ing full facts on scientific and technical matters, and of formulating and promoting projects and programs for the development and use of scientific and technical facilities in the national interest. As I understand the bill, it would create a Government agency with public responsibility to see that scientific development proceeds at maximum pace and that the benefits of scientific progress are not denied to the public because of the private interests of particular groups. Unreasonable restraints of trade through contract, combination or conspiracy violate the antitrust laws. But the bill, as I understand it, would implement antitrust policy by providing a positive public stimulus to technological development.

In considering this bill it is certainly pertinent to review existing restraints in any major industry which have the effect of blocking off and restraining the fullest utilization of improvements in the technological arts. The railroads, notwithstanding their admirable effort to meet the present crisis, are handicapped in regard to their equipment, facilities, and techniques because of certain policies and practices which they and those furnishing equipment have followed. Since these policies and practices involve restrictions on the adoption and use of new technological developments in the transportation field, they should be brought to this committee's attention.

A Government office with public responsibility for the promotion of science and technological advance, such as the pending bill provides, would study and plan for the national need in the transportation field as well as other fields. Such an office, in the normal performance of its functions, would keep abreast of latest developments and would urge their adoption through appropriate regulatory channels. If and when private financial interest conflicted with the national need in regard to the adoption of improved equipment and techniques, the Office of Scientific and Technical Mobilization, provided in the bill, would be in a position to protect the national interest and to call the attention of Congress or appropriate regulatory bodies to any failure of the railroads to act in the national interest with regard to adoption of scientific developments.

The CHAIRMAN. Mr. Berge, the transportation system of the Nation is like the blood-circulation system of the human body, in that it keeps the Nation fed, alive, and moving; isn't that so?

Mr. BERGE. It certainly is.

The CHAIRMAN. Therefore, it is not only the stockholders and bondholders that have an interest in the railroad, but the whole public because it serves the public, it keeps the public fed and clothed, and in time of war it is even more vital.

Mr. BERGE. That is right. Certainly any failure of the railroads to adopt new and advanced techniques that would improve the efficiency of the system is a loss to the Nation itself.

The CHAIRMAN. It is like hardening of the arteries in the human body when there is any such failure. It obstructs the flow.

Senator MURRAY. May I ask if any other countries have introduced technological improvements which the railroads in this country haven't attempted yet?

Mr. BERGE. We can get, I am sure, some information for the committee on that subject, but I am not prepared offhand to answer your question.

The CHAIRMAN. I think you will find, Mr. Berge, that all nations have been laying terriffic stress on automotive transportation, aviation transportation, and the big research has been in those lines. The railroads have sort of gone along just as they were and in fact have failed to pick up a lot of improvements that were developed right here in this country.

Mr. BERGE. I think that is a correct generalization and I think some of the facts I will bring out will tend to indicate that.

To return to the statement: For these reasons, I shall respond to the committee's request by outlining certain facts in the possession of the Antitrust Division which bear upon technological restraints in the railroad industry. Our Transportation and Public Utilities Section has made numerous antitrust investigations in this field and, in addition, we recently tried and won a case of considerable importance involving the monopolistic organization and practices of the Pullman companies. In general, my testimony will show:

(1) In conformity to the so-called western agreement, competition. among the railroads in western territory was almost totally suppressed in these respects:

(a) Technical improvements were delayed;

(b) In particular, the adoption of air-conditioning equipment was delayed;

(c) New services were curtailed;

(d) Competitive schedules were eliminated; and
(e) Rate reductions were prevented.

(2) The Pullman Co. used its monopoly of the sleeping-car business to make the railroads pay the additional cost of adopting new-style lightweight sleeping cars in place of the old-style heavyweight Pullmans, and otherwise restrained the adoption of new transportation equipment.

(3) The railroads, through their wholly owned subsidiary, the Railway Express Agency, have kept up air rates and restrained the development of the air transport of goods.

I shall first consider the so-called Western agreement and its effects. The Western agreement was entered into on December 1, 1932, by the railroads operating in the area west of the Mississippi River. It remained in effect until April 23, 1943, when it was reputedly canceled by the signatory railroads after the Department of Justice, having just discovered its existence, addressed an inquiry to the Western commissioner. That inquiry was followed by an investigation which was only recently concluded. As a result of the investigation, a quantity of evidence was obtained which is receiving thorough consideration in the Department at the present time with a view to determining what legal action, if any, is required under all the facts and circumstances.

The CHAIRMAN. Mr. Berge, were all the railroads west of the Mississippi River parties to the Western agreement?

Mr. BERGE. As I understand it, originally there were 32 railroads parties to the agreement and later there were many more. All of the larger western roads, including the so-called transcontinental lines, were members.

It was the avowed purpose of the Western agreement "to avoid practices which will dissipate railroad earnings in the Western dis

trict." To implement this purpose a western commissioner was appointed by the Western Association of Railway Executives, a preexisting organization composed of the presidents of Western railroads. The Western commissioner also served as ex-officio chairman of the Western Association of Railway Executives. In addition, the western agreement provided for the creation of a committee of directors composed of one director from the board of directors of each signatory railroad, but no member of the committee of directors could be a president, a vice president, or a receiver of the signatory road. The committee of directors was designed to represent the stockholding or financial interests.

Under the western agreement, certain "changes in practice" could be initiated by a member road only after compliance with the procedure contemplated by the agreement. The changes in practice governed by the agreement included: any change in general railroad policy which "might adversely affect the earnings of any" other railroad: changes in "rates, both passenger and freight, traffic rules and practices." whether or not adversely affecting the earnings of any party to the agreement; changes in freight or passenger train schedules or service; and changes in terminal or unusual accessorial facilities or accommodations.

Proposed changes in rates, traffic rules or practices were first submitted to the previously existing rate bureaus and carried on appeal to the Western Traffic Executive Committee. Other proposed changes in practice were submitted to the Western Association of Railway Executives, but any changes in either rates or practices approved by either of these procedures might still be appealed by an interested railroad to the Western Commissioner.

The CHAIRMAN. What is a rate bureau?

Mr. BERGE. A rate bureau, or, as it is sometimes called, a rate conference, is a strictly private organization of carriers for the purpose of considering and agreeing on rates to be charged. As of the beginning of 1942, there were approximately 60 rate bureaus or rate-making conferences in the railroad field, and 157 in the motor carrier field. These bureau or conference rates are filed with the Interstate Commerce. Commission and with appropriate State commissions. The rates so filed are published by the bureaus and become cffective automatically unless proceedings are instituted to suspend and investigate them.

Our studies show that less than 1 percent of the rates so fixed and filed with the Interstate Commerce Commission are suspended and investigated.

The CHIRMAN. Such a rate bureau is organized between competing roads, is that the idea?

Mr. BERGE. Yes.

The CHAIRMAN. For the purpose of fixing the rate on competing roads so there will be no deviation from a standard fixed rate regardless of mileage or anything else?

Mr. BERGE. I think it is fair to say that the tariffs filed are initiated by this joint agreement through the conference or bureau and the agreement of roads in a competing territory, and they settle on uniform rates.

The CHAIRMAN. Is there any statute authorizing those boards?

Mr. BERGE. I am sure there isn't. They are private organizations which are formed by the carriers themselves, and it is the procedure that has grown up for initiating rates.

The CHAIRMAN. They simply agree on a schedule of rates among themselves, and then submit that to the Interstate Commerce Commission and to the public service commissions of the several States affected for approval?

Mr. BERGE. Yes; they are filed. But when you say "approval." I don't know the provisions of the various State laws. I suppose they differ. My understanding, and I want to be corrected by my associates if I am wrong, as to the procedure with the Interstate Commerce Commission is that the law does not require, and in practice there is no review as a matter of fact of the fairness of rates, the reasonableness of rates that are filed. There are, I suppose, thousands and thousands of tariffs. We incline to think of a simple tariff as simply covering a rate from one place to another, but when you analyze it and think it through, you realize there are rates on almost every commodity, every kind of traffic carried, so there would be thousands and thousands of different rates that are filed. As a mechanical matter I suppose it would be almost impossible to have separate hearings and findings by the Commission on all of those, at least under the present law and the present practice. It is not done and the rates are filed, and if they are properly filed they become the lawful rates. I believe there are penalties for deviation from those rates. Is that not true?

Mr. B'RNES. That is correct.

The CHAIRMAN. It is not submitted for approval, really. The only time the rate is upset is when the Interstate Commerce Commission or the other commissions attack the rate?

Mr. BARNES. That is right.

Senator MURRAY. Do these conferences hold hearings and permit representatives of shippers in various sections of the country to present their objections or ideas on these things?

Mr. BERGE. I understand they occasionally do, but that would not be the general or usual practice. The rate bureau reserves the right either to hold or not to hold a hearing.

Senator MURRAY. They may hold hearings, then, in their discretion, and they hold them when they feel the hearings are not going to interfere with their ideas of what the rates are going to be, I suppose?

Mr. BERGE. I am not in a position really to answer that. It has been called to my attention that the Interstate Commerce Act provides that each carrier shall initiate its own rates and that there is no provision in the act for group rate-making, such as the rate bureaus.

The CHAIRMAN. Through this system you get the effect practically of an interlocking board of directors among competing roads?

Mr. BERGE. Yes. Of course we have to recognize that as a matter of law the rates that are submitted are subject to Interstate Commerce Commission disapproval.

The CHAIRMAN. Go ahead, please.

Mr. BERGE. The Western commissioner was theoretically without power to enforce his decisions upon independently minded railroads. Any failure to reach a harmonious conclusion was reported to the committee of directors, composed of prominent businessmen, bankers, and financiers, which held regular meetings in the board room of the

Bank of Manhattan Co., at 40 Wall Street, New York. Again the v.estern agreement is silent as to any coercive powers which might be exercised by the committee of directors to bring recalcitrant roads into line. Matters in dispute were sometimes referred to an individual director, who thereupon used his influence to persuade the erring road to conform. With few exceptions, the Western commissioner or the committee of directors was able to dissuade a railroad from following a course of action over the objections of other railroads, the Western commissioner and the committee of directors.

The CHAIRMAN. Were the actions of the Western commissioner and the committee of directors secret?

Mr. BERGE. So far as we know, no publicity was given to their delibcrations. Whether there was a conscious effort to treat them as secret or whether they were just in fact not publicized, I don't know, but we are not informed that any publicity was given to their deliberations. Dr. SCHIMMEL. Who was the commissioner, Mr. Berge?

Mr. BERGE. The last commissioner, I am informed, is a man named C. E. Johnston; his cffice is in Chicago. His predecessor, and the man who was commissioner during a great deal of the period that my testimony will cover, was a man named H. G. Taylor.

The CHAIRMAN. Who appoints the commissioner?

Mr. BERGE. The Association of Western Railway Executives decides on the commissioner.

There had been some experimenting with air-conditioning of dining cars on the Santa Fe and the Northwestern Railroads in 1931, but the first real air-conditioning west of St. Louis came in the summer of 1932 with the air-conditioning of dining cars on five trains. On December 15, 2 weeks after the western agreement became effective, Mr. Ralph Budd, president of the Chicago, Burlington & Quincy Railroad, wrote to the Western commissioner that he thought that dining and club cars would require air-conditioning on his railroad, and that by arriving at an understanding that air-conditioning should be limited to such equipment the railroads could avoid a repetition of what happened between Chicago and St. Louis where all passenger cars on four trains in each direction had been air-conditioned.

In response to this request to use his efforts to limit air-conditioning to dining and lounge cars, the Western commissioner wrote to Mr. Paul Shoup, vice chairman of the Southern Pacific, on January 9, 1933:

Air conditioning appears to be an innovation which the public is demanding and I presume the western roads will desire to keep abreast of other territories in its adoption. However, it seems very probable that if something like a uniform policy could be determined upon, a very considerable sum of money might be saved.

To which Mr. Shoup replied on January 14, 1933, stating:

The roads in California have an understanding among themselves that without previous conference they will not undertake air conditioning of any cars except dining cars. It would appear that this understanding will control for the year 1933 except as it may possibly be affected by the conclusion of President Baldwin of Missouri-Pacific that their line, which has air conditioned its dining cars, would be obliged to air condition lounge cars instead for service between St. Louis and El Paso and St. Louis and sonth Texas.

It is unquestionably desirable that the western lines should air condition their trains to the same extent that their connections in the East have done but in view of the certainty of light passenger traffic during the coming summer, which arises from causes that cannot be substantially combatted by the improved service of air-conditioned trains, it would seem to be best to postpone for another year any