Our local media continues to fret over the Justice Department’s toothless investigation of Microsoft, which (as we predicted) is leading not to the break-up of Microsoft, but to its continued drive to dominate the browser market and drive Netscape out of business. Meanwhile, another major corporation has been giving mergers a bad name, and may actually be dismantled by federal regulators: Union Pacific.
Last year we reported on the Union Pacific/Southern Pacific railroad merger and the problems it created all over the southern United States. Now its customers and competitors are calling for the merger to be reversed. The Surface Transportation Board, which monitors mergers and customer service issues in the railroad industry, is currently monitoring the new conglomerate, and will continue through 2001, during which time it can order the new company to be broken up into smaller entities. To avoid that outcome, UP will probably turn to–yes, you guessed it– taxpayer funds to help bail it out.
Since acquiring Southern Pacific Rail Corp., Union Pacific has been the center of a nationwide shipping crisis that has left goods stranded in warehouses, on docks, and on farms all over the southern United States. Caused by a combination of bad management decisions, problems integrating the two companies’ equipment, safety problems, labor strife, and slow-downs due to bad weather, the crisis has cost the U.S. economy an estimated $2 billion.
One of the main causes of the shipping tie-ups is the way Union Pacific treats its workers. Workers are being asked to put in overtime to clear backups along its rail lines, but Union Pacific refuses to pay them overtime rates. For example, during the 1997 Thanksgiving holiday, UP paid its workers a one-time $100-a-day bonus to work on the holiday weekend. However, when Christmas arrived, UP refused to pay the bonus, saying that it didn’t want to “set a precedent.” Yet the company still expresses astonishment that over 40% of its workers are refusing to work mandatory overtime.
Safety issues have also been a major cause of the slow-down, too. Early last year, to catch up on its growing backlog of orders, UP “sped up” the system by scheduling more rail cars and more frequent runs on each line. After a series of fatal train wrecks last year, the Federal Railroad Administration (which monitors safety on rail lines) assigned 80 inspectors to review UP’s system. So far, FRA inspectors have forced UP to remove a large number of locomotives and rail cars from its tracks.
In the face of these problems, UP is turning to another solution to save itself from being split up: a push to build more rail lines, overpasses, and switching hubs. And like most large corporations, UP will be turning to state and local governments for funding to pay for upgrades in infrastructure.
For an example on how to draft these deals, UP need look no further than Seattle. Northern Pacific railroad is brokering a multi-million dollar deal with the Port of Seattle and King County to finance new overpasses (with taxpayer funds), so it can increase its rail traffic in and out of the port. Local business leaders, port commissioners, and the King County Council have all given uncritical support to this deal, in the name of “growth,” conveniently forgetting that “growth” is also responsible for a whole host of other ills that they need to deal with. Local politicians love to make sketchy promises to their constituents at election time about handling growth problems, but they quickly forget all about it, once a nifty scheme comes along that will enrich their friends and line their own pockets.
Let’s not forget that the Port of Seattle just recently complained about not having enough money to fund all of its “dream” projects: building a third runway at SeaTac, remodeling the airport’s facilities, finishing the port’s new convention center (yes, another convention center!) across from the Bell Street Pier, and upgrading container-loading equipment at a number of different piers. When a new construction project comes along, our port commissioners just can’t say no. And if they did, they would lose the support of their main constituency– Burlington Northern, a host of other transportation companies, and local construction firms.
The whole UP merger mess is a reminder to us of the high cost of unregulated markets and competition. The fact that UP will now demand taxpayer assistance to stay alive–and that Northern Pacific now wants money from us to “stay competitive”–is a reminder that “free markets” don’t actually exist (and can’t exist in the real world). They also don’t work for the benefit of most people in society, only for those with money, power, and influence.