Posted by
fact275 on Wednesday, September 24, 2008 12:00:00 PM
First things first, AOI is not a socialist. Like many of you, AOI has concerns over the proposed Government nationalization of our financial markets and all the potential riders to that bailout that the socialists in Congress might attach.
But sometimes a Government nationalization can work.
AOI is a huge railfan and thus can think of one example from recent history. In the late 1960s, most of the northeastern railroads were operating in the red due to declining passenger revenue, trucking companies capturing business over the shorter Northeastern distances, and natural disasters. In 1970, Penn Central declared bankruptcy, which at that time was the largest such case in United States history. Most of the other railroads in the region would follow PC into bankruptcy as well.
Faced with a financial meltdown of the rail transportation industry in the Northeast, Congress passed the Regional Rail Reorganization Act, which President Nixon signed into law in 1973. This act created the Consolidated Rail Corporation, or Conrail.
Conrail's mission was to form one railroad out of the tangled mess of seven bankrupt railroads. It did this by rationalizing the system and its equipment, and using authority in the new law to shed unprofitable or duplicate trackage. Surely the formation of Conrail was not easy and many jobs were affected. Conrail did suck up billions of taxpayer dollars. According to Wikipedia, the railroad lost 2.2 billion from 1976 to 1982 and required additional legislation to keep it afloat.
But ultimately, Conrail saved the rail system in the Northeast. By 1983, thanks to additional legislation, it had become profitable and the Government was able to do what it always intended: privatize it. Congress passed the Conrail Privatization Act, and President Reagan signed it into law in 1986. The largest IPO to that time occurred, with Conrail stock worth 1.9 billion dollars.
Conrail continued to have success into the 1990s to the point where rivals Norfolk Southern and CSX Transportation engaged in a bitter buyout war. In the end, the Conrail system was divided between the two railroads in 1999.
So as Conrail shows us, a government nationalization can work to save the US economy. But this historic example also shows that the right officials must be put in charge and the goal of making the system profitable so it can be re-privatized must never be far from sight. The Government never intended to be in the railroad business any longer than it had to.