Throttling the Railroads: 8. The Grip of the Unions

Dr. Carson is a frequent contributor to THE FREEMAN and other journals and the author of several books, his latest being The War on the Poor (Arlington House, ¹969). He is Chairman of the Social Science Department at Okaloosa-Walton College in Florida.

Government throttled the rail­roads in three ways mainly. In the first place, restrictive regula­tion took away crucial managerial authority from the railroads and vested it in the Interstate Com­merce Commission. This was sup­plemented, in turn, by various legislative inhibitions of general application. In the second place, government subsidized and other­wise privileged competitive means of transport. In the third place, government fostered the organi­zation of railway unions and aided them in various ways in circum­scribing and hamstringing the use of rail facilities. The first two of these interventions have already been covered. It is time now to examine the grip of the labor unions on the railroads.

Labor unions, in general, are organized to get higher wages and improve the working condi­tions of their members. To do this, they attempt to take the de­termination of these conditions out of the market place and have them determined by negotiation with the employer who negotiates un­der the threat that he will be denied access to any workers if he does not comply with their de­mands. The economic impact of this intervention extends outward to effect with varying degrees four distinct groupings of people.

Effects of Labor Union Activity on People

Those who are apt to be most directly affected by labor union activity are other potential work­ers for an employer. They are most likely to be the ones against whom threats and violence are used if there is a strike—and if the employer attempts to operate the struck facility. Other work­ers are the ones, also, who are denied the opportunity for jobs which they might have if unions did not prevent them from being employed. More broadly, if unions succeed in getting higher wages and better conditions than they would otherwise have got, they do so by reducing the number who can be employed in that undertak­ing, as a rule. The general impact is either to reduce the number who can be employed or reduce the wages and working conditions of some of those employed, or both.

Less directly, labor union activ­ity is aimed at employers (though union rhetoric suggests that they are the primary target). Employ­ers are not usually the victims of threats and violence, but this does not mean that they may not suffer. They may and do suffer during a strike by sabotage, by additional charges incurred in at­tempting to protect and maintain facilities, by having to go to the trouble and expense of training new employees, or by being un­able to operate their facilities and provide goods and services with all the train of disadvantages that may follow from that.

Labor union activity may, in the third instance, have effects which reach through to all of us as consumers. This is so, obvi­ously, when a prolonged strike cuts off goods and services which we could otherwise have had. It is so, too, when labor costs are raised so that goods and services are made more expensive. In this case, the consumer may shift to substi­tutes or reduce his consumption of the goods or services involved. The fourth effect is rarely, if ever, discussed and has not, to my knowledge, had any careful em­pirical studies made which would tend to verify it. Yet it is an effect which can be reasonably adduced and which much evidence that is common knowledge tends to support. The effect I have in mind is on those who work in and use the facilities of employers whose employees are extensively organized into unions. Those fa­cilities are likely to show the effects of the tampering with the market which produces an imbal­ance in capital outlay. If an em­ployer has to pay higher wages for shorter hours, if his workers attain various perquisites which hamper their use, if he must still compete with others in providing the goods and services, if he must compete for money with other users, then something has to give if he is to operate successfully. That something will quite often be the appearance, style, and qual­ity of his facilities.

I noted in an earlier chapter that railroad facilities are fre­quently rundown, that freight and passenger stations are often de­crepit and in poor state of repair, that passenger cars are old and dirty, and that facilities in gen­eral are below the standard in other fields. Railroads have obvi­ously skimped in expenses for facilities in order to meet other outlays. This, in turn, has had a rather predictable effect on em­ployee morale, and helps to ac­count for surly and desultory service. In one direction, at least, the union quest for better working conditions has resulted in worsen­ing working conditions.

Growth of Railway Unions

The railway unions were among the earliest trade unions organ­ized on any scale within the United States. The Brotherhood of Locomotive Engineers was or­ganized in 1863. The remainder of the Big Four of the Brother­hoods were organized within the next twenty years. In addition, two other major union develop­ments occurred in the nineteenth century involving railway employ­ees. The Knights of Labor gained considerable following among them, and even brought off a suc­cessful strike against the Gould System in 1884-85. In the 1890′s, Eugene Debs organized the Amer­ican Railway Union which brought off, temporarily, a sympathy strike for Pullman workers. How­ever, the Knights of Labor and the American Railway Union were short-lived organizations, while the Brotherhoods had much great­er permanency.

Union membership grew in the early twentieth century and had a great surge during World War I after the government took over the railroads. Since that time, the unions have remained strong and, though they have rarely struck, it is generally conceded that they could shut down the railroads rather effectively if and when they did. Many of the unions have re­mained independent, but some of them are affiliated with the Amer­ican Federation of Labor or with the Teamsters.

The Government and the Unions

The relationship between the government and the railway un­ions needs to be made clear at this point. To do this is no easy task. Not only has the nature of this relationship usually been mired in controversy involving the legitimacy of union activities but also the relationship itself has been complex and confusing. Pres­idents, governors, and govern­ment officials have frequently at­tempted either to be or appear to be neutral in the contests between unions and railroad companies. They could not be, though this fact has frequently been kept from public attention. They could not be, most basically, because union tactics would not permit them to be. Government must be either for or against labor unions as they have been constituted and operated. There is no middle ground.

The reason for this can be made clear by a little examination into the nature of labor unions. According to union rhetoric, la­bor is not a commodity. The im­port of this is that wages should not be determined in the market but should be determined else­where. Again, according to the rhetoric, wages should be set as a result of negotiation. Not, how­ever, by negotiation between the employer and the individual em­ployee; according to widely held notions, that became impracticable due to the development of large companies and corporations.

The notion that wages are, or ever have been, determined to any significant degree by negotiations is a red herring used to throw the inquirer off the scent. It is true that occasionally negotiations may occur between a prospective em­ployer and someone who has a much needed skill, ability, or repu­tation, and when the prospective employee has several prospects. But this is the exception to the rule by which wages are deter­mined. There is usually a going wage in the market at any given time for a particular job, a wage rate resulting from competition among employers for workers and among workers for jobs—that is, from the supply of workers and the demand for their produce. Any negotiations that would occur would be on the fringes of the question of wages and working conditions.

Can a Union Negotiate?

How, then, could a union in­duce an employer to negotiate with its leaders for workers? To put it another way, if a company could hire workers at a wage its managers were willing to pay, why would those managers ne­gotiate the matter with labor union leaders? The answer, it is clear both in theory and in his­tory, is that they would not do so willingly. This means that for the union to be brought in, some com­pelling reason must exist.

In order to be able to negotiate as an equal with an employer, a union must corner the market of workers available to him. This can be done in one of two ways when the task is stripped to its essen­tials. A union might, in theory, corner the market by placing available workers under contract to it and paying them the wages and providing the working condi­tions it demanded from any other employer. This would be a market operation, and the union would be going into the market to bid for workers. Negotiations could then take place between prospective employers and the union for work­ers by negotiating to buy the con­tracts. In fact, no such operation has ever been undertaken by a union, nor is it likely to be. Unless a union had unlimited funds em­ployers would only have to hold out for some period of time to bankrupt and break the union.

Unions do attempt to corner the market, but they do not use market methods to do so. They attempt to deny the employer ac­cess to workers and the construc­tive use of his facilities until he comes to terms. They do this, if he attempts to operate, by intimi­dation—by strikes, by driving prospective employees away from the facilities, by sabotage, and by threats. They have no recogniz­able good or service to sell; they have no workers under a work contract for a period of time which could be transferred to an employer. All they have to offer is an agreement to refrain from their tactics of intimidation for a period of time in return for certain wage scales and working conditions to prevail for those who work for an employer.

Government cannot, I say, be neutral toward the use of such tactics. It must either prohibit and inhibit intimidation or it must condone it. It must either enforce contracts arrived at by coercion or it must negate them. Govern­ment must either monopolize the use of intimidation or concur in the use of it by others. There is no middle ground.

Railway unions posed the di­lemma very early in their opera­tions for government of whether to side with or against them. They posed it more dramatically than most unions have done. They did so because of the nature and importance of the railroads. Trains are particularly vulnerable to the saboteur. A twisted rail, an incapacitated engineer, a rail wrongly set to take a train into a siding, strategically greased rails, can cause an amazing amount of mischief. Moreover, a station or switchyard shutdown can prevent the effective use of the extended facilities of a railroad. On the other hand, large portions of a wheat crop could be lost by the denial of rail serv­ice at a crucial time, and large cities would be hard put to sur­vive. In consequence, those who governed have been confronted with the dilemma of either pre­venting the use of intimidation by unions or throwing the weight of government behind the unions so that rail companies will be forced to make sufficient conces­sions or comply with what is wanted and thus make the unions’ tactics unnecessary. In short, they have had to use force either on the companies or on the unions.

Government Sides with the Unions

Government—both Federal and state—took the side of the unions, at first tentatively, and then over the years much more thoroughly. They have done so in three ways, mainly. First, the Federal gov­ernment threw its weight behind the mediation of disputes. This favored the unions because in the absence of intimidation there is no reason to suppose the compa­nies would have wished to resort to mediation to settle disputes. (Of course, given the threat of intimidation, the companies might, and did sometimes, want mediation more than the unions did.) Second, both Federal and state governments prescribed such things as hours of work, compen­sation for overtime, and various sorts of work rules. Third, by supporting negotiated agreements, by requiring companies to adhere to them, and by other tacit aids governments encouraged the growth of unions.

The first national labor law of any sort was the Act of 1888 which was concerned exclusively with the railroads and the unions. It was the first tentative step toward government support for arbitration of disputes. This Act provided that if the parties to a dispute chose to do so they could submit it to a Board of Arbitra­tion which would have the power to subpoena witnesses and get testimony. Compliance with the decision of the Board was to be voluntary. The Act also provided for a Presidential Commission to be appointed upon request, a com­mission which would be authorized to publicize its findings.¹

This first Act was hardly used; in consequence, it was supplanted by the Erdman Act in 1898. This Act provided that once the dispute had been submitted for arbitra­tion and a decision made, the de­cision was to be binding on both parties. The Erdman Act also contained rules which supported labor union organization. "It was made a misdemeanor for an em­ployer to require the execution of an oral or written yellow dog con­tract from any employee as a con­dition of employment, to threaten or discriminate against any em­ployee because of union member­ship…"^² and so forth. This part of the Act, however, was shortly nullified by the Supreme Court, but it does indicate how far toward the support of unionism Congress was willing to go at this date. The Newlands Act passed in 1913 strengthened the mediation features of the Erdman Act.

Around World War I, the Fed­eral government began to pre­scribe the length of work day for rail employees, or, more specifi­cally, the terms of payment for time worked. "In 1916, under threat of an imminent railroad strike, Congress within four days passed the Adamson Act, giving trainmen the ‘basic’ eight-hour day without wage reduction. Over­time payment at ‘time and one-half’ was required for railroad workers in 1919."³

The Federal government took over and operated the railroads during World War I. The policy toward organized labor during that period, and its results, is de­scribed by one work in this way: "During federal control of the railways from 1917 to 1920, pub­lic policy encouraged organization by forbidding antiunion discrimi­nation and by introducing nation­wide agreements on hours, wages, and working conditions…. Like organized labor at large, the rail­way brotherhoods made great strides during the war years."⁴ Also, the government devised a whole series of job classifications which tended to rigidify the role of a given worker; in addition, seniority rules were set up and enforced.⁵

The Transportation Act of 1920

The Transportation Act of 1920 included extensive provisions that were supposed to lead to settle­ment of labor disputes. It de­clared that it was the duty of representatives of management and labor to arrive at a settle­ment. If they failed, the matter was then to go before a Labor Board. The Board was supposed to decide "all disputes with respect to the wages or salaries of employ­ees…" not settled by negotiation. Not much came of this, however, because the unions wanted to deal with disputes nationally—that is, treat all railroads as be­longing to a single system—while the companies insisted upon sepa­rate negotiations for each system.

New methods were set up in the Railway Labor Act of 1926. "It places primary emphasis on direct collective bargaining and mediation, but also establishes vol­untary arbitration and compulsory investigation." This Act was amended in 1934 by an act which established a National Railroad Adjustment Board. By this latter act, also, labor unions were ef­fectively empowered by govern­ment. "The 1934 amendments to the Railway Labor Act forbid company unions. The roads must negotiate in good faith with the authorized labor representatives certified by the Board, although agreement is, of course, not com­pelled. Carriers may not engage in a number of specified labor practices, such as promotion of company unions, yellow-dog con­tracts, and other hindrances to independent unions."⁶

The tendency of the Federal government’s special protection of railroad workers is also indicated by the Emergency Railroad Trans­portation Act passed in 1933. The Act authorized mergers and con­solidations of rail facilities to be overseen by a Federal Coordinator. But workers were to be protected as follows:

The number of employees in the service of a carrier shall not be re­duced by reason of any action taken pursuant to the authority of this title below the number as shown by the pay rolls of employees in service dur­ing the month of May, 1933… but not more in any one year than 5 per centum; nor shall any employee in such service be deprived of em­ployment such as he had during said month of May or be in a worse posi­tion with respect to his compensation for such employment, by reason of any action taken pursuant to the authority conferred by this title.⁷

The above are examples rather than a full-fledged account of the way the Federal government aided in fastening the incubus of union­ism on the railroads. Part of the effort was motivated by the desire to avoid ruinous strikes, but all of it has been undertaken with a politician’s eye to the vote of privileged union men. The rail­roads were the first to receive such government attention. The laws governing railroads, unions, and negotiations between them have been special acts. Other unions generally fall under gen­eral acts. The effects of this spe­cial status of railroad unions have been with us longer than the effects of the general legislation. The government has, on the one hand, empowered the unions to act as a monopoly; on the other, it has attempted to restrain them from taking full advantage of the position. The railroads have been caught between the Scylla of mo­nopoly unions and the Charybdis of continual government interven­tion in negotiations.

States have also passed legisla­tion along lines sought by unions. An example of this is the full-crew laws passed by a number of states. New York State passed such a law in 1913. The situation in 1960 was this:

In its present form, New York’s full crew law specifies a minimum number of operating employees on freight trains of more than twenty-five cars, on freights of fewer than twenty-five cars, on passenger trains of more than five cars, on light en­gines, on fuel-electric engines and on locomotives used in switching oper­ations.

For the most part, the minimum crew specified is larger than crews required by existing contracts be­tween the railroads and employee or­ganizations. Thus trains entering New York from other states are frequently required to stop at border points to pick up extra crewmen.⁸

Other such rules have to do with distance to be traveled by a work­man, and such like. Where states have not prescribed crew sizes, they are usually provided for in union contracts.

Stultifying Effects of Government Action

The economic effects of union action empowered by government and of government action sup­ported by unions have been bur­densome and stultifying on the railroads. They have hampered the use of personnel in economic ways by the railroads, have con­centrated workmen in the least productive undertakings, have de­nied the railroads the benefits of technology, have fastened antique practices on the roads in perpetu­ity, and have contributed much to the decline of the railroads and to over-all railroad employment. Some examples will show how this has been done.

Railroads are hampered by rigid work rules in the employment of their personnel. For example, "Where yard service has been maintained road crews may not perform switching for their train, even though no yard crew is on duty at the time. Such a yard crew must be called to do the work; otherwise the road crew may claim an extra day’s pay at the yard rate for a few minutes’ work in switching, and the yard crew not called may similarly claim payment." Again, "On some roads a road crew may not double over in taking a train from a yard. Transfer crews may set cars on an industrial siding, but they may not spot them for loading or unloading. A switching crew must be brought up to do that. In most yards switching crews must be called at set hours. If called later, penalty payments accrue. Hence locomotives and crews, called at stated hours, stand idle until busi­ness flows in some time later, but during the same trick."⁹

Rail Labor Costs Excessive

Railroad costs for labor have frequently been proportionately higher than other modes of trans­portation, that is, have accounted for a higher proportion of oper­ating costs. "In 1939 the per­centage of pay-roll costs, with taxes and depreciation included in operating costs, was calculated for various types of transportation as follows:

There are several reasons for these higher costs. One is that rail­road workmen frequently work much less than an 8-hour day to get credit for one or before over­time begins. One book estimates that the average crew under aver­age conditions in the freight serv­ice could complete its work day in 6 1/4 hours and that a passenger crew could do so in 4 1/2 hours.¹¹ This is so because of work rules, and it obviously drives the cost of labor upward.

An observer seeing a freight train pulling 125 cars on a long distance haul with only a few crewmen aboard might suppose that railroads were making money hand over fist. After all, this looks as if it would be a much more economical use of personnel than could be matched by any other means of transportation than per­haps barges or pipelines. But such an observer would only be seeing that part of railroad operations that keeps them going despite all else. In point of fact, a consider­able portion of the labor costs of railroads is concentrated in the least productive and least remu­nerative operations. They are em­ployed on freight locals where several men may handle only a few boxcars in the course of a day, on switching and siding oper­ations, on passenger trains, in small stations which do little to no business but maintain an agent and sometimes other personnel, on commuter trains which operate only at certain hours, and so on.

Featherbedding Practices

When railroads introduce labor­saving technology they are fre­quently prevented from reducing labor costs significantly. Labor unions may not oppose the intro­duction of new equipment, but they do oppose the laying off of workmen, the shifting of them to less remunerative employments, or the reduction of work crews.

Some sorts of services have un­doubtedly been priced out of the market by work rules. For ex­ample, "The height of absurdity in full crewing appears to have been reached upon a medium-sized railroad when a modified small auto delivery unit was placed on flanged wheels to perform passen­ger service on a branch line. When a crew of five men was required to man it, its utility for the pur­pose disappeared and the service was abandoned."^¹2 I used to won­der why railroads did not widely use one-car self-propelled units to carry passengers on branch lines. They could bring long distance travelers to and from main line stations as well as provide service from villages and small towns to cities. The reason is now clear. Despite the fact that one man operating such a unit would not have as much to attend to as a city bus driver, the unions would insist that several men be em­ployed in the undertaking.

Decline in Service

The grip of the unions on the railroads has produced a train of results of most doubtful desirabil­ity. This grip has contributed to the decline of passenger and freight service, to the removal of the railroads as competitors in the providing of many kinds of services and to certain areas, to the decline of railroad employees, to the cost to the consumer of his use of rail service, to the deteri­oration of morale of both em­ployees and consumers, and to the decrepit state of many of the rail facilities.

There may be those who suppose that it was enlightened policy for government to maintain an un­easy peace in railroading by em­powering unions, by fostering ne­gotiation, and by substituting the intimidation of government for that of unions on occasion. There may be those who suppose that government established monopo­lies are desirable if the objects sought are in accord with their wishes. Yet it is proper to ask whether those who think in this fashion believe that it was desira­ble so to hamper, constrain, and limit the railroads that they could no longer effectively offer many of their services and could no longer attract customers in some areas. If this latter was not desir­able then the former could not be enlightened either. The grip of the unions, the grip of govern­ment regulators, and the grip of privileged competitors—all under the auspices of government power—have combined to reduce the railroads to their present debili­tated state.

Next: The Future of the Railroads.

***

The Unplanned Society

Modern man prides himself that he has built [his] civilization as if in doing so he had carried out a plan which he had before formed in his mind. The fact is, of course, that if at any point of the past man had mapped out his future on the basis of the then-existing knowledge and then followed this plan, we would not be where we are. We would not only be much poorer, we would not only be less wise, but we would also be less gentle, less moral; in fact we would still have brutally to fight each other for our very lives. We owe the fact that not only our knowledge has grown, but also our morals have improved—and I think they have improved, and especially that the concern for our neighbor has increased—not to anybody planning for such a development, but to the fact that in an essentially free society certain trends have prevailed be­cause they made for a peaceful, orderly, and progressive society.

F. A. HAYEK, from remarks in What’s Past Is Prologue