STATEMENT OF JAMES G. LYNE, CHAIRMAN, FEDERATION FOR RAILWAY PROGRESS-Resumed

Mr. LYNE. Yes, sir. I think, sir, that the treatment of transportation accorded by the Governments of such countries as Britain and France where the railways have been taken over by the Government, indicates on the part of governments in such instances an inclination to be somewhat more favorably inclined toward the railway point of view.

Mr. HALE. You are in favor of this legislation, H. R. 6141?

Mr. LYNE. In general principles, yes, sir. I have not tried to go down into every detail of the proposed bill, but the general philosophy of the report of the Cabinet Committee, yes, sir.

Mr. HALE. Back in World War I, I had occasion to do quite a little work on the affairs of the French railways. It was a good while ago and my memory may fail me, but my recollection is that in those days when the roads were, with one exception, Government-owned and they had very little truck competition, they still did very badly from the standpoint of profits. Am I correct in that recollection?

Mr. LYNE. That is right. I can't set myself up as an expert on the French railways or the railways

Mr. HALE. I knew quite a bit about them at one time.

Mr. LYNE. The fact of the matter is that there was a good deal of Government participation in the financing and operation of the railways of France going back many years. Their history has not been one of great prosperity.

Mr. HALE. Why did they not do better? I am rather puzzled

about that.

Mr. LYNE. It would be too easy to give an answer and blame it all on the Government. I shall not do so. I suspect that the degree of governmental interference that they had may have had something to do with their lack of prosperity. Across the channel in England

Mr. HALE. PLM at that time was privately owned.

Mr. LYNE. The government has acquired them all now, sir. They are all operated under one central administration.

Mr. HALE. I am pretty sure I am correct in saying that they were all Government-owned in 1918 except the PLM.

Mr. LYNE. There was certainly a large degree of Government participation in most of them even at that date.

Mr. HALE. Even today the trucking industries in France and Britain are not as strong as they are in this country, isn't that correct?

Mr. LYNE. I suspect that in England their participation in total freight traffic is somewhat higher than it is in this country. Mr. HALE. Participation is higher?

Mr. LYNE. Trucking, yes. I mean the proportion of the total freight traffic that they handle I believe is somewhat higher than the proportion of total traffic in this country.

Mr. HALE. That surprises me. I would have thought it was much lower.

Mr. LYNE. No, sir.

Mr. HALE. Could you get me some figures on that? I would be interested to have them.

Mr. LYNE. Yes, sir; I can get you some figures on that, and I will be very happy to do so. Would you care to have them, Mr. Chairman, or should I send them directly to Mr. Hale?

Mr. HARRIS. I should think if Mr. Hale would like them to go into the record you could send them to the committee.

Mr. LYNE. All right, sir. I will do that.

Mr. HALE. I sometimes wonder how in a country like Britain, which is so populous and so compact, the railroads can run at all.

Mr. LYNE. That is right. They have a difficult time of it.

Mr. HALE. Not long ago my attention was called to the fact that they have a law in Cuba which says that you cannot move sugar for more than I think it is something like 10 or 15 miles by truck, that you have to put it on the state railway. That is a neat little law for the railroads.

Mr. LYNE. I personally would not favor it. I would rather see a greater degree of freedom of competition rather than have arbitrary restrictions like that, either in favor of the railroads or in favor of any of their competitors.

Mr. HALE. Do you think that the effect of this legislation will be to give the railroads a better share of the traffic?

Mr. LYNE. It would give them an opportunity to get a larger share of the traffic because there is quite a large number of cases in which the railroads wish to make lower rates and were forbidden permission to do so.

Mr. HALE. This legislation would enable the railroads to get lower rates on some commodities, which in turn would give them more revenues and improve their competitive position.

Mr. LYNE. It would give them the opportunity to do so, yes, sir. Mr. HALE. I think that is all, Mr. Chairman.

Mr. HARRIS. Mr. Dolliver?

Mr. DOLLIVER. Mr. Lyne, I want to congratulate you upon this scholarly statement that you have presented here.

Mr. LYNE. Thank you, sir.

Mr. DOLLIVER. Once in a while it is important that we have some theoretical approaches to these very complex problems, based upon general principles.

Are there any generally accepted principles for the determination of freight rates on the railroads? For example, is it based upon the ability to pay, or what the traffic will bear, or the cost, or is it based on bulk commodities, or classified commodities? Is there any generally accepted formula by which rates are determined?

Mr. LYNE. I believe I shall have to answer that no, that there was a considerable argument and discussion of this question among economists a generation or so ago. They spent a number of years on it, as a result of which the present basis of rate making allowing a great deal of weight to what the traffic will bear became pretty generally accepted. A new theory, I believe, is in process of being hammered out, and I think that this Cabinet Committee report makes some pioneer moves in that direction. The deliberations of this Committee will undoubtedly contribute also to that, because the theory that will operate when you have only one form of transportation just will not operate in the same way when your conditions have completely changed, as they have now.

Mr. DOLLIVER. Do you yourself, as a student of economics with high degrees in this field, have any opinion as to the principles upon which rates should be based or how we should go about making rates?

Mr. LYNE. I have some ideas on the subject, sir, but I would hesitate to try to expound them before this committee without any preparation in that direction. I would be very happy to try to outline my views in that connection in as careful and boiled down way as I could and let you have them, but I just hesitate to get into a subject as involved as that with so little direct preparation.

Mr. DOLLIVER. Mr. Chairman, if it is acceptable to you, I would be very happy to invite that contribution on the part of Mr. Lyne. It has seemed to me over a long period of time that this rate question was one of the most basic and yet the most vexing problem facing us in the field of transportation, not only railroads but other forms of transportation, including air transportation. Dr. Lyne offered to provide for us, after some mature deliberation and work on his part, some of his ideas as to the principles which should be used in ratemaking. I think that might very well be a valuable contribution to our deliberations.

Mr. HARRIS. I should think so.

Mr. LYNE. I would be very happy to do that, Mr. Chairman, if such is your wish.

Mr. HARRIS. Would you prefer to file it for the record or would you prefer to work on that and come back later during the course of these hearings and give it to the committee and make yourself available for questioning?

Mr. LYNE. Sir, suppose I supply you with a memorandum and then when the committee members have seen it, if they wish to question me I would be very happy to come back down here.

Mr. HARRIS. We will be very happy to receive the memorandum on that understanding. I suppose in doing so you would give us your viewpoint with reference to the selective rates too.

Mr. LYNE. That is right.

Mr. DOLLIVER. Doctor, you have made some rather interesting comparisons here between the rates and patterns and general conditions in England and France with respect to railroads and those in the United States. However, is it not fair to call your attention and to call the attention of the committee to the fact that the transportation system in those countries is very different from that in the United States?

For example, the distances in our country are so much greater that there really is no comparison to be made of the rates in those countries as compared with ours. Another difference is the fact that water transportation is much more widely used on the rivers of the Continent and of England in the form of coastwise shipping, especially in England and the maritime nations of Europe than in the United States. Are those statements correct?

Mr. LYNE. Yes, sir. There is a very great difference between transportation conditions in both England and France from those obtaining in this country. The difference, however, is one of degree, not of kind. The railways over there, as the railways here, handle trains-maybe they are not as long as our trains, but they are trains. They do handle mass transportation. The movement that competes with them on the

highways is by small units. So the economic problem is essentially the same, but the degree of the difficulty of the railways over there in meeting their competition in some respects may be greater than it is here. The same principles, however, apply in both cases.

Mr. DOLLIVER. The Federation for Railroad Progress which you represent is composed exclusively of railroad interests; is it not?

Mr. LYNE. A good many of our members have interests beyond the railroads, but the purpose of the Federation is of course the publicizing of any activities which would be beneficial to sound railroading.

Mr. DOLLIVER. My point is that your organization does not include competing forms of transport, other than railroads.

Mr. LYNE. No, sir; it does not.

Mr. DOLLIVER. You don't purport to represent any interest but the railroads?

Mr. LYNE. No, sir.

Mr. DOLLIVER. I note on page 6 of your statement you say near the bottom of the page:

The French railways, for example, make especially low rates on traffic offered them in trainload quantities.

Do I gather from that statement that you feel that a similar procedure should be followed in the United States?

Mr. LYNE. I don't necessarily say, sir, that a procedure of that kind should be followed, but I say that in may belief there should be freedom to follow it if it were found desirable. The French railways, as I recall it, have several different tariffs for handling traffic in trainload quantities. The lowest rate is one where the train is turned over to them fully loaded, where they don't have to do any switching at all. They just put an engine on it and away they go. When they get to the destination they put the train on the siding of the consignee, take their engine off, and they don't do any shifting there. There is a great saving to the railway in handling costs, and they pass some of that saving along to the consumer.

We have the same kind of ratemaking in the regulated utilities in this country, as you know, where large users will agree to take a certain amount of power under certain favorable conditions, the utility companies are allowed to give them a lower rate than they give to other customers who are more expensive to serve.

Mr. DOLLIVER. Do you see any possibility in such a procedure of the railroads, for instance, getting into competition with the pipelines for the transportation of oil?

Mr. LYNE. I am no expert, sir, on the details of pipeline operation at all. I have heard some railroad people who ought to know say that they believed that trainload rates might compete with pipelines not yet built, but they would not likely be able to compete with pipelines where the investment had already been made. But that, sir, is secondhand information, and I can't guarantee its accuracy.

Mr. DOLLIVER. Do you see any danger in this bulk train lot proposal that it might work to the disadvantage of a small consumer or a small retailer of bulk goods, such as a lumber dealer as opposed to a chain of lumber stores?

Mr. LYNE. I can see certain dangers in it, sir, but there are at the present time no safeguards for that little fellow, if we may call him

that, in the fact that any shipper who has access to an improved waterway can enjoy the advantage of bulk shipment right at the present time. If that be the case, if the small producer or consumer is already disadvantaged by some other unregulated form of transportation, then his condition is not worsened by allowing the railroad to meet that kind of competition.

In other words, the little fellow's condition has been worsened, but the railroad didn't do it.

Mr. DOLLIVER. I am thinking specifically of my own section of the country, which is the Middle West. We derive most of the lumber which is used for building out there from the Pacific Northwest. It is conceivable to me, and I wonder if it is to you, that a large chain of lumber stores could put an individual lumber dealer completely out of business solely by the device of getting a trainload rate as opposed to a carload rate on lumber from the Pacific Northwest. Freight cost is a major part of the cost of the lumber which comes to our section.

Mr. LYNE. I should not think, sir-and I am speculating only herethat the railroad would have any incentive to establish that kind of rate where they did not have competition from another form of transportation which was handling traffic in bulk quantities. In other words, the incentive would be there undoubtedly if this lumber were moving by barge up the Mississippi River, but since I assume it is not, I should not think that as a practical matter this question would be very likely to arise.

Mr. DOLLIVER. Doesn't that open the door to favoritism as between a favored shipper and a railroad, which was one of the abuses which brought about the original Interstate Commerce Act?

Mr. LYNE. I would certainly not come here, sir, and say that the act ought to be changed in a way to permit any kind of discrimination which would be injurious to any class of shippers to the extent that such discrimination is not already existent from unregulated competition. In other words, if the discrimination against the little fellow is already present, you are not hurting him any more to let the railroads meet the competition. I would not advocate that the railroads be empowered to initiate discrimination.

Mr. DOLLIVER. I think my questions indicate the fears that entered into my mind with respect to this proposal.

Mr. LYNE. Perhaps I will be able to clear up some of those points in the memorandum which I will submit.

Mr. HARRIS. Will the gentleman yield on that point.

The bulk rate is applicable not only to the situation mentioned by my colleague from Ohio, Mr. Dolliver, but to large truck haul, too. Isn't it a fact that the large chain food stores have brought about this condition not only because of favorable rates of transportation but also in the purchase of commodities which they sell through their retail outlets? Hasn't the effect of that been actually to put the small independent merchant or the small independent grocery out of business?

Mr. LYNE. From my general observation, I would say that there are many things in the economics of the thing which have favored the large producer and the larger shipper, and there is no question about it that what you say has happened in a good many cases outside of the field of transportation, but it so happens that there is no regu