American freight rail was technologically obsolescent and hamstrung by union rules and government rate regulation. American passenger rail was unprofitable and unreliable.
Freight rail was losing business to trucking firms. Passenger rail was losing out to cars on the new interstate highways and airplanes on long routes.
The past 40 years have seen a laboratory experiment on how to revive railroads. Government has gotten out of freight rail, while passenger rail has become largely a public sector function.
We've had a chance to see which works better and to understand why.
It took a while for the government to get out of the freight rail business. In 1973, Congress created Conrail, which took over the lines of the Penn Central and other Northeast railroads.
Despite rosy projections, Conrail racked up big losses, with the federal government picking up the tab.
Fortunately, the idea of transportation deregulation -- pushed by Ralph Nader as well as market-oriented think tanks -- was picking up steam.
In 1980, Congress passed and Jimmy Carter signed the Staggers Act, ending the rigid rate regulation by the 1887-vintage Interstate Commerce Commission. Conrail began making profits and was sold to private investors in 1987.
The following quarter-century has seen a renaissance of American freight rail. As a March 27 Wall Street Journal story relates, rail companies have been investing in rail yards, refueling stations and new tracks.
They are building new bridges, widening mountain tunnels and "turning their networks into double-lane steel freeways." The Association of American Railroads says it will invest $14 billion this year, up from $6 billion in 2003.
But doesn't this mean higher costs? No, freight rail rates are less than half what they were in the early 1980s. That's because freight rail faces aggressive competition from trucking, which was also deregulated in 1980.
Each mode has its advantages. Freight rail is far cheaper per mile over long hauls. Trucks can deliver goods right up to the door. Train-truck and rail-rail competition has squeezed out huge amounts of cost.
That means cheaper goods and services for consumers. And a bottom line that prompted super-investor Warren Buffett to pay $44 billion to acquire BNSF (formerly Burlington Northern Santa Fe).
Passenger rail, alas, is a different story. It was a big money loser for railroad companies under the old regulatory regime, and they were happy to slough it off to the government-created Amtrak in 1971.
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