Remora

Bush insatiable appetite for CEOs was apparently not sated by Paul O'Neill's unspotted record of ineptitude. There were times we rather liked O'Neill -- for instance, his idea that financial gamblers who invest in high risk emerging markets should (gasp!) take their risks. But on the whole, the man was as out of the loop as any Treasury secretary since the late Andrew Mellon. So now we have John Snow, chairman of CSX, whose arrival has been greeted by the cautious hossanahs of various Democrat honchos. This is, of course, a bad sign -- to be followed by the rote label, moderate Republican, and such business. Here is Forbes, trumpeting the integrity of the man:

"Snow has been serving as co-chairman of a Conference Board blue-ribbon commission on corporate governance. In its first report last September, the panel called for widespread reforms in the way executive compensation is determined.

In a news release accompanying the report's issuance, Snow deplored the series of corporate scandals involving companies like Enron that weighed on the U.S. stock market this year.

"These egregious failures evidence a clear breach of the basic contract that underlies corporate capitalism," Snow said in September."

There you go -- in the fashion of moderate Republicans everywhere, a scandal that stinks up the culture for almost a year finally gets struck down with the true, denunciatory thunder of a man whose own compensation package will guarantee him steaks and lobsters, with a diamond garnish, for the rest of his born days, if he so choses.

LI reviewed a book by William Leach years ago. The book rather convinced us that the new world ushered in by the de-regulation of the railroad system deserved much of the credit that went to the Internet in the nineties. The internet merely ushed in a new way to order things -- the de-regulation of the railroad industry, allowing the merger of trucking and rail companies, was a significant factor in the great decline in transfer costs. That journalists, who are much more likely to hang around a computer terminal than a railroad depot, pumped the Internet as the miraculous offspring of Gutenberg and Jesus Christ shouldn't surprise anybody. After all, when Time was portentiously summing up the century in 2000, it somehow overlooked almost everything that had happened in agriculture during the last one hundred years -- for instance, the invention of artificial fertilizer, which has had much more effect on our lives than, say, the rocket or the modem.

So what is Snow's background? This report on the Rail industry,
Railroads at a Crossroads: Time for a New Business Model?

by Steven Ryder and Jay Frazier
is a nice place to start. If, indeed, deflation is the phantom menace around the corner, Snow must have caught the fatal intimations at CSX.

One of the puzzles of economics is the continuing belief in the myth that "corporate capitalism", to use Snow's term, is the best way to efficiently distribute investment. If one looks at the amount invested in fiber optic wire in the nineties, compared with the amount invested in reworking railroad track in order to make a faster system, it is easy to see that corporate capitalism is not driven to invest in those things which will ensure long term profit, but in those things that promise some kind of short term pay-off. It is all a matter of being convinced that there is, indeed, a short term pay-off -- which is the task of those drudges in the Biz journalism racket who mindlessly report the forecasts of the bought and sold in pages meant for the guileless. Rationally, the investment should have been in creating the kind of transportation network that would reinforce just in time manufacturing. The key stat from Ryder and Frazier is this:

"...railroads remain as a low-cost service provider. The operating cost of a railroad easily undercuts its competition in bulk freight surface transport. Shippers who choose to route freight by truck rather than by train typically pay a 25% premium in price. The dramatic rise in oil and energy prices will further magnify this cost advantage for rail. "

That premium, remember, exists in spite of the considerable support given by the State in the form of a highway system that is built and maintained with tax money. As a transportation mode, railroads, with their much greater carrying capacity and their potential, given the tracks and the equipment, to achieve greater speeds than road based vehicles, should have been the recipient of heavy investment. However, it is impossible for the American mind to get itself around the idea that railroads aren't something obsolete, out of a cowboy movie.

CSX, after taking over Conrail, spawned a protest site -- CSX sux. Why it sux isn't exactly clear on the site -- there is a gabfest of disgruntled employees, and there is some news about nuclear materials run by the company. Frankly, the site looks inward, to who did what in the Montgomery station at 2 p.m. on February 15th. However, the nuclear materials story definitely deserves some press play -- although we doubt anybody is really going to look into it in the big newspapers. Lately, the news has been Bush's party.