In 1968, after a hundred years of operation, Pennsylvania Railroad merged with New York Central and the New York, New Haven and Hartford railroads to form a monopoly of train service in the northeast and Midwest.
8 years later it was bankrupt, and Conrail was formed. Conrail had a near monopoly on train service in the Midwest east of Chicago and the northeast. It was massive. It started to turn a profit within ten years and remained a for-profit government corporation until it was privatized in 1997. As Conrail was public it continued to make money, reinvest the money in the railroad, and service continued to improve.
But then it was privatized and progress has basically stopped since then.
I do not believe the rate setting was the primary factor in how railroads went bankrupt. That’s nonsense. Neither do I believe the Nazis building the Autobahn caused Deutsche Bahn to fail. I think a large part of it is due to incentive structure. The incentive of every private company is to maximize profit for shareholders. This usually works fine because of competition. If Microsoft were to stop investing in Azure, their customers would move to Amazon and Google, and Microsoft would lose a tremendous amount of money. But the issue for railroads is that competition is inevitably limited. If I want to send a shipment between Chicago and Fort Wayne I have only one option. I don’t care who owns the track between Stockton and Reno, it’s irrelevant. Even though there are highways between these cities, roads are more expensive when both trains and roads are run at their optimal level, leading trains to overcharge compared to their actual cost of doing business. Another negative side effect is that if a private corporation has the choice between non-urgent maintenance or sending a dividend to a shareholder, the private corporation is always going to spend money on the dividend, leaving maintenance for a later date. We saw this across the country in the first century of American railroading. Americans also correctly see sending taxpayer money to subsidize profitable corporations as distasteful and inefficient. Railroads should be able to pay their standard maintenance from their profits, just like any other company.
This led to a gradual decline in railroads as the quality of the track declined, leading to the bankruptcy of railroads in the 1970s. We had a choice, nationalize, or lose railroads in the Northeast and Midwest. We chose to nationalize.
Conrail was a success story. It turned unprofitable companies which would not invest enough into maintenance into a successful and profitable corporation. Then the federal government sold it off. There has been no expansion of passenger rail in the Midwest on former Conrail tracks since then. https://en.wikipedia.org/wiki/List_of_Amtrak_routes#Midwest
Neither has privatization been a boon for railroading. In 2002 around 2.3 trillion tonne-kilometers of freight were transported across the United States, and 2.1 trillion tonne-kilometers were transported in 2023. Basically unchanged.
If that’s not enough, America doesn’t even lead the world in terms of freight tons carried once we control for area. https://docs.google.com/spreadsheets/d/1UjzVlCG2pOCNeuvcT0xEUIjKktV3bt_h7TC6IHKSXMc/edit?usp=sharing
But we do seriously lag behind our peers when it comes to passenger rail.
That’s the reality of the privatization of public utilities.
What if
Now let’s imagine if instead of privatizing Conrail we had instead kept it in public ownership and used the profits to reinvest into itself to the present day.
Images are from Wikipedia
Here is an incomplete list of routes we could have added on just from the tracks controlled by Conrail:
- Cincinnati – Dayton – Columbus – Cleveland
- Chicago – Fort Wayne
- St. Louis – Indianapolis – Dayton – Columbus – Pittsburgh – Philadelphia
- Rochester – Montreal
- Buffalo – Binghampton – New York/Philadelphia
- Detroit – Toledo – Dayton – Cincinnati
- New York – Chicago via northern Pennsylvania, cutting out hours from Lake Shore Limited.
And many many more.
When I took the train to the west coast in November I noticed the track which was former Conrail track was better maintained than the track leading west out of Chicago. The train was faster, and it was clearly in better shape than the track which had never been public.
Not only that, but if we had worked on electrifying the track, straightening, and generally improving the track further it would have benefited not just passenger rail but also freight, as opposed to the stagnation of American freight we have seen for the last 25 years. Increasing capacity while better safety standards for railroads in this most populous region of the country would be significantly beneficial.
It would reduce federal subsidies to private railroads, giving them the option of either being profitable and paying their own maintenance, or being bought out by Conrail.
This would have improved railroading for the entire country and Conrail should never have been sold off.