Part 24

In South America, Peru and Argentina own, as far as I am aware, no railroads. The Chilian government owns about 1,600 miles out of the 3,000 miles in the country. Needless to say private capital has secured the most profitable lines. The government railroad receipts hardly cover the working expenses. The Brazilian government formerly owned a considerable proportion of its railroad network of nearly 11,000 miles. Financial straits forced it some years ago to dispose of a large part to private companies, to the apparent advantage at once of the taxpayer, the shareholder and the railroad customer. About 1,800 miles of line are still operated by the government, the receipts of which, roughly speaking, do a little more than balance working expenses. But it may be broadly said that the present Brazilian policy is adverse to state ownership and in favor of the development of the railroad system by private enterprise.

THE UNITED STATES SITUATION.

The question of public ownership and operation was, however, raised very definitely in the United States only two years ago, when Mr. Bryan made a speech stating that his European experience had convinced him that it was desirable to nationalize the railroads of the United States. For many weeks after, Mr. Bryan's pronouncement was discussed in every newspaper and on every platform, from Maine to California. Practically, Mr. Bryan found no followers, and today, though he is the accepted candidate of the Democratic party for the Presidency, the subject has been tacitly shelved. To some extent this may have been due to the ludicrous impossibility, if I may say so with all respect for a possible President, of Mr. Bryan's proposals. In order, presumably, not to offend his own Democratic party, the traditional upholders of the rights of the several states, he seriously suggested that the Federal government should work the trunk lines, and the respective state governments the branches. Even if anybody knew in every case what is a trunk line and what is a branch, the result would be to create an organism about as useful for practical purposes as would be a human body in which the spinal cord was severed from the brain. Mr. Bryan's proposal was never discussed in detail: public sentiment throughout the Union was unexpectedly unanimous against it, and it is safe to say that the nationalization of the railroads of the United States is not in sight at present.

But though nationalization is nowhere in America a practical issue, everywhere in America the relations between the railroads and the state have become much closer within the last few years. Canada a few years ago consolidated its railroad laws and established a Railway Commission, to which was given very wide powers of control both over railroad construction and operation and over rates and fares for goods and passengers. Argentina has also moved in the same direction. In the United States, not only has there been the passage by the Federal Congress at Washington of the law amending the original Act to Regulate Commerce and giving much increased powers to the Interstate Commerce Commission, besides various other Acts dealing with subsidiary points, such as hours of railroad employes, but scores, if not hundreds, of Acts have been passed by the various state legislatures. With these it is quite impossible to deal in detail; many of them impose new pecuniary burdens upon the railroad companies, as, for instance, the obligation to carry passengers at the maximum rate of a penny per mile. All of them, speaking broadly, impose new obligations and new restrictions upon the railroad companies. Not a few have already been declared unconstitutional, and therefore invalid, by the law courts. And when the mills of American legal procedure shall at length have finished their exceedingly slow grinding, it is safe to prophesy that a good many more will have ceased to operate. But for all that, the net result of state and Federal legislation in the sessions of 1906 and 1907 will unquestionably be that even after the reaction and repeal, which, thanks to the Wall street panic of last year, is now in progress, the railroads of the United States will in the future be subject to much more rigid and detailed control by public authority than there has been in the past. The reign of railroad despotism, more or less benevolent, is definitely at an end; the reign of law has begun. It is only to be regretted that the quantity of the law errs as much on the side of excess as its quality on the side of deficiency.

THE MEXICAN SITUATION.

Apart from its interest as a quite startling example of how not to do it, the recent railroad legislation of the United States is only valuable as an indication of the tendency, universal in all countries, however governed, for the state to take a closer control over its railroads. Much more interesting as containing a definite political ideal, worked out in detail in a statesmanlike manner, is the recent railroad legislation of Mexico. One may be thought to be verging on paradox in suggesting that England, with seven centuries of parliamentary history, can learn something from the Republic of Mexico. But for all that I would say, with all seriousness, that I believe the relation between the state and the national railroads is one of the most difficult and important questions of modern politics, and that the one valuable and original contribution to the solution of that question which has been made in the present generation is due to the President of the Mexican Republic and his Finance Minister, Señor Limantour.

Broadly, the Mexican situation is this: The Mexican railroads were in the hands of foreign capitalists, English mainly so far as the older lines were concerned, American in respect to the newer railroads, more especially those which constituted continuations southwards of the great American railroad systems. The foreign companies, whether English or American, naturally regarded Mexico as a field for earning dividends for their shareholders. The American companies further, equally naturally, tended to regard Mexico as an annexe and _dépendance_ of the United States. If they thought at all of the interest of Mexico in developing as an independent self-contained state, they were bound to regard it with hostility rather than with favor, and such a point of view could hardly commend itself to the statesmen at the head of the Mexican government. Yet Mexico is a poor and undeveloped country, quite unable to dispense with foreign capital; and, further, it was at least questionable whether Mexican political virtue was sufficiently firm-rooted to withstand the manifold temptations inherent in the direct management of railroads under a parliamentary _régime_. Under these circumstances the Mexicans have adopted the following scheme: For a comparatively small expenditure in actual cash, coupled with a not very serious obligation to guarantee the interest on necessary bond issues, the Mexican government have acquired such a holding of deferred ordinary stock in the National Railroad Company of Mexico as gives them, not, indeed, any immediate dividend on their investment, but a present control in all essentials of the policy of the company, and also prospects of considerable profit when the country shall have further developed. The organization of the company as a private commercial undertaking subsists as before. A board of directors, elected in the ordinary manner by the votes of shareholders, remains as a barrier against political or local pressure in the direction of uncommercial concessions, whether of new lines or of extended facilities or reduced rates on the old lines; but--and here is the fundamental difference between the new system and the old--whereas under the old system the final appeal was to a body of shareholders with no interest beyond their own dividend, the majority shareholder is now the Government of Mexico, with every inducement to regard the interests, both present and prospective, of the country as a whole.

IRREFRAGABLE THEORY OF PUBLIC OWNERSHIP.

Public ownership of railroads is in theory irrefragable. Railroads are a public service; it is right that they should be operated by public servants in the public interest. Unfortunately, especially in democratically organized communities, the facts have not infrequently refused to fit the theories, and the public servants have allowed, or been constrained to allow, the railroads to be run, not in the permanent interest of the community as a whole, but in the temporary interest of that portion of the community which at the moment could exert the most strenuous pressure. The Mexican system, if it succeeds in establishing itself permanently--for as yet it is only on its trial--may perhaps have avoided both Scylla and Charybdis. Faced with a powerful but local and temporary demand, the government may be able to reply that this is a matter to be dealt with on commercial lines by the board of directors. If, on the other hand, permanent national interests are involved, the government can exercise its reserve power as a shareholder, can vote the directors out of office, and so prevent the continuance of a policy which would in its judgment be prejudicial to those interests, however much it might be to the advantage of the railroad as a mere commercial concern.

STATE CONTROL OR OWNERSHIP.

The history whose outline I have now very briefly sketched shows, I think, that whereas there is everywhere a tendency towards further state control, the tendency towards absolute state-ownership and state-operation is far from being equally universal. I shall have a word to say presently as to the reasons why America shows no signs of intention to follow the example of continental Europe. Meanwhile it is well to notice that American experience proves also the extreme difficulty of finding satisfactory methods of control. Sir Henry Tyler said some five-and-thirty years ago in England, in words that have often been quoted since, "If the state can't control the railroads, the railroads will control the state"; and President Roosevelt has again and again in the last few years insisted on the same point. "The American people," he said in effect, "must work out a satisfactory method of controlling these great organizations. If left uncontrolled, there will be such abuses and such consequent popular indignation that state-ownership will become inevitable, and state-ownership is alien to American ideas, and might cause very serious political dangers."

Perhaps some of my hearers may remember Macaulay's graphic description of the passion that was aroused by Charles James Fox's proposed India Bill; it was described as a Bill for giving in perpetuity to the Whigs, whether in or out of office, the whole patronage of the Indian government. The objection felt by American statesmen to handing over their railroads to the National government--for I think it may be taken for granted that if they were nationalized it would have to be wholly under Federal management, and that the separate states could take no part in the matter--is in principle the same. There are something like a million and a half men employed on the railroads of the United States, say roughly 7 or 8 per cent. of the voters. Americans feel that rival political parties might bid against each other for the support of so vast and homogeneous a body of voters; that the amount of patronage placed at the disposal of the executive government for the time being would be enormous; and that the general interests of the nation might be sacrificed by politicians anxious to placate--to use their own term--particular local and sectional interests. How far this fear, which is undoubtedly very prevalent in the states, is justified by the history of state railroads in other countries is a question exceedingly difficult to answer. Dealing with state railroads in the lump, it is easy to point to some against which the charge would be conspicuously untrue. To take the most important state railroad organization in the world, the Prussian system, no one, I think, can fairly deny that it has been operated--in intention at least, if not always in result--for the greatest good of the greatest number. But then Prussia is Prussia, with a government in effect autocratic, with a civil service with strong _esprit de corps_ and permeated with old traditions, leading them to regard themselves as the servants of the king rather than as candidates for popular favor. An American statesman, Charles Francis Adams, wrote as follows more than 30 years ago: "In applying results drawn from the experience of one country to problems which present themselves in another, the difference of social and political habit and education should ever be borne in mind. Because in the countries of continental Europe the state can and does hold close relations, amounting even to ownership, with the railroads, it does not follow that the same course could be successfully pursued in England or in America. The former nations are by political habit administrative, the latter are parliamentary. In other words, France and Germany are essentially executive in their governmental systems, while England and America are legislative. Now the executive may design, construct or operate a railroad; the legislative never can. A country therefore with a weak or unstable executive, or a crude and imperfect civil service, should accept with caution results achieved under a government of bureaus. Nevertheless, though conclusions cannot be adopted in the gross, there may be in them much good food for reflection."

CONTROL BY DEMOCRACY, OR OWNERSHIP BY AUTOCRACY.

I am inclined to think that the effect of the evidence is that the further a government departs from autocracy and develops in the direction of democracy, the less successful it is likely to be in the direct management of railroads. Belgium is far from being a pure democracy; but compared with Prussia it is democratic, and compared with Prussia its railroad management is certainly inferior. Popular opinion in Belgium seems at present to be exceedingly hostile to the railroad administration; official documents assert that, while the service to the public is bad, the staff are scandalously underpaid, and yet that the railroads are actually not paying their way. There was, it is true, till recently an accumulated surplus of profits carried in the railroad accounts, but the official figures have been recently revised, and the surplus is shown to be non-existent.

The Swiss experiment is too new to justify any very positive conclusions being drawn from it; but this much is clear: the state has had to pay for the acquisition of the private lines sums very much larger than were put forward in the original estimate; the surplus profits that were counted on have not been obtained in practice; the economies that were expected to result from unification have not been realized; the expenditure for salaries and wages has increased very largely; and so far from there being a profit to the Federal government, the official statement of the railroad administration is that, unless the utmost care is exercised in the future, the railroad receipts will not cover the railroad expenditure.

The Italian experiment is still newer. It would not be fair to say that it proves anything against state management; but I do not think that the most fervid _Etatist_ would claim that, either on the ground of efficiency or on the ground of economy, it has so far furnished any argument in favor of that policy.

If we wish to study the state management of railroads by pure democracies of Anglo-Saxon type, we must go to our own Colonies. My own impressions, formed after considerable study of the subject and having had the advantage of talking with not a few of the men who have made the history, I hesitate to give. It is easy to find partisan statements on both sides; for example, in a recent article in the _Nineteenth Century_, entitled "The Pure Politics Campaign in Canada," I find the following quotation from the _Montreal Gazette_--a paper of high standing--dated May 27, 1907: "Every job alleged against the Russian autocracy has been paralleled in kind in Canada. First, there is the awful example of the Intercolonial Railway, probably as to construction the most costly single-track system in North America, serving a good traffic-bearing country, with little or no competition during much of the year, and in connection with much of its length no competition at all, but so mishandled that one of its managers, giving up his job in disgust, said it was run like a comic opera. Some years it does not earn enough to pay the cost of operation and maintenance (I may interpolate that its gross earnings per mile are equal to those of an average United States railroad), and every year it needs a grant of one, two, three or four million dollars out of the Treasury to keep it in condition to do at a loss the business that comes to it. When land is to be bought for the road, somebody who knows what is intended obtains possession of it, and turns it over to the government at 40, 50 and 100 per cent advance. This is established by the records of Parliament and of the courts of the land."

AFRICAN CAPE GOVERNMENT RAILROADS.

Probably no one outside the somewhat heated air of Canadian politics is likely to believe this damning accusation quite implicitly; but even if there were not a word of truth in it--and that the management of the Intercolonial Railway is, for whatever cause, bad, appears, I think, clearly from the public figures--it is bad enough that such charges should be publicly made and apparently believed. Let me quote now from a document of a very different type referring to a colony very far distant from Canada: "A memorandum relative to Railroad Organization, prepared at the request of the Railroad Commissioners of the Cape Government Railways, by Sir Thomas R. Price, formerly general manager of those railroads, and now general manager of the Central South Africa (_i. e._, Transvaal and Orange River) Railways, dated Johannesburg, February 22, 1907."

"The drawbacks in the management of the railroads in the Cape that call for removal arise from the extent to which, and the manner in which, the authority of Parliament is exercised. They are twofold in their character, viz.:

"(1) The practice of public authorities, influential persons, and others bent on securing concessions or other advantages which the general manager has either refused in the conscientious exercise of his functions, or is not likely to grant, making representation to the Commissioner (as the ministerial head of the Government), supplemented by such pressure, political influence, or other means as are considered perfectly legitimate in their way, and are best calculated to attain the end applicants have in view.

"(Many members of Parliament act similarly in the interests of the districts, constituents, or railroad employes in whom they happen to be interested. It is by no means unknown for the requests in both classes of cases to coincide somewhat with a critical division in Parliament--present or in prospect--or otherwise something has occurred which is regarded as irritating to the public or embarrassing to the Government, and the desire to minimize the effect by some conciliatory act is not unnatural.)

"(2) The extent to which the fictitious, and often transitory, importance which a community or district manages to acquire obscures (under the guise of the Colony's welfare) the consideration of the railroad and general interest in the Colony as a whole."

(During the earlier period of my railroad service in the Cape Colony few things impressed me more, coming as I had from a railroad conducted on strictly business lines, than the extent to which the conduct of railroad affairs was influenced by certain conditions. Nor was this impression lessened afterwards when, in the course of a conversation on the matter, Sir Charles Elliott mentioned to me that he had more than once told a late railway commissioner, "The Government is powerful, but [mentioning the town and authority] is more powerful still.")

"I do not regard it as open to doubt that the Colony as a whole has suffered severely in consequence, the inland portions of the Colony particularly so; and that the need for a remedy is pressing if the railroads are to be conducted as a business concern for the benefit of the Colony.

"The necessity for the railroads and their administration being removed from such an atmosphere, and treated as a most valuable means of benefiting the Colony as a whole, while not neglecting the interests of a district (but not subordinating the welfare of the whole Colony thereto), is pressing. That there should be an authority to refer to in case of real necessity, where the decision or action of the general manager is not regarded as being in the public interests, is also clear. But it is equally manifest that the Commissioner or the Government of the day, with political or party consideration always in view, is not the proper court of reference.

"There can be little doubt that in the Cape Colony political considerations have influenced the adoption of new lines and their construction--many, if not most of them of an unprofitable character--without sufficient inquiry or information, often with scanty particulars, and possibly contrary to the advice of the officer afterwards entrusted with the construction and working of the line.

"A material change is imperatively necessary in this respect, if only to insure the solvency of the Colony."

VICTORIAN (AUSTRALIA) RAILROADS.

It is sometimes conceded that improper exercise of political influence may be a real danger where railroads are managed under a parliamentary _régime_ by a Minister directly responsible to Parliament; but that difficulty, it is said, can be got over by the appointment of an independent Commission entirely outside the political arena. History does not altogether justify the contention. The last report of the Victorian State Railways gives a list of seven branches, with an aggregate length of 46 miles, constructed under the Commissioner _régime_ at a cost of £387,000, which are now closed for traffic and abandoned because the gross receipts failed even to cover the out-of-pocket working expenses. It is not alleged, nor is it a fact, that those lines were constructed in consequence of any error of judgment on the part of the Commissioners. But in truth it is inherently impossible to use a Commission to protect a community against itself. In theory a Commission might be a despot perfectly benevolent and perfectly intelligent; in that case, however, it can hardly be said that the nation manages its own railroads. But of course any such idea is practically impossible, because despots, however benevolent and intelligent, cannot be made to fit into the framework of an Anglo-Saxon constitution. In practical life the Railway Commission must be responsible to someone, and that someone can only be a member of the political government of the day.

COMPETITION HAS CEASED TO REGULATE.