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.
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.