TRANSPORTATION: Presidents’ Plan

At 9 a. m. one day last week the East’s five most potent railmen and their aides sat down around a big conference table in Manhattan’s Pennsylvania Station. They were William Wallace Atterbury, strident and aggressive president of Pennsylvania R. R.; Patrick Edward (“Pull Eighty Cars”) Crowley, diffident and watchful president of New York Central R. R.; Daniel Willard, precise and conciliatory president of Baltimore & Ohio; and the Brothers Van Sweringen, urbane and alert owners of Chesapeake & Ohio-Nickel Plate. Luncheon was served them in their chairs. Nine hours later they arose together after concluding an agreement so momentous they did not trust themselves to announce it to the public. Because President Hoover had pressed them into this conference, because he was moral sponsor for their negotiations, and because his word might commit the Interstate Commerce Commission they let him reveal the results of their efforts.

Spokesman Hoover. Next day President Hoover declared: “As a result of meetings … a plan for consolidation of the different railways in [the Eastern] territory (exclusive of New England) into four independent systems was agreed upon. . . . These negotiations . . . were undertaken at my suggestion.

“It is my understanding that the plan provides for the protection of the interests of the employes and full consideration of the interests of the various communities and carries out the requirements of the law in protection of public interest generally.”

Thus had White House pressure and the cry of Hard Times broken the decade-long deadlock on eastern mergers. For the last ten years these same rail executives had been fighting a stockmarket battle for possession of subsidiary roads as part of their trunk systems, had been snatching at all independent trackage in the country’s rail territory to keep it out of their rival’s hands. So bitter and reckless had become their operations that the Interstate Commerce Commission had cried out in loud protest while the Senate had passed a resolution to suspend temporarily all mergers. It was last autumn that President Hoover secretly set them to negotiating again with the result that last week they peacefully divided up 56,000 miles of railroad worth nearly ten billion dollars.

Who Gets What. The main divisions were as follows:

Baltimore & Ohio (12,000 mi.) would get Reading and Central of New Jersey which would carry B. & O. over tracks of its own into New York. From Pennsylvania-controlled Wabash, the B. & O. would secure the Ann Arbor as an outlet into Michigan. It would retain Western Maryland, Buffalo, Rochester & Pittsburgh, Buffalo & Susquehanna, Lehigh & Hudson. Its possession of Chicago & Alton would take it to Kansas City.

Chesapeake & Ohio (13,000 mi.) would add to its Nickel Plate, Erie and Pere Marquette, control of Lehigh Valley (to be purchased for $35,000,000 from Pennsylvania which would retain trackage rights). This system’s other lines would include Bessemer & Lake Erie (from U. S. Steel Corp.), Wheeling & Lake Erie, Chicago & Eastern Illinois.

Pennsylvania (17,000 mi.) would retain its control of Wabash, Norfolk & Western and Detroit, Toledo & Ironton.

New York Central (14,000 mi.) would be allotted Delaware, Lackawanna & Western and a connection at Deepwater, Va. with Virginian.

Smaller roads which were to be open to all four systems as “feeders” or “bridge lines” included Delaware & Hudson, Lehigh & New England, Montour, Pittsburgh & West Virginia. Still unsettled was final disposition of Virginian.

Chief obstacle to an agreement was the controversy between Pennsylvania and New York Central involving the Buffalo area. Central vowed Pennsylvania should never get into this, its prize territory. Pennsylvania vowed there would be no merger agreement without an east-&-west line along Lake Erie to connect its north-&-south spur lines terminating at such lake points as Sandusky, Cleveland, Ashtabula and Erie. Finally Daniel Willard, to whom bankers gave the lion’s share of credit for the success of the negotiations, perhaps because he already had all he wanted for his B. & O., proposed that Pennsylvania be allowed trackage rights over the Nickel Plate between Ashtabula, Ohio and Brocton, N. Y. (75 mi,.), subject to arbitration. Central’s Crowley and Pennsylvania’s Atterbury agreed to arbitrate their dispute.

Winners. Chief winner under the four-system plan was B. & O., which obtained direct entrance to New York. Simultaneously revived was a proposal to bridge the Hudson River near Manhattan’s 57th Street as a means of bringing B. & O. and Lehigh Valley over from the, New Jersey side to a Manhattan terminal of their own.

Chief objection is the great height (200 ft.) insisted upon by the War Department for such a bridge, with its steep approaches on congested, high-priced Manhattan land.

By constructing a short link in central Pennsylvania, B. & O. could cut 80 miles off its New York-Chicago route, have the shortest line between those points.

C. & O. gained heavily in obtaining Lehigh Valley, which serves as a first-class New York-Buffalo link for the Nickel Plate. D. L. & W. will supplement N. Y.

C.’s New York-Buffalo line whereas connection with Virginian will open to it West Virginia’s coal mines. Pennsylvania, which gains least, will use Wabash to carry it west to Omaha and Kansas City, thus rivalling B. & O. over the Chicago & Alton.

Pros. The prime argument last week in behalf of this consolidation plan was that, once approved, it would “set” the East’s railroad map, eliminate uncertain ties and thus permit carriers to begin $500,000,000 worth of new construction to link up and improve their properties.

Such construction, it was held, would re lieve unemployment, stimulate business recovery.

Cons. Before these beneficent results can be achieved, however, the plan must first pass muster at the L C. C. which is notoriously slow and cautious in dealing with mergers. Though B. & O.’s Willard spoke hopefully of merging his new lines in “three or four months,” less optimistic railmen predicted it would be 1932 or 1933 before the I. C. C. disposed of this case and major changes began to occur.

Before the Commission the four-system sponsors must, to win approval, prove that their plan is more in the public interest than the five-system plan for the East which the I. C. C. officially promulgated year ago (TIME, Dec. 30, 1929). This fifth system was to be composed of Wabash, Seaboard Air Line, Lehigh Valley, Western Maryland, Ann Arbor, Norfolk & Western et al.

Another obstacle which the four-system plan must pass is a number of I. C. C. rulings divesting trunk line carriers, under threat of anti-trust suits, of the same roads they now propose to merge with themselves. Pennsylvania has been ordered to dispose of Wabash, B. & O. to drop Western Maryland.

Three other serious points raised against the President’s Plan: 1) practical economies of operation, if any, will come from reducing the number of duplicate rail workers, thereby ultimately increasing rather than decreasing unemployment; 2) any hope that mergers will actually produce lower freight rates is vain; 3) the U. S. should be out of its Slump long before the plan can win I. C. C. approval and have any real effect on business and employment.

Stocks. Most merger proposals of the past have come to grief before the I. C. C. not because of their physical but because of their financial setup. What financial operations were planned to swing the four-system consolidation its sponsors last week kept as their own secret, insisted the “details of valuation” had not yet been worked out. Certain it was that the I. C, C. would scrutinize the stock deals behind the plan with a particularly sharp and skeptical eye.

Psychologically pleasing was the plan’s announcement to Wall Street where rail stocks jumped, up put of the gutter, began to lead a general advance. As the chief beneficiary B. & O. climbed seven points before stopped by profit-taking.

Politics. In Washington the critical voice of Politics was raised not only against the plan itself but against President Hoover’s sponsorship for it. Michigan’s Senator James Couzens, chairman of the Interstate Commerce Committee which handles all rail legislation and author of last year’s anti-merger resolution, was the first to complain:

“While I hesitate to criticize the ethics of the President, the issuance of this statement by him is most unethical.”

Senator Couzens argued that President Hoover’s support of the plan virtually forced the I. C. C. to approve it, regardless of its merits, because of the President’s appointive influence over the Commissioners.

Predicting that no such merger would go through in 1931, Senator Couzens continued: “If this proposed consolidation is not greater in the public interests than the consolidations already accomplished, we may not hope for much, if anything. . . . I’ve received information that the plan is more the result of high finance than it is in the public interest. . . . It is really too bad that high finance and permanent railroad consolidation should be proposed at the expense of human misery.* It is in reality worse than ‘playing politics at the expense of human misery’ because politics is a transient affair while the proposed undertaking seems to intend to tie the public up in perpetuity.”

Ratified by Ripley. Above the general political prattle about the plan was clearly heard one authoritative voice of approval, that of Harvard’s Professor William Zebina Ripley, oldtime rail expert who mapped the I. C. C.’s first (1921) general consolidation. Said he:

“This agreement should put an end, once and for all, to the financial intrigue which for so many years clouded trunk line affairs. Even since 1920, legitimately ambitious railroads and even designing financiers have tied up the situation by crisscross investment much to the public confusion and disadvantage. But now there will be no future sparring for position. There will be no need for corporate or private speculation.”

* A reference to President Hoover’s charge that the Senate was “playing politics at the expense of human misery” when it opposed his Drought and Depression relief plans (TIME, Dec. 22).