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.
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.