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Jurisdiction: Inside the Reed-Bullwikle Act of 1948

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Jurisdiction: Inside the Reed-Bullwinkle Act of 1948

The Reed-Bulwinkle Act of 1948 set a new standard in low and egregious behavior. The Motor Carrier Act of 1935 certainly achieved its goal of suppressing the trucking industry while at the same time ensuring that the railroads could thrive. One major failure of the Act was that it forced trucking companies to breach the Sherman Antitrust Act of 1890, and so rather than repealing the Act and risk never passing a new effectively restrictive act, they simply sought to indemnify trucking companies from going to jail and placing additional controls over the trucking industry and its success or failure in the hands of the railroads. 

Vetoes Vetoed

In spite of the tumultuous history, and multiple attempts by the President to veto the bill, and testimonies in Congress against the act, it persevered. 

President Truman vetoed the bill, nevertheless, in June of 1948 the Senate passed it 63 to 25, with four more votes than required. This wasn’t the first time the president vetoed the bill and the Senate overrode nor would it be the last. June 14th was a historical Day by Congressional standards which represented 3 vetoes in the span of four days which, resulted in the passing of the Reed-Bulwinkle Bill. Until that time there had never been so many vetoes overridden by the senate in such a short amount of time. House majority leader Rep. Charles A Halleck said that the president was simply “not in tune with the will of the people”, once more charging that support of the railroads and their rate-making process was in the interest and desire of the general public. 

It was stated that the railroad Industries had specific carrier problems, like the problems of the trucking industry eating away at their profits by simply offering a more competitive shipping solution but these problems needed to be fixed by the government because a vital rail system was “in the interest of the nation’s economy”. 

Free Reign and Lower Taxes

Approval of the Reed-Bulwinkle Act, vetoed by the then president but enacted by Congress in direct defiance to the president’s opposition, meant that railroads could adhere to any position taken by the Interstate Commerce Commission without fear of the courts challenging those decisions.

Part of this bill made adjustments to the taxes levied against railroad companies on payrolls for unemployment and sickness benefits. The bill would provide a reduction to the current taxes on wages and salaries for unemployment. It stood at 3% but the provision dropped it to two and a half percent as long as the railroads maintained a Surplus Reserve Fund of $450,000,000 or more. The provision noted that in the event this Reserve Fund should fall below that amount, the taxes levied would increase by 1% until that figure was met again. When passed, it was projected that the railroads wouldn’t have to face an increase in taxes for at least 7 years because of their Reserve Fund. 

It was estimated that this would save the railroads nearly $100,000,000 while simultaneously reducing the amount of tax paid income circulating into the treasury and subsequently into the American economy. Such a move does not corroborate these sentiments that the rail system in its existing form was in the interest of the nation’s economy.

Leveraging Government Support

As part of the Motor Carrier Act of 1935, the government still offered subsidies or stipends under specific circumstances for the railroads. This was, once more, touted as an attempt to keep the railroad strong for the sake of the American economy. American railroads were given favorable legislation and a great deal of financial relief under the guise that it was the government’s job to prevent competitive capitalism from eating away at railroad profit margins. 

The Interstate Commerce Commission continued to bully the government into further aid. On one occasion they levied threats against the government. J. Hayden Allredge, a member of that same committee, told Congress that the railroads were soon to lose passenger Revenue because they were approaching passenger Transportation charge limits and if they did so, the Interstate Commerce Commission would demand Federal subsidies to compensate for these losses. in a somewhat ominous tone he added that these are “ most serious problems… and one that ultimately may be serious Congress.” 

Squashing Other Competition

Having sat before Congress in one form or another for several years, the recently passed Reed-Bulwinkle Act stopped the Saint Lawrence River Waterway project, another move advantageous to railroads. This proposed Waterway would have permitted ocean-going vessels to travel through the Great Lakes and in so doing take considerable traffic from railroads in the northeastern regions. It was argued that even though this Waterway would only be functional half of the year, icebound the other half, this introduction of part-time traffic would have offered lower rates than railroads, further interfering with their profits.

A provision in the Reed-Bulwinkle Trust Act enabled the Interstate Commerce Commission, and by extension the figureheads for many prominent railroads the freedom to hold railroad rate conference agreements and similar rate making agreements for the trucking industry. This was attacked as a “highly sinister lobby” by many. 

Interchanging Control for Railroads

With rates for trucks now firmly under their control the rail right industry continued its present practices. On January 10th 1949, William T. Faricy, president of the Association of American Railroads filed a petition for 337 railroads which in total represented 3/4 of all freight cars across the United States. The petition was submitted to the Interstate Commerce Commission for approval of interchanging freight cars. Interchanging freight cars allowed the monopolistic railroad companies to increase profits by changing cars from one company to another during transport in order to avoid higher costs, circuitous routes, or bringing cars to areas where they currently did not exist. 

This request was yet another example of a provision provided for the railroad industry on Reed-Bulwinkle Act, otherwise considered illegal and a violation of anti-trust laws by many politicians and yet given an exemption. 

Impacts on the Interstate Industry

The control given to the railroad industry and the Interstate Commerce Commission to set rates for all types of transport did not just impact the trucking industry although the trucking industry was its primary target. Railroads were also allowed to set rates for themselves, and in so doing set them higher than the rates any trucking company could charge for the same distance traveled or the same service. Groups like Southern Railroads would submit petitions to the Interstate Commerce Commission asking for approval of ratemaking for specific railroad companies like the Southern Freight Association, solidifying higher profit margins than comparable shipping methods.

The following month, over 150 Interstate bus companies, all members of the National Bus Traffic Association, submitted a plea to the government for their own ratemaking and operational control. The same petition was submitted to the Interstate Commerce Commission in 1948 under the Reed-Bulwinkle Act where it was vetoed.

Lawsuits were brought against the Reed-Bulwinkle Trust Act in 1950 by the government in short spurts, but they amounted to nothing. In one such claim, 47 railroads were the subject of a 6 year long antitrust lawsuit by the government. Federal District Judge John Elephant noted that it was not the “proper function” of railroads to control the rate making process. These suits, however, were fought diligently by the Interstate Commerce Commission and amounted to nothing. 

Continued attempts at lawsuits fell on deaf ears. The interstate industry remained firmly under control of the railroads and the Interstate Commerce Commission thereafter. Things did not improve in 1980 with the subsequent passage of yet another Motor Carrier Act.

Control: The Rate-making Process and how it Was Used to Profit the Railroads

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From 1935 until 1980 there existed a rate making process enacted by the railroads which put rate restrictions on trucks. This system relied on advocates who went before Congress and claimed that rate making for trucks (and conveniently not for railroads) was for the good of the people. 

Rate Making

Beginning in 1935, the Motor Carrier Act gave railroad companies better control over the trucking industry. F.E. Williamson, president of the New York Central Railroad, went on the record as saying that the Motor Carrier Act would “establish regulations for rate-making” only for truckers. By way of the Interstate Commerce Commission and subsequently, the railroad owners to whom they answered, the railroad industry was given complete legal control to dictate rates for truckers among other things like working conditions, and other safety measures. 

Tangentially, a part of this rate making process was the power given to the Interstate Commerce Commission to take direct action against any lawsuits or legal issues surrounding this rate making process, thereby cutting out a neutral third party judicial system and enabling the source of rate making control with the power to deny claims against rate making control. 

The Interstate Commerce Commission required trucking companies to provide information on their fare data, charges, and tariffs. This enabled the commission and the railroads by extension to ensure railroad rates were less than trucking rates, ensuring the railroads would continue to control freight shipping and profits. Unfortunately, the profit-grabbing did not stop there. 

Reed-Bulwinkle Proposal

Nearly two decades after the motor carrier Act was passed, further restrictions were enforced upon the trucking industry by way of the railroads and the Interstate Commerce Commission who continually lobbied Congress to pass a new piece of legislation called the Reed-Bulwinkle Act.

The Reed Bulwinkle Act exempted railroads from antitrust prosecution as it applied specifically to the ratemaking procedures used by the Interstate Commerce Commission. Rate conferences, the meetings where rates were fixed for the trucking industry, were now legalized. Those who participated in this “conference method” of rate making were given exemption from the anti-trust violations by Interstate Commerce Commission approval. 

By 1948 the Department of Justice had uncovered a flaw: this type of ratemaking was illegal and violated antitrust laws. The Department of Justice limply objected that these rate making agreements were considered illegal and the antitrust immunity provision in the Reed-Bulwinkle Act only applied to agreements if they were not contrary to the public interest.

Objections Overruled

Not everyone was on board with the Reed-Bulwinkle Act, including the then President of the United States and Senator Burton K. Wheeler, chairman for the Senate Commerce Committee who noted that the government relief offered in this bill “goes too far”. Over the course of several days his testimony was given demanding that the ACT be thrown out of court, particularly given the economic impact it would give for railroads traveling east to west, a differential against the South upwards of 39% economically.  He noted that the railroads were only fixing freight rates to which they all agreed in a system “rigged to keep the South and West in economic bondage”.

That same year, C.W. Harder, the president of the National Federation of Small Business, called on President Truman to veto the bill and the exemptions from antitrust prosecution. In his words the rate making process and the Reed-Bulwinkle Act represented the “soul of communism”.

He further noted that allowing the Reed-Bulwinkle Act to pass would result in “wrapping our nation’s entire transportation system into a tight, strangling Monopoly-cartel combine” which would destroy “protective barriers of free competitive enterprise which… have made this nation the hope and envy of the world today.”

Wendell Berge, Assistant Attorney General, testified before a Senate committee that the Association of American Railroads and their industrial allies were trying to use “unlawful domination and control.” In April of 1946 he pleaded that the Reed-Bulwinkle bill, which at that time had already been passed by the house, be stopped. 

He noted, “this bill is an attempt to legalize and perpetuate the most far-flung and dangerous Monopoly that has yet been foisted on the American economy.” 

Part of his evidence was that the railroad represented a transportation monopoly in conjunction with other basic Industries which fixed transportation prices so that they could maintain the industrial status quo and prevent any new enterprises from competing within their industrial monopoly.

Concerns were noted that this illicit monopoly prevented southern and western regions from developing any competing Industries while concurrently depriving the courts in these respective areas from the jurisdiction they would need to file civil suits against elicit railroad operations. This would establish a “dangerous precedent in antitrust”. 

At the same time, the Department of Justice objected on the grounds that this bill would “destroy the freedom of competition and remove a large segment of the economy from the sphere of economic freedom which is now guarded by the anti-trust laws”. 

Berge explained that by placing control into the hands of the Association of American Railroads to fix Transportation rates, Congress would be giving a private government “the power to determine whether an industry shall grow or be stifled.”

How?

Transportation costs are a fundamental element in the industrial pricing system for any business. Controlling the cost of transportation can dictate competitive success or failure but establishing a fixed rate system overseen by only one industry gives that industry the power over our competitive economy. It gives that one industry power to eliminate competition.  

On record, Berge made his point succinctly: 

“The rail combine through interlocking banking influences has already allied itself with the steel, oil, cement and other combines to erect arbitrary rate blockade against the entry of competitors in the west and south. Enactment of the Bulwinkle bill would permit this unlawful power to go unrestrained and would result in the cartelization of the nation’s economy by a combination of super trusts, resulting in a complete reversal in our system of competitive enterprise.”

Governor Arnall would go on to accuse the railroads of a conspiracy, “instigated in 1934 by powerful Northern Financial interests… at the behest of those interests”, namely, the Association of American Railroads. 

The railroad industry did not only claim to represent the best interest of the economy, and subject the trucking industry to ratemaking, but they also found indirect ways to influence the legal representation given to the trucking industry. For example Edgar S. Idol served as general counsel for the American Trucking Association Inc, but he stated that the Reed-Bulwinkle Act was “plainly evident…imperative if complete chaos and confusion is to be avoided in the motor carrier industry.”  These statements were made after Idol was involved in a great deal of complicated legal transactions which finally came to a head in 1963 when the Commissioner of the Internal Revenue upheld deficiencies having to do with Idol and his wife from the decade prior. Most of these deficiencies represent a tangled web of what could be considered bribes from a specific truck carrier, stock options, and special transportation rights for said specific truck carrier given by the Interstate Commerce Commission. Eventually the Reed-Bulwinkle Act would come to represent a new standard in dominating, monopolistic behavior from the railroad industry.