PUBLIC OWNERSHIP
§ 1. Waves of opinion as to public ownership. § 2. Primary functions
of government favoring public ownership. § 3. Economic influences
favoring public ownership. § 4. Forms of municipal ownership. § 5.
Localized production favoring monopoly. § 6. Economies of large
production favoring monopoly, § 7. Uniformity of products favoring
monopoly. § 8. Franchises favoring monopoly. § 9. Various policies
toward local public service industries. § 10. State ownership of various
kinds. § 11. National ownership. § 12. Economic basis of public
ownership.
§ 1. #Waves of opinion as to public ownership.# Opinion and practice
in the matter of the public ownership of wealth and the direct
management of enterprises has moved in waves. In feudal times, when
government was practically identical with the personal ruler, and
the private "domains" of the lord or king were the sole source of
his public revenues,[1] holdings of this kind were very large. Their
public nature came to be more fully recognized, but they did not yield
large revenues, and gradually were in large part sold or given away to
private owners. This was particularly true in England, and in a less
degree on the continent of Europe. The conviction grew that the state,
or government, was an inefficient enterpriser, and that the sound
public policy was to foster private industry and obtain public
revenues by taxation. The ideal was embodied in the _laissez-faire_
philosophy that government should confine itself exclusively to the
most essential political functions, leaving the economic functions
absolutely alone. It should keep the peace, prevent men from beating
and robbing each other, and preserve the personal liberty of the
citizen.[2] Thus, it was believed, all of the economic needs would be
provided for by competition, in the best way humanly possible, in the
quantities and at the rate needed. This policy attained its maximum
influence in the first half of the nineteenth century in England, and
in America probably just before the Civil War, in the decade of the
fifties.
§ 2. #Primary functions of government favoring public ownership#. Some
public ownership, however, is necessary for the exercise even of
the primary political functions of the state. Civilized government
requires the use of numerous material agents. Buildings for
legislative and executive offices, custom-houses, post-offices,
lighthouses, can be rented of private citizens, as post-offices
usually are in small places; but it is obviously economical and
convenient in large cities for the government to own the public
buildings. Government can reduce to a minimum its direct employment
of officials by "farming out" the taxes, as all countries once did
to some extent, and as France continued to do up to the French
Revolution. It is now the general policy for government to own or
control its essential agencies, but this does not involve in every
case the employment of day-labor direct as in cleaning the streets or
collecting garbage. The more simple political functions shade off into
the economic. To coinage usually are added the issue of legal-tender
notes and certain banking functions: the post carries packages,
transmits money, and in most countries now performs the function of
a savings-bank for small amounts. The social and industrial functions
undertaken by public agencies have steadily increased since the
middle of the nineteenth century, and the sphere of the state has been
enlarging.[3] The question ever open is as to the proper limits to
this development.
§ 3. #Economic influences favoring public ownership#. In some cases
private ownership is difficult because of the excessive cost of
collecting for the service. The cost of maintaining toll houses on a
turnpike sometimes exceeds the amount collected. Collection in
other cases, as for the service of lighthouses to passing ships, is
impossible. Public industry may secure, through the economy of large
production, a cheaper and more efficient service, the benefits and
costs being diffused throughout the community. The benefits of the
work of experiment-stations for agriculture are felt immediately by
the farmers, but are diffused to all citizens. A manufacturer able to
keep his method secret, or to retain his advantages for a time, can
afford to undertake experiments in his factory, but the farmer seldom
can. The public ownership of parks for the use of all gives a maximum
of economy in the production of the most essential goods,--fresh air,
sunshine, natural beauty, and playgrounds in the midst of crowded
populations. Municipal ownership of waterworks is an extension of the
same idea. Not only because large amounts of water are used by the
public, but because cheap, pure, abundant water is an essential
condition to good citizenship, speculation should in every possible
way be eliminated from this industry.
The assumption is made in the _laissez-faire_ doctrine that the
interest of the public harmonizes with that of the individual. But
this proves often not to be the case. For example, the forest has an
immediate value to its owners and to the consumers of lumber, and it
has also a diffused utility in its influence on industry, on climate,
on navigation, on water-power and on floods. Yet, as the private
owner, unless a great land monopolist, does not control enough of the
forest to appreciably affect any of these things, and could rarely
sell them even if he could affect them, he will cut down the
tree whenever he can gain by doing so. In this situation either
governmental control or governmental ownership of forests is
essential.
Each kind of political unit, or subdivision of government, develops
characteristic kinds of public ownership and industry. Federal states
consist of three main groups of political units: national, provincial,
and local. Provincial units are the largest subdivisions, as the
American "states," or commonwealths, the German states, and the
provinces in other countries. The term local political unit is more
complex and may mean county, township, village, city, or school or
sanitary district; but most of what is to be said of local ownership
refers to cities or to incorporated villages.
§ 4. #Forms of municipal ownership#. Local political units acquire
ownership only in local industries and in wealth used locally by the
citizens. Nearly all parks and recreation grounds are owned by cities.
As population has become more dense, private yards of any extent
have become impossible, in cities, for all but the wealthy. Public
ownership of parks insures a "breathing place" and recreation grounds
to the common man in the most economical way. Of late the movement for
large and small public parks and playgrounds has gone on rapidly in
American cities. Related to parks are public baths, public libraries,
art collections, museums, zoological gardens, etc. Some have seen
danger in this policy, but the public sees no such danger so long
as the things supplied gratify the higher tastes--as art, music,
literature, and social recreation. These give no encouragement to
the increase of improvident families and to the breaking down of
independent character. The means of local communication--streets,
roads, bridges--were once owned largely by private citizens. Here and
there still are found toll roads and toll bridges built under charters
granted a century ago, but tolls on public thoroughfares are for the
most part abolished. A public market, where the producer from the
farm and the city consumer can meet, is an old institution. About two
thirds of the cities of 30,000 population or more have public markets
or scales, and fully one third have public markets of importance. New
York City has six large retail and wholesale markets, for selling meat
and farm produce, in which rents or fees are charged, and several open
markets. There has recently been a large movement in this direction.
The providing of apparatus for extinguishing fires is always a public
duty; the conveyance of waste water is increasingly a public function.
The supply of pure water for domestic and business uses, for fire
protection and for street cleaning, while often a private enterprise
in villages, and sometimes in large cities, is increasingly undertaken
by public agencies. Most of the largest cities now own their own water
supply systems. Public ownership of gas and electric lighting is less
common, as the utility supplied is not so essential and the industry
is somewhat less subject to monopoly; but the difference is one of
degree only. Street railroads are often under public ownership in
Europe; but there have thus far been few cases of the kind in the
United States and Canada.[4]
§ 5. #Localized production favoring monopoly#. A number of these
enterprises have characteristics in common which appear to make
inevitable their drift into monopolistic control. Waterworks, gas,
electric lighting, street railways, telephone systems, are among
these. However fierce may be the competition for a time, sooner or
later either one company drives out the other or buys it up, or both
come to an agreement by which the public is made to pay higher prices.
A feature favoring the growth of monopoly when such industries are
left to private enterprise is the need to produce and supply the
commodity or service at a given locality. While two street railways
can compete on neighboring streets, it is physically impossible for
two or more to compete on the same street. Two systems of water-mains
or gas-mains can be put down, as sometimes is done, but this is not
only a great economic waste, but the tearing up of the streets is an
intolerable public nuisance. This difficulty is less marked in the
case of telephones and electric lighting, and some persons still cling
to faith in competition to regulate the rates in those industries; but
faith in competition between water companies and between gas companies
has been given up by nearly all persons now, as it was long since by
students of the subject.
§ 6. #Economies of large production favoring monopoly#. A second
feature favoring monopoly in such industries is the marked advantage
of large production in them. These industries are usually spoken of as
"industries of increasing returns." This advantage is enjoyed in
some degree by every enterprise, but it is gradually neutralized and
limited. The need to extend an expensive physical plant to every point
where customers are to be served, and the very much smaller cost
per unit of delivering large amounts of water, gas, electricity, and
transportation, on the same street, offers a greater inducement
for one competitor to crowd out or buy out the other at a more than
liberal price. Even then, larger net dividends and correspondingly
larger capitalization are secured than were before possible to both
companies combined.
§ 7. #Uniformity of products favoring monopoly#. A third feature
favoring monopoly is uniformity in the quality of the furnished. It is
a general truth that competition is most persistent where there is the
greatest range of choice open to the customer, and consequently the
most individual treatment required of the enterpriser. An artist,
even a storekeeper, attracts about him a body of patrons who like his
product (for the merchant's manner and method of dealing are a part
of the quality of his goods), and who cannot be tempted away by slight
differences in price. Rival companies in the stage of competition are
seen to claim superiority for their particular goods and to improve
their service in every way possible. A new telephone company, entering
where a monopoly has held the field, works at once a wonderful
betterment in rates, courtesy, and service. But as the product of all
competitors attains the highest technical standard possible at the
time, the rivalry is reduced to one of price, and it is usually a
"fight to the finish."
§ 8. #Franchises favoring monopoly#. A fourth feature favoring
monopoly in these enterprises is the necessity of making permanent and
exceptional use of the public streets and alleys. If this right were
granted by a general law to every citizen, this feature would be
sufficiently implied in the foregoing discussion. As it would be
intolerable to allow private interests to use public property in
whatever way they wished, the legislative body makes special grants in
such cases in view of the circumstances. Not only is the legislature
(or council, or county board of commissioners, etc.) led by the
economic difficulties to withhold a charter from a second company, but
it may be corruptly influenced by the company already established. The
knowledge of the opposition to be encountered in getting a franchise
must keep competitors out, even tho monopoly prices are maintained.
In view of these several features, which are so closely related that
they form a common character, more or less fully shared by various
industries, and especially in view of the necessity for the formal
granting to them of peculiar privileges in the form of a public
franchise, the public, in order to protect the general interest, is
forced to undertake an exceptional control of these industries.
§ 9. #Various policies toward local public service industries#.
Several courses are open to the public, acting in its political
capacity, to retain those monopolistic advantages for the general
welfare. (a) It may do nothing, trusting vainly to competition to
regulate the rate, or consciously leaving the result to be worked out
by the monopoly principle; this is what in most cases has been done in
the past in America. (b) It may attempt, in granting the franchise,
to fix near cost the charge for the service or product, so that the
franchise will be worth little as private property. (c) It may leave
the rate to be fixed by the monopoly principle, but charge for the
franchise so much that the value of the monopoly is appropriated into
the public treasury. (d) It may have public officials carry on the
business, either selling the product at cost or making monopoly
profits that go into the public treasury. Various combinations of
these plans are followed in practice, the most common plan being the
fixing of maximum rates which, with improved methods, generally become
ineffective. It is difficult to fix a uniform rate that is equitable,
because conditions change, and, further, because a uniform rate must
be applied to all parts of the town, altho the cost of service varies
greatly. It is difficult because of the limited number of competent
bidders, to sell the franchise for what it is worth. There remains the
policy of public ownership to secure the profits of monopoly to the
public, either directly or in a diffused manner. There is no doubt
that the general trend of municipal policy everywhere is toward public
ownership of this type of local public service industries.
§ 10. #State ownership of various kinds#. The movement toward public
ownership by the American states has been much less marked than that
by the municipalities. The commonwealths have retired from some fields
where once they were engaged in industry. Students of American history
know that between the years 1830 and 1840 some states engaged largely,
even wildly, in canal building, railroad construction, banking and in
other enterprises. The undertaking of these industries was determined
often by political and by selfish local interests, and their operation
often was wasteful. A few enterprises succeeded, the most notable of
these being the Erie Canal in New York. The unsuccessful ones remained
worthless property in the hands of the state or were sold to private
companies, as in the case of the Pennsylvania Railroad. This reckless
state enterprise was a bitter lesson in public ownership, and
continued for three quarters of a century to have such an effect on
public opinion, that few proposals for public ownership could have a
fair hearing in America, But railroads and canals are publicly owned,
and more or less successfully operated, by many foreign states, as in
Prussia and other German states, in Switzerland, and in the new states
of Australia, and this policy is rapidly extending to other countries
and to varied industries.
There has been recently a greatly increased interest in forestry
shown by the American states. This is especially likely to be a state
enterprise wherever the forest tracts are entirely within the limits
of the state, as is the case in New York and Pennsylvania which
have been foremost in this work. At present at least 32 states have
forestry departments. Most of the forests in Germany are either
communal or state-owned. The schools, a great industry for turning
out a product of public utility, are largely conducted by the American
states and by local units rather than by the nation or by private
enterprise. The state encourages researches in the arts and sciences,
and gives technical training. A variety of minor enterprises have been
undertaken by states to supply salt, phosphate, banking facilities,
even some manufactures. One after another the states are adopting the
"state use" system of labor in the prisons and public institutions,
engaging in agriculture and manufacturing on a large scale, and
using the products, amounting to millions of dollars annually, almost
entirely for public purposes.
§ 11. #National ownership#. The national governments everywhere appear
to be enlarging the field of their ownership. This policy has its
roots far in the past. Some industries grow out of the political needs
of government. Established as a means of communication with military
outposts, the post became a convenient means of communication
for merchants and other citizens and grew into a great economic
institution. In most countries the telegraph is publicly owned and
has been annexed to the post, to which it is very closely related in
purpose. National ownership of railroads is the rule, and our policy
of private ownership the great exception in the world to-day.
Many persons, even some in railroad circles, believe that national
ownership of railroads is sure to develop out of our present policy of
regulation.
The national improvements connected with rivers and harbors were first
political--that is, they were for the use of the government's navy;
they became, secondly, commercial--for the free use of all citizens
engaged in trade; and they continue to unite these two characters.
Forestry is most largely undertaken in this country by the national
government, partly because some forest areas in the West extend over
state boundaries, and largely because large tracts of public forest
lands were still unsold at the time public attention was attracted
to the subject. Since 1890, the policy of reserving great areas for
forests, and picturesque districts for national parks, has developed
greatly in the United States. The national forest area contained
in the various forests in 20 states (not including Alaska and Porto
Rico), now covers about 225,000 square miles, equal in area to five
states of the size of Pennsylvania. There are, besides, fourteen large
national parks, ranging in size from a few hundred acres up to over
2,140,000 acres (the area of the Yellowstone National Park), and
aggregating 4,600,000 acres, nearly the size of Massachusetts or of
New Jersey, besides numerous other national reservations for monuments
and antiquities.
In some countries mines are thought to be peculiarly fitted for
national ownership and control. In the German Empire the several
states own coal, salt, and other mines. Coinage and banking are
everywhere looked upon as functions of sovereignty, and yet it is no
more necessary for a nation to own its own mint in order to control
the monetary system than for it to print the banknotes in order to
regulate their issue. The American government has its own printing
office. The fish commission, and the various branches of the
department, coöperate with private industry in many ways. This brief
survey suggests that the industries undertaken by government are both
varied in nature and large in extent, altho small in proportion to the
mass of private industry.
§ 12. #Economic basis of public ownership#. The question as to the
proper limits of public ownership is one most actively debated. The
movement is progressing in accordance with the principle that public
ownership is economically justified wherever it secures a product
or service of widespread use that would otherwise be impossible, or
insures the public a better quality or a lower price. The question of
public ownership is not exclusively an economic question. There
are incidental problems, such as its effects on enterprise and on
political integrity, with which it is not possible here to deal. In
the main, however, public ownership is simply a business policy which
must be justified by its economic results. In the case of a general
social benefit not to be secured without public ownership (as popular
education or the climatic effect of forests), the only question
to answer is whether the utility is worth the cost. In the case of
industries already in private hands, as waterworks, gas and electric
lighting, there is needed, to make a wise decision possible, a
knowledge of the effect a change to public ownership will have upon
cost and service. If public officials can furnish some goods cheaper
than they are furnished by private enterprise, it is because of the
wide margin of monopoly profit, not because there is any magic in
public ownership. The same general items of cost must be met. The
first cost of the plant and the annual interest payments are much the
same. Experience shows that, because of political influence and of
public opinion, wages are likely to be higher under public ownership,
but salaries for management lower. Public collection of dues along
with taxes is an advantage not enjoyed by private companies. Several
public officials sometimes share the same office and thus reduce
expenses. In small towns the public electric lighting and waterworks
have been operated more economically under one roof. Some items of
cost may be less under public management, but on the whole, public
industry probably has no advantage in these respects. Public industry
does not have to meet the costs of lobbying and blackmail which are
often forced upon private companies. But the greatest source of saving
in public ownership is the value of monopoly privileges that, under
private management, go into private pockets.
The temptation of political corruption may be more insistent when a
large force of men is constantly employed, and when large supplies are
constantly purchased, by public officials, but the temptation is not
so strong or so centralized as it is in the granting of franchises to
wealthy corporations. Public industry is weakened by the absence of
certain motives to excellence that are present in private business.
The income of public officials not being dependent on the economy of
management, the spur and motives of competitive industry are lacking.
No social discovery has made individual honesty and civic virtue
useless to good government.
The decision in any specific case is one dependent on local
conditions, and the exact limits of public ownership are not fixed.
Industry is changing so rapidly that new adjustments are made every
year. The main outlines of public ownership, however, are now in large
part determined. Some industries do well, others ill, under public
management, and between these lie many debatable cases. Waterworks and
probably electric lighting, because of the comparative simplicity of
their operation, are more suitable for public ownership than are gas
works. No absolute line divides the one group from the other. But
whatever the changes, the fact can not be ignored that the increase
of public ownership is altering in manifold ways the organization
of industry, and is reacting upon the production of wealth, and the
distribution of incomes.
[Footnote 1: See above, ch. 16, sec. 5.]
[Footnote 2: See above, ch. 16, sec. 2, on the police function.]
[Footnote 3: See ch. 16, secs. 3 and 4.]
[Footnote 4: See above, ch. 16, sec. 5, statistics of receipts from
public service enterprises.]