Evening star., 1935-10-25
GOVERNMENT HELD
RAIL DRAWBACK
Plight of New Haven De.
Clared to Stress Serious
ness of Conditions.
BY DAVID LAWRENCE.

BY DAVID LAWRENCE.
The plight Of the New Haven Rail-
road, which has occupied public
attention this week, has served to
draw attention to the fact American
railroads are worse of In 1895 than
they were in 1884; in fact, they are
slipping back TO a condition com.
parable TO 1882, the depth of the de-
preston. And all this in spite of the
fact total operating income for the
first eight months of 1885 was greater
than for the corresponding months of
any year since 1881.
What's the answer? The railroads
say operating costs have been forced
on them through the increased prices
of raw materials and through the
forced restoration of wage cuts before
the roads were able to absorb them.
Government Drawback.
But there's another answer. 1t IS
TO be found in the policies pursued
for the last 20 years by the National
Government, under Republican as
well as Democratic administrations,
in falling to consider the economics
Of railway operation yet in interfer-
ing in management, subsidiZ.ug the
| competing carriers and generally ham
ding the transportation problem in
the same haphazard fashion Of expert
mentation that has characterized the
N. R. A. and the A. A A. under
economic planning"
Political pressure on the Executive
and on Congress has prevented the
whole transportation problem from
being viewed nationally, and. while it
is true the railroads think labor has
been too grasping and has been aided
by the politicians because Of their
votes, the fact remains that the de-
preston has proved how important it
is to maintain the purchasing power
OF labor. In other words, If the rail.
roads could increase their traffic by
10 or Is per cent, they could pay the
present wages, meet their fixed
charges and furnish good service to
passengers and shippers.
But increases in traffic are tied up
with the general economic situation
and with the impediments that have
been raised by artificial measures to
retard recovery.
Economies in operating costs can,
of course, be suggested, but until the
Government itself permits a greater
degree Of flexibility and there's an
incentive to management. the genius
that built up American transportation
will not be revived.
Recapitalization Held Essential.
One of the big costs, to be sure, is
interest on borrowed money. Recapi-
talization would seem to be essential,
too, to weed out the deprecated SUBJ
salaries and permit the railroads 10
do some Of the sound things they have
long been forbidden to do in getting
traffic.
To recapitalize means long-drawn-
out court proceedings, but the new
laws passed in 1888 and amended last
session are of great assistance In ac-
celebrating the process. Thus the New
Haven's predicament has been re-
ferred to in the headlines as bank
ruptcy." Technically, that's true, but
actually the New Haven Is going
through a reorganization that will
correspond to the receiverships Of
other days.
For under what is known as seq
ton 77-B Of the bankruptcy law. a
reorganization plan can be worked
out and submitted to the courts that
preserves as many Of the security
holders as equitably belong in the pic
ture. Such reorganization proceed-
ing cannot be instituted unless cor
poration can prove that it cannot
meet its maturing obligations. In
good faith, it must exhaust all its
avenues of credit. This the New Ha-
ven management has done, even in
cluding a request to the Reconstruc-
ton Finance Corp, which has been
publicly announced as having been re-
fused. Now, therefore, the New Haven
can proceed with its reorganization.
Fail to Earn Charges.
It is interesting to note that, of
the class / roads, about 81 per cent
have failed to earn their fixed charges
during the first seven months of 1895.
This means that security holders,
which, by the way, are to no small
extent educational institutions and
social welfare institutions generally,
are the ones whose incomes are suf-
fering For railroad bonds used to
be gilt.edge investments, and many
of them, in the better and stronger
roads, are still gilt-edge.
Congress, in the last session, by
putting motor carriers and inland
waterways under the regulatory power
of the Interstate Commerce Commits
sion. has taken a constructive step.
Recapitalization and readjustment of
the debt structure is another step.
But the railroads will not come back
to their own till the whole price
structure in America can adjust it
self to meet the new conditions, thus
making for that desired increase in
velocity of transactions which pro-
duces more freight traffic and more
carloadings.
Copyright 1857