By Sir George S. Gibb.

A paper read at a meeting of the Royal Economic Society, on 10th November, 1908.

Railway nationalization has for many years occupied the minds of economic and political students and the practical activities of statesmen in many countries and in English colonies. It has been regarded here as a remote possibility which might some day or other come to the front for practical discussion. But quite recently it would have been thought to be as incredible that any responsible politicians should be considering proposals for purchasing our railways for the State as that any substantial number of persons could be found who would advocate an abandonment of the fundamental principle that there should be no taxation of imports into England except for revenue purposes. In these days, however, public opinion moves suddenly and rapidly. The despised fallacy of yesterday rises as the creed of to-day. There are already many indications that, before long, there will be a numerous and influential, though perhaps a somewhat heterogeneous party, who will urge that immediate steps should be taken to nationalize our railways.

The test, and the only test, to be applied to proposals for railway nationalization is whether railways owned by the State and worked directly by Government officials would be better and more efficient than railways owned and worked by private corporations, and whether, after taking account of all the effects of the change, upon each class, each district, each interest, the net result would increase the wealth and well-being of the community, and be a permanent benefit to the public.

We may, I think, start from the assumption that railway proprietors as such have no interest in opposing nationalization. The value of their property, whether measured in terms of capital value or in terms of future income, estimated on a fair basis, would, it is assumed, be fully provided for in the gigantic financial operation which railway purchase would involve. There is no legal flaw in the title of railway proprietors. They enjoy the fundamental rights attached by our law to absolute property, subject only to the performance of obligations definitely prescribed by Acts of Parliament. I think, therefore, that we may discuss this subject of railway nationalization without apprehension that the change, if it were adopted by the deliberate judgment of the community, would be accompanied by anything in the nature of confiscation of existing rights.

This might not be the intention or the wish of all who think that our railways should be nationalized. Probably some extreme Socialists would like to transfer railways to the State without giving what, in our judgment, would be adequate compensation to existing owners. Their aim is the substitution of a new social polity for that which exists, in which antiquated ideas of private property would have no place. But that is only a phase of their creed which condemns it to sterility. It is not the small band of Socialist zealots, but the majority of the nation that we have to consider in estimating the risk of anything being done in the nature of confiscation.

Those who join the party for nationalizing will, no doubt, find themselves in strange company. There can be little doubt that the movement up to the present has been mainly Socialistic. A trader, who advocates nationalization because he hopes that he might be able to transfer to somebody else, perhaps he does not very much care whom, some part of the burden of the charges which he has to pay for railway carriage, will find that his next neighbor at a meeting of the party is a man who has joined for quite other reasons, with the object, indeed, of ultimately seizing for the State some part of his neighbor, the trader's, property, which the latter was reckoning to increase at the expense of, amongst others, his neighbor the Socialist, through the plan of railway nationalization. But the homogeneity of the party need not concern us, nor the question whether each and every member of it would be actuated by a single-minded desire for the public good. The forces making for honesty and equity in the treatment of existing interests would, I think, so overwhelmingly outweigh the influences tending in a contrary direction that we need not complicate the question by importing into it a discussion as to whether adequate compensation should or would be paid to existing owners in the event of the State deciding to acquire their property. Fair and adequate compensation for existing interests may be taken for granted.

But although compensation can be paid for property, it cannot be paid to the general community who would suffer in the event of the administration and operation of railways under State management being less efficient than under private management. If a mistake be made, all would suffer, and their sufferings would not, and could not, be mitigated by compensation in any form.

It may be useful at the outset to consider what has led to the question of railway nationalization in this country being discussed.

The origin and the causes of those movements in public opinion which bring about great constitutional and social changes are frequently most difficult to trace, especially by contemporary observers. For a full understanding of such movements, it is necessary to wait for the historian's point of view, and to survey a wider field than is possible whilst the events are occurring, when much of the material for final judgment as to the causes in operation is concealed in an undisclosed future.

That there is a movement in progress tending to the nationalization of railways in England is apparent to every thoughtful observer of the times. But whence does this movement come, and what are its principal causes? We are able to identify some of them, less able to weigh the relative importance of each, still less able to foretell the ultimate share which each will have on the future course of development, which will depend on the direction taken by other movements in public opinion which, at the moment, may seem to be entirely independent of all connection with the particular movement we are considering.

I will refer to a few of the causes which seem to me to be most prominently at work, but I will not attempt to state them in the order of their importance. I will merely enumerate those which are plainly discernible as existing in some shape or other.

The first I will name, though it may not be the most influential, is the existence of a certain amount of dissatisfaction with the present state of railway administration. I suppose that if railway services were as good as possible, charges as cheap as possible, profits as high as possible, and the management as perfect as it is possible for railway management to be, and these conditions were generally admitted to exist, the natural instinct to leave well alone would prevent any proposal for nationalization from obtaining a hearing.

It must be conceded that there is a certain feeling of dissatisfaction, superficial and indefinite though it be, to which advocates of nationalization, whose schemes originate in considerations which have no relation either to the excellence or to the imperfections of railway arrangements, are able to appeal in the pursuit of their aims. It is not that many people really think that our railways do not, as a whole, serve the public well, whatever individuals may say in moments of haste. Hut complaints are sufficiently numerous to have a real importance as an influence on public opinion. And, unfortunately, their influence is to a large extent independent of their justice. The existence of criticism, which, after all, is only another name for difference of opinion, is inevitable, and probably would be inevitable under the most perfect system of railway management which the world has seen or ever can see. State railways would not be immaculate. The nature of railway business lays it open, to an exceptional extent, to the unpopularity which unavoidably gathers round every institution on which there is universal dependence. Providence itself does not wholly escape unpopularity. No other industry is comparable with the railway industry in the close dependence upon it of the vast majority of the people. The necessity for transport services penetrates more frequently and more deeply into the lives and habits of the people than any of the other prime necessities of civilization. The need for transport is a tyranny. All tyrants are unpopular. And the tyranny of a need is apt to beget, by an illogical transposition of ideas, a dislike of those who are responsible for supplying the need. People are conscious of grievances, or, let us say, unsupplied wants. They cannot measure the range of possibility which limits the supply of those wants or remedies for those grievances. They constantly wish for the impossible, but have not sufficient knowledge to distinguish between the possible and the impossible. Defects which cannot be remedied are generally condemned with more emphasis than those which are due to mismanagement. It is irrelevant to consider whether the dissatisfaction to which I have referred is justified or not. Whether well or ill founded, it must be set down as one of the causes of the movement for nationalization.

The second cause I would mention is a belief, growing from a suspicion into a conviction under the stimulus of repeated failures in control experiments, that it is impossible for any Government, by any legislative or executive action in any form, to exercise useful and effective control over railways. People turn in despair from ideas of regulation and control to ideas of ownership.

The third cause is the prevalence of that feeling which, for want of a better name, I will call district jealousy. The competition of privately-owned railways undoubtedly does create inequalities. It would be mere affectation to pretend that the railway accommodation and facilities afforded to all places and all districts are equal in merit and value. The less favored districts see other districts enjoying superior facilities. They do not allow for differences in conditions which, in some cases, explain and justify the differences of service. I say in some cases, because it would be impossible to deny that in other cases the comparative inferiority of railway facilities cannot be explained away by inevitable determining conditions. Hence district jealousy arises and a desire for uniformity, such uniformity as it is hoped a State system of railways would give.

The fourth cause I would name is the example of other countries. This is affecting men's judgments with great force. We are slow to be moved by foreign example. But there is an increasing tendency to submit to international influences, and foreign example in this matter does, on the whole, point to national railways becoming the generally accepted system.

The fifth cause is the one which, I think, has more to do with the initiation of the discussion of nationalization schemes than any other cause. This is the general tendency of the time to Socialistic experiments. If there were no Socialists, and no Socialism in the thought of the age, there would, we may safely conclude, be no talk of nationalization of railways. It is the Socialistic propaganda, and the influence which that propaganda has had on many minds, which more than anything else has brought the question of the nationalization of railways within the range of practical discussion.

The sixth cause is the anxious search for more revenue for the State. National expenditure has grown to such enormous and alarming dimensions that the provision of revenue to meet it has become a serious and urgent difficulty. A Chancellor of the Exchequer on the lookout for cash has not been able to resist the attraction of railways as a source of revenue for the State. He has noted the various influences at work which are tending to bring the question of railway nationalization to the front, has looked with envy at the large revenue which Prussian railways yield to the State, and has at least gone the length of asking himself the question, within the hearing of reporters, whether he ought not to encourage and to take advantage of a state of opinion which might conceivably be worked upon so as to create a majority prepared to approve the principle of State ownership of what might be a highly lucrative State monopoly.

The mileage of railways open for traffic in the United Kingdom at the end of each of the last four decades up to 1907 is shown in the following table:

The growth has been slow and decreases with each decade. It is probably true that the period of construction has nearly come to an end. Future additions to the mileage are not likely to be either large or of substantial importance. This rather indicates the present as a suitable time for considering a change of system. The considerations which are applicable to what I may call the age of construction are very different from those which become most important in the age of operation.

It would probably be accepted as indisputable that in a country like England, where capital is plentiful and enterprise active, the system of leaving the construction of railways to private enterprise is the best system.

Whatever may be thought as to the respective merits of private and public ownership, it cannot be denied that private enterprise does take more risk than any Government is likely to do, except under pressure of military necessities. The hope of gain is the strongest motive for enterprise, and this desire operates more strongly on the private citizen than it does on the State.

The growth of railway mileage during the age of construction in any country is promoted by the constant influence and moving force of those incentives which act on capitalists. The spur of competition is always in active operation. Then there are the very powerful professional influences which are constantly at work to induce capitalists to spend their money on works and enterprises which afford professional work, even if they do not subsequently provide dividends.

Theoretically; no doubt, railways promoted by private enterprise tend to the favoring of particular localities at the expense of other localities. Perhaps it is right that the stronger should grow at the expense of the weaker, but, at all events, it is inevitable. You cannot expect private competitors to think of anything but their own interests. And if this be so, you cannot expect from a system in which private interests predominate the same consideration of general design, from the point of view of the interests of the whole country, as from a system which places public in front of private interests.

It is difficult to deny that the miscellaneous and unequal activities of private enterprise fail in the absence of some central guidance to produce the best results so far as harmony and completeness of design are concerned. In England railway construction has not been, as in America, almost entirely free from any public control. We have had the control, I think the most salutary and useful control of Parliament, so far as it has gone, both over location and capitalization. But it has not gone far. Although there has been a certain amount of control, there has been practically no guidance. The control, under the system of private bill legislation, has been very ineffectual except as regards capitalization. It has been mainly negative; never constructive. All that Parliament could practically do was to prohibit the making of particular railways which aroused opposition from some landowning or railway interests powerful enough to oppose and wealthy enough to pay the heavy costs of opposition. Private interests have been protected, but the general interest has, in the main, been ignored.

But whilst conceding that it would have been a great advantage if the vagaries of private enterprise had been more restrained by some prudent, general guidance, I think that the chief public requirement during the age of construction is that as much mileage as possible should be constructed; and I submit, as a true conclusion on the point I am discussing, that, as regards the age of construction, at all events, England has derived incalculable benefit from the fact that the railway system has been made by private enterprise. But the problem of working the railway system after it has been constructed is, I admit, essentially different from the problem of securing its construction.

My subject is not one which admits of discussion except on very general lines. Our views on it must necessarily be formed under the influence of the opinions we hold as to the legitimate functions of the State. It has been truly said that no country has ever adopted State ownership of railways from theoretical considerations. In each and every instance there were some practical reasons, based on military necessities or concrete and pressing economic conditions to meet which State ownership was accepted, not as a system desirable in itself, but as an expedient which, in the circumstances, was considered to be the best practical solution of difficulties which stood in the way of the satisfactory development of railways. But whilst agreeing with this as a true historical statement, I doubt whether theory can be entirely excluded from a statement of the genesis of national railway systems. In a country where Individualist opinions prevail, as I think at the present time they do in England, no temptations, no pressure of circumstances short of extreme national emergency, would induce people to face the evils which the Individualist knows must result from the intrusion of State action into matters of trade. This is theory, although those who are influenced by it may think that it is founded on practical experience. On the other hand, those persons who wish to secure trading profits for the State even at the cost of taking commercial risks, or who, when difficulties and obstacles arise in commercial development, resort to the powers of the State to overcome them, either by the imposition of taxes on the general community in the interests of a class, or by handing over to State officials the direction of an industry, instead of relying on the skill, self-reliance, enterprise, energy, and character of the people, are Socialists at heart, whether they know it or not, and are actuated by the radical theory of a creed which, perhaps, most of them would disavow.

But, after all, the question is not whether State purchase would be a step in the Socialist direction, but whether it would be a step in the right direction. Why should we change? Are we suffering from intolerable evils from which there is no other way of escape, or is there some great national benefit to be derived from the change?

The general case for nationalization, as put forward by its advocates, rests on very few arguments, and it is not, I think, unfair to describe these as being mainly assumptions, the accuracy of which it is impossible to verify. I may summarize a few of these:—

(1) Government management would be more efficient and less costly than private management.

(2) Government management would primarily regard the interests of the community and of the country as a whole, and the substitution of that condition for the existing system under which the interests of private trading concerns take first place in the thoughts and efforts of those responsible for management would have the effect of securing a more equal and more satisfactory development of the resources of the country, and, as one writer expresses it with more than the usual proportion of assumption in his statement, trade would be stimulated under equitable, reasonable, and uniform systems of rates.

(3) The change would result in the removal of most of the serious complaints made against the existing administration of railways.

(4) Those who refuse to look upon the matter as mainly a commercial problem think and hope that new means would be found for the satisfaction of the social needs of the nation if the railways were at the disposal of the Government.

(5) Experience of the economy resulting from large combinations in other industries is invoked in support of the proposal to get rid of the separate administrations of private railways. It is said that the advantage of production on the largest scale by a single corporation in place of production by a number of smaller units is being verified by the experience of nearly every important trade and industry. The principle has been recognized in the history of railway development in this country by the amalgamation of large numbers of small railways into the great railway systems which we now see, and it is argued that a further step should now be taken in the same direction. But a step involving the creation of so great a monopoly as further large amalgamations would involve can only, it is thought, be taken by the State. In this country the largest railway system under one management is no greater than about 2,000 miles in length, whereas in the United States of America railway systems covering about 15,000 miles are now under the control of a single President and a Board of Directors. It is said, therefore, that modern methods of administration have made it feasible to direct the 23,000 miles of railway in the United Kingdom efficiently and successfully by means of one comprehensive organization, and probably if there is to be one organization there would be no difference of opinion that the single organization to own, control, and manage the railways must be the State.

Most of the principal objections are, I think, covered by the following list:—

(1) State management would be less efficient than management under private enterprise.

(2) The extension of Government patronage, by placing at the disposal of Government such a vast number of appointments to lucrative offices.

(3) The risk of political corruption, not only in connection with the exercise of patronage, but also in ordinary administration in the settlement of questions relating to charges, wages, and services.

(4) The danger that interested parties would, by political pressure, compel the State to expend public money on unremunerative lines and unremunerative services.

(5) The contraction of the available field for private enterprise, and hence the weakening of the foundation of all individual and national progress.

(6) The introduction of serious dangers in connection with labor disputes between the Government and the large body of railway servants.

The subject has not been sufficiently long under public discussion to make it easy to state fully the hopes of its supporters and the fears of its opponents. Probably both are exaggerated. If one examines the complaints made against the existing railway system, it is obvious that many of these must exist under any system, whilst some are the necessary accompaniments of every system into which competition enters. But if competition is discarded in favor of monopoly it does not need argument to show that this merely means a change from the evils of competition to the evils of monopoly. No one would deny that each system contains inherent and characteristic evils. The evil of competition is waste; the evils of monopoly are stagnation and the restriction of freedom.

Hitherto, for the regulation of railways, reliance has been placed on two factors—competition and control. Parliamentary action and public opinion have veered about from one to the other, and the absence of clear principle in the policy of the Legislature has introduced evils which a more logical and consistent adherence either to the policy of free competition on the one hand, or to the policy of strict control on the other, would have avoided. That some regulation is necessary all would admit. Railways sell transportation as a commodity, but the nature of the business makes it impossible to secure the conditions of absolutely free competition as in the case of other industries. Hence the necessity for control, but every plan of control that has been tried has proved practically inoperative and ineffective mainly because it has endeavored to leave competition in operation, and it is the evils which necessarily arise from competition which lead to most of the complaints against railways. The inevitable weakness of the dual system of competition and control is that control checks competition just where it would be useful in the public interest, and competition nullifies control just where it could be advantageously applied.

Under no system could we expect railways to be free from complaints. They arise equally from the nature of the business and the nature of the customers. But with a view to seeing whether State ownership would remedy the complaints that exist, let us try to understand as clearly as possible what the complaints are. The Chancellor of the Exchequer (Mr. Lloyd-George), speaking to a deputation of traders in 1906, when he was President of the Board of Trade, said that he was impressed with the "great and growing discontent with the whole system."

Now what are the causes of the present discontent? Is it great? Is it growing? These are questions very difficult to answer. But there are some useful data available for the answer. The way has been made plain and easy for complainants against railways. Every encouragement and every facility has been afforded to them. A special Court has been created—the Railway and Canal Commission—the constitution of which was carefully framed so as to encourage anyone with a grievance against railways to hope that he would get a sympathetic hearing of his case. The applications to that Court were so few that those people who cannot bring themselves to believe that the number of real, as distinct from imaginary, grievances against railways are remarkably few, said that the public were deterred from bringing complaints forward by the expense of litigation before the Railway Commissioners. So, to render the path of the complainant still easier, a procedure was introduced which is unique for simplicity and cheapness. All, without distinction, who had any complaint or grievance of any sort or kind against any railway or canal company, were invited to come and lay the same before a Department of Government, the Board of Trade, who practically promised to use their influence to secure an amicable adjustment of any differences. This procedure is so simple, so sweeping, so all-embracing, so encouraging to complainants, and has, on the whole, been exercised by the Board of Trade with so much tact and success, that its records should supply the information we are seeking.

In view of these efforts to get every aggrieved or discontented person to come forward and disclose his complaint, is it possible to imagine that there are now any concealed complaints? It is often said that traders will not complain, that they are afraid of rousing the hostility of those terrible tyrants, the railways, whose power in England, at any rate, whatever it may be in America, is ludicrously exaggerated. It is true that a sensible trader who has a fair case does not fly with it to the Board of Trade. He submits it to the railway officers in the ordinary daily course of business, and almost invariably gets the matter adjusted. But I do not believe that there is any trader who would be deterred from submitting a complaint to the Board of Trade by any feeling of fear. On the contrary, traders in these days suffer from an excess of boldness. If a trader is dissatisfied with any railway charge, he simply refuses to pay, and only those who have experience of the daily conduct of railway business can know how common, and unfortunately how effective, this remedy is.

The Board of Trade make an annual report to Parliament of all complaints made to them under their conciliation jurisdiction, and I think the contents of these reports may fairly be relied on as presenting a complete view of the kind of complaints that exist against railways. A useful table is given in the tenth report of the Board of Trade, issued in July last, showing the total number of complaints for ten years, classified according to their nature as follows:

Of the total number forty-eight were complaints against canal companies, but these are not separated in the classification.

Surely the above is a remarkable table, considering the vast aggregate of business and the facilities offered for complaints. Only 1,529 complaints against railways, or an average of about 153 per annum, have been found to exist.

Then look at the results of these complaints. These are given in another table, and only 573 complaints, or an average of 57 per annum, are entered as resulting in the complainants finally expressing themselves as dissatisfied.

Services for which the aggregate payment amounts to 120 millions sterling per annum are rendered, and yet there are only an average of fifty-seven cases per annum of dissatisfied complainants to the most open, most favorable, and least costly tribunal in the world for hearing complaints against railways.

Now let us look at the nature of the complaints made. Would State ownership remedy any of these complaints? I set aside the 510 cases of miscellaneous complaints about delay in transit and other minor matters, because it is obvious that complaints about such matters would not disappear under any conceivable system of railway management.

Practically all other complaints group themselves under two heads:

1. Excessive rates.
2. Undue preference.

The complaint that railway rates are excessive generally takes the shape of a comparison of the charges on some foreign railway. Now, I confess that it is very difficult to meet such allegations, because of the difficulty of presenting all the conditions of which account must be taken in order to make a fair and sound comparison, and also owing to the absence of adequate data or materials in the published statistics of English railways.

A general allegation that English rates are higher than those charged in some countries cannot even be discussed, because the factors needed for the comparison are not available. Are they in fact higher is a question the answer to which must precede discussion as to reasons and explanations. The facts in regard to the average length of haul, the average rate per ton mile for different kinds of traffic, or the average charge per passenger mile, and general information as to the nature of commodities carried, speed of transit, and services rendered for the rates charged must be ascertained before any comparison is possible, and these facts are not ascertainable for English railways.

My belief is that having regard to the capital expended on construction of railways, English railway rates are not excessive for the services rendered, and I greatly doubt whether, after making proper allowances for differences in capital cost of railway accommodation, and for other essentially different conditions, rates in any country are lower, comparing like with like, than railway rates in England. This is an issue of fact. It lies at the threshold of any inquiry into the subject of railway rates, and I confess I do not see how much progress can be made with any discussion which turns on assertions as to the relative dearness of English railway rates until adequate materials are available for a sound comparison.

It is true beyond question that English railways have cost more to construct than the railways of any other country. The capital expenditure of all railways in England is represented by the figure of about £56,000 per mile as compared with about £21,000, which is the corresponding figure for German railways, and about £12,000 per mile for American railways. Railway proprietors in England are not responsible for the high capital cost. They were forced by law, and by custom powerful as law, to pay monstrously inflated values for their lands. Burden upon burden has been heaped upon them by the action of the Legislature, by the requirements of Government departments, and by the exactions of public opinion. They have borne heavy losses in being compelled to spend capital without regard to their ability to secure adequate return upon it, and assuredly no reckoning is due from them to the public in this matter. The reverse would be more true.

The total capitalization of railways in the United Kingdom in the year 1907, as given in the Board of Trade Returns, was 1,294 millions sterling, of which 196 millions represents nominal additions. The net earnings (some of which, however, arose from miscellaneous sources independent of the operation of the railways) amounted to £44,940,000, or 3.47 per cent on the nominal capital. Out of a total of 1,294 millions sterling, 136 millions of loan and preferential capital received interest or dividends in excess of 4 per cent. This presumably arose from the insecurity of capital, involving the payment of a high rate of interest or dividend. One hundred and eighty-one millions of ordinary capital received dividends in excess of 4 per cent. per annum. The capital receiving interest or dividends in excess of 4 per cent. per annum is, therefore, 317 millions, or 24.5 per cent. of the total. It cannot be said on these figures that the interest received by those who provided the capital for the railways is excessive.

But would it be possible for State railways to reduce the amount included in railway rates for interest and dividends? It cannot be denied that our present system does involve the needless duplication of railway accommodation—the inevitable waste of competition. There is the constant endeavor to divert traffic, the corresponding effort to keep it. Capital is wasted, but public facilities are increased. The public could certainly secure by monopoly the saving of waste, but only at the cost of losing the advantages, such as they are, of getting more than they pay for. I suspect that on a broad and comprehensive view these advantages are not worth to the community the waste of capital involved in providing them. But it is rather late in the day to adopt this view. Enormous waste has already been incurred, and it must be remembered that this drain on the resources of the nation is not likely to be so serious in the future as it has been in the past, even if the system of leaving railways to private enterprise is not abandoned.

The private ownership of railways provides for the absorption of the wastage of capital in a manner which would be impossible under State ownership. Eighty-eight millions of the capital expenditure on railways goes without dividend, and 151 millions has to be content with a return less than 2 per cent per annum. Although this undoubtedly represents a loss to the community, the loss is distributed. It falls on those who voluntarily spent their money in the hope of gain, and lost it. The State cannot lose capital in this way. All expenditure incurred by the State would be represented by money borrowed on the public credit, and the interest would have to be paid in full, whether the expenditure proved remunerative or the reverse.

That there would be savings, and large savings, under State management I would not deny, but that is because the railways would be worked as a monopoly, and not because they would be worked by the State. The same and still larger economies in working could be effected under private enterprise if competition were abandoned in favor of universal combination or monopoly. The whole question depends on the waste of competition. Each railway company works for its own route. The result is that unnecessary train mileage is run, and train loads are lessened. The secret of success, the foundation of all economy in railway working, lies in securing the largest possible train loads. This is a simple rule, but it embodies a universal truth. If those responsible for the handling and carriage of railway traffic could work with a single eye to economical results, and in all cases forward traffic by the routes which yielded the best working results, great economies could undoubtedly be effected. This consideration does indicate that a source of improvements in railway results would be open to a railway system under Government management which is not available for privately owned railways competing with one another. And in fairness one must admit that this source of economy obtainable only under the conditions of monopoly must be set down as a point to the credit of State ownership.

Many of the complaints against railway rates as excessive are really, when analyzed, complaints of undue preference. They are based on comparisons with other rates, and, in nearly every case, it is the factor of competition which lies at the root of the difficulty. This is the natural result of our mixed system of competition and control. In principle all would admit that there should be equal treatment on railways. But what is and what ought to be equality are questions in regard to which there is much room for difference of opinion.

To what extent does the law really require equality? The Railway and Canal Traffic Act, 1888, enacts in substance that a railway company shall not make any difference in the treatment of traders which shall amount to an undue preference. It permits the grouping of places situated at various places from any point of destination or departure of merchandise, provided that the distances shall not be unreasonable, and that the rates charged and the places grouped together shall not be so grouped as to create an undue preference. Now, in this legislation there is no definite or tangible principle. The Legislature has not really made up its mind how traders should be treated. It simply says that any preference given to one trader over another shall not be undue, but the interpretation of the word undue is left open. The prohibition of undue preference only applies to the actions of one company on its own railway, and, therefore, covers but a small part of the matter. A trader desiring to have his goods sent to some market which is prejudiced by the competition of goods carried to the same market from some other place by some other railway which, for some reason or other, good or bad, gives better treatment to its customers—a prejudice far more likely to happen, in fact, than one arising from differences in treatment on the same railway—is not protected or assisted by any legislation.

The question may be asked whether national railways would or could cure this somewhat indefinite position?

If railways were nationalized, would it not be necessary, and would it be practicable to settle the principles to be applied in treating different districts in competition with one another? At present there are no principles if the districts are served by different railways. If one railway serves two districts, the law provides that such railway shall not mete out unequal treatment so as to constitute undue preference, whatever that may mean, but if these two competing districts are served by different railways, the law shrinks from any interference.

Now, in practically every case the favorable treatment complained 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."