I now propose to consider objections which may be raised to the proposed scheme.

I anticipate opposition from those who object to all forms of State Ownership or State Management.

The late Lord Avebury was one of the most prominent opponents of nationalisation, and his views are set out in his book “On Municipal and National Trading.”[6]

Mr. Edwin A. Pratt has written several books on the subject and has recently collected all the arguments up to date against State Ownership in his book, “The Case against Railway Nationalisation,”[7] In this book examples are given of the experience of foreign countries and the Colonies where railways have been taken over by the State.

Other writers who have advocated the retention of our present system, and are quoted with approval by Lord Avebury, are the following:—

On the other side, the following, among other advocates of railway nationalisation have shown the great advantages to be anticipated by such a measure, and have given very cogent answers to the objections of the opponents, namely:—

But in all these books, and in other books and articles, both for and against nationalisation, it has been assumed that if, and when, the railways are acquired by the State, the same system will obtain as now, and as obtains in the case of all the foreign countries and colonies referred to, namely, to charge according to distance and according to “what the traffic will bear,” and with the primary object of making the most profit.

With very great deference to all these distinguished writers, it appears to me that they have one and all overlooked the fundamental principles which should be acted upon by a State or a Municipality first in deciding whether or not to acquire a monopoly, and secondly, in the administration of it when acquired. These principles depend upon the fundamental difference between the objects in view, and actuating a Company or individual on the one hand and a Nation or Municipality on the other in acquiring a monopoly. In the former case the sole object is that of pecuniary gain or profit; in the latter the sole object is, or ought to be, the benefit of the community. It may be said that these are not respectively the sole objects, but only the primary objects. My reply is that in the case of the company it is the duty of the directors, as trustees for the shareholders, to so carry on the business in question as to produce the most profit, irrespective of any benefit to the community, or, indeed, to any persons other than the shareholders. Railway companies, it is true, provide the benefit of transport, and various advantages held out by the companies as inducements to use their particular lines, but these are, of course, solely offered with the view of increasing the profits. Other advantages for the comfort, safety and benefit of the public are provided under compulsion from the Government, as a condition of the grant of privileges and compulsory powers conferred upon the companies, without which the railways could not have been made. I refer to such matters as rules and regulations for the safety and benefit of the public; workmen’s trains; maximum fares and rates allowed to be charged; provision for at least one train a day at all stations, etc.

Conversely, in the case of a Nation or Municipality taking over a monopoly, it is the duty of the Government Department or Town Council to so carry on the business as to render the most efficient service, at the lowest cost consistent with efficiency, with paying for the cost of acquisition and with paying the working expenses. Advocates of nationalisation urge that profits should be applied in reduction of taxation, and suggest that this is in itself one of the benefits to be derived therefrom. Opponents always assume that national and municipal trading must be carried on with a view to profit, and some even ridicule the idea that any trading concern can be successfully carried on unless with this view and with a resulting profit. Acrimonious discussions have taken place as to whether profits which have been claimed by advocates of municipal trading to have been made by tramways, gas, water and electricity works, are only paper profits as alleged by the opponents. In Lord Avebury’s book already referred to,[8] one whole chapter, headed “Loss and Profit,” treats of the question whether municipal enterprises have been profitable or not, and he adduces many examples to prove that in most cases the alleged profits are imaginary.

It has, in fact, been the practice universally to apply profits made out of municipal trading in this Country in reduction of rates, and in foreign Countries, where railways are owned by the State, their revenues are made use of either as general revenue or, as in Prussia, for social or educational purposes, which would otherwise be provided for by direct taxation. The only instance of national trading in this Country is the General Post Office, and I think it is correct to say that the original intention when Penny Post was established was to so carry it on that working expenses only should be covered by the revenue. In practice, the gross revenue is entered with other items of revenue in the National Accounts, and the gross expenditure with other items of general and non-productive expenditure, with the result that the net profits of the Post Office, in effect, become a source of general revenue, and are therefore applied in reduction of general taxation. Until recent years this net profit has not been considerable, but last year it was as much as £5,000,000. Having regard to the continual and progressive increase in postal business, and the acquisition of the whole telephone system, there is every prospect of still further increase in net profits. What will be the result of a continuance of this practice of applying net profits of Municipal and National trading towards reduction of rates and taxes? It has not, so far, had any very serious result, simply on account of the fact that such net profits have not yet been of a very startling amount. But if these profits should increase, will not the result be the very evils which are the natural consequence of a private monopoly?

Once the principle is admitted that profits from such trading shall go in relief of taxation, the service will, and must, be worked more or less with the primary object of making as much profit as possible, with the inevitable result that the service in question will be starved for the sake of the profits. This has actually happened in the case of the Prussian State Railways, the one State Railway which has so far made the greatest net profit.

In addition to this difficulty there are others inherent in State or Municipal trading, if the principle of making profits be admitted, and if profits are actually made. In such a case the Chancellor of the Exchequer will be expected to budget for further profits, the general public will expect improvements in the service, traders will expect that the charges to them should be reduced, and the workers will expect that their wages should be increased.

This view is not a new one. It has been advocated in respect of the Post Office for many years by such well-known postal reformers as Lord Eversley (formerly Mr. Shaw Lefevre), and Sir Henniker Heaton, Bart. The latter, I believe, has several times moved resolutions in the House of Commons for the express purpose of having the postal profit applied to the use of the Post Office itself, instead of to general revenue.

It is well known that “strikes” are more likely to arise in a period of trade prosperity. It is the natural result of the workers seeing large profits made out of their industry, if they should have no benefit, by increase of wages, by sharing in such profits or otherwise. It makes but little difference to the workers that those profits go to ratepayers, instead of to shareholders, more especially as they usually inhabit houses let on weekly inclusive rentals, and are exempt from income-tax, so that they do not directly pay either rates or taxes. If, on the other hand, the profits are devoted to improving the efficiency of the service or cheapening the charges, then, not only are there no profits to excite the cupidity of various sections of the community, but the workers do, in fact, benefit by themselves and their families, as well as the whole of the public for whom the services are worked. No strike is ever successful which does not gain general public support, and even under existing conditions there is much less likelihood of strikes in the case of Civil Servants or postal or municipal employees, partly on account of the better wages paid, the certainty of continuing in employment except for misconduct, and the prospects of a pension, but still more on account of the practical certainty that public support would not be given to a strike which interferes with one of the most important of the public services.[9]

Another evil of ignoring the difference in principle of a public monopoly and a private monopoly has been the practice of applying to public monopolies the practice which all private monopolies endeavour to achieve (and properly so as their sole object is profit), namely, to put down all possible competition. If the principle I advocate, namely, that the sole object of a public monopoly is the benefit of the community, then if some improvement in the service, the subject of such monopoly, shall be invented, which is proved to be practicable, the public should have the benefit of such improvement, and, instead of a prohibition of such private enterprise every encouragement should be given to it.

In our Navy, when new inventions are found which increase its efficiency, no time or money is lost in adopting them, even at the expense of discarding comparatively modern men-of-war or appliances. The risk to the nation of not doing so is too great to allow considerations of expense to stand in the way.

But what has happened in the case of so important a commercial matter as the Telephone? The Post Office are authorised by Act of Parliament to forbid any competition, a provision evidently enacted under the impression that a public monopoly must have Statutory protection against competition, which a private monopoly always seeks to obtain, but has to pay for. Having this monopoly, and having purchased the telegraphs, the Post Office from the first regarded telephones with the utmost jealousy, because it seemed likely to interfere with its “Profits”! Lord Avebury quotes from “The Times” of 13th June, 1884, as follows:—[10]

When it is remembered that the Post Office insisted on being paid one-tenth, not of the profits, but of the gross receipts, the wonder is that our telephone system is not more backward than it is. Lord Avebury, of course, uses this and other instances, such as the opposition of municipalities owning tramway and gas undertakings, to tramway extensions in adjoining districts, and licences to motor omnibuses and also to the introduction of electricity for lighting and power, as an argument against nationalisation and municipal trading.[11] That these constitute a strong argument against public monopolies being worked for profit, I readily admit, but they do not weaken the argument that all such concerns which must, in their very nature, be incapable of effective competition, should be taken over by the community, and be worked solely for its benefit. What possible chance is there of competition in a telephone system? It is, of course, an essential element to its success that each subscriber should be able to communicate with every other one. How, then, can it ever have been imagined that there could be any effective competition between rival systems? And yet competition was actually attempted between various municipalities and the National Telephone Company, and afterwards the Post Office itself was authorised to “compete” with that Company.

The ultimate purchase by the State was, of course, a foregone conclusion, but at what expense of both time and money has this at length been effected! The complaints which have been made since the completion of this purchase are evidently the result, not of nationalisation, but of the mistaken practice followed in a fruitless attempt at making or retaining so-called “profits” of the telegraph system, by at first putting “every possible difficulty” in the way of telephones, then attempting to compete with them, and then waiting a number of years before completing the purchase, with the result of being compelled to take over a large number of obsolete plant and instruments, and linking them up with a new system, thus producing a state of confusion and useless expenditure of time and money, which could all have been avoided by purchase of the patents and patent rights more than 30 years ago.

It is only right to say that Lord Avebury was still of opinion in 1907 that the resolution of the Government to buy up the National Telephone Company was “an extraordinary and most unfortunate policy.”[12]

Mr. Hanbury, who was the Minister mainly responsible in 1906 for the purchase of the telephones, had evidently changed his opinion since 1889, when, in answer to a deputation in favour of purchasing the telephones, he said, according to a report quoted by Lord Avebury from “The Times”:—

Here we have exactly one of the arguments which is now being used against railway nationalisation, and by the very Minister who, 17 years after, did the very thing he had clearly condemned.

I admit the argument would hold good if the restriction be not imposed by an inflexible rule that there should be no attempt to work the concern, whether Post Office, telephone, railway or other monopoly for purposes of profit.

I have already referred to the mistake the Post Office are making in following the example of the private monopolist, the National Telephone Company, in charging for telephones according to distance, although between the very same towns in which different rates are charged the same department charges 6d. only for telegrams! This can only be with the strange, yet futile, intention of making more profit without regard to the benefit of the community. If the same rate were charged for Trunk calls as for local calls, many more provincial and country people would subscribe, and the wires being already laid and exchanges established, the additional expense would be but small.

It would seem, indeed, that the search after profits in the case of Government or municipal monopolies is as futile as the search by people after happiness, personified by Maeterlinck as “The Blue Bird,” and that when the only object is to benefit the community, the profits come, as does happiness, when the only object is that of benefiting other people.

Now, in considering the principle here laid down, it appears to me that there are four rules which should be observed when a nation or municipality undertakes anything in the nature of a trading concern:—

As to Rule No. 1, there appears sometimes to be a very thin line between what is, and is not, susceptible of effective competition. As a general rule, any concern which involves a right or easement over land, must be in the nature of a monopoly. Thus the supply of gas, water and electricity, all of which must be conveyed by pipes or wires into houses, are in the nature of a monopoly, but the fittings used in the houses are not, but are susceptible of very efficient competition, both as to workmanship, manufacture and design. All roads, including railroads and tramways, are, and must be, in the nature of a monopoly, but the manufacture of materials and rolling stock, the catering of hotels, forming part of the railway undertakings, or in the trains themselves, or in railway steamers, are all the subject of effective competition and should, therefore, be put up for competition with special supervision and restrictions against abuse of the privileges obtained by competition on Government property.

Now, I would ask any unprejudiced reader who has studied the writings of the eminent authors already quoted, and other opponents of nationalisation, to read those books again with these four rules in his mind, and consider whether all the objections so forcibly brought forward against nationalisation would not be very nearly, if not completely, answered, if such nationalisation were carried out with strict adherence to these rules.

I venture to think that Lord Avebury himself would have admitted the force of this contention. It would, at least, answer the question he puts more than once, “Where, indeed, is it (municipal and national trading) to stop? Is it to stop at all?… It is sometimes said that the line should be drawn at necessaries. But if so, to light, gas, water and tramways, we should have to add bread, meat, fire insurance, … etc., while many would also add tobacco, tea and beer.”[13]

In effect, the whole of the objections to State ownership, as will appear from a perusal of the various books referred to above, and the arguments of other opponents, are all comprised under three heads, namely, according to the relationship of the State:—

1. With traders.

2. With railway servants.

3. With the general public, especially on such matters as officialism and inefficiency, owing to want of competition, bad administration, and interference with private enterprise.