Interstate Commerce Act
In 1887, Congress passed the Interstate Commerce Act, making the railroads the first industry subject to federal regulation. Legislators designed the law, which established a five-member enforcement board known as the Interstate Commerce Commission, largely in response to public demand that the railroads' conduct should be constrained.
In the years following the Civil War, railroads were privately owned and entirely unregulated. Though each company held a natural monopoly as long as it serviced its own destinations, the railroads became fiercely competitive once they started expanding into each other's markets. They were regarded with distrust by much of the public, who charged them with anything from forming monopolies and wielding corrupt political influence to stock manipulations and rate discriminations. None of the accusations were unfounded.
The first attempt to regulate the railroad industry's practices came in 1871, at the state level. Illinois passed regulatory legislation first, and states across the South and Midwest quickly followed suit. The states, however, were powerless to regulate interstate commerce, and the railroads were expanding their operations across more state borders all the time.
The Interstate Commerce Act sought to address the problem by setting guidelines for how the railroads could do business. However, the task of establishing specific measures was complex, and regulators lacked a clear mission. The law sought to prevent monopoly by promoting competition, and also to outlaw discriminatory rate-setting. Its most successful provisions were a requirement that railroads submit annual reports to the ICC, and a ban on special rates the railroads would arrange among themselves. Determining which rates were discriminatory proved to be technically and politically difficult, though, and in practice the law was not highly effective.
The Hepburn Act of 1906 and the Mann-Elkins Act of 1910 strengthened the Interstate Commerce Commission, stating the government's regulatory power more definitively. The Hepburn Act empowered the ICC to change a railroad rate to one it considered "just and reasonable," after a full hearing of a complaint. The Mann-Elkins Act placed the burden of proof on the railroads; for the first time, they would have to actively demonstrate that a rate was reasonable. With these new powers, the ICC gained almost complete control over rail rates, and therefore much of rail competition.
In the following years, the government continued to strip the railroads of their power. One important piece of legislation, the Adamson Act of 1916, enacted an eight-hour workday for railroad workers. Government control culminated when President Woodrow Wilson seized American railroads in 1918; the once-private industry would now be a tool of the federal government in the war effort. Wilson promised to return the railroads to private ownership after a peace treaty was signed.
The Esch-Cummins Transportation Act of 1920, which returned the railroads to private hands, advocated a sharp reversal on past policies. The federal government, which had once been ardently anti-monopoly, now encouraged mergers, provided the mergers paired strong lines with weak ones. The ICC, in fact, dictated the merger combinations. In addition, Esch-Cummins empowered the ICC to fix minimum rates and dictate extensions and abandonments of routes. The railroad industry, which had long sought to eliminate unprofitable routes, was now saddled with them.
As devastating as the new legislation was, the railroads had a still greater enemy: increased competition from cars, buses, and trucks on an ever-growing network of roads. Passengers were electing more and more to travel by car or bus; freight shippers were increasingly choosing trucks for short- or long-haul jobs. Trucks, buses and cars could take flexible travel routes from point to point; railroads could not.
For 20 years the railroads' situation worsened. Although they were losing business to competing modes of transportation, they were still considered a threat. The Transportation Act of 1940 amended the Interstate Commerce Act to extend its reach to the other industries, but the fact remained that while regulations were not relaxed on railroads, private cars, trucks, and 90 percent of inland water carriers were exempt from government control.
It wasn't until 1958 that the government reversed its policy. Railroads, it was determined, no longer posed a monopoly threat; regulations could be loosened. By this time trucks had usurped much of the railroads' high-value freight traffic, and airplanes had taken the lion's share of long-haul passenger business, as well as the lucrative contract to carry the U.S. mail.
By the 1970s and 1980s, railroads were enjoying freedom they hadn't known since the Gilded Age of the 1870s. Unfortunately, business did not keep pace. In 1971, the government formed Amtrak, a federally-supported corporation, to operate intercity passenger train service. In 1980 the Staggers Act furthered railroad deregulation, but by then, many railroads were operating under greatly reduced circumstances, if they were operating at all.
By 1995, the Interstate Commerce Commission had lost most of its mandate. With deregulation complete, the ICC could no longer set rates, and the commission was dissolved in the ICC Sunset Act. The Surface Transportation Board, under the auspices of the U.S. Department of Transportation, now performs the few regulatory tasks that had remained with the ICC.