts
on the railroads to prioritize cost-cutting over investment and growth
as “ever-increasing.”

The railroad companies claim that they have made up for their lost
workers and capacity cuts with gains in efficiency. In recent years,
they have introduced some new technology and forced their remaining
employees to accept new work rules under a system known as Precision
Scheduled Railroading; as Buck explained, this “meant running
faster, longer trains, and skimping on service, spare capacity,
systemwide resilience, and safety.” It is largely because of this
new bare-bones system that the railroads were so reluctant to give
their workers paid sick days. If a conductor or engineer calls in ill
at short notice, the company has to find a backup to replace the
absentee, and this can be costly or difficult. Rather than
compromising on paid sick leave, the railroads agreed to raise pay and
hold the line on contributions to employee medical plans. That stance
indicated just how important maintaining an ultra-lean and
ultra-flexible staffing system is to their new business model.

Far from rolling back Precision Scheduled Railroading, the new labor
agreement that Congress has imposed formalizes elements of it,
including the introduction of “self-sustaining pools” of workers,
and thus will give managers more freedom in scheduling crews and
replacing absentees. The locomotive engineer Ross Grooters, who is the
co-chair of Railroad Workers United, a cross-union caucus of railway
workers, explained
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the significance of this change to the Web site Labor Notes: “So
instead of being on a [schedule] where you have multiple people in
front of you and you know that you’re, say, the tenth person on that
roster to be called and you know that tenth train will come sometime
tomorrow—which is still very unpredictable—now all of a sudden,
you can get called out of the blue to go to work fifteen minutes from
now because they need somebody to fill a train.”

This is the sort of detail that doesn’t attract headlines, but it
will affect the work lives of thousands of railroad workers and help
keep the profits and dividend payments flowing to Wall Street. And it
is surely only a precursor of more labor battles to come. The railroad
companies are already pushing to reduce train crews from two to one.
With autonomous control systems making rapid advances, it surely
won’t be long before the companies try to introduce unmanned freight
trains. Over in Australia, autonomous trains
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are already carrying iron ore hundreds of miles, for the mining giant
Rio Tinto. In Wall Street’s relentless drive to raise profits and
reward shareholders, there is no rest for workers and little space for
broader considerations, such as building a cleaner and more resilient
transport system. ♦

* Rail Union; Biden and the Rail Contract; Future of Railroads;
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