Railroads, the Free Enterprise Alternative

Railroads in America are built for a single avowed purpose; namely, to make money.¹

Private enterprise is justified, in the defense long offered by economists, by the service it renders to people in their capacity as consumers. Private enterprise seeks profit. But, to obtain profit, it must serve consumers, for this is the only way to profit that competition will allow. It is thus on the foundation of competition that the case for private enterprise is built.²

Each railroad company provides its own fixed way and has exclusive use of that fixed way. In contrast the highway, water, and air transport modes use publicly provided fixed ways which are available to all carriers. This distinction is the root of the Railroad Problem.

The present railroad industry structure was implemented during the early nineteenth century when two technological developments, the iron rail and the steam locomotive, pushed the railroad beyond the realm of then- existing communications and management capabilities. The complexities of the steam-and-iron railroad mandated adoption of the exclusive service concept under which only one railroad company used each rail fixed way.

During the late 1800's and early 1900's the railroads dominated the national transportation scene. Exclusive service meant many shippers were served by only one railroad company. Only those shippers at junction points, terminals, and a few other locations received competitive service. The competitive-monopolistic dichotomy often led to destructive competition. Shippers in monopolistic markets were commonly charged high rates so that low rates could be charged in competitive markets. This situation caused the railroads to try to control and minimize competition through techniques like pooling, mergers, and even economic regulation.

The railroads' aversion to competition placed them at a disadvantage. Vigorous competition within each of the other modes demanded responsiveness and efficiency from their carriers. The complete absence of eco

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