Railroad Nationalization

Report Outline
Worsening Problems Among Railroads
Development of U.S. Railway Policy
Factors for and Against Nationalization
Special Focus

Worsening Problems Among Railroads

Approaching Design on Future of Penn Central

The basic problem with most railroads is that they cannot make enough money. There are a host of well-known reasons for that. Competition has cut into their one-time monopoly in the freight business while airlines and automobiles have changed the nation's travel habits. The railroad industry is burdened with too much trackage and too many employees. It is heavily regulated by the federal government. Along with everything else, the industry has not always been blessed with management equal to these challenges. The upshot, according to a growing number of analysts, will be eventual nationalization. Many regard the quasi-governmental Amtrak system, which operates most of the country's remaining passenger trains, as the precursor of what will happen to the freight trains.

The financial collapse of the nation's largest railroad, the Penn Central, in 1970 has thrown a shadow over the entire industry. Railroads are perceived as being crucial to the national welfare and an important one like the Penn Central cannot be permitted to stop operating, even when it is unable to pay its debts. The prospect of a shutdown induced Congress to guarantee $100 million in loans to prop up the line. When employees struck the Penn Central for a single day, Feb. 8, Congress speedily enacted a law forcing the strikers back to work for a 90-day cooling-off period. Despite this assistance, the railway is frequently on the verge of running out of day-to-day operating cash.

Judge John P. Fullam of the U.S. District Court in Philadelphia, who is supervising reorganization of the Penn Central under federal bankruptcy laws, has given the railroad's trustees until July 2 to report whether actions by Congress will make a plan of reorganization feasible. If the trustees should find otherwise, they must present a plan to liquidate the system by Oct. 1, 1973.There are a number of proposals before Congress—ranging from outright nationalization to several forms of government assistance. Congressional Quarterly reported in late May that “many observers felt Congress would not act anytime soon—unless there is actually a rail shutdown.”It was assumed that even if Congress did not act before the July 2 deadline, the court could take steps of its own to reorganize the Penn Central—but it would have to do so without government funds.