Part 27

But would it be possible for State railways to reduce the amount included in railway rates for interest and dividends? It cannot be denied that our present system does involve the needless duplication of railway accommodation--the inevitable waste of competition. There is the constant endeavor to divert traffic, the corresponding effort to keep it. Capital is wasted, but public facilities are increased. The public could certainly secure by monopoly the saving of waste, but only at the cost of losing the advantages, such as they are, of getting more than they pay for. I suspect that on a broad and comprehensive view these advantages are not worth to the community the waste of capital involved in providing them. But it is rather late in the day to adopt this view. Enormous waste has already been incurred, and it must be remembered that this drain on the resources of the nation is not likely to be so serious in the future as it has been in the past, even if the system of leaving railways to private enterprise is not abandoned.

The private ownership of railways provides for the absorption of the wastage of capital in a manner which would be impossible under State ownership. Eighty-eight millions of the capital expenditure on railways goes without dividend, and 151 millions has to be content with a return less than 2 per cent per annum. Although this undoubtedly represents a loss to the community, the loss is distributed. It falls on those who voluntarily spent their money in the hope of gain, and lost it. The State cannot lose capital in this way. All expenditure incurred by the State would be represented by money borrowed on the public credit, and the interest would have to be paid in full, whether the expenditure proved remunerative or the reverse.

That there would be savings, and large savings, under State management I would not deny, but that is because the railways would be worked as a monopoly, and not because they would be worked by the State. The same and still larger economies in working could be effected under private enterprise if competition were abandoned in favor of universal combination or monopoly. The whole question depends on the waste of competition. Each railway company works for its own route. The result is that unnecessary train mileage is run, and train loads are lessened. The secret of success, the foundation of all economy in railway working, lies in securing the largest possible train loads. This is a simple rule, but it embodies a universal truth. If those responsible for the handling and carriage of railway traffic could work with a single eye to economical results, and in all cases forward traffic by the routes which yielded the best working results, great economies could undoubtedly be effected. This consideration does indicate that a source of improvements in railway results would be open to a railway system under Government management which is not available for privately owned railways competing with one another. And in fairness one must admit that this source of economy obtainable only under the conditions of monopoly must be set down as a point to the credit of State ownership.

Many of the complaints against railway rates as excessive are really, when analyzed, complaints of undue preference. They are based on comparisons with other rates, and, in nearly every case, it is the factor of competition which lies at the root of the difficulty. This is the natural result of our mixed system of competition and control. In principle all would admit that there should be equal treatment on railways. But what is and what ought to be equality are questions in regard to which there is much room for difference of opinion.

To what extent does the law really require equality? The Railway and Canal Traffic Act, 1888, enacts in substance that a railway company shall not make any difference in the treatment of traders which shall amount to an undue preference. It permits the grouping of places situated at various places from any point of destination or departure of merchandise, provided that the distances shall not be unreasonable, and that the rates charged and the places grouped together shall not be so grouped as to create an undue preference. Now, in this legislation there is no definite or tangible principle. The Legislature has not really made up its mind how traders should be treated. It simply says that any preference given to one trader over another shall not be undue, but the interpretation of the word undue is left open. The prohibition of undue preference only applies to the actions of one company on its own railway, and, therefore, covers but a small part of the matter. A trader desiring to have his goods sent to some market which is prejudiced by the competition of goods carried to the same market from some other place by some other railway which, for some reason or other, good or bad, gives better treatment to its customers--a prejudice far more likely to happen, in fact, than one arising from differences in treatment on the same railway--is not protected or assisted by any legislation.

The question may be asked whether national railways would or could cure this somewhat indefinite position?

If railways were nationalized, would it not be necessary, and would it be practicable to settle the principles to be applied in treating different districts in competition with one another? At present there are no principles if the districts are served by different railways. If one railway serves two districts, the law provides that such railway shall not mete out unequal treatment so as to constitute undue preference, whatever that may mean, but if these two competing districts are served by different railways, the law shrinks from any interference.

Now, in practically every case the favorable treatment complained of, due or undue, as the case may be, is forced upon the railway company by competition in some shape or other. It may be competition of other carriers by sea or by land, or it may be the necessity for enabling one district to compete with another less favorably situated. Such consideration for the commercial needs of districts in relatively advantageous positions is permitted and encouraged when it is afforded by different railways, though rendered difficult when one railway serves the competing districts. What would State railways do? If the law of undue preference now operative within the limits of particular railway systems became, by reason of State ownership, applicable to all railways, there would be a stupendous disturbance of existing trading conditions. Instead of State purchase diminishing the complaints of undue preference, it would be the signal for the commencement of fierce conflicts between districts. It would be necessary to face the question whether and to what extent geographical advantage of position should be recognized in fixing railway rates. The centers of production and consumption in England have been fixed away back in commercial history, and from a railway point of view these have largely to be taken as facts beyond control. Facilities for reaching the populous centers of consumption are of vital importance to producers and importers. Would State railways be compelled by the pressure of interested landowners and others to fix rates for agricultural produce and manufactured articles and for import and export trade rigidly in proportion to distance?

It is probable that a bitter controversy would arise on the question, and discontent with the railway arrangements which have gradually, and with very general approval, been established in England, instead of being lessened, would be greatly extended if we embarked on the experiment of State ownership.

Would the management of railways by Government officials be, on the whole, better than management by the officers of private corporations working for profit?

That is the question which lies at the root of the subject which we are discussing. So far as I am concerned, I have no inclination to jibe at the management of those enterprises which are conducted by the State and municipal bodies. I do not think that the postal services would be better managed if they were under private control, probably not so well. Municipal tramways show the weakness of public management, chiefly in the tendency towards fixing charges at figures which sacrifice the interests of ratepayers to the interests of the working classes who possess votes, but who generally occupy houses in respect of which they do not directly pay rates. That there would be very grave risks in substituting State management for commercial management of railways must, I think, be generally admitted.

But some of the principal arguments against municipal trading do not seem to me to apply to the working of railways by the State. Of course, the objection of those who think that no public authority should become directly responsible for the management of any commercial undertaking is as valid against State working of railways as against municipal working of tramways, or municipal supply of electricity for light and power. In both cases there is a restriction of the field of private enterprise, and that is enough for the out-and-out Individualist. He is convinced, on general grounds, that all commercial undertakings should be left exclusively to private enterprise. But those who are not prepared to settle such matters on any general theory, and who prefer to weigh the advantages and disadvantages in each case, see that many of the reasons against municipal trading cannot fairly be urged against the national ownership of railways. Municipal trading is indefensible because it unfairly competes with private traders. Competition in commerce must be fair competition on equal terms, otherwise it fails to secure any of the economic advantages which do undoubtedly flow from the free competition of private traders. A commercial undertaking must be worked for a commercial profit. A municipality raises money on public credit, and thus gains an advantage over every private competitor. It also fixes scales of charges and rates of wages without reference, or, at all events, without exclusive reference, to considerations of profit, and thus makes it impossible for any competing trader to earn a legitimate commercial profit. And to make it possible to do this it uses the power of taxation, and levies rates on the competing traders themselves, so that the municipal business can be carried on without the commercial profit which the private trader must earn in order to live. No one can say that this is fair competition.

Then municipal bodies are, from their composition, unsuitable for carrying on commercial business. Their organization cannot be adapted to commercial management. The individuals who serve on these bodies have neither the time nor, as a collective body, the capacity for managing the business on which they embark with efficiency and success. The difference in results due to the difference between good and bad management is paid for out of the rates.

These considerations do not, however, apply with equal force to the State management of railways. The State would have a complete and universal monopoly. There would be no private competition left, except, of course, competition by sea or by tramway or any other mode of conveyance which can compete with railways.

Then there would not be, it may be assumed, any body like a municipal council who would practically interfere with the management. There might be Advisory Councils, like the Prussian State Railway Councils, and, of course, there would be a Minister of State responsible to Parliament for the railway administration, and Parliament itself, already, one may remark in passing, clogged and overburdened with work. But it is certain that whatever the details of the organization adopted might be, the whole of the management would practically be left to the expert permanent officials of the railways. There is no reason to doubt that railway officers would serve the State with as much loyalty and with as great a measure of success as they now serve the proprietors. Instead of being responsible to boards of directors and shareholders, they would be responsible to a certain number of officers of State, probably, indeed necessarily, to a large extent recruited from their own ranks, and I do not think that the change would result in much practical difference so far as the work of those who really carry out the duties of management are concerned. The only difference would be that these officers would have in view that they were working for the State instead of for shareholders.

There can be little doubt that if railways were nationalized they would be used as a field for many kinds of social experiments. The combination of philanthropy with business is generally regarded with suspicion, but the conversion of the railway manager into a social reformer would, I think, arouse serious and legitimate alarm. The certainty which we now possess that the action of any railway company, whether it be wise or foolish in itself, is wholly commercial in its motives and its aims, is a valuable safeguard. But if railway policy were to become the medium for the promotion of social or even economic theories under the guidance of politicians, would not this be a most alarming peril to trading and industrial interests? One group might insist, by political pressure, that the standard of wages should be maintained at a higher level than could be commercially justified. Another group, or many groups, might devote their efforts to securing the construction of railways in districts which could not support them with sufficient traffic, with the result of burdening the railway system with many unremunerative branches for which either traders, passengers, or the taxpayers throughout the country would have to pay. The policy of others would be to make suburban railways at enormous cost, and run cheap trains to serve the population resident in large cities, regardless whether such railways or trains were self-supporting or not. In this policy they would have the ardent and influential support of the owners of suburban land, who would rejoice in the increase of their rents, brought about by the expenditure of public money in creating railway facilities on uncommercial terms. These are not fanciful dangers. They are the results which we may feel sure would inevitably follow the nationalization of our railways, and the advantages to be gained from State management would need to be very great to compensate for these burdens.

Another aspect of the question which requires the gravest consideration is that which concerns the position of the State as an employer of labor. There are upwards of 620,000 railway officers and servants. The State would become the direct employer of that huge army, and would have to settle all questions relating to hours, wages, and other conditions of service. If a railway company is unable to settle differences with its men the ultimate resort of the men is the withdrawal of their labor, whilst the company are free to employ other men who are willing to accept their conditions of employment. Any railway strike on a large scale is a dire calamity to trade and to the public, but if one were compelled to consider the possibility of a general strike on a national railway system, even the deplorable results which accompany strikes on privately-owned railways would seem comparatively insignificant. Probably a railway department of Government would not urge the adoption of compulsory arbitration, if they were themselves concerned, with as much equanimity as they do in the case of strikes on private railways. It is true that in this matter the advocates of State railways can point to the comparative absence of labor conflicts in connection with the services now under Government control, but municipal undertakings have not been so successful in avoiding labor disputes, and in many cases have secured even the degree of immunity from such conflicts which they enjoy by the concession of terms of employment which constitute heavy burdens on the ratepayers. It seems to me that the danger of serious labor disputes cannot be put aside, and I confess that I am unable to see any safe way of meeting the objection to State ownership on the ground that the State ought to limit, as far as possible, its liability to become directly concerned in such disputes.

In conclusion, I would say that I have felt unable to take up a partisan attitude on the question. For many years past both my studies on railway subjects and my practical experience have led me to a convinced belief in the advantages of well-regulated monopoly, and I am unable wholly to disapprove of a scheme which would secure for the country the advantages of a system of well-regulated monopoly in which I believe, even although it should come in the guise of State ownership.

Competition, in my judgment, creates more evils than it cures, especially the half-hearted and imperfect competition which exists in England so far as railways are concerned, which cannot be regarded as free competition on a commercial basis.

I recognize that it is impracticable to secure unification or any very extensive or far-reaching combinations of railways under our system of private ownership. The public would not tolerate uncontrolled railways under private management, and I doubt whether any form of control which has yet been devised, or is likely to be devised, combined with partial competition, can give entirely satisfactory results. That there are grave dangers and risks in the public ownership of railways I fully admit; indeed, so grave are they, that I think he would be a very bold minister who would venture to bring forward, under Government sanction, a proposal for the nationalization of our railways. The existence of such a huge amount of Government patronage would open the door to political corruption. The existence of such an enormous body of Government servants possessing the franchise--and I confess it seems to me impracticable to hope that any measure could be carried subject to disfranchisement of Government servants--would imperil the financial stability of the railway system, and introduce new and very serious sources of weakness and danger into the body politic.

The risk of loss from the charging of unduly low rates under pressure from the influential body of traders seeking to enrich themselves at the expense of the general community seems to me a risk which no thoughtful man can ignore. No expedients for checking and restraining political influence so that it could not reach or sway the decision of the officers of State responsible for railway management seem to me practicable under our democratic constitution.

If the nation owns the railways, the nation must take all the risks of State ownership, and we could only trust that the existing purity of our politics and the common sense, honorable character, and long experience in self-government of the English people would suffice to protect the commonwealth from these perils resulting in serious harm. But whatever may be the issue of the consideration of the question of State purchase of railways, I am prepared to believe that English railways will continue, whether under State management or under private management, to deserve the praise which Mr. W. M. Acworth expressed in his recent address as President of the Economic Section of the British Association in Dublin, by saying that in his judgment--after, I may remind you, a fuller study of railway conditions in all countries of the world than has been given to the subject of many men in England--that "English railways are, on the whole, among the best, if not actually the best, in the world."

CONCERNING ADVANCES IN RAILWAY RATES

FEBRUARY 8, 1909.--Ordered to be printed.

Mr. ELKINS, from the Committee on Interstate Commerce, submitted the following

ADVERSE REPORT.

[To accompany S. 423.]

The Committee on Interstate Commerce, to which was referred Senate bill 423 "To amend section 6 of an act entitled 'An act to regulate commerce,' approved February fourth, eighteen hundred and eighty-seven, and acts amendatory thereof," respectfully reports said bill adversely, and recommends its indefinite postponement.

The amendment proposed to section 6 will be found on page 4, commencing on line 10, and ending on page 5, on line 8, of the bill, as follows:

_Provided further_, That at any time prior to the expiration of the notice herein required to be given of a proposed increase of rates, fares, or charges, or of joint rates, fares, or charges, any shipper or any number of shippers, jointly or severally, may file with the commission a protest, in writing, against the proposed increase in whole or in part, stating succinctly the grounds of his or their objections to the proposed change. The filing of such protest shall operate to continue in force the then existing rate or rates, fare or fares, charge or charges, proposed to be changed and protested against as aforesaid, until the reasonableness of the rate or rates, fare or fares, charge or charges, proposed to be substituted shall have been determined by the commission. Upon the filing of such protest, a copy thereof shall be mailed by the Secretary of the commission to the carrier or carriers proposing the change and thereafter the commission shall proceed to hear and determine the matter in all respects as it is required to do by sections thirteen and fifteen of this act, in case of a complaint made because of anything done or omitted to be done by any common carrier, as provided in said section thirteen; but throughout the proceeding, the burden of proof shall be on the carrier proposing the change to show that the rate, fare or charge proposed to be substituted is just and reasonable.

An amendment was offered in the committee which would modify the original proposition of the amendment, by leaving it to the discretion of the Interstate Commerce Commission, upon the filing of a protest against the proposed increase of rates, to determine whether the schedule filed should go into effect at the end of thirty days or should be suspended by order of the commission until after final hearing, upon the question as to whether the advance was reasonable.

This proposed amendment to the amendment of the 6th section, although somewhat modifying its effect, did not alter the principle upon which the original amendment rested, or remove the objections that influenced the committee in reporting the bill adversely. The reasons which control the action of the committee may be briefly stated as follows:

REVIEW OF QUESTION BEFORE COMMITTEE.

1. From 1887 Congress, by the act then passed "to regulate commerce" through all of its amendments to that act, including the act of June 29, 1906 (which was passed after the most elaborate investigation of the entire subject and the fullest debate), has adhered to a fixed policy in its legislation upon this subject. It has declared its constitutional right to regulate the transportation of persons and property in interstate and foreign commerce, while, at the same time, it has recognized the right of the owners of the instrumentalities of commerce to control and manage their properties subject to the supervision and limitation imposed by the regulating statute, that the charges, fares and rates must be fair, just, and reasonable; that neither discrimination as to person or place must be found in the schedules; and that no device of any character should result in unlawful preference between shippers.