Part 26
The fifth cause is the one which, I think, has more to do with the initiation of the discussion of nationalization schemes than any other cause. This is the general tendency of the time to Socialistic experiments. If there were no Socialists, and no Socialism in the thought of the age, there would, we may safely conclude, be no talk of nationalization of railways. It is the Socialistic propaganda, and the influence which that propaganda has had on many minds, which more than anything else has brought the question of the nationalization of railways within the range of practical discussion.
The sixth cause is the anxious search for more revenue for the State. National expenditure has grown to such enormous and alarming dimensions that the provision of revenue to meet it has become a serious and urgent difficulty. A Chancellor of the Exchequer on the lookout for cash has not been able to resist the attraction of railways as a source of revenue for the State. He has noted the various influences at work which are tending to bring the question of railway nationalization to the front, has looked with envy at the large revenue which Prussian railways yield to the State, and has at least gone the length of asking himself the question, within the hearing of reporters, whether he ought not to encourage and to take advantage of a state of opinion which might conceivably be worked upon so as to create a majority prepared to approve the principle of State ownership of what might be a highly lucrative State monopoly.
The mileage of railways open for traffic in the United Kingdom at the end of each of the last four decades up to 1907 is shown in the following table:
Mileage open Increase in Average increase Year. for traffic. ten years. per annum.
1877 17,077 -- -- 1887 19,578 2,501 250.1 1897 21,433 1,855 185.5 1907 23,108 1,675 167.5
The growth has been slow and decreases with each decade. It is probably true that the period of construction has nearly come to an end. Future additions to the mileage are not likely to be either large or of substantial importance. This rather indicates the present as a suitable time for considering a change of system. The considerations which are applicable to what I may call the age of construction are very different from those which become most important in the age of operation.
It would probably be accepted as indisputable that in a country like England, where capital is plentiful and enterprise active, the system of leaving the construction of railways to private enterprise is the best system.
Whatever may be thought as to the respective merits of private and public ownership, it cannot be denied that private enterprise does take more risk than any Government is likely to do, except under pressure of military necessities. The hope of gain is the strongest motive for enterprise, and this desire operates more strongly on the private citizen than it does on the State.
The growth of railway mileage during the age of construction in any country is promoted by the constant influence and moving force of those incentives which act on capitalists. The spur of competition is always in active operation. Then there are the very powerful professional influences which are constantly at work to induce capitalists to spend their money on works and enterprises which afford professional work, even if they do not subsequently provide dividends.
Theoretically; no doubt, railways promoted by private enterprise tend to the favoring of particular localities at the expense of other localities. Perhaps it is right that the stronger should grow at the expense of the weaker, but, at all events, it is inevitable. You cannot expect private competitors to think of anything but their own interests. And if this be so, you cannot expect from a system in which private interests predominate the same consideration of general design, from the point of view of the interests of the whole country, as from a system which places public in front of private interests.
It is difficult to deny that the miscellaneous and unequal activities of private enterprise fail in the absence of some central guidance to produce the best results so far as harmony and completeness of design are concerned. In England railway construction has not been, as in America, almost entirely free from any public control. We have had the control, I think the most salutary and useful control of Parliament, so far as it has gone, both over location and capitalization. But it has not gone far. Although there has been a certain amount of control, there has been practically no guidance. The control, under the system of private bill legislation, has been very ineffectual except as regards capitalization. It has been mainly negative; never constructive. All that Parliament could practically do was to prohibit the making of particular railways which aroused opposition from some landowning or railway interests powerful enough to oppose and wealthy enough to pay the heavy costs of opposition. Private interests have been protected, but the general interest has, in the main, been ignored.
But whilst conceding that it would have been a great advantage if the vagaries of private enterprise had been more restrained by some prudent, general guidance, I think that the chief public requirement during the age of construction is that as much mileage as possible should be constructed; and I submit, as a true conclusion on the point I am discussing, that, as regards the age of construction, at all events, England has derived incalculable benefit from the fact that the railway system has been made by private enterprise. But the problem of working the railway system after it has been constructed is, I admit, essentially different from the problem of securing its construction.
My subject is not one which admits of discussion except on very general lines. Our views on it must necessarily be formed under the influence of the opinions we hold as to the legitimate functions of the State. It has been truly said that no country has ever adopted State ownership of railways from theoretical considerations. In each and every instance there were some practical reasons, based on military necessities or concrete and pressing economic conditions to meet which State ownership was accepted, not as a system desirable in itself, but as an expedient which, in the circumstances, was considered to be the best practical solution of difficulties which stood in the way of the satisfactory development of railways. But whilst agreeing with this as a true historical statement, I doubt whether theory can be entirely excluded from a statement of the genesis of national railway systems. In a country where Individualist opinions prevail, as I think at the present time they do in England, no temptations, no pressure of circumstances short of extreme national emergency, would induce people to face the evils which the Individualist knows must result from the intrusion of State action into matters of trade. This is theory, although those who are influenced by it may think that it is founded on practical experience. On the other hand, those persons who wish to secure trading profits for the State even at the cost of taking commercial risks, or who, when difficulties and obstacles arise in commercial development, resort to the powers of the State to overcome them, either by the imposition of taxes on the general community in the interests of a class, or by handing over to State officials the direction of an industry, instead of relying on the skill, self-reliance, enterprise, energy, and character of the people, are Socialists at heart, whether they know it or not, and are actuated by the radical theory of a creed which, perhaps, most of them would disavow.
But, after all, the question is not whether State purchase would be a step in the Socialist direction, but whether it would be a step in the right direction. Why should we change? Are we suffering from intolerable evils from which there is no other way of escape, or is there some great national benefit to be derived from the change?
The general case for nationalization, as put forward by its advocates, rests on very few arguments, and it is not, I think, unfair to describe these as being mainly assumptions, the accuracy of which it is impossible to verify. I may summarize a few of these:--
(1) Government management would be more efficient and less costly than private management.
(2) Government management would primarily regard the interests of the community and of the country as a whole, and the substitution of that condition for the existing system under which the interests of private trading concerns take first place in the thoughts and efforts of those responsible for management would have the effect of securing a more equal and more satisfactory development of the resources of the country, and, as one writer expresses it with more than the usual proportion of assumption in his statement, trade would be stimulated under equitable, reasonable, and uniform systems of rates.
(3) The change would result in the removal of most of the serious complaints made against the existing administration of railways.
(4) Those who refuse to look upon the matter as mainly a commercial problem think and hope that new means would be found for the satisfaction of the social needs of the nation if the railways were at the disposal of the Government.
(5) Experience of the economy resulting from large combinations in other industries is invoked in support of the proposal to get rid of the separate administrations of private railways. It is said that the advantage of production on the largest scale by a single corporation in place of production by a number of smaller units is being verified by the experience of nearly every important trade and industry. The principle has been recognized in the history of railway development in this country by the amalgamation of large numbers of small railways into the great railway systems which we now see, and it is argued that a further step should now be taken in the same direction. But a step involving the creation of so great a monopoly as further large amalgamations would involve can only, it is thought, be taken by the State. In this country the largest railway system under one management is no greater than about 2,000 miles in length, whereas in the United States of America railway systems covering about 15,000 miles are now under the control of a single President and a Board of Directors. It is said, therefore, that modern methods of administration have made it feasible to direct the 23,000 miles of railway in the United Kingdom efficiently and successfully by means of one comprehensive organization, and probably if there is to be one organization there would be no difference of opinion that the single organization to own, control, and manage the railways must be the State.
Most of the principal objections are, I think, covered by the following list:--
(1) State management would be less efficient than management under private enterprise.
(2) The extension of Government patronage, by placing at the disposal of Government such a vast number of appointments to lucrative offices.
(3) The risk of political corruption, not only in connection with the exercise of patronage, but also in ordinary administration in the settlement of questions relating to charges, wages, and services.
(4) The danger that interested parties would, by political pressure, compel the State to expend public money on unremunerative lines and unremunerative services.
(5) The contraction of the available field for private enterprise, and hence the weakening of the foundation of all individual and national progress.
(6) The introduction of serious dangers in connection with labor disputes between the Government and the large body of railway servants.
The subject has not been sufficiently long under public discussion to make it easy to state fully the hopes of its supporters and the fears of its opponents. Probably both are exaggerated. If one examines the complaints made against the existing railway system, it is obvious that many of these must exist under any system, whilst some are the necessary accompaniments of every system into which competition enters. But if competition is discarded in favor of monopoly it does not need argument to show that this merely means a change from the evils of competition to the evils of monopoly. No one would deny that each system contains inherent and characteristic evils. The evil of competition is waste; the evils of monopoly are stagnation and the restriction of freedom.
Hitherto, for the regulation of railways, reliance has been placed on two factors--competition and control. Parliamentary action and public opinion have veered about from one to the other, and the absence of clear principle in the policy of the Legislature has introduced evils which a more logical and consistent adherence either to the policy of free competition on the one hand, or to the policy of strict control on the other, would have avoided. That some regulation is necessary all would admit. Railways sell transportation as a commodity, but the nature of the business makes it impossible to secure the conditions of absolutely free competition as in the case of other industries. Hence the necessity for control, but every plan of control that has been tried has proved practically inoperative and ineffective mainly because it has endeavored to leave competition in operation, and it is the evils which necessarily arise from competition which lead to most of the complaints against railways. The inevitable weakness of the dual system of competition and control is that control checks competition just where it would be useful in the public interest, and competition nullifies control just where it could be advantageously applied.
Under no system could we expect railways to be free from complaints. They arise equally from the nature of the business and the nature of the customers. But with a view to seeing whether State ownership would remedy the complaints that exist, let us try to understand as clearly as possible what the complaints are. The Chancellor of the Exchequer (Mr. Lloyd-George), speaking to a deputation of traders in 1906, when he was President of the Board of Trade, said that he was impressed with the "great and growing discontent with the whole system."
Now what are the causes of the present discontent? Is it great? Is it growing? These are questions very difficult to answer. But there are some useful data available for the answer. The way has been made plain and easy for complainants against railways. Every encouragement and every facility has been afforded to them. A special Court has been created--the Railway and Canal Commission--the constitution of which was carefully framed so as to encourage anyone with a grievance against railways to hope that he would get a sympathetic hearing of his case. The applications to that Court were so few that those people who cannot bring themselves to believe that the number of real, as distinct from imaginary, grievances against railways are remarkably few, said that the public were deterred from bringing complaints forward by the expense of litigation before the Railway Commissioners. So, to render the path of the complainant still easier, a procedure was introduced which is unique for simplicity and cheapness. All, without distinction, who had any complaint or grievance of any sort or kind against any railway or canal company, were invited to come and lay the same before a Department of Government, the Board of Trade, who practically promised to use their influence to secure an amicable adjustment of any differences. This procedure is so simple, so sweeping, so all-embracing, so encouraging to complainants, and has, on the whole, been exercised by the Board of Trade with so much tact and success, that its records should supply the information we are seeking.
In view of these efforts to get every aggrieved or discontented person to come forward and disclose his complaint, is it possible to imagine that there are now any concealed complaints? It is often said that traders will not complain, that they are afraid of rousing the hostility of those terrible tyrants, the railways, whose power in England, at any rate, whatever it may be in America, is ludicrously exaggerated. It is true that a sensible trader who has a fair case does not fly with it to the Board of Trade. He submits it to the railway officers in the ordinary daily course of business, and almost invariably gets the matter adjusted. But I do not believe that there is any trader who would be deterred from submitting a complaint to the Board of Trade by any feeling of fear. On the contrary, traders in these days suffer from an excess of boldness. If a trader is dissatisfied with any railway charge, he simply refuses to pay, and only those who have experience of the daily conduct of railway business can know how common, and unfortunately how effective, this remedy is.
The Board of Trade make an annual report to Parliament of all complaints made to them under their conciliation jurisdiction, and I think the contents of these reports may fairly be relied on as presenting a complete view of the kind of complaints that exist against railways. A useful table is given in the tenth report of the Board of Trade, issued in July last, showing the total number of complaints for ten years, classified according to their nature as follows:
No. per Total. annum.
1. Rates unreasonable or excessive in themselves or which were unreasonably increased 715 71.5
2. Undue preference 352 35.2
3. Sundry complaints 510 51 ----- ----- 1,577 157.7
Of the total number forty-eight were complaints against canal companies, but these are not separated in the classification.
Surely the above is a remarkable table, considering the vast aggregate of business and the facilities offered for complaints. Only 1,529 complaints against railways, or an average of about 153 per annum, have been found to exist.
Then look at the results of these complaints. These are given in another table, and only 573 complaints, or an average of 57 per annum, are entered as resulting in the complainants finally expressing themselves as dissatisfied.
Services for which the aggregate payment amounts to 120 millions sterling per annum are rendered, and yet there are only an average of fifty-seven cases per annum of dissatisfied complainants to the most open, most favorable, and least costly tribunal in the world for hearing complaints against railways.
Now let us look at the nature of the complaints made. Would State ownership remedy any of these complaints? I set aside the 510 cases of miscellaneous complaints about delay in transit and other minor matters, because it is obvious that complaints about such matters would not disappear under any conceivable system of railway management.
Practically all other complaints group themselves under two heads:
1. Excessive rates.
2. Undue preference.
The complaint that railway rates are excessive generally takes the shape of a comparison of the charges on some foreign railway. Now, I confess that it is very difficult to meet such allegations, because of the difficulty of presenting all the conditions of which account must be taken in order to make a fair and sound comparison, and also owing to the absence of adequate data or materials in the published statistics of English railways.
A general allegation that English rates are higher than those charged in some countries cannot even be discussed, because the factors needed for the comparison are not available. Are they in fact higher is a question the answer to which must precede discussion as to reasons and explanations. The facts in regard to the average length of haul, the average rate per ton mile for different kinds of traffic, or the average charge per passenger mile, and general information as to the nature of commodities carried, speed of transit, and services rendered for the rates charged must be ascertained before any comparison is possible, and these facts are not ascertainable for English railways.
My belief is that having regard to the capital expended on construction of railways, English railway rates are not excessive for the services rendered, and I greatly doubt whether, after making proper allowances for differences in capital cost of railway accommodation, and for other essentially different conditions, rates in any country are lower, comparing like with like, than railway rates in England. This is an issue of fact. It lies at the threshold of any inquiry into the subject of railway rates, and I confess I do not see how much progress can be made with any discussion which turns on assertions as to the relative dearness of English railway rates until adequate materials are available for a sound comparison.
It is true beyond question that English railways have cost more to construct than the railways of any other country. The capital expenditure of all railways in England is represented by the figure of about £56,000 per mile as compared with about £21,000, which is the corresponding figure for German railways, and about £12,000 per mile for American railways. Railway proprietors in England are not responsible for the high capital cost. They were forced by law, and by custom powerful as law, to pay monstrously inflated values for their lands. Burden upon burden has been heaped upon them by the action of the Legislature, by the requirements of Government departments, and by the exactions of public opinion. They have borne heavy losses in being compelled to spend capital without regard to their ability to secure adequate return upon it, and assuredly no reckoning is due from them to the public in this matter. The reverse would be more true.
The total capitalization of railways in the United Kingdom in the year 1907, as given in the Board of Trade Returns, was 1,294 millions sterling, of which 196 millions represents nominal additions. The net earnings (some of which, however, arose from miscellaneous sources independent of the operation of the railways) amounted to £44,940,000, or 3.47 per cent on the nominal capital. Out of a total of 1,294 millions sterling, 136 millions of loan and preferential capital received interest or dividends in excess of 4 per cent. This presumably arose from the insecurity of capital, involving the payment of a high rate of interest or dividend. One hundred and eighty-one millions of ordinary capital received dividends in excess of 4 per cent. per annum. The capital receiving interest or dividends in excess of 4 per cent. per annum is, therefore, 317 millions, or 24.5 per cent. of the total. It cannot be said on these figures that the interest received by those who provided the capital for the railways is excessive.