Countless times in the past 15 years I’ve heard online news gurus exhort newspaper executives to “get” the digital media future with admonition: “Railroads thought they were in the railroad business. They didn’t realize they were in the transportation business.”
The lessons were were supposed to learn from this MBA-style wisdom is that
- Newspapers needed to realize they were in some other business than the news business — communications, perhaps, or community, but certainly not news on paper.
- Newspaper executives needed to focus on customers not product.
But what if this bit of sage advice isn’t so sage after all? What if it’s just plain wrong in every respect?
My current iPad book is Bully Boy, by Jim Powell. It’s about the disastrous consequences of just about every policy initiative Theodore Roosevelt under took throughout his political career.
Besides being a racist, imperialist warmonger, Roosevelt fashioned himself as a trust buster — along with other progressives of the era — with a chief target of his wrath following on the railroad industry.
- Every publicly subsidized railroad company of the 19th Century went bankrupt and were rescued out of receivership by railroad owners who prided themselves on building their companies without the aid of taxpayer money, such as James J. Hill, Edward Harriman and J.P. Morgan. Hill, especially, built his business by investing in quality and keeping prices low — hardly the practice of an anti-consumer monopolist.
- When Harriman, Hill and Morgan decided to consolidate rail operations, Roosevelt initiated a lawsuit under the fairly recent Sherman Anti-Trust Act and successfully broke up their holding company, Northern Securities.
- Roosevelt’s next anti-trust target was John D. Rockafeller‘s Standard Oil, which was accused of monopolistic practices because it used its superior technology, assets, economies of scale and frugal business practices to secure lower shipping rates on rail lines compared to smaller and regional competitors.
- From the 1870s or so until the government began controlling rates, passenger and shipping rates across rail lines continued to fall as more lines were built and technology improved (rail also still competed with water transportation, which helped push prices down).
- The reason rail companies were portrayed as evil in news reports and populace myth were that even as prices fell, they fell faster for big shippers (benefiting from economies of scale), and farmers, small meat packers, small fuel producers, resented paying higher rates.
- The main competitive pressure for farmers, however, wasn’t rail prices, it was other farmers. Many Civil War vets, after the war, went into farming. In 1850, there were 1.4 million farms in the U.S. By 1900, there were 5.7 million. The number of acres of land in production rose from 293.5 million acres to 841.2 acres. Still, farmers, blamed rail “monopolies” for their woes.
- Feb. 4, 1887, Congress passes the Act to Regulate Commerce, which creates the Interstate Commerce Commission, which begins to regulate railroads, including setting long-haul rates. This process intensified after Roosevelt became president when he increased the number of board members from five to seven so he could appoint two people more aligned with his policies on railroads.
- In 1903, Congress passed the Elkins Act, which outlawed rebates on railroad shipping.
- In increasing the power (greatly limiting the ability of railroads to appeal rate decisions) and size of the ICC in 1905, Roosevelt declared, “The government must in increasing degree supervise and regulate the workings of the railways …”
- Starting after the turn of the century, the rise of labor unions in the rail industry further increased costs and depressed profits.
- Railroad investment in its own infrastructure peaked in 1907 — decades before interstate highways.
- During World War I, the federal government nationalized the rail system, leading to $900 million in loses for railroad companies.
- In 1971, historian Albro Martin estimated that more than $5 billion in investment capital that might have helped upgrade the rail system before World War I went to other financial opportunities. Martin wrote, “Developmenst like the diesel locomotive were delayed twenty years even though the steam locomotive had passed its peak by 1914.”
Railroads did not fail to invest in better passenger service because of lack of focus on customers, but because government control constrained investment, dried up profits and made it impracticable to add air conditioning or other comfort improvements, let along invest in new and faster engines.
Whether you agree with progressive trust busting or not, certainly, knowing these facts, it’s hard to make the argument that railroad executives were the authors of their own demise.
What are the implication for newspapers?
Perhaps publishers need to do a better job of remembering their in the news business after all. Yes, focus on customers, not the product, but one thing that I’ve relearned numerous times over the past four years is the product customers most want is news. Embrace the fact: You’re in the news business, not the communication business.