Railway Industry

BIBLIOGRAPHY

A railway industry is a group of companies that transport goods (freight) or individuals (passengers) by railcars from one place to another. Locomotives pull or push railcars (containing freight or passengers) over rail tracks. Railways enhance the access consumer and resource markets have to goods and individuals, which in turn contributes to economic development and rising land values, and influences industry locations.

Even before the advent of locomotives, horse-drawn railcars (or tramways) were an improvement over other means of land transportation—the resistance encountered by a wheeled vehicle traveling over smooth rails is less than with non-smooth roadways. By the late eighteenth century, tramways were commonly used in the United Kingdom for transporting coal. The first tramway in the United States appeared in Boston in 1807. Experiments with steam-driven rail locomotives began in the 1820s. By the middle of the nineteenth century, steam locomotives had made the railway industry the world’s dominant provider of land transportation. Steam locomotives, in turn, were subsequently replaced by diesel locomotives.

Freight railway companies are primarily transporters of bulk commodities (such as coal, chemicals, and grain) over relatively long distances. By comparison, trucking companies are transporters of manufactured commodities over relatively short distances. In the United States, railway companies generally incur less cost than trucking companies in transporting goods at a distance of five hundred or more miles. Passenger railway companies provide intercity transportation service, moving individuals from one city to another. Rail service for passengers traveling within a city or to and from a city and its suburbs is provided by urban transit companies.

Governments in many countries have assisted in the early expansion of the railway industry. Forms of government assistance include government ownership, outright donations, tax exemptions, and loans. This assistance stimulated railway construction and, in turn, economic development. At the same time, many projects were undertaken that were not economically justified, resulting in an overexpansion of the railway network.

Cheap labor also stimulated the early growth of the railway industry. Chinese laborers were hired by the Central Pacific Railroad Company in 1863 to build a section of the U.S. transcontinental railroad over the Sierras and into the interior plains. They worked for meager wages through harsh winters and under dangerous working conditions. Convicts and slaves also built railways in the United States and in other countries.

Eric Williams (1944) has argued that, because the African slave trade was instrumental in U.S. and British economic development, it indirectly stimulated the expansion of railway networks in the United States and Britain. This claim was countered by Stanley L. Engerman (1972) through what is called the “small ratios” argument, which maintains that slave-trade profits were too small to stimulate British industrialization. In response to Engerman, William Darity Jr. (1990) argues that there are several growth and trade theories supporting a prominent role for the African slave trade in British industrialization that cannot be dismissed or disproven by the small ratios argument.

An earlier application of the small ratios argument by Robert Fogel (1964) focused on the economic history of the railway sector itself. As part of his development of an overarching hypothetical picture of American economic growth without a transport revolution, Fogel sought to demonstrate that the revenues generated by the railway system as a percentage of gross domestic product were too low to have been decisively important. But Fogel’s argument is subject to the same response that has been given to Engerman’s attempted refutation of the Williams hypothesis: While it is true that the revenues or profits of any single sector as a percentage of total national income generally will look “small,” the critical consideration is the full impact of the sector via its linkages with numerous other productive sectors forming the economy.

To protect the public against monopoly-related abuses, railway companies were often economically regulated by government. In the United States, for example, the 1887 Interstate Commerce Act established the Interstate Commerce Commission (ICC) to economically regulate interstate railway transportation service. Economic regulation of railways may include rate/fare regulation, entry regulation, service regulation, and financial regulation. Rates (prices for freight service) and fares (prices for passenger service) charged and entry into the industry are subject to approval by the regulatory commission. Freight and passengers are to be delivered in the same physical condition as received. Various financial aspects of the railway industry, such as mergers and accounting systems, are also regulated.

Government assistance and regulation aimed at economic development and protection of the public interest may also restrict competition. In the United States, restrictions on “intermodal” competition (i.e., between two modes of transportation, such as railways and trucking) have contributed to a decline in the U.S. railway industry, exhibited by a decrease in industry market share and return on investment. In 1945, 67.2 percent of the U.S. domestic intercity freight traffic (in ton-miles) was transported by railways and 6.5 percent by truck; by 1975, 36.7 percent was transported by rail and 22 percent by truck. The rate of return on net investment for U.S. Class I (the largest) railroads was 4.7 percent in 1944, but declined to 1.2 percent in 1975. Regulation suppressed intermodal price competition and the abandonment of excess track capacity.

In the 1970s the U.S. Congress responded to the decline in the railway industry by creating Amtrak (the National Railroad Passenger Corporation) to take over all rail passenger-service lines over seventy-five miles in length, and Conrail (a government corporation), to operate the freight service of seven major Northeast railways in bankruptcy. The Staggers Act of 1980 partially deregulated the industry by providing railway companies with greater opportunities to compete and thus reverse the industry’s decline. Specifically, the Act provided greater pricing freedom and reduced the time permitted for the ICC to make merger and track-abandonment decisions.

The U.S. railway industry, its shareholders, and most shippers have benefited from deregulation—the industry’s share of intercity freight traffic (in ton-miles) increased to 41.7 percent by 2001, the rate of return on net investment for Class I railroads increased to 6.1 percent by 2004, and real railway prices (adjusted for inflation) have declined. On the other hand, labor has been harmed. In 1975 the industry had 548,000 (488,000 Class I) employees; by 2004 the number had declined to 226,000 (158,000 Class I) employees. These job losses are attributed to industry restructuring and the increased use of technology.

The United Kingdom has sought to promote competition in its railway industry by privatizing the government-owned British Railways (BR) through passage of the Railways Act of 1993. The ownership and control of infrastructure were separated from train operation. Infrastructure was placed under the control of a new government company, Railtrack, in 1994, but in 1996 BR’s freight-train operations (including rolling stock) were split into six companies and sold to the private sector. Passenger train operations were not sold, but were franchised to twenty-five private-sector train-operating companies. Under privatization, however, government subsidization of the railway industry has more than tripled, due to subsidies to passenger franchises and to Network Rail, the company that replaced the collapsed Railtrack. The numerous private freight-operators that have entered the market have resulted in more competitive freight operations. The four remaining freight-operators are profitable.

The European Commission (EC) is seeking to liberalize the national railways of its European Union member-states by creating a single market for rail transport through the removal of barriers to cross-border freight and passenger rail traffic. Specifically, the EC is seeking to separate the control of rail infrastructure from operations, to eliminate physical differences among national railways (e.g., with respect to signaling, electrification, and operating rules), and to open the market up to competition. The entry of numerous private freight operators into the market has forced the national railways to become competitive.

An important challenge facing railways in many countries is to provide enough capacity to keep pace with the growth in world trade. The volume of ocean-container shipments is growing worldwide at the rate of 9 percent per year, thereby overburdening the infrastructure of railways that transport containerized cargo to and from ports (i.e., railways engaged in intermodal traffic). Today, the largest share of the cargo mix for U.S. railroads is intermodal cargo. In Canada, a shortage of intermodal rail cars has resulted in congestion (or traffic delays) at a number of its ports. Intermodal rail service in China has numerous problems, such as lateness and cargo damage.

SEE ALSO Immigrants, Asian; Industry; Servitude; Slavery; Transportation Industry

BIBLIOGRAPHY

Darity, William, Jr. 1990. British Industry and the West Indies Plantations. Social Science History 14 (1): 117–149.

Engerman, Stanley L. 1972. The Slave Trade and British Capital Formation in the Eighteenth Century: A Comment on the Williams Thesis. Business History Review 46 (4): 430–443.

Fogel, Robert William. 1964. Railroads and American Economic Growth: Essays in Econometric History. Baltimore: Johns Hopkins Press.

Keeler, Theodore E. 1983. Railroads, Freight, and Public Policy. Washington, DC: Brookings Institution.

Schwarz-Miller, Ann V., and Wayne K. Talley. 1998. Railroad Deregulation and Union Labor Earnings. In Regulatory Reform and Labor Markets, ed. James Peoples, 125–153. Boston: Kluwer Academic Publishers.

Schwarz-Miller, Ann V., and Wayne K. Talley. 2002. Technology and Labor Relations: Railroads and Ports. In Technological Change and Employment Conditions in Traditionally Heavily Unionized Industries. Vol. 23 of Journal of Labor Research, ed. James T. Bennett and Daphne G. Taras, 513–533.

Williams, Eric. 1944. Capitalism and Slavery. Chapel Hill: University of North Carolina Press.

Wayne K. Talley