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.
It has in all these acts recognized the right of the responsible
managers of the transportation interests of the country to fix
the rates for transportation, as upon its revenue must rest the
efficiency of its service to the public and the value of its property
to its holders, subject only to those wise limitations which prohibit
the exercise of these property rights to the injury of the public.
Congress has appreciated the magnitude of the vast interest affected
by such legislation. With 230,000 miles of track, with millions of
rates published in accordance with the statute, with changes of rates
numbering between 600 and 700 a day, and reaching the enormous sum of
225,000 a year, it has, with the practical experience of twenty-two
years, refused to take the initiation of rates from the carrier and
impose it upon its administrative tribunal. Congress and the Supreme
Court have adopted the construction of the act to regulate commerce,
announced by Judge Jackson (Interstate Commerce Commission _v._ B. &
O. R. R. Co., 43 Fed. Rep., 37, and affirmed, 145 U. S., 263):
Subject to the two leading prohibitions that their charges
shall not be unjust or unreasonable, and that they shall not
unjustly discriminate, so as to give undue preference or
disadvantage to persons or traffic similarly circumstanced, the
act to regulate commerce leaves common carriers as they were
at the common law, free to make special contracts looking to
the increase of their business, to classify their traffic, to
adjust and apportion their rates so as to meet the necessities
of commerce, same principles, which are regarded as sound, and
adopted in other trades and pursuits.
This policy, we believe, has been approved by the country during that
period. Pending the elaborate investigation of this subject prior to
the passage of the act of June 29, 1906, no crystallized sentiment
was manifested, either in the press or during the hearings, that
indicated a public sentiment that this policy should be departed
from. Since this bill has been before your committee no such public
sentiment has been shown to exist by those who appeared before it.
The conferring upon the commission the power to suspend a rate
advanced, either upon the filing of a protest by a shipper or in the
discretion of the commission, taken in connection with the provision
of the statute which gives to the commission the power to fix a rate
and to designate the time, not longer than two years, that it should
remain in force, would ultimately turn over to that administrative
body the function of initiating the rates of the entire country. It
would offer a premium to every shipper to enter a protest to the
advance of rates, whether they were reasonable or unreasonable, even
if discretion was vested in the commission. The protest, prepared
by skilled attorneys, presenting a prima facie case of unreasonable
advance of the rate, with no opportunity for an investigation before
it must be acted upon, an official body, on which was imposed the
responsibility to act would be constrained to suspend the rate until
a final determination of the complaint.
The existing law permits any shipper to protest any rate that has
gone into effect, the hearing on the protest is made without formal
pleadings, and the commission is authorized then to determine
the question whether the rate put in effect by the carrier was a
reasonable rate or not, and, if not, to make the rate reasonable. So
far, in the practical operation of the act of June 29, 1906, this
provision of law has worked satisfactorily, and but comparatively
few of the decisions of the commission have been contested by
the carriers. Under existing law both parties are protected. If
the decision is that the rate is unreasonable a judgment may be
rendered in favor of the protestant for the difference between
what the commissioners determine is a reasonable rate and the rate
fixed by the carrier, with 6 per cent interest from the date of the
overcharge. If, on the other hand, this amendment should receive the
approval of Congress and the rate filed by the carrier should be
protested and then suspended by the commission (in the multiplicity
of duties imposed upon that tribunal), considerable time would elapse
before a final determination of the question could be reached. During
that period the carrier would be receiving only the old rate, and if
the commission finally decided that the advance was reasonable no
reparation in any way could be awarded.
It was alleged before the committee that this last result would
not be very injurious to the carrier, for the reason that it would
be receiving the rate which it had fixed as a fair compensation
for the service performed prior to the change. The answer to this
seems reasonable, which was, that conditions had so changed that
it required an advance of the rate to meet those new conditions.
Otherwise the advanced rate would have no justification. That traffic
officials fully appreciate the fact that, with the watchful eyes of
every shipper affected by an advanced rate and the authority of the
commission to determine and fix a just and reasonable rate (as a
general rule), rates would not be advanced by such officials without
a belief upon their part that there were sufficient reasons to
sustain them, if protested.
The attention of the committee has been called to the attitude of
the commission in its rulings upon the advance of rates, even where
the facts have shown that the rates have been lowered with a view
of developing a particular industry. In the case of the New Albany
Furniture Company against Mobile, Jackson and Kansas City Railroad
Company, etc., decided June 2, 1908, the commission held:
"The rates were low before the increase, but having been
established, after prolonged negotiations, especially for the
purpose of permitting complainant to reach a particular market,
and in preference to making a readjustment in some other
direction or territory, and complainant having adjusted its
business thereto, defendants may not by an arbitrary advance
in those rates destroy complainant's business, there being no
evidence that the rates advanced were less than the cost of
service."
A similar decision was rendered on the 1st of June in the case of
Western Oregon Lumber Manufacturers' Association against the Southern
Pacific Company.