PUBLIC UTILITIES AND PUBLIC OWNERSHIP
_The purpose of this chapter is to discuss the nature of public
utilities, the various methods of regulating them, and the question
whether they ought to be owned by the government._
[Sidenote: Ordinary business is regulated by competition.]
=The Problem.=—In the case of most ordinary business enterprises the
factor which secures reasonable prices and good service to the customer
is competition. The customer who finds that prices are high or that
service is poor at one grocery store stops trading there and goes
somewhere else. The merchant who finds one bank unsatisfactory moves his
account to another bank. The wholesale dealer, if one factory does not
send him goods promptly, or charges him too much, gives his future
orders to some other factory. Stores, banks, and factories are in
competition with other establishments of their own kind; in order to get
business they are constantly trying to outstrip their competitors by
lowering prices and improving service. In this sense “competition is the
life of trade”. The rivalry of those who have goods or services to sell
is in itself enough to afford the public protection.
=Natural Monopolies.=—But there are certain lines of business in which
no real competition exists because they are monopolies. Monopolies, as
has already been pointed out, are of three different types, natural,
legal, or artificial (see p. 54); and all public service enterprises
(railroads, telegraphs, telephones, lighting plants, etc.) fall within
the first of these classes—they are _natural_ monopolies. We call them
public services or public utilities; but this is not merely because they
are of great importance to the public. Bread and meat are also of vast
public importance but we do not refer to the bakery and the meat market
as public services. [Sidenote: But public utilities are natural
monopolies.] Telephones, telegraphs, street railways are called public
services or public utilities because they are monopolies by nature. The
citizen has no alternative by reason of competition. If he wants to go
from one place to another, he cannot usually find two lines of railroad,
or if so, their rates are the same. If the rates for electric lighting
are exorbitant, he cannot tell the company that he will buy electric
light from someone else, for he is dealing with the only concern from
which electric light can be obtained in that particular locality. The
man who lives in Omaha can send to Chicago and buy his shoes there if he
finds that prices and quality are not satisfactory in his own city; but
he cannot get his telephone service or his electric light in that way.
He is absolutely dependent on local service and, as a rule, on one local
service alone.
[Sidenote: Their nature excludes competition.]
=Public Utilities do not Compete.=—Why do we say that these public
utilities are monopolies by nature? It is because their business, from
the way in which it is carried on, virtually excludes competition. It
would be physically possible to have two rival street railway companies
operating on the same street, two gas companies, and two electric
lighting companies; but imagine the congestion and inconvenience this
would cause! Moreover, it would practically double the amount of fixed
capital needed to provide the service and this would mean higher prices
to the public in the end.[231] In years gone by many cities tried the
plan of setting two public service companies in competition with one
another, and in a few cities competing telephone companies still exist;
but the competition is rarely in earnest and scarcely ever lasts very
long. The rival public service companies, finding that competition is
not profitable, presently form a combination and raise their rates. The
controlling fact is that light, power, transportation, and communication
(whether by telegraph, telephone, or post) can be more cheaply served by
a monopoly than by competing companies. There can be, in fact, _no
effective competition between public utilities operating in the same
area_.
=Being Monopolies They Must be Regulated.=—Now if public utilities are
monopolies by nature, and can never be anything else, it is essential
that the government shall exercise, in one way or another, sufficient
control over them to restrain them from abusing their power. [Sidenote:
Public utilities use public property.] This is all the more easy to do
because public utilities, unlike ordinary industrial or mercantile
concerns, must come to the state or city government for certain
privileges which they find necessary in order to carry on their
business. Every public utility finds it essential to use property which
belongs to the whole people. A railroad must run its tracks across the
highway; a gas company must lay its pipes beneath the pavements; an
electric lighting company must put some of its poles in the streets; a
street railway company, as its name implies, must make large use of the
public thoroughfares. Moreover, they all desire the right to take
whatever private property they may need for their terminals, power
houses, tanks, and so on. This is a right which only the government can
give.[232] So the public service companies, from the fact that they must
ask privileges from the government, render themselves amenable to
governmental control. It is not so with ordinary industrial monopolies
such as the making of steel or sugar or tobacco. [Sidenote: They also
use the right of eminent domain.] They do not, as a rule, ask for legal
privileges of any kind; they do not need permanent rights in the public
highways or demand that they be allowed to exercise the right to eminent
domain; hence they are not so easily brought under public regulation.
=How the Regulation is Effected.=—In order to use the streets or any
other public property, an individual or corporation must first obtain
official permission. The merchant who puts a sign out from his building
over the highway, the barber who sets his familiar red-and-white pole in
the sidewalk, the contractor who blocks the public passage way when he
is putting up a building—all must first get the city’s permission.
[Sidenote: Permits and franchises.] This is given by the city officials
in the form of a license or permit. But the public service company must
have a general permit covering rights in a great many streets and
holding good for a number of years. [Sidenote: Definition of a
franchise.] This general permission, which does not differ from an
individual permit except in its broader scope and longer duration, is
called a _franchise_. A franchise is merely a grant of the right to use
public property (the streets, particularly) either in perpetuity or for
a term of years and subject to certain conditions. Before any public
service company can begin operations it must first secure a franchise
from the state, city, town, or township as the case may be. The company
secures the rights and the government imposes the conditions.
[Sidenote: The old-type franchise.]
=Franchises, Past and Present.=—It was formerly the custom of states and
cities to grant franchises for long terms of years without imposing
strict conditions for the protection of the people. The reason for this
was, in part, the strong desire of the community to get the service at
once. When electric street railways first came into use, replacing the
old horse-cars, they were regarded as a godsend to the suburban
districts. There was a great popular clamor to have the horse-car lines
electrified as quickly as possible. So the companies that were willing
to provide this improved service obtained, in many cases, very liberal
franchises running for long terms and without strict conditions. These
were days, moreover, when city councilmen and state legislators often
proved susceptible to corrupt influences. Valuable privileges in many
cities were bartered away for next to nothing by dishonest or
incompetent officials. How many million dollars in franchises have been
practically given away by American states and cities during the past
generation no one has ever been able to calculate. Certain it is, at any
rate, that hundreds of private fortunes were made from these one-sided
bargains.
[Sidenote: The newer methods.]
But public opinion, in due course, became aroused to the injustice of
this free-and-easy method, and laws were passed forbidding the grant of
franchise privileges for longer than a designated term of years, or
without first giving the opponents of the grant an opportunity to be
heard.[233] In some cases the laws forbade the granting of any franchise
without the consent of the people at the polls. Provisions were also
made to ensure that in return for their privileges the companies should
pay a share of their annual profits into the city treasury.[234]
Finally, it became the practice to stipulate in the franchise that the
rates charged by the company, the quality of the service, and various
other features affecting the interests of the citizens, should be
subject to public regulation. Franchises are still granted by
legislatures and municipal councils but with much greater care than
formerly.
[Sidenote: Regulation by the terms of a franchise is not enough.]
=Administrative Regulation.=—In spite of these various restrictions,
however, it soon became apparent that a sufficiently close regulation of
public utilities could not be maintained by merely inserting various
conditions in their franchises. Franchises are granted for ten, twenty,
or even fifty years, and conditions greatly change within this period. A
provision in the franchise relating to the quality of gas, or the rate
of fare on street railways, or the candle-power of electric lamps may be
framed carefully to cover the needs of today, but no one can foresee
what will be needed five or ten years hence. Progress is continually
being made in the mechanism of public utilities as in all other branches
of industry. If regulation is to be effective, it must keep moving
forward as new devices and methods come into use. A franchise has the
defect of being a closed bargain. It stands still while the things which
it tries to regulate keep marching on. No written document, furthermore,
is self-enforcing, and unless some machinery is provided to make the
companies live up to their agreements there are always loopholes through
which they can evade the restrictions.
[Sidenote: It must be supplemented.]
In order to make the regulation of public utilities flexible and
effective, therefore, it has become the practice to supplement the terms
of franchises by a system of administrative regulation. Besides
inserting a long list of conditions in the franchise the government now
stipulates, as a rule, that the rates and the quality of service shall
be fixed from time to time, in accordance with existing conditions, by a
body of officials commonly known as a public service commission which is
supposed to deal fairly with all parties.
[Sidenote: State and municipal commissions.]
=Public Service Commissions.=—Public service commissions are in some
cases maintained by the cities; but more often they are state-appointed
bodies. There are two reasons which make it desirable that the
regulation of public utilities should be in the hands of the state
rather than under the control of the cities. In the first place the
jurisdiction of the city officials does not extend beyond the city
limits, whereas public service companies often do a considerable part of
their business outside. It is not uncommon, for example, to find the
same street railway, electric lighting, and telephone company operating
in several neighboring communities.[235] Municipal regulation, in such
cases, would subject the company to different rules in each community.
There is a second reason, namely, that public regulation is always
expensive. A public service commission must have skilled investigators
to assist it in deciding the technical questions which arise, and these
experts are costly to employ. Large cities can afford it, but in the
case of small communities it is better to have a single state commission
perform the functions of regulation for them all. In this way, moreover,
the regulations can be made uniform. Public service commissions consist
of three or five members; in cities they are appointed as a rule by the
mayor; in states they are usually appointed by the governor; but in some
states they are elected by popular vote. Appointment is now regarded as
the more satisfactory method.
[Sidenote: Work of these commissions.]
The work of a public service commission covers a wide range. Its chief
function is to see that the companies live up to the terms of their
franchises and obey the laws relating to public utilities. It hears
complaints from city officials and citizens, investigates these
complaints, obtains the company’s side of the case, and makes such
decision as the matter seems to require. It prevents discriminations in
favor of one community against another, and insists that equally good
service be given to all; it requires financial reports from the various
companies and often has power to fix the maximum rates which they may
charge. In some states it is the practice to grant “indeterminate”
franchises, or franchises which run for no stated term of years, coupled
with the provision that the franchise may be canceled at any time by
order of the public service commission if the company does not comply
with the conditions. It can easily be seen, therefore, that public
service commissions have a degree of authority which can readily be
abused unless the commissioners are fair-minded and absolutely honest
men. Their position is like that of judges, in a sense, for their
function is to hold evenly the scales of justice between the companies
on the one hand and the public on the other. Fairness is the essence of
successful regulation.
[Sidenote: Has regulation been satisfactory?]
=Public Ownership.=—By the methods which have been described in the
foregoing pages the government has been able to protect, fairly well, on
the whole, the interests of the public. Railroads, telegraph companies,
electric lighting plants, and other similar corporations are no longer
able to do as they please. On the contrary their owners are inclined to
feel that public regulation has gone too far and has become oppressive.
Yet regulation has not always been satisfactory to the public. The
complaint is often made that members of public service commissions are
chosen for political reasons and that their work, in such cases, is
neither effective nor impartial. The success of regulation has varied in
different parts of the country. In some states it has been satisfactory
to both sides; in others it has satisfied neither.
[Sidenote: Would public ownership be better?]
Because regulation has not proved successful in all cases the proposal
is sometimes made that the utilities should be taken over and operated
by the government itself. Those who support this policy of public
ownership believe that the national government should take over the
railroads, telegraphs, and telephone lines, while the states and the
cities should become owners of all the street railways, gas companies,
and electric lighting concerns. These utilities should then be publicly
managed, they argue, just as the postal service is now conducted by the
national government, or as water supplies are now provided by the
cities.[236]
[Sidenote: Public ownership overseas.]
=European Experience in Public Ownership.=—It is pointed out, in this
connection, that the policy of public ownership has been widely followed
in various European countries, particularly in Great Britain, France,
and Germany. In Germany the railroads have been for many years owned and
operated by the government. In all three countries the telegraphs are
government-owned, and are operated in connection with the post-offices.
The telephone service is also in public hands. Gas and electric lighting
plants are to some extent owned by companies in various European cities,
but the majority of them have been taken over by the municipal
authorities. Even the street railways have been passing under municipal
ownership. Many European cities, moreover, not only operate these
various public services but conduct other municipal enterprises, such as
abattoirs, bakeries, theatres, savings banks, and even pawnshops as
well.[237]
[Sidenote: American experience has been less extensive.]
=Public Ownership in America.=—In the United States the policy of public
ownership has not been nearly so popular. The railroads, telegraphs, and
telephones are owned and operated by private companies. They were
managed by the national government for a time during the war, but when
the emergency ended they were returned to their owners. Among the larger
cities of the United States only five or six own and operate their gas
plants; about twenty have municipal ownership of electric lighting
plants.[238] Street railway lines are owned by the city in only three or
four instances; but in several other communities they are being operated
by the public authorities under leases from the owners.[239] When one
bears in mind that the total number of public utilities in the United
States runs up into the thousands it will be seen that the policy of
public ownership has had a relatively small and slow development on this
side of the Atlantic.
=Arguments for Public Ownership.=—The chief arguments in favor of public
ownership in the United States may be briefly set forth as follows:
[Sidenote: 1. Regulation has failed.] First, all public utilities, being
natural monopolies, require a stricter measure of regulation than can
ever be provided by any form of public supervision. So long as these
utilities remain in private hands there will be a continual effort to
evade public regulation and this effort will usually be successful
because rich and powerful companies are exceedingly difficult to control
under a democratic form of government. “We have tried regulation”, the
advocates of public ownership say, “and it has not been satisfactory.
Therefore, let us try the only other alternative, which is to buy out
the companies altogether.” [Sidenote: 2. Lower rates and better
service.] Second, under public ownership the people would obtain lower
rates and better service. This would be possible because the government
could procure capital more cheaply than private companies and thus make
a substantial saving in interest.[240] It would not be seeking for
profits, but would strive to give service at actual cost. If the
government owned all the utilities, moreover, it could buy supplies and
materials in large quantities and hence at lower prices. Each street
railway company now buys rails, cars, cables, coal, and so on for
itself. If a state owned all the street railways within its territory,
it would purchase these things on a much larger scale. [Sidenote: 3.
More just to labor.] Third, public ownership means a fairer and better
treatment of the employees. Wages, as a rule, are higher in public than
in private employment (assuming the same degree of training and skill);
the hours of labor are not so long (since the eight-hour day is now
generally recognized in public employment); and there is better
protection against arbitrary dismissal. For these reasons labor
organizations usually favor public ownership. [Sidenote: 4. The effect
on politics.] Fourth, the public service companies have had a
detrimental influence upon American politics. They are seekers of public
privileges, and in their zeal to obtain favors are under strong
temptation to work in a quiet way for the election of public officials
who will be friendly to them. They form a part of what Mr. Elihu Root
once spoke of as the “invisible government”. Through their paid agents
and lobbyists they try to influence the action of legislatures and city
councils in ways which are to their own financial advantage but
detrimental to the public interest. The abolition of all franchises and
the direct public ownership of all utilities would remove, it is
asserted, a corrupting influence from American politics. These are the
chief arguments used by the advocates of public ownership.
=The Arguments Against Public Ownership.=—But there is much to be said
on the other side. [Sidenote: 1. More costly to the public.] First, it
is claimed that public ownership, by reason of higher wages and less
efficient management, would prove to be far more expensive than private
enterprise, and that in the long run the increased cost would have to be
paid by the people. This higher cost might take the form of higher rates
for the service or it might come out of the general taxes; but it would
fall on the public in either case. When the national government operated
the railroads during the war it kept the freight and passenger rates
low; the result was a deficit amounting to about a billion dollars,
which had to be made good out of the public treasury. The taxpayers
carried a burden which should have been borne by the shippers and
passengers. [Sidenote: 2. Means retention of obsolete methods.] Second,
public ownership would mean poor service; the utilities would not keep
up with modern methods; the public would be put to great inconvenience
by reason of incompetent management. Private companies are alert, on the
look-out for new economies, and always ready to adopt improved methods.
The incentive to all this is their desire to make greater profits. They
do not hesitate to spend money upon improvements if by so doing they can
obtain more business and increase their earnings.[241] Remove this
incentive, as is done when the government operates a public utility, and
everybody takes his job easily. [Sidenote: 3. Would not improve
political conditions.] Third, municipal ownership would merely
substitute the influence of organized labor for that of organized
capital in politics. The nation, states, and cities would have an
enormous number of officials and employees on their respective pay
rolls. The employees would also be voters. They would stand solidly for
whichever political party offered them better wages, fewer hours of
labor, and other advantages. The interests of the public would have
scant consideration in the face of organized political pressure from
this huge array of government workers. Even today the city employees are
an important factor in municipal politics. What would they be if their
numbers were doubled or trebled? The railroad employees of the country
number many hundred thousand. Count in their wives (who are also
voters), their relatives and friends, the voters whom they can
personally influence, and you will see that they would form no
negligible factor in national politics. [Sidenote: 4. European
experience not applicable.] Fourth, although public ownership has been
moderately successful in European countries where the governments are
highly centralized it does not follow that it would have the same
success in this country. In the United States, where government is
conducted on a democratic basis, with short terms of office and strong
partisan forces at work, with the spoils system still flourishing in
many states and cities, public ownership would result in gross
mismanagement and extravagance. If the government is to engage in
business it should first put itself on a business basis. Before it
undertakes to operate the railroads or the telephone service it should
introduce efficiency into its own governmental functions.
[Sidenote: Weight of the foregoing arguments.]
=Summary.=—In balancing these various arguments, one against the other,
and in comparing the relative merits of public regulation with those of
public ownership, much depends upon local conditions. It cannot be said
that either policy is the better one at all times, in all communities,
for all utilities, and under all circumstances. Where public regulation
has been satisfactory there is a good deal to be said for the policy of
letting well enough alone. Where the policy of regulation has not been
successful the arguments for trying the experiment of public ownership
become stronger. It ought to be remarked, however, that if local
conditions are such as to make regulation a failure they are not likely
to make public ownership a success. A state or community which cannot
hold capital under effective control is not likely to be much more
successful in its dealings with a large body of public employees. No
great weight should be attached to the fact that public ownership has
succeeded in one city or failed in another. The success or failure of
public ownership, as a policy, cannot be fairly judged from this or that
adventure in it, any more than we can judge the outcome of a campaign
from the winning or losing of a single skirmish. Banks sometimes fail,
yet our banking system is sound. Speculators occasionally succeed, and
make fortunes, but that does not prove speculation to be a profitable
form of business.
So far as can be judged from the figures of profit and loss, public
ownership is less economical than private management. The community
which owns and operates a street railway or a lighting plant or any
other public utility will not make a profit, in most cases, unless it
charges higher rates than would be charged by a private company. The
books may show a profit, but this is because not all expenses which
ought to be charged to the plant are put down; they are saddled upon the
taxpayer in some roundabout way. Public ownership cannot be justified as
a matter of pennies and dimes. [Sidenote: The question is not one of
profit and loss alone.] But profit and loss are not the only things to
be considered. The question as to which plan is better for the public is
much more than a question of surplus or deficit. The fair treatment of
labor, the reliability of the service, the removal of sinister political
influences—these should be reckoned with as well. And that is where
people with different points of view fail to agree. The advisability of
public ownership is an intensely practical issue which cannot be solved
by appealing to any set rules or principles. It is entirely logical for
one to favor public ownership of the water supply while opposing its
extension to the street railway. One is closely related to the public
health; the other is not. In a well-governed community, where the
service rendered by a private company has proved to be unsatisfactory,
the policy of public ownership may be entirely justified. This does not
mean, however, that the people of boss-ridden cities, with the spoils
system in full operation, should take over public services which are
doing well enough under private management. Conditions, not theories,
should determine which is the wise policy.
=Guild Operation.=—In recent years another alternative to private
ownership has been put forth. It is known as guild ownership. Knowing
that many people are disinclined toward public ownership because they
fear that it would merely mean the mismanagement of the public services
by politicians, some labor leaders have proposed that the utilities
should be owned and operated by the organized employees. In brief they
suggest that the government should supply the capital (receiving
interest on it, of course,) and that the employees should operate the
utilities through officials chosen by them, or chosen by themselves and
the government jointly. The Plumb plan, put forward in 1919 as a
solution of the railroad problem, was a proposal of this nature. Some
advocates of guild operation believe in applying this policy not only to
public utilities but to all industries.
General References
F. W. TAUSSIG, _Principles of Economics_, Vol. II, pp. 397-418;
CLYDE L. KING, _The Regulation of Municipal Utilities_, pp. 3-55;
H. G. JAMES, _Municipal Functions_, pp. 246-281 (Public Utilities); pp.
282-295 (Municipal Ownership);
Massachusetts Constitutional Convention, 1917-1918, _Bulletins_, No. 22
(Municipal Ownership in the United States);
E. M. PHELPS (editor), _Government Ownership of Railroads_ (Debaters’
Handbook Series). Contains material on both sides of the question. See
also K. B. JUDSON (editor), _Government Ownership of Telegraphs and
Telephones_, and J. E. JOHNSON, _Municipal Ownership_, in the same
series;
F. C. HOWE, _The Modern City and its Problems_, pp. 149-164.
Group Problems
=1. Government ownership of telegraphs and telephones.= History of the
wire services. How the telegraph and telephone companies are organized.
Present methods of regulation by the national, state, and local
authorities. Public ownership of telegraphs and telephones in Europe.
The results of European experience. American experience during the war.
Summary and conclusions. =References=: K. B. JUDSON (editor),
_Government Ownership of Telegraphs and Telephones_ (Debaters’ Handbook
Series); A. N. HOLCOMBE, _Government Ownership of Telephones in Europe_,
pp. 441-463; H. R. MEYER, _Public Ownership and the Telephone of Great
Britain_, pp. 239-268; W. W. WILLOUGHBY, _Government Organization in War
Time_, pp. 191-198.
=2. State regulation of public utilities.= =References=: H. G. JAMES,
_Municipal Functions_, pp. 246-281; C. L. KING, _Regulation of Municipal
Utilities_, pp. 253-263; G. P. JONES, _State Versus Local Regulation_,
in Annals of the American Academy of Political and Social Science, LIII
(May, 1914), pp. 94-107; _Proceedings of the Conference of American
Mayors_, 1915, pp. 123-162; H. M. POLLOCK and H. S. MORGAN, _Modern
Cities_, pp. 225-249.
=3. Municipal ownership in Europe.= =References=: G. B. SHAW, _The
Common Sense of Municipal Trading_, pp. 17-42; LEONARD DARWIN,
_Municipal Ownership_, pp. 33-66; DOUGLAS KNOOP, _Principles and Methods
of Municipal Trading_, pp. 95-106; F. C. HOWE, _European Cities at
Work_, pp. 37-67; YVES GUYOT, _Where and Why Public Ownership Has
Failed_, pp. 55-71; W. H. DAWSON, _Municipal Life and Government in
Germany_, pp. 208-259; C. D. THOMPSON, _Municipal Ownership_, pp. 15-25;
_National Civic Federation Report_ (1907), Part I, Vol. I, pp. 261-302.
Short Studies
1. =Franchises.= _Cyclopedia of American Government_, Vol. II, pp.
44-48.
2. =A model street railway franchise.= C. L. KING, _Regulation of
Municipal Utilities_, pp. 165-181.
3. =Gas and electric lighting franchises.= W. B. MUNRO, _Principles and
Methods of Municipal Administration_, pp. 247-257.
4. =Germany’s experience in public ownership.= W. H. DAWSON, _Municipal
Life and Government in Germany_, pp. 208-259.
5. =Great Britain’s experience in public ownership.= DOUGLAS KNOOP,
_Principles and Methods of Municipal Trading_, pp. 306-365.
6. =Municipal ownership in the United States.= Massachusetts
Constitutional Convention, 1917-1918, _Bulletin_, No. 22; National Civic
Federation, _Shall the Government Own and Operate the Railroads, the
Telegraph and Telephone Systems? The Affirmative Side_; _Ibid._, _The
Negative Side_.
7. =Guild ownership.= G. D. H. COLE, _Guild Socialism_, pp. 42-77.
8. =Public service commissions.= S. P. ORTH, _Readings on the Relation
of Government to Industry_, pp. 308-343.
9. =The danger of giving government too much to do.= OTTO H. KAHN,
_American Economic Problems_, pp. 235-275.
10. =The Plumb plan.= Public Ownership League, _Bulletin_, No. 12, pp.
86-100; _Ibid._, _Bulletin_, No. 14, pp. 59-74; 127-130.
Questions
1. Name all the principal public service industries of the present day.
Would you say that the following are public utilities: abattoirs; grain
elevators; coal mines; pipe lines for conveying oil from city to city;
wireless telegraph establishments; airships carrying passengers;
automobiles; taxicabs; jitney busses; hotels; steamships; docks; banks;
hospitals? Why or why not in each case?
2. Make a definition of public utilities which will square with your
answer to the previous question.
3. If a merchant should install an electric generator to provide light
for his own store, would he be then engaged in a public service and
would he require a franchise? If he desired to sell current to his
neighbors (without crossing a street) would he then require a franchise?
Give your reasons.
4. Certain industries are particularly suited to public management (for
example, the postal service and water supply). Name some others. Why are
they suited?
5. What provisions should be made in a street railway franchise as
regards term, fares, service, contributions by the company to the public
treasury, disposal of the plant when the franchise expires, and
regulation during the franchise term?
6. Can you give any reasons why the government should carry mail but not
telegrams? Parcels by post but not by express?
7. Name some reasons why the effective regulation of public utilities is
difficult.
8. What public utilities are operated in your city? By what companies?
When do their franchises expire? Who regulates them? Would any of them
be better managed under public ownership?
9. Which of the arguments for municipal ownership seem to you to be the
strongest, and why? Which of the arguments against?
10. Would it be consistent for an Englishman to favor municipal
ownership of street railways in London but to oppose it in New York
after becoming a resident there?
Topics for Debate
1. Street railways should be (_a_) owned and operated by private
companies, or (_b_) owned by private companies and operated by the
government, or (_c_) owned and operated by the government.
2. Guild operation should be applied to all public utilities.
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Footnote 231:
The cost of any public service is made up largely of two items,
overhead charges and running expenses. In the case of electric light
the overhead charges include interest on the capital invested in power
houses, machinery, wires and poles, conduits; also such things as
insurance, taxes, and rentals, which go on whether the plant produces
much or little. Running expenses include the cost of labor, coal,
supplies, etc., and these things, of course, vary with the amount of
business done. Overhead charges often make up half the cost of
producing electric current; so if you double the overhead, the price
to the consumer would go up, not down.
Footnote 232:
Public service companies, when the government gives them the power to
take private property by right of eminent domain must pay just
compensation for what they take. The government could not give a
company power to take private property without compensation, for it
does not itself possess that power.
Footnote 233:
Franchises were often granted in _perpetuity_. When the laws forbade
the granting of perpetual franchises the attempt was sometimes made to
evade this restriction by granting them for 999 years. Sometimes the
grant of a franchise was put through the board of aldermen or the city
council without any notice being given to the public. Loud protests
then followed, but they availed little after the grant had been made.
Footnote 234:
These payments are arranged in a variety of ways. Sometimes a gas
company pays the city so much per year for every mile of gas-mains or
so much per million cubic feet of gas sold. Street railway companies
occasionally pay so much each year per mile of track. More commonly
the payment is based upon gross earnings or upon the value of the
company’s capital stock, or upon the estimated value of its franchise.
In some instances the franchise is sold to the highest bidder, that is
the company which offers to pay most for the privilege of using the
streets gets it.
Footnote 235:
The street railway system of Boston, for example, operates in more
than twenty other cities and towns. A single telephone company
sometimes controls the telephone service in all the cities and towns
of the state or even in several states.
Footnote 236:
Fifty years ago these water supplies were usually controlled by
private companies operating under franchises. Today there are very few
public water-supply companies in the country. Among the sixty-five
cities of over 100,000 population there are only six which do not have
municipal ownership of this service.
Footnote 237:
The city of Glasgow, in Scotland, is sometimes cited as an example of
a community which has gone the longest distance in the way of
municipal ownership. The citizen of Glasgow, it is said, may be born
in a municipal tenement, be fed on milk from the municipal dairy
(which is warmed on a municipal gas stove), be transported to school
on municipal tramcars, and when he dies be carried off in a municipal
hearse to the municipal cemetery.
Footnote 238:
There are about thirty municipal gas plants and several hundred
municipal electric lighting plants in the United States; but the great
majority of them are in small communities.
Footnote 239:
There are municipal street railways in San Francisco, Seattle, and New
Orleans. Public operation of street railways, without public
ownership, is the policy of Boston and several other cities. These
street railways are operated on a _service-at-cost_ plan. The
government of the state or city takes over the street railway,
appoints officials to manage it, and charges whatever fares are
necessary to pay the expenses of operation (including whatever rate of
interest is to be paid to the owners of the street railway). When
wages go up, fares go up. In some cases service-at-cost has been
proved to be a costly plan. When wages went up during and after the
war, fares rose correspondingly. But although wages have come down
since 1920 in private employments, they have not been reduced to the
same extent on publicly-owned street railways, hence the fares remain
where they were. To be fair to the public, the system ought to work
both ways.
Footnote 240:
The national, state, and municipal governments can borrow money at
five per cent or less; the companies have to pay six or seven per cent
under present conditions.
Footnote 241:
Notice the way in which gas and electric lighting companies try to
increase their business by selling gas stoves, electric irons, and
other appliances at low figures and on the installment plan. Telephone
companies place public pay-stations in every nook and corner to pick
up a few extra nickels and dimes. Telegraph companies give special
rates on night letters to get messages which would be sent by mail if
the regular rates were charged. Can you imagine the post-office
keeping open at night in order to obtain more business?