Part 23
Had the Government, through its Interstate Commerce Commission, vigorously undertaken to enforce the law--passing if necessary, long before it did, the Elkins Act--I think we should have seen a correction of these abuses long before the reform came; but, as a matter of fact, neither the Government authorities nor many of those managing the railroads had yet reached a clear conception of the significance of the abuses which existed and of the proper legal method of uprooting those evils.
GETTING AWAY FROM OLD ABUSES.
Upon the resumption of business activity, in 1898 and 1899, and, later, following the passage of the Elkins Act, the opportunity was presented,--and in general accepted by the railroads,--to get away from the old methods. While since then there have been some cases of violation of the law, in the matter of secret arrangements, yet I think that, at least within the last four or five years, it is safe to say that they have been of small importance, and perhaps, in many of the cases--while a technical violation of the law--were actually not discriminations. I say this advisedly, so far as the eastern situation is concerned, because I know that the Pennsylvania Railroad Company has not paid a rebate for years, and it is fair to believe that as that company held its traffic,--in fact, largely increased it,--without the necessity for such arrangements, its competitors must have to a large extent pursued the same policy.
But not alone in reference to freight rates was there more or less complicity in evil between the people and the railroads, but let me ask you to consider, for a moment, the question of free transportation, or passes,--whether political or business. It is only within the last year or two that the public conscience has been awakened on this subject. It is true, the railroads have been abused for several years by those who did not enjoy such favors, but is the railroad more responsible for the conditions that existed than the Government of the people, either in the National Congress or in the State legislatures, and how could it be expected that the legislators in one State could feel that they were doing very wrong in accepting passes, when the legislators of another State enjoyed them by law of the State? How could members of Congress be criticised for accepting such privileges, or the railroads for extending them, when the Presidents of the United States and member of their cabinets, and other important officers of the Government not only accepted them, but practically exacted them, and, further, expected that private cars and private trains should be furnished without charge? Upon one occasion within the past two years I called upon the Interstate Commerce Commission to ask its assistance in eliminating the pass abuse, and was very frankly told that it could make no move, nor take any interest in the subject, in view of the fact that important public officials including Senators and the members of Congress felt that it was not improper for them to accept them. Out of this situation grew a large part of the pass abuse, because, following the national government and the legislatures, the large men of business felt that they could properly accept similar privileges.
Therefore, I repeat, that while there were great abuses--especially during the period referred to--embittering a large portion of people, yet the railroads were no more responsible than the people themselves; and yet, without doubt it was during this period that the foundation was laid for the feeling of the present day.
RAILWAYS WELCOME JUST REGULATION.
But, as I stated, we were forced to bear the brunt of our past sins--and more--in the campaign for increasing the powers of the Interstate Commerce Commission. Do not misunderstand me. Many thoughtful railroad men believed always, in the value, both to the railroads and the public, of an interstate law, and, further, considered it wise to strengthen the power of the Commission. The distinction, however, between what railroad men did and did not believe in, is very clear. We felt and we feel now that the government is perfectly justified in regulating railroad practices to the extent of preventing discriminations. Indeed, the government should act as a sort of policeman to see to it that the weak and the helpless are protected. If reasonably administered, the railroads need the law. But the government should not have the right to interfere with the proper play of the natural commercial forces of the nation. The great distinction between police and commercial powers should never be lost sight of.
The danger does not lie in the provisions of the new national law. There is no substantial difference between its provisions and those of the old law, except in respect to the powers of the Commission. There was no necessity for the new law, so far as the prevention of the old abuse of secret rates and discrimination was concerned. The operation of this law does not involve any material change in traffic operations of the railroads; the only danger is as to how the Commission may exercise their power in influencing reductions in rates, but even in that respect the railroads have the right of appeal to the courts. It is from various other bills being presented in Congress in which the immediate danger lies, showing possible interference by the national government with the operation of railroads, with respect to the hours of labor of its employes, systems of signals, and other methods of operation, which should properly be left to the railroads themselves. This threatened interference of the federal government is having a powerful and dangerous influence upon the legislatures of the various states, who apparently are--in a slang term--"Seeing Congress and going them five or six better"--in the bills for reduction of state rates, both passenger and freight; for increase in taxation, and all sorts of measures which tend to reduce the earnings and increase the expenses, and hamper and delay the actual development necessary.
It was unfortunate that in the agitation and discussion following the President's recommendations, until the present law was finally adopted, there was a total misunderstanding upon the part of the public at large as to this attitude of the railroads. It was most unfortunate in that campaign that the principal point of contest upon the part of the railroads was lost sight of--and that is--the objection upon their part not to reasonable amendments to the law, and not--if the people wanted it--to some increase of power to the Commission, but to the attempt to make a commission of five or seven men--in many respects a political body--the final arbiters as to the rates and fares of the railroads.
DIFFICULTIES UNDER THE PRESENT LAW.
Yet even with the new law on the statute books, our traffic problems are still with us. We are forbidden by law to make formal agreements as to rates, yet it is universally recognized that in order to secure an equitable adjustment of rates, it is absolutely necessary that the traffic managers of the railroads shall confer frequently. It is well known that such conferences are held and must be held to prevent discriminations, yet no definite agreements can be made.
The present law stipulates that there shall be no discrimination by railroads against persons or communities. Right here, however, the railroads are face to face with a problem all their own, which is a very serious one, and that is: How shall a particular railroad prevent discrimination against a community on its own line by some other railroad seeking to specially favor a community on its line? Is it not absolutely essential that there should be both an understanding and a virtual agreement on the part of the two railroads concerned for the purpose of protecting both communities?
Cases of dispute between railroads as to proper rate adjustments have, indeed, been referred to Interstate Commerce Commissioners as arbitrators and their findings have been observed. This shows how absolutely vital to all business is the necessity for that co-operation which can only be secured by agreement and conference between all interested parties. The President of the United States recognized the necessity for this fact in his last annual message and recommended that some legislation be passed which would permit agreements between railroads as to rates.
We are thus in the presence of this ridiculous situation; that on the one hand we are being threatened with prosecution by the Government for violation of the Sherman Act in respect to methods which on the other hand the President of the United States and the Interstate Commerce Commissioners agree must be followed in order to properly discharge our responsibility to the public--in other words, we are "between the devil and the deep sea," or we are damned if we do, or we are damned if we don't.
So much for the moment, for our national problem. As to State regulation: while not believing--now that we have a national law--that it is necessary or desirable for the public to establish state commissions and special railroad laws, at the same time, if the people desire such commissions, we have no right to look upon such a demand as "anarchistic," but we feel that the working of such commissions will be unsatisfactory to the business interests.
CONFIDENCE AND JUSTICE NEEDED.
These are but a few of our problems and difficulties. While I do not wish to minimize the dangers of the present situation, while I recognize that it is now to some extent, by adding to the timidity of investors, retarding our ability to secure funds necessary to make extensions and buy equipment required for the ever-increasing traffic of the country, and if continued will make it impossible, yet I am firmly of the opinion that the good sense of the people will prevail and the unjust attacks cease. Confidence of investors both here and abroad is needed to furnish funds, and, if this is seriously shaken, the prosperity of the railroads, which are the keystone of the arch of business, will be destroyed.
To avoid these dangers a regime of confidence and fairness on the part of the public toward the railroads must be restored, and to accomplish this we must place our case, as it were, before the legislators and the people and make clear our difficulties and the complications which beset us. Few, after all, understand the railroad problem, and we have not made it plain to the people, either because it was the fashion not to do so, or because we could not realize that things simple to us were not understood by the public. We must not stop at one statement, but discourse upon and elucidate every subject which the public misunderstands.
Let us be frank and take the public into our confidence as fully as is consistent with the proper conduct of our business. Let us approach the subject with the feeling that the railroads are not absolutely perfect, that we have to some extent brought this condition of affairs upon ourselves, and that we should govern ourselves in the future accordingly. Let us undertake to go frankly before the people and present the actual facts in connection with our affairs.
THE PENNSYLVANIA AS AN ILLUSTRATION.
Let me illustrate: The Pennsylvania Legislature is in session. Numerous bills have been presented, of a most radical nature. It is our purpose to appear before every committee that will hear us, and tell our side of the story. I doubt very much if the average legislator--and certainly not the average citizen--understands whom he is injuring in unjust acts towards the railroads. Take our company, for example. It is not a small group of rich capitalists; it is not Mr. McCrea and myself and a few others; the Pennsylvania Railroad is owned by more than 50,000 people, 30 per cent of whom live in Pennsylvania. Forty-seven per cent of our shareholders are women; and in many cases the dividend is their only source of income. Then there are thousands of bondholders; beyond them are nearly 100,000 employes in the State of Pennsylvania dependent upon the prosperity of the Pennsylvania Railroad for their livelihood.
Therefore, by the usual computation, it is safe to say that approximately half a million people--men, women and children--are actually dependent upon the welfare of this company in the State of Pennsylvania alone.
Upon the Pennsylvania Railroad's prosperity depends the prosperity of the other lines in its system, and including the employes of these lines, there are 200,000 men, who, with their families, constitute an army of a million or more. Behind them, again, are the thousands of men, with their families, who produce the coal and other materials which the railroads use. Anything that cripples the railroads injures every one of these people.
When we make these and other facts plain, I cannot but feel that no injustice will be done. In the meantime, let us keep our minds well balanced, and not allow ourselves to believe that chaos is coming; let us meet the issue fairly and squarely and frankly. While, therefore, necessary for the present, at least, to suspend many improvements, let us keep our courage, trusting to the ultimate good sense of the lawmakers and the people for that sympathy and support to which we feel that we are entitled.
THE RELATION OF RAILROADS TO THE STATE.
BY W. M. ACWORTH, M. A.
Delivered before the British Association at Dublin, Ireland, September 2, 1908.
I propose to treat the subject in two aspects; first, the history in outline of the relations between railroads and the state in different countries, and, second, the question of the factors which are of primary importance in any consideration of the matter.
Ever since the year 1830, when the dramatic success of the Liverpool & Manchester Railway first revealed to a generation less accustomed than our own to revolutionary advances in material efficiency the startling improvements in transport that railroads were about to effect, theorists have discussed the question whether state or private ownership of railroads be in the abstract the more desirable. But it is safe to say that in no country has the practical question, "Shall the state own or not own the railroads?" been decided on abstract considerations. The dominant considerations have always been the historical, political and economic position of the particular country at the time when the question came up in concrete shape for decision.
BELGIUM.
The Belgian railroads have belonged to the state from the outset, because they were constructed just after Belgium separated from Holland, and (the available private capital being in Holland and not in Belgium) King Leopold and his Ministers felt that, if the railroads were in private hands, that would mean in Dutch hands, and the newly acquired independence of Belgium would be thereby jeopardized. Within the last few years this history has repeated itself, and the fact that the bulk of the Swiss railroad capital was held in France and Germany was one main reason, if not _the_ main reason, which induced the Swiss people to nationalize their railroads.
GERMANY.
In Germany 70 years ago the smaller states were regarded as the personal property of their respective Sovereigns, almost as definitely as Sutherlandshire is the property of the Duke of Sutherland. And it was therefore as natural that the Dukes of Oldenburg or Mecklenburg should make railroads for the development of their estates as that the Duke of Sutherland should build a railroad in Sutherland.
AUSTRALASIA.
Take, again, Australasia. In that region the whole of the railroads, with negligible exceptions, now belong to the different state governments, and the public sentiment that railroads ought to be public property is today so strong that it is impossible to imagine any serious development of private lines. But at the outset the traditional English preference for private enterprise was just as strong there as it was at home, and it was only the fact that the whole of the available private capital was absorbed in the development of the gold fields and that, therefore, if railroads were to be built at all, public credit must be pledged and English capital must be obtained, that caused the state to go into the railroad business.
ITALY.
Take, once more, the case of Italy. In the days when Italy was only a geographical expression, the various Italian states experimented with railroad management of all sorts and kinds. When, after 1870, Italy was unified, it was necessary to adopt a national railroad policy, and the Italian government instituted an inquiry whose exhaustiveness has not since been approached. The force of circumstances has indeed already compelled the government to acquire the ownership of the railroads, but the Commission reported that it was not desirable that the government should work them. The railroads were accordingly leased for a period of 60 years, running from 1884, to three operating companies, and it was provided that the leases might be broken at the end of the 20th or the 40th year. From the very outset a condition of things developed which had not been contemplated when the leases were granted, and for which the leases made no provision. Constant disputes took place between the government and their lessees. Capital for extensions and improvements was urgently needed; neither party was bound to find it; and agreement for finding it on terms mutually acceptable was impossible of attainment. In the end the government has been forced to cut the knot, to break the lease at the end of the first 20 years' period, and for the last two years the Italian government has operated its own railroads. But it is safe to say that an _a priori_ preference for state management over private management played but scant part in the ultimate decision.
GENERAL INCREASE OF STATE CONTROL.
It is impossible to review, even in the merest outline, the railroad history of all the countries in the world, but the instances already given will serve to illustrate my proposition that the position in each country depends not on abstract considerations, but on the practical facts of the local situation. Yet one cannot look round the world and fail to recognize that the connection between the railroads and the state is everywhere becoming more intimate year by year. Whatever have been the causes, the fact remains that Italy and Switzerland have converted their railroads from private to public. In Germany the few remaining private lines are becoming still fewer. In Belgium the process is practically completed. In Austria it is moving steadily in the same direction; four-fifths of the total mileage is now operated by the state. In Russia the story would have been the same, had it not been for the war with Japan. Even in France, whose railroads have a very definite local and national history of their own, an act for the purchase of the Western Railway by the state was passed last year by the Chamber of Deputies, and has now, after much contention, been passed by the Senate within the last few weeks. But it is not without interest to note that, though a majority both of deputies and of senators supported the bill, the representatives of the district served by the company were by a large majority opposed to it, while the commercial community of the whole of France, as represented by the Chambers of Commerce, were almost unanimously hostile.[I] So far as can be seen at present, the purchase of the Western Railway by the state is not likely to be made a precedent for the general nationalization of the French railroads. Still, the broad fact remains that a series of railroad maps of the continent of Europe, constructed at intervals of ten years, would undoubtedly show an ever-increasing proportion of state lines, and that the last of the series would exhibit the private lines as very far below the state lines both in extent and in volume of traffic.
A word ought to be said of Holland, not only because Holland is a country with free institutions like our own, but because the railroad position of Holland is unique. The railroads of that country were built partly by the state and partly by private enterprise, but the working has always been wholly in private hands. Some ten years ago, however, the Dutch government bought up the private lines and rearranged the whole system. The main lines of the country are now leased to two operating companies, so organized that each company has access to every important town, and railroad competition is now practically ubiquitous throughout Holland. So far there are no signs that the Dutch people are otherwise than satisfied with their system. Now compare this with France. The French government, though it has hitherto, except on the comparatively unimportant state railroads in the southwest of the country, stood aloof from the actual operation, has always kept entire control of railroad construction and of the allocation of new lines between the several companies. And the French government has proceeded on a principle diametrically opposed to the Dutch principle. In France railroad competition has, as far as possible, been definitely excluded, and the various systems have been made to meet, not, as in Holland, at the great towns, but at the points where the competitive traffic was, as near as might be, a negligible quantity. Now that questions of competition and combination are to the fore in England, and seem likely to give very practical occupation to Parliament in the session of 1909, the precedents on both sides are perhaps not without interest.
AMERICA.
When we turn from the continent of Europe to the continent of America the position of affairs is startlingly dissimilar. The railroads of America far surpass in length those of the continent of Europe, while in capital expenditure they are equal. State ownership and operation of railroads on the continent of America is as much the exception as it is the rule in Europe. In Canada there is one comparatively important state railroad, the Intercolonial, about 1,500 miles in length. Though its earnings are quite considerable--about £20 per mile per week--it barely pays working expenses. I may add that in all the voluminous literature of the subject I have never seen this line cited as an example of the benefits of state management. There is another small line, in Prince Edward Island, which is worked at a loss; and a third, the Temiskaming & Northern Ontario Railway, owned not by the Dominion but by the Provincial government, which is too new to afford any ground for conclusions.
The Federal government of the United States has never owned a railroad, though some of the individual states did own, and in some cases also work, railroads in very early days. They all burnt their fingers badly. But the story is so old a one that it would be unreasonable to found any argument on it today.
In Mexico, of which I shall have more to say directly, the state owns no railroads. As for Central America, Costa Rica and Honduras have some petty lines, which are worked at a loss. Guatemala had a railroad till 1904, when it was transferred to a private company. Nicaragua has also leased its lines. Colombia owns and works at a profit, all of which is said to be devoted to betterment, 24 miles of line.