Socialized Railroads in the USA: The Grand Trunk Western

by Michael Conant



The objective of the Canadian National Railways Co. to use the Grand Trunk Western Railroad Co. as a feeder line, without regard to its growing losses, proved a failure. It can be argued that the primary premise was fallacious. The Canadian National Railways had a certain number of loaded cars to deliver to Michigan railroads every month and every year. Under the systems of reciprocity that have replaced rate competition in this regulated industry, if those cars had been delivered to independent U.S. railroads, the Canadian National would have received a certain number of loaded cars in exchange from the U.S. carriers. It is not necessary to own other railroads in order to bargain reciprocal exchange of loaded cars with them. In light of this argument, the £369 million advanced to the Grand Trunk Western by 1974 was, for the most part, unnecessary for Canadian National Railways to bargain for exchange of traffic with Michigan railroads. The Canadian National Railways policy of using the Grand Trunk Western as a feeder line failed long before 1974, when its accumulated losses reached 165 percent of assets and its liabilities to Canadian National reached 216 percent of assets. One must conclude that the absence of pressure from the private capital market by virtue of the continuing subsidy from Canadian National Railways allowed Grand Trunk Western management to operate without consideration of long-run efficient use of assets.

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