A Statesman's Opportunity ADDRESS BY FAIRFAX HARRISON At the Annual Dinner of the Railway Business Association December 10, 1914 4 A Statesman's Opportunity Address by FAIRFAX HARRISON President of the Southern Railway Delivered at the Sixth Annual Dinner of the Railway Business Association, the national association of manufacturers of railway materials, equipment and supplies, at the Waldorf- Astoria Hotel, New York, December 10, 1914 IN developing the principles which now control railway transporta- tion in the United States, we, as a people, have traveled far in recent years. The time is well within the memory of men still in active life when rail- roads, both in regard to their owner- ship and in regard to their use, were considered not only by their owners, but by the public, as private property. This was when railroad building, as a means of developing and making avail- able vast stretches of territory, was the prime necessity of the people and when the thing of first importance was to encourage the use of private capital in these pioneer enterprises. As a means of giving this encouragement, private investors were invited to build rail- roads, with no suggestion that a sys- tem of public regulation would super- 297757 sede the right of private use and man- agement. DISCRIMINATIONS AND REBATES Under this conception of the nature of these properties, it inevitably hap- pened that, as the railroads were to be used for private ends, their managers felt at liberty to make bargains solely from the standpoint of the private gain of the company. They sold transpor- tation to those of the public who took it by wholesale at prices and on terms different from those on which they sold to the individual who took little of it. They gave rebates to those of sufficient commercial importance to de- mand them, while denying these con- cessions to others. They did things which they deemed would increase their business % and their .-profits, such as many engaged in other forms of in- dustry still do, without recognizing that their form of industry differed from most other forms of industry, in that there inhered in it a peculiar pub- lic, as distinguished from private, in- terest in the character of their services and in the terms on which they were performed. OLD CONCEPTION OUT- GROWN This conception of the business of transportation, entertained at once by the authority which granted the origi- nal charters and by those who had ven- tured their means in making them a success, was at the same time conceded and encouraged by the public, but we now deem that it was fundamentally unsound. It was based upon a prin- ciple of the relation of the State to in- dustry, which, like some others, has gone down in a revolution of public opinion. It ignored the controlling in- fluence which transportation, as dis- tinguished from most other forms of industry, was in time to exert upon the public welfare. It failed to take into account the fact that the fate and the fortunes of industries, of individuals and of communities could be made or marred by a few men controlling, for the gain of private owners, the trans- portation facilities of the country. It failed to recognize that a power harm- less enough when it was granted might become with exercise so great as to be a political menace. Whatever was its original quality, an economic concep- tion which differed fundamentally from a political tendency could not be suffered permanently to survive in a democracy. TOO MUCH PRIVATE POWER As the economic necessity, con- sidered from the standpoint of the prime interest of the people, for the building and extension of railroads be- gan somewhat to decline, the public mind commenced to busy itself with other related questions, chiefly eco- nomic in their character, which were then pushing to the front with the question of how competition or the op- portunities for competition created by the railroads, was affecting rival mar- kets, or rival producing centers, or rival commodities and .industries, or aspir- ing and rival communities. It was per- ceived that the conception of private ownership, accompanied by the un- qualified and unregulated right of pri- vate use for private gain, gave to the private owners in the last analysis the power of commercial life or of com- mercial death over individuals and over industries and communities, and could not in the general interest be tolerated. PUBLIC RIGHT TO REGULATE This resulted in the recognition of a new conception that a right exists in the public to regulate the use of these privately owned and privately managed properties, and immediately efforts began to be made, with more or less definiteness of purpose and with more or less moderation, to regu- late by governmental authority the use by their owners of privately owned transportation properties. The appearance of this new con- ception marked the beginning of a bitter controversy between the own ers of these properties, on the one hand, who had invested their money believing that they were not surren- dering the right of private and unregu- lated management, and, on the other hand, representatives of the public, who asserted the right and the duty of the government to control the power of private management and to subject the use of these properties to com- plete and effective regulation to go far beyond the regulation of the origi- nal economic questions and to inter- fere even with the smallest details of physical operation. This controversy was fiercely waged for many years. Its virulence was intense, but not without precedent. In all history the conflict of creeds, of ideas and of sys- tems has been bitter and has been merciless. SWING TO OTHER EXTREME In this conflict the public has come out victorious, and in its victory has been illustrated the cycle theory of the philosophy of history. In the bit- terness which the conflict engendered, the conception of a public right of regulation has gone as far in the di- rection of error on the one side as the conception of private ownership and private management had previously gone on the other. It has come about that the public denies not only the right of unregulated use, but also the right of unqualified private owner- ship. It has resulted in the assertion of a power of public regulation without the assumption of any corresponding duty or responsibility. In these days of revolution of opinion the views of the extremists have for a time pre- vailed, and the power of regulation has been pushed to an extent not an- ticipated when the right of reasonable regulation was first actively asserted. The pendulum has now swung to an extreme on the side of irresponsible public power as it had previously swung to an extreme on the side of irresponsible private ownership. A POLITICAL ASSET In the clash of this controversy and in the flush of the victory of the con- ception of irresponsible power in the public, many forces have been de- veloped and have found encourage- ment, which are now difficult to con- trol, and the real interest, as well as the real right of the public in the system of transportation has been given a false perspective. One of the most significant, as well as one of the most embarrassing and im- portant, developments has been that this great business question has been injected into politics and has come to be regarded as a valuable political asset by men aspiring to pub- lic office. It has been found easy to interest and to agitate the public mind on the subject. Possessing many technical sides difficult of comprehension by those uninstructed by practical ex- perience, requiring a large and com- prehensive view adequate to take in and properly to balance the rights and interests of all commerce and of all communities, no matter how different- ly circumstanced or how widely sep- arated, the economic, as distinguished from the physical, problem of the rail- road manager possesses little which will appeal to the popular imagination, but much that can be used by the skill- ful agitator to produce misunderstand- ings of motives, misconceptions of purposes and policies, and so to arouse local and neighborhood prejudice. APPEAL OF THE AGITATOR TO PREJUDICE The only appeal the railroad man- ager can make is to the spirit of thoughtful consideration, of wisdom and moderation of the people. Here is his handicap. To be successful such an appeal takes time, for the history of popular government shows that it takes time for the public to reach its final conclusion on any important question, especially on one of an eco- nomic nature. On the other hand, the appeal of the agitator is to the immediate selfish interest, to prejudice and impulsive judgment and to the spirit of quick and active resentment of the people. Such an appeal does not take time, and the result in respect of these proper- ties is that many impulsive and incon- siderate conclusions find their way into statutory or commission-made law which the sober judgment of the people will not subsequently approve. Meanwhile, however, a business of the highest public importance, one which to be successful must be sub- ject to a wise, stable, consistent and constructive policy, has been made the victim of a judgment which is impul- sive and ill-considered, a judgment founded upon an inadequate compre- hension of the problem in all its reach and consequence. A FALSE CONCEPTION A natural corollary to the view which would make the transportation question a football of politics, which would consider it merely from the standpoint of its advantage to the political fortunes of the aspirant for public place, is that common carriers, in respect of their regulation, may be considered of public concern when it is advantageous to do so and of pri- vate concern when that course consti- tutes the chief political advantage. This means that, if considerations of important political advantage are dominant, these carriers are consid- ered as public when it comes to the imposition of burdens and to limiting charges or regulating operations, but private when it comes to creation of credit or improvement of conditions. In other words, there seems to be in many minds the false conception that, in the matter of imposition of burdens, railroad companies are pub- lic concerns and subject to the public regulating power, but, in the matter of relief, are private property and not entitled to be considered from the standpoint of their public service. THE RATE CASE This has been strikingly illustrated by some of the contentions recently made in the advance rate hearing be- fore the Interstate Commerce Com- mission. There the question was asked why it is that railroads should be permitted to increase their charges at a time of general business depres- sion and when all other industries are suffering from decreased revenues. In the last analysis the basis of this sug- gestion is that railroads, in respect of this matter, stand as private enter- prises and represent only a private in- terest. It is an assertion of the propo- sition that their private owners alone are concerned with the question of sustaining their operations. It ignores the principle, so often relied on in other connections, that railroads are engaged in a governmental function and are doing a thing essential to the public welfare. It loses sight of the fact that the maintenance of transpor- tation facilities is a condition prece- dent to the success of every private enterprise and to the return of pros- perity to all the people. It takes no note of the public nature and of the public obligations of the transportation business. INSTABILITY, UNCERTAINTY, INEFFICIENCY If, however, the question comes of a reduction of transportation charges, or of the imposition of public burdens, the teachers of this doctrine insist loudly on the public right and the pub- lic power of regulation and control. This inconsistency of attitude on the part of those often influential in pub- lic affairs produces, in respect of mat- ters involving the continued efficiency of the carriers, a situation of instabil- ity and uncertainty which is of vital consequence to the public. One of the outgrowths, full of men- ace, of this situation is the appearance in our public affairs of men who as- sert successfully an influence in di- recting the regulating power of gov- ernment, but who are without any re- sponsibility, official or otherwise, for the consequences. The conscientious railroad manager, responsible alike to those who invest their private means in the establishment of these properties and to' the entire public for the success of the transportation system, is con- fronted by men who criticise and op- pose, but on whom will fall none of the responsibilities or burdens of fail- ure. The intrusion of these irrespon- sible influences into the settlement of transportation problems comes from the necessity of giving their solution a political, rather than a business, as- pect and is the outgrowth of the polit- ical conditions which menace the sta- bility and usefulness of these great transportation properties. REGULATION THAT DE- PRESSES RATES Transportation is a business, and, if it is to be efficiently and successfully conducted, must be managed on busi- ness principles. In no other way can it survive or be supported as a busi- ness. As the managers of transportation properties have, in the public interest, been largely deprived of the power of business management, any successful system of public regulation must ap- ply to the regulation of these proper- ties sound and just business principles and not merely the force of repres- sion. A manifest danger of a system of regulation controlled by politics is that it will be administered on the principle of always reducing the cost of service to the public as a means of appeal to popular approval, and thus doing to the railroads all that can be done in the direction of curtailing their business prosperity short of bringing destruction upon them. No business enterprise, dependent for its usefulness upon its growth, can live if always kept down near the point of starva- tion. COMPLICATION OF LOCAL CONTROL There is another complication in the theory of regulation as it is practised today which also has its origin in a political condition. We have seen the unifying forces of steam and elec- tricity change the map of the commer- cial world. They have introduced conditions which cannot be ignored by those who would give to the public adequate service in transportation. A transportation system to be efficient must be co-extensive with the trans- portation needs of the people whom it serves. If their business needs ignore State lines, the railroads which would give them adequate service must adapt themselves to that condition. The business of a people that seeks all markets without regard to political subdivisions of territory cannot be successfully carried on if their means of transportation are halted at State lines, either by physical interruption or by unwise, inconsistent or exag- gerated local regulation. The same interest of the people which demands that these transporta- tion facilities extend in physical con- tinuity across State lines likewise re- quires unity of management and control. This, of course, is impossible without unity of governmental regu- lation. While the preservation of the States in their complete constitutional integrity is a fundamental necessity of our system of government, it is equally essential that their power should not be extended beyond their constitutional limitations. STATES' RIGHTS At a time and under conditions when the existing development of our continental commerce was inconceiv- able, the fathers of our government had a vision which was a miracle, and it resulted that the States, in the Con- stitution, confided to the federal gov- ernment the power to regulate inter- state and foreign commerce. This of necessity involves the power to regu- late the instruments of interstate and foreign commerce. And yet, in re- sponse to the exigencies of political warfare, it is easy to raise a contro- versy between the power of the States and the power of the federal govern- ment as to the line of demarcation be- tween their respective powers as re- lated to this question. In fact, the controversy as to the rights of the States has been the great historic controversy between differing schools of political thought among our people. The growth of commerce has injected the question of the regu- lation of commerce into this States' rights controversy as a factor of prime importance. The question of what will promote and what will retard the efficiency and usefulness of a trans- portation system often becomes ob- scured and is lost sight of while the advocates of these differing schools of constitutional philosophy fight out their wars. And yet a business enter- prise, if it is to succeed, cannot be subject to these political uncertainties; nor can a business enterprise, depend- ent for its efficiency and usefulness on its unity of regulation and manage- ment, be wisely left subject to many masters with differing views of public policy and with widely varying con- ceptions of its problems. CONTROL MUST BE FEDERAL Even without any wide divergence of view, the mere existence of a power of management in many masters which may be exercised with different de- grees of promptness, or which, if not actually exercised at all, is constantly made the basis of proposal and agita- tion, constitutes an obstacle in the way of effective and successful railroad management which cannot be over- stated. It may be claimed that our experi- ence has demonstrated that a multi- form system of regulation is as eco- nomically unsound as the lack of any regulation, for the railroad problem can no longer be considered as of merely local concern any more than it can be considered of merely private concern. One of the greatest evils of the present system in this respect is that the capacity for efficient manage- ment is weakened. An undue propor- tion of the time of the responsible railroad manager and his responsible assistants is diverted from the useful duties of management to the calls for explanations and arguments before many different State authorities, when all that is necessary might be accom- plished before one central regulating body. PROMPT DECISIONS ESSEN- TIAL An efficient management is admitted by all to be a large factor in securing for, or continuing to, the public a low basis of transportation charges under existing conditions. It follows that there is an obligation of efficiency in regulation as great as the obligation of efficiency in management. In suggesting that consideration it becomes one's duty to call attention to one of the most dangerous weaknesses which has developed in the system we have experienced, namely : its inability to give prompt decision to the business questions which must be determined. No man of business experience needs to have pointed out how essential is promptness, or the capacity for promptness, in dealing successfully with a business situation. That busi- ness in which there is no capacity for promptness is fatally hampered. If there is a legitimate and pressing need for more revenue, the power to authorize or to produce it must be capable of being brought into action at once. If economies must be intro- duced, the power of management must be capable of responding promptly to the need. If a change of policy is de- manded in the public interest, the power to pass upon the question must be capable of convenient and prompt exercise. It may be justly said that the consensus of opinion of thought- ful men everywhere is that the exist- ing system of regulation is fatally de- fective in respect of its capacity for prompt action. PROTECTION AS WELL AS CORRECTION To sum up what has been here sug- gested: no system of governmental treatment of this subject can be per- manently successful which fails to conserve the things that are essential to railroad growth and efficiency. Prominent, and in fact first, among these essentials is adequate railroad credit. To secure this a system of successful regulation must be a sys- tem of protection as well as of correc- tion. Even a conquering army feeds its prisoners. Our existing system has well served the purpose of correction, but we have seen it hesitate when called upon to protect. REGULATION THAT WITHHOLDS The impressive statement of the President made last Tuesday in re- gard to the regulation of our natural resources may be justly applied to the conditions which confront the country in regard to the railroads when he said: "The laws we have made do not intelligently balance encouragement against restraint. We withhold by regulation." We need a system of regulation which will recognize the whole duty of government, which can as readily build where things are sound as cut away all fungus and unhealthy growths: a system which will bring stability of service and of credit as well as equality and fairness of treat- ment. None of this can be if the sys- tem of regulation is founded upon the shifting sands of politics. It must possess a capacity, and be controlled by a purpose, of prompt- ness in affording required relief and in meeting business conditions as well as in the removal of recognized abuses. This is also inconsistent with a mere political conception of the duties and responsibilities of regula- tion. It must be possessed of an author- ity co-extensive with the subject to be regulated. Its powers must not be divided and scattered among a number of independent regulating bodies, many of them responsible to a part only of the public whose wel- fare is involved, all of varying out- look and influenced in their conclu- sions by differing policies and often by clashing and conflicting interests. This is inevitable, if regulation by the States and regulation by the Federal power are both to be preserved. PRESENT SYSTEM CANNOT ENDURE Like the previous stage of irre- sponsible private control, the existing system of irresponsible, rigid and di- vided regulation cannot permanently endure. So long as the chief need was of a public prosecutor, it served its function, but, when the demand was for statesmanship, it failed by reason of a constitutional incapacity which relates back to its origin, to its political progenitors. This is no criticism of individuals, but the indictment of a social tend- ency. No more does it mean that we must abandon the principle of 10 reasonable and efficient regulation: that we must turn from the Scylla of irresponsible regulation to the Charib- dis of government ownership. It is an argument that a system of reason- able, balanced and non-political regu- lation has not failed because it has not yet been generally tried. SOURCE OF A SOLUTION Whatever may be the individual view, no one will deny that these con- siderations present a problem, and that a problem still unsolved. Its sub- ject-matter is of transcendent public interest and consequence. It is, as was recently suggested by President Wilson, "the one common interest of our whole industrial life." My pres- ent purpose is not to venture to sug- gest the solution, but the source from which an acceptable solution must come. As it is a big problem, it must be solved in a big way. A solution is not likely to be ac- cepted if the suggestion comes from the railroad manager, because he is still supposed to look at only one side of the question and to be controlled by a selfish interest. It can not come from the mere politician, because of his narrow vision and his temptation to keep the question unsolved as a means of easy political agitation and as a valuable asset for temporary political advan- tage. "Who then will be sufficient for these things?" WHAT THE OCCASION DEMANDS The problem is a statesman's op- portunity. It is as great a problem as has confronted the statesmen of any age. He who solves it must be trusted by all the people. He must be above the suspicion of selfish- motive. All the lessons of history must be at his command. He must be a profound student of human action and of hu- man government. He must have pow- er to impress his views upon his fel- lowmen. He must be able, with just and equal hand, to divide unto Capi- tal and unto Labor its living. He must be able to assure the public of the correction of abuses, the establish- ment of justice and the maintenance of facilities adequate for their needs, and he must be able to assure the private owner of protection of his just in- terests and of fairness to his just rights. He must be able to reconcile the people to his philosophy of regu- lation and the politician to the loss of a highly valued political asset. Is there a man among us who is capable of this? PRESIDENT WILSON SUGGESTED I venture to suggest that the pres- ent President of the United States is equal to this great achievement. The time seems ripe for him to undertake it. His administration came into ex- istence pledged to the correction of abuses in business life and to a con- structive work which would build healthily and mightily to a greater and sounder prosperity. Doubtless the specific things embraced in his pro- gram of correction have been largely accomplished. Some parts of his con- structive program notably the crea- tion of a new banking system have 11 also been carried out. But, of course, his comprehensive appreciation of commercial conditions brings to him the realization that much which is constructive remains to be done. Having arrived at the constructive period of his administration, he can perform no higher or more useful pub- lic service than by proposing and car- rying through a solution of the trans- portation problem. PRESIDENT'S SOLICITUDE MANIFESTED He has recently, in an impressive way, shown publicly a sympathetic appreciation of the railroad situation. In his response to the appeal of the railroads last September, he called the attention of the country to "the im- perative need that railway credits be sustained and the railroads helped in every possible way," and disclaiming any "deep anxiety" that this would not be done, he gave as his reason "that the interest of the producer, the shipper, the merchant, the investor, the financier and the whole public in the proper maintenance and complete efficiency of the railways is too mani- fest." "They are," as he expressed it, "indispensable to our whole economic life, and railway securities are at the very heart of most investments, large and small, public and private, by in- dividuals and by institutions." WILL THE PRESIDENT UNDER- TAKE IT? The fact, thus made evident, that he has grasped the point of view from which a solution of this problem must be approached, has aroused in the minds of many the hope that before laying down the reins of government he will propose and work out some constructive plan that will give sta- bility to railroad investment and growth. May we not ask that he will undertake the work? The people of the United States have called him to the leadership of this nation. They have entrusted him with their power. He has responded by notable public service. Is it too much to ask that he undertake this problem also and bring to its solution the wis- dom and the power which he has al- ready used so effectively in the public interest ? No ambition could be more worthy than to establish a "Constitution of Peace" among the variant views and interests which menace the success of the system of transportation so essen- tial to the public welfare. No service to his fellowmen could be a loftier or a finer service than to place this high interest of the people upon a sound, a stable and a permanent foundation. RAILWAY MANAGERS WILL CO-OPERATE I think I properly interpret the men now charged with the responsibility of railroad management when I say that they will welcome a solution of the problem, however it may differ from any preconceived views, and will meet any suggestion that may be made in a co-operative and a helpful, and not in a carping or obstructive, spirit. They are as anxious as the most public-spirited statesman for a just and final settlement of transpor- 12 tation controversies. When it comes to the consideration of any proposal, they may be relied on to put aside prejudice and pride of opinion, for they, of all others, are best aware of the imperative need of the railroads for an adjustment of all differences and for public approval, sympathy and support. Opposition must come from outside the railroad ranks. The problem is, then, how shall the transportation system of the United States be put upon an assured founda- tion of efficiency, usefulness and suc- cess? Here is A Statesman's Oppor- tunity. REQUESTS FOR COPIES of this pamphlet will be welcome from all those desiring to place it in the hands of their representatives or friends. Copies fur- nished or sent direct to lists upon application to Frank W.Noxon, Sec'y, Railway Business Association, 30 Church Street, New York. Form B163 Gaylord Bros. Makers Syracuse, N. Y PAT. JAN. 21. 1908 \ 14 DAY USE RETURN TO DESK FROM WHICH BORROWED LOAN DEPT. This book is due on the last date stamped below, or on the date to which renewed. Renewed books are subject to immediate recall.