Part 25

I have indicated what in America, where the subject is much more carefully considered than here, is regarded as a great obstacle to a state-railroad system; but I have pointed out also that it is quite possible that statesmen fully alive to the dangers may yet find themselves constrained to risk them unless some satisfactory method of controlling private railroad enterprise can be found. I do not think it can be considered that this has been done in England at the present time. In the main we have relied on the force of competition to secure for us reasonable service at not unreasonable rates; and as I still cherish a long-formed belief that English railroads are on the whole among the best, if not actually the best, in the world, I am far from saying that competition has not done its work well. But competition is an instrument that is at this moment breaking in our hands. Within quite a few years the South Eastern Railway was united with the Chatham; the Great Southern has obtained a monopoly over a large part of Ireland; in Scotland the Caledonian and the North British, the Highland and the Great North have in very great measure ceased to compete. If the present proposals for the working union of the Great Eastern, the Great Northern and the Great Central go through, competition in the East of England will be absolutely non-existent from the Channel to the Tweed. And one can hardly suppose that matters will stop there. In fact, since this address was in type a comprehensive scheme of arrangement for a long term of years between the London & North Western and the Midland has been announced. We must, I think, assume that competition, which has done good work for the public in its day, is practically ceasing to have any real operation in regulating English railroads.

HOW SHALL GOVERNMENT REGULATE?

For regulation, therefore, we must fall back on government; but how shall a government exercise its functions? Regulation may be legislative, judicial, executive, or, as usually happens in practice, a combination of all three. But we may notice that, as Mr. Adams points out, in Anglo-Saxon countries it is the Legislature and the Judicature that are predominant; whereas in a country like France, which though a democracy is bureaucratically organized, it is executive regulation that is most important. Now, the capacity of the Legislature to regulate is strictly limited; it can lay down general rules; it can, so to speak, provide a framework, but it cannot decide _ad hoc_ how to fit into that framework the innumerable questions that come up for practical decision day by day.

The capacity of the law courts to regulate is even more strictly limited. For not only is it confined within the precise limits of the jurisdiction expressly conferred upon it by the Legislature, but further, by the necessity of the case, a court of law can only decide the particular case brought before it; a hundred other cases, equally important in principle, and perhaps more important in practice, may never be brought before it at all. Even if the court had decided all the principles, it has no machinery to secure their application to any other case than the one particular case on which judgment was given. There was a case decided 30 years ago by our Railroad Commission, the principle of which, had it been generally applied throughout the country, would have revolutionized the whole carrying business of Great Britain. It has not been so applied, to the great advantage, in my judgment, of English trade. Further, the great bulk of the cases which make up the practical work of a railroad: "What is a reasonable rate, having regard to all the circumstances, present and prospective, of the case? Would it be reasonable to run a new train or to take off an old one? Would it be reasonable to open a new station, to extend the area of free cartage, and the like?"--all these are questions of discretion, of commercial instinct. They can only be answered with a "Probably on the whole," not with a categorical "Yes" or "No," and they are absolutely unsuitable for determination by the positive methods of the law court with its precisely defined issues, its sworn evidence, and its rigorous exclusion of what, while the lawyer describes it as irrelevant, is often precisely the class of consideration which would determine one way or other the decision of the practical man of business.

It seems to me, therefore, that both in England and in America we must expect to see in the near future a considerable development of executive government control over railroads.

This is not the place to discuss in detail the form that control should take, but one or two general observations seem worth making. The leading example of executive control is France; in that country the system is worked out with all the French neatness and all the French logic. But it is impossible to imagine the French principle being transplanted here. For one thing, the whole French railroad finance rests upon the guarantee of the government. The French government pays, or at least is liable to pay, the piper, and has, therefore, the right to call the tune. The English government has not paid and does not propose to pay, and its claim to call the tune is therefore much less. Morally the French government has a right--so far at least as the railroad shareholders are concerned--to call on a French company to carry workmen at a loss; morally, in my judgment at least, the English government has no such right. But there is a further objection to the French system; the officers of the French companies have on their own responsibility to form their own decisions, and then the officers of the French government have, also on their own responsibility, to decide whether the decision of the company's officer shall be allowed to take effect or not. The company's officer has the most knowledge and the most interest in deciding rightly, but the government official has the supreme power. The system has worked--largely, I think, because the principal officers of the companies have been trained as government servants in one or other of the great Engineering Corps, des Mines or des Ponts et Chaussées. But it is vicious in principle, and in any case would not bear transplanting.

What we need is a system under which the responsibility rests, as at present, with a single man (let us call him the general manager), and he does what he on the whole decides to be best, subject however to this: that if he does what no reasonable man could do, or refuses to do what any reasonable man would do, there shall be a power behind to restrain, or, as the case may be, to compel him. And that power may, I think, safely be simply the Minister--let us call him the President of the Board of Trade. For, be it observed, the question for him is not the exceedingly difficult and complicated question, "What is best to be done?" but the quite simple question, "Is the decision come to which I am asked to reverse so obviously wrong that no reasonable man could honestly make it?"

And even this comparatively simple question the President would not be expected to decide unaided. He will need competent advisory bodies. Railroad history shows two such bodies that have been eminently successful--the Prussian State Railway Councils and the Massachusetts Railroad Commission. Wholly unlike in most respects, they are yet alike in this: their proceedings are public, their conclusions are published, and those conclusions have no mandatory force whatever. And it is to these causes that, in my judgment, their success, which is undeniable, is mainly due. Let me describe both bodies a little more at length.

There are in Prussia a number (about ten I think) of District Railway Councils, and there is also one National Council; they consist of a certain number of representative traders, manufacturers, agriculturists, and the like, together with a certain number of government nominees; and the railroad officials concerned take part in their proceedings, but without votes. The Councils meet three or four times a year, their agenda paper is prepared and circulated in advance, and all proposed changes of general interest, whether in rates or in service, are brought before them, from the railroad side or the public side, as the case may be. The decision of the Council is then available for information of the Minister and his subordinates, but as has been said, it binds nobody.

The Massachusetts Railroad Commission is a body of three persons, usually one lawyer, one engineer and one man of business, appointed for a term of years by the Governor of the state. Originally the powers of this Commission were confined to the expression of opinion. If a trade, or a locality, or indeed a single individual, thought he was being treated badly by a Massachusetts railroad, he could complain to the Commission; his complaint was heard in public; the answer of the railroad company was made there and then; and thereupon the Commissioners expressed their reasoned opinion. The system has existed now for more than 30 years, and it is safe to say that, with negligible exceptions, if the Commission expresses the opinion that the railroad is in the right, the applicant accepts it; if the Commission says that the applicant has a real grievance, the railroad promptly redresses it on the lines which the Commission's opinion has indicated. The success of the Commission in gaining the confidence of both sides has been so great that of late years its powers have been extended, and it has been given, for example, authority to control the issue of new capital and the construction of new lines. But on the question with which we are specially concerned here, the conduct of existing railroad companies as public servants, it can still do nothing but express an opinion; and it may be added that the Commission itself has more than once objected to any extension of that power.

Mr. Adams, from whom I have already quoted, was the first Chairman of the Commission. He has described their position as resting "on the one great social feature which distinguishes modern civilization from any other of which we have a record, the eventual supremacy of an enlightened public opinion." That public opinion is supreme in this country, few would be found to deny; that public opinion in railroad matters is enlightened, few would care to assert. But given the enlightened public opinion, one can hardly doubt that it will secure not merely eventual but immediate supremacy. In truth, as Bagehot once pointed out, a great company is of necessity timorous in confronting public opinion. It is so large that it must have many enemies, and its business is so extended that it offers innumerable marks to shoot at. It is much more likely to make, for the sake of peace, concessions that ought not to be made than it is to resist a demand that reasonable men with no personal interest in the matter publicly declare to be such as ought rightly to be conceded.

To sum up in a sentence the lesson which I think the history we have been considering conveys, it is this: Closer connection than has hitherto existed between the state and its railroads has got to come, both in this country and in the United States. Hitherto in Anglo-Saxon democracies neither state ownership nor state control has been over-successful. The best success has been obtained by relying for control, not on the constable, but on the eventual supremacy of an enlightened public opinion. Nearly 20 years ago, in the pages of the _Economic Journal_, I appealed to English economists to give us a serious study of what the Americans call the transportation problem in its broad economic and political aspects. Since then half-a-dozen partisan works have appeared on the subject, not one of them in my judgment worth the paper on which it is printed; but not a single serious work by a trained economist. And yet such a work is today needed more than ever. Let me once more appeal to some of our younger men to come forward, stop the gap, and enlighten public opinion.

FOOTNOTE:

[I] Further, it is common knowledge that the Senate only passed the bill (and that by a majority of no more than three) because M. Clemenceau insisted that he would resign if it was not passed, and, though they disliked nationalization much, they disliked M. Clemenceau's resignation more.

RAILWAY NATIONALIZATION

BY SIR GEORGE S. GIBB.

A paper read at a meeting of the Royal Economic Society, on 10th November, 1908.

Railway nationalization has for many years occupied the minds of economic and political students and the practical activities of statesmen in many countries and in English colonies. It has been regarded here as a remote possibility which might some day or other come to the front for practical discussion. But quite recently it would have been thought to be as incredible that any responsible politicians should be considering proposals for purchasing our railways for the State as that any substantial number of persons could be found who would advocate an abandonment of the fundamental principle that there should be no taxation of imports into England except for revenue purposes. In these days, however, public opinion moves suddenly and rapidly. The despised fallacy of yesterday rises as the creed of to-day. There are already many indications that, before long, there will be a numerous and influential, though perhaps a somewhat heterogeneous party, who will urge that immediate steps should be taken to nationalize our railways.

The test, and the only test, to be applied to proposals for railway nationalization is whether railways owned by the State and worked directly by Government officials would be better and more efficient than railways owned and worked by private corporations, and whether, after taking account of all the effects of the change, upon each class, each district, each interest, the net result would increase the wealth and well-being of the community, and be a permanent benefit to the public.

We may, I think, start from the assumption that railway proprietors as such have no interest in opposing nationalization. The value of their property, whether measured in terms of capital value or in terms of future income, estimated on a fair basis, would, it is assumed, be fully provided for in the gigantic financial operation which railway purchase would involve. There is no legal flaw in the title of railway proprietors. They enjoy the fundamental rights attached by our law to absolute property, subject only to the performance of obligations definitely prescribed by Acts of Parliament. I think, therefore, that we may discuss this subject of railway nationalization without apprehension that the change, if it were adopted by the deliberate judgment of the community, would be accompanied by anything in the nature of confiscation of existing rights.

This might not be the intention or the wish of all who think that our railways should be nationalized. Probably some extreme Socialists would like to transfer railways to the State without giving what, in our judgment, would be adequate compensation to existing owners. Their aim is the substitution of a new social polity for that which exists, in which antiquated ideas of private property would have no place. But that is only a phase of their creed which condemns it to sterility. It is not the small band of Socialist zealots, but the majority of the nation that we have to consider in estimating the risk of anything being done in the nature of confiscation.

Those who join the party for nationalizing will, no doubt, find themselves in strange company. There can be little doubt that the movement up to the present has been mainly Socialistic. A trader, who advocates nationalization because he hopes that he might be able to transfer to somebody else, perhaps he does not very much care whom, some part of the burden of the charges which he has to pay for railway carriage, will find that his next neighbor at a meeting of the party is a man who has joined for quite other reasons, with the object, indeed, of ultimately seizing for the State some part of his neighbor, the trader's, property, which the latter was reckoning to increase at the expense of, amongst others, his neighbor the Socialist, through the plan of railway nationalization. But the homogeneity of the party need not concern us, nor the question whether each and every member of it would be actuated by a single-minded desire for the public good. The forces making for honesty and equity in the treatment of existing interests would, I think, so overwhelmingly outweigh the influences tending in a contrary direction that we need not complicate the question by importing into it a discussion as to whether adequate compensation should or would be paid to existing owners in the event of the State deciding to acquire their property. Fair and adequate compensation for existing interests may be taken for granted.

But although compensation can be paid for property, it cannot be paid to the general community who would suffer in the event of the administration and operation of railways under State management being less efficient than under private management. If a mistake be made, all would suffer, and their sufferings would not, and could not, be mitigated by compensation in any form.

It may be useful at the outset to consider what has led to the question of railway nationalization in this country being discussed.

The origin and the causes of those movements in public opinion which bring about great constitutional and social changes are frequently most difficult to trace, especially by contemporary observers. For a full understanding of such movements, it is necessary to wait for the historian's point of view, and to survey a wider field than is possible whilst the events are occurring, when much of the material for final judgment as to the causes in operation is concealed in an undisclosed future.

That there is a movement in progress tending to the nationalization of railways in England is apparent to every thoughtful observer of the times. But whence does this movement come, and what are its principal causes? We are able to identify some of them, less able to weigh the relative importance of each, still less able to foretell the ultimate share which each will have on the future course of development, which will depend on the direction taken by other movements in public opinion which, at the moment, may seem to be entirely independent of all connection with the particular movement we are considering.

I will refer to a few of the causes which seem to me to be most prominently at work, but I will not attempt to state them in the order of their importance. I will merely enumerate those which are plainly discernible as existing in some shape or other.

The first I will name, though it may not be the most influential, is the existence of a certain amount of dissatisfaction with the present state of railway administration. I suppose that if railway services were as good as possible, charges as cheap as possible, profits as high as possible, and the management as perfect as it is possible for railway management to be, and these conditions were generally admitted to exist, the natural instinct to leave well alone would prevent any proposal for nationalization from obtaining a hearing.

It must be conceded that there is a certain feeling of dissatisfaction, superficial and indefinite though it be, to which advocates of nationalization, whose schemes originate in considerations which have no relation either to the excellence or to the imperfections of railway arrangements, are able to appeal in the pursuit of their aims. It is not that many people really think that our railways do not, as a whole, serve the public well, whatever individuals may say in moments of haste. Hut complaints are sufficiently numerous to have a real importance as an influence on public opinion. And, unfortunately, their influence is to a large extent independent of their justice. The existence of criticism, which, after all, is only another name for difference of opinion, is inevitable, and probably would be inevitable under the most perfect system of railway management which the world has seen or ever can see. State railways would not be immaculate. The nature of railway business lays it open, to an exceptional extent, to the unpopularity which unavoidably gathers round every institution on which there is universal dependence. Providence itself does not wholly escape unpopularity. No other industry is comparable with the railway industry in the close dependence upon it of the vast majority of the people. The necessity for transport services penetrates more frequently and more deeply into the lives and habits of the people than any of the other prime necessities of civilization. The need for transport is a tyranny. All tyrants are unpopular. And the tyranny of a need is apt to beget, by an illogical transposition of ideas, a dislike of those who are responsible for supplying the need. People are conscious of grievances, or, let us say, unsupplied wants. They cannot measure the range of possibility which limits the supply of those wants or remedies for those grievances. They constantly wish for the impossible, but have not sufficient knowledge to distinguish between the possible and the impossible. Defects which cannot be remedied are generally condemned with more emphasis than those which are due to mismanagement. It is irrelevant to consider whether the dissatisfaction to which I have referred is justified or not. Whether well or ill founded, it must be set down as one of the causes of the movement for nationalization.

The second cause I would mention is a belief, growing from a suspicion into a conviction under the stimulus of repeated failures in control experiments, that it is impossible for any Government, by any legislative or executive action in any form, to exercise useful and effective control over railways. People turn in despair from ideas of regulation and control to ideas of ownership.

The third cause is the prevalence of that feeling which, for want of a better name, I will call district jealousy. The competition of privately-owned railways undoubtedly does create inequalities. It would be mere affectation to pretend that the railway accommodation and facilities afforded to all places and all districts are equal in merit and value. The less favored districts see other districts enjoying superior facilities. They do not allow for differences in conditions which, in some cases, explain and justify the differences of service. I say in some cases, because it would be impossible to deny that in other cases the comparative inferiority of railway facilities cannot be explained away by inevitable determining conditions. Hence district jealousy arises and a desire for uniformity, such uniformity as it is hoped a State system of railways would give.

The fourth cause I would name is the example of other countries. This is affecting men's judgments with great force. We are slow to be moved by foreign example. But there is an increasing tendency to submit to international influences, and foreign example in this matter does, on the whole, point to national railways becoming the generally accepted system.