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:—
Messrs. G. Foxwell and T. C. Farrer (now Lord Farrer), in
“Express Trains, English and Foreign.” (1889);
Mr. W. M. Acworth, in “The Railways and the Traders”;
Mr. H. R. Meyer, in “Government Regulation of Railway
Rates,” and in “Railway Rates”;
and Lord Farrer and Mr. Giffin, in “The State in its Relation
to Trade.”
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:—
Mr. William Cunningham, “Railway Nationalisation.”
(Published by himself at Dunfermline, 1906, 2s. 6d.);
Mr. Clement Edwards, M.P., “Railway Nationalisation.”
(Methuen & Co., 1907, 2s. 6d.);
and Mr. Emil Davies in several books, including his latest, already
referred to, “The Case for Railway Nationalisation.” (Collins,
1913, 1s.)
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]
“… the action of the Post Office has been so
directed as to throw every possible difficulty in the way
of the development of the telephone, and of its constant
employment by the public. We say advisedly, ‘every possible
difficulty,’ because the regulations under which licences
have been granted to the telephone companies are in many
respects as completely prohibitory as an absolute refusal
of them.” “… the effects of this claim are nearly
as disastrous to the Country as to the inventors and owners
of the instruments.”
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”:—
“If the telephone service was cast upon the Post Office
it would be to the detriment of both the postal and telegraph
services. Then, again, it would increase enormously the
Government staff. He need only appeal to the Members
of Parliament present to say whether they would like to
have the weekly appeals for increase of wages from those
State servants still further extended.”
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:—
1. Only such concerns should be taken over as are, and
must be, in the very nature of things, a monopoly, or,
in other words, are not susceptible of effective competition.
2. Any such concern taken over should be worked with
the sole object in view of benefiting the community
and, therefore, the charges made should be so adjusted
as to pay for the acquisition of the concern
and for working expenses, and any surplus from time
to time applied, only in improving the efficiency of the
undertaking, or in reducing the charges made.
3. In the event of any invention or improvement being
made, and proved to be commercially successful,
whereby the benefit to the community can be increased,
and provided the concern remains in its nature a
monopoly, such improvements should be taken over
and worked by the State or municipality, and meantime
there should be no prohibition of any private
enterprise carried on in competition apparent or real.
4. All such concerns, whether national or municipal, should
be worked or directed by one or more Department of
State, having at its head a Minister, who should be a
Member of the Cabinet, and responsible to the House
of Commons, and as such liable to a vote of censure
for any abuse or want of efficiency in the 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.
The first of the two objections referred to is that the Government
would be in the great difficulty of having to meet the conflicting
interests of traders and merchants on the one hand, and the
general public on the other, with continual disputes as to the
claims of various parties, and possible attempts to bring influence
to bear on the Government and Members of Parliament. This
objection was raised by the Prime Minister recently in reply to a
deputation supporting railway nationalisation. The difficulty has
been found in countries where railways are State owned, and
would, I admit, be a most serious objection, if, after nationalisation,
the railways should be worked on the same principle as now,
namely, with the object of making the most profit possible, and
charging according to “what the traffic will bear.”
The objection, however, disappears if the proposed rules are
adhered to, especially when, as in the proposed scheme, fares and
rates are fixed irrespective of distance, locality, class of traders or
goods, and in which, therefore, no question of preference or,
indeed, of any conflicting interests can arise.
As to the second heading, affecting the relationship of the State
with the railway servants. It is suggested that the railway servants
(who would, on nationalisation, become Civil servants)
could use their voting powers to exact undue privileges for themselves
which they cannot now obtain, and that serious abuses
might arise owing to the great political power exercised by a
large increase in the number of voters who are also Civil servants.
This does not appear to me so formidable an objection as the
first, but it is quite possible that a large united body of Civil
servants might have power to so influence the Government as
to extract higher wages or less hours, if they discovered that by
their exertions a very large profit was derived by the railway
system.
Some writers have gone so far as to suggest that all persons
employed by Government should be disfranchised. Others suggest
that special representatives of Government officials should be returned
to Parliament. Others that all such officials should take
the same oath of allegiance as soldiers, and, in short, become
subject to military discipline. In two articles appearing recently
in the “Westminster Gazette,” under the title of “Unrest in the
Railway World, by an Expert,”[14] it is suggested that “unless
some discipline of the military kind were introduced” (in the
event of nationalisation), “there would be no available methods
of dealing with a national strike of railwaymen, other than to
concede to their demands.” The question of “Strikes” has already
been dealt with above (page 36). As to the political
difficulty, although it is true that the number of Civil servants
would be greatly increased (and it has been estimated that the
total number of postal and railway servants who would have the
vote might be as many as 600,000), it must be remembered, as
pointed out by Mr. Emil Davies, that this number is spread over
the whole Country, and the percentages in each district, compared
to the whole number of voters, would not be a large one, except in
railway centres like Crewe, where they already have a preponderance
of votes. In any case, the same considerations which, as
above mentioned, would be likely to prevent strikes, would
operate equally in the region of politics if the four rules mentioned
are adhered to, especially under the proposed scheme, carried
on with the primary object of the public benefit. Exactly the
same conditions would obtain as with the Post Office now.
Other grounds of objection to State ownership are:—
1. The fear of inefficiency owing to lack of competition.
2. The fear of difficulty in obtaining redress for loss
or injury from a Government Department.
3. The fear of officialism.
As to competition, it is now generally admitted that there is
no effective competition on railways.[15] In most parts of the
country there never has been any competition, as one company
only is available. In others, where more than one company operates,
working arrangements have been made not only as to the
fares and rates but also as to time of trains, thus precluding
any effective competition. In the very nature of things no
competition can be effective in a system of railway transit.
As to the questions of officialism and difficulties of obtaining
redress, can anyone suggest that these are less in the case of
private companies, responsible to no one but themselves, than
in the case of a Government Department with a Cabinet Minister
at the head who is responsible to Parliament? A vote of censure
is one of the most powerful weapons in Constitutional countries
against any serious abuse in a Government Department.
Mr. Edwin A. Pratt, in his book before referred to, cannot but
admit the cogency of the argument in favour of the amalgamation
and unification of the railways, but urges that this should be
accomplished by the amalgamation of the whole of the existing
railways into a Trust or Traffic Board. The answer to this is
that when once constituted, even though appointed by Parliament,
such a Board is responsible to no one but itself, and, however
eminent may be the directors or managers, the want of
ultimate responsibility inevitably and unconsciously leads to
abuses. Can any instance be adduced of the successful working
of any such large Trust or Board? On the other hand, instances
are well known to the contrary. One of these was the notorious
Metropolitan Board of Works. And is it certain that the Metropolitan
Water Board and the Port of London Authority, both of
which are constituted on similar lines, will answer all the expectations
which were formed of them?
There are, of course, difficulties inherent in the administration
of a great Government Department, but, as already hinted, various
remedies may be suggested for many of these difficulties. For
instance, there might be elected a Railway Council or Standing
Committee in Parliament, consisting of representatives of several
large districts of the United Kingdom, and of which the “Minister
of Transport” would be, ex-officio, the President. In the
first instance possibly some of the present directors of railway
companies, many of whom are already in Parliament, could be
members of this Council. Any proposals for improvements, extensions
or alterations in the services of the railway or Post Office
would be submitted to and decided upon by this Council or Committee,
subject to an appeal to Parliament on questions of principle
or finance. This would be one means of obviating an objection
found in some countries where the railways are owned by the
State, namely, the continual trivial complaints made in Parliament
about the railways.
A further suggestion is that a special Railway Court should
be established in London with branches in every important centre,
and presided over by competent arbitrators to determine and
adjudicate upon claims against the Department for personal
injuries to passengers and servants, or for loss of or damage to
goods, or by reason of delay, any one accident, involving a large
number of claims, being dealt with by the same Court instead of
being, as now, the subject of innumerable actions at law in the
ordinary Courts. This Railway Court might also be useful in
settling disputes between the Government and the men.
Apart from the objection to State ownership there are no doubt
many who are now deriving income from railways who will fear
that their interests may be prejudiced by the proposed change.
Fortunately there can be but very few who will be thus prejudiced.
As to the existing staffs, such as booking clerks and the Railway
Clearing House staff, whose services would no longer be required
in those particular departments, there ought to be more than
sufficient vacancies for these in other but more necessary branches
of the railway service, especially in view of the increased traffic
which is sure to arise.
Many traders who may at first sight consider that their profits
would suffer if the scheme is adopted will find on further consideration
that the benefits they will have by the proposed scheme
will be greater than any loss they could possibly sustain. To take
one instance. Newspaper proprietors may consider that upon
railways being nationalised they would lose the benefit of the
extensive and remunerative advertisements they now receive
from competing railway companies. So far from there being
any loss, there will be profits, partly by the official
announcements which the Department will cause to be inserted in
all newspapers of time tables, rates, etc., but even more so by the
enormous saving in the carriage of paper and of the newspapers,
in travelling expenses of special correspondents and others, and
by the additional profits arising from increased circulation which
is sure to follow upon the increased facility and cheapness of
distribution.
Mr. W. M. Acworth, the well-known railway expert, to whom
I submitted a rough draft of this pamphlet, was kind enough,
while refraining from any detailed criticism, to call my attention
to what he considered a difficulty in my proposals. He says:
“The fundamental objection to a scheme of average fares
and rates is that people whose fares and goods rates are
‘averaged up’ will, so far as possible, cease to use the
trains; those whose fares and rates are ‘averaged down’
will increase enormously, with a corresponding increase in
working expenses. Have you appreciated that under your
scheme a passenger from London to Glasgow would, in
fact, in most cases pay, not 1s., but 3d. or 4d., by taking
local tickets from London to Birmingham, Birmingham to
Crewe, etc?”
And he instances the Hungarian zone system, which has completely
broken down, as a case in point.
My answer to this is, first, that according to my scheme there
is no “averaging up;” the flat fares are all “averaged down”
to the minimum. Secondly, while welcoming the admission that
the effect of “averaging down” is to increase the traffic “enormously,”
I am sure that Mr. Acworth himself does not mean
that the working expenses will increase in anything like the same
proportion. He has himself pointed out in an article on railways[16]
that the train cost of carrying 200 passengers and 10 passengers
is practically the same. Further reasons for this fact are given
under the heading of “Working Expenses” in this pamphlet.
Thirdly, while admitting that under my scheme a passenger might,
by taking three local trains which stop at all stations travel from
London to Glasgow for 3d., I can hardly imagine that any but
the smallest percentage of travellers would endeavour to save
9d. by taking a journey in which they would spend sixteen hours
and have two changes at least, instead of travelling the same
distance by one train, in eight hours, for 1s. As to the zone
system, the whole advantage of the flat rate or uniform fare is
lost by the difficulty of passing from one zone to the other.
