Railway nationalization

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CORNELL

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Contents

CHAPTER PAGE

PREFACE ...... vii

author's note . . . . . ix

Preface To First Edition

Ever since a date even earlier than that at which Bentham's editor, Sir John Bowring, called meetings to advocate the State Purchase of Railways, I have favoured the reform which Mr. Clement Edwards with nmch force urges, but have feared — so great is the power of the Companies in Parliament — that we should be made to pay for it too high a price.

The author of Railway Nationalization seems not only to have proved his theoretic case, but to have partly met my doubts or practical objections. Agreeing as I do with most of what he has written, except, indeed, as to that growth of cities which we cannot prevent, and which Melbourne, Sydney, Adelaide, and Perth show to be no unmixed evil, I am happy to do aught I can to help him to readers, who, however, will be drawn to him by his subject and by his vigour, without this little prefatory note.

Charles W. Dilke

AUTHOR'S NOTE TO SECOND EDITION

Some ten years ago I contributed a series of articles on ■ " Railway Nationalization " to the columns of the Weekly Times and Echo. By the kindness of the editor, Mr. E. J. Kibblewhite, I was permitted to issue those articles, with some alterations, in book form. The first edition of that book was exhausted some months ago, and in view of the recent great quickening of interest in the problem of our railways I perhaps need make no apology for issuing a second edition. In eight years we have witnessed a considerable number of changes, chiefly local, in our forms of locomotion. Electric trams and light railways have appeared in many parts of the country. The motor car and the motor bus have become familiar sights, but with these and other changes little has happened to substantially modify the character of the problem discussed in the following pages. The great grievances of the farmers, the traders, and the travelling public remain practically as they were in 1898. The hopelessness of the community getting the maximum of advantage out of the present railway system is as palpable now as ever.

Probably the most potent change of all has been in the mental attitude of the country towards the problem. Opinion in favour of State-ownership has spread with striking rapidity among all sections of the community. The royal commissions to inquire into the public ownership of canals in the United Kingdom and the State acquisition of the railways in Ireland are the best evidence of this growth of opinion.

X AUTHOR'S NOTE TO SECOND EDITION

I have done nothing to modify the arguments of the first edition in the present issue, and I have not found it necessary to seriously alter the illustrations of those arguments, but what I have attempted to do is to bring the essential figures of the problem as nearly up to date as trustworthy material will allow me to do.

I can only express the hope that my modest contribution may be found useful in directing opinion towards what I deem to be a wise solution of a problem so largely and so intimately interwoven with the future prosperity and welfare of our country.

Here and there it may perhaps seem to readers that I have used language which implies reflection upon either the honesty or the capacity of the present managements. Let it therefore be said at once, that in the present railway directorates and staff I frankly recognize a body of men who are conspicuous for their zeal, their efficiency, and their general " high tone." The whole criticism of the following pages is aimed at the features inherent in the existing system, and with a lively sense of the enormous difificulties in the way of its undertakers. Indeed it is chiefly because I regard the obstacles to greater efficiency, and cheaper facilities, as inevitable concomitants of the system of private monopolies, that I put forth the plea for State-ownership.

It need scarcely be said that what follows does not pretend to the category of literature, but only seeks to serve the adjunctive purpose of a simple hand-book to a workaday movement. It has therefore been thought better to use the exact words of recognized authorities rather than to rehabilitate their opinions in language of my own. Hence there are more quotations than there would have been had my purpose been different.

C. E.

Temple

II th January 1907

" I have been very much impressed since I came to the Board of Trade with tlae great and growing discontent with the whole railway system. This is a great contrast to the feeling in Germany, where the traders consider that the railway system gives the greatest possible satisfaction."

Rt. Hon. D. Lloyd-George

President of the Board of Trade

lyh December 1906

" That this Chamber is of opinion that the time has arrived when the question of the whole relationship between the railway companies and the trading and agricultural community should be fully inquired into, with a view to legislation which shall remove those conditions of railway rates and contracts which now press so onerously upon the trade of this country."

North Staffordshire Chamber of Commerce

Introduction

State-ownership of railways in the United Kingdom was settled in principle more than half a century ago. In 1844, upon the introduction of Mr. Gladstone, an Act of Parliament was passed definitely providing for the compulsory acquisition of the railway system by the State at any time, in the discretion of Parliament, after twenty-one years from that date. And in all subsequent railway legislation, the possible ultimate possession of the system by the State has been steadily kept in view, by every new Railway Act being made subject to the measure of 1844. So that there is no need to weary readers with a preliminary discussion as to whether railway ownership and administration come within the proper sphere of State functions.

In different parts of the world at the present time there are three clearly defined railway systems in operation. They are (i) railways owned by the State and managed by the State for the convenience of the community; (2) owned by the State and leased to Companies for private profit and management ; and (3) privately owned and run for private profit and advantage, but subject to a certain amount of State control. Great Britain and the United States share the distinction of being the only two countries where the dual system of private ownership and State control is exclusively in operation. The amount of State control here is considerably greater than across the Atlantic. But it has been a haphazard growth of many years, rather than the mature product of a carefully-thought-out policy.

a RAILWAY NATIONALIZATION

Indeed the whole theory underlying railway legislation has undergone a complete and fundamental change since the Stockton and Darlington Act was passed in 1823. This change, however, has been gradual, and has been induced by the repeated and revolutionary departures of the Railway Companies from the original conception of their function. From being the mere providers of an iron road, upon which, for a consideration, anybody was permitted to haul or to carry, the Companies have become the sole hauliers, and practically the sole carriers, collectors, and delivery agents. Thus while under the original order of things the public had the protection of competition to prevent extortionate rates upon each system, now that the Companies perform all the functions, they have no protection beyond what they can get from Government interference, unless indeed they and their customers are both upon the seaboard. In fact the Railway Companies have possessed a power to levy taxes probably more exacting and more effective than that enjoyed by any crowned monarch of England. As John Stuart Mill says — "The charge made for services which cannot be dispensed with, is in substance quite as much compulsory taxation as if imposed by law. . . . This applies to the case of a road, a canal, or a railway. These are always in a great degree practical monopolies, and a Government which concedes such monopoly unreservedly to a private company does much the same thing as if it allowed an individual or an association to levy any tax they choose, for their benefit, on all the malt produced in the country, or on all the cotton imported into it." ^

The rates and charges which Railway Companies may legally make for the different services have for many years been theoretically Umited by law. But as the legal maximum has usually been put at a fanciful figure based on the old Carriers' Acts, it has frequently served to intimidate customers into passive obedience rather than to protect them from excessive charges. It is true that under the most recent legislation the Companies are not permitted to " jump up " rates from the " actual " to their legal maximum, unless they can show the Railway Commission that the proposed alteration is reasonable. But this admirable provision is virtually a dead letter in practice, for the cost and consequences of challenging the * Principles of Political Economy (People's Ed. 1872), p. 581.

INTRODUCTION 3

alleged reasonableness of a rate in face of all the elaborate legal machinery and expert evidence which the associated Companies have at their disposal, are prospects which cow the boldest litigants, and from which even merchant princes not unnaturally shrink. The payment of high rates per se is, however, by no means the greatest grievance which our farmers and traders are called upon to bear. A matter that comes home to them with greater force is the preferential treatment which is extended to their foreign competitors. They are daily presented with the spectacle of meat from America, dairy produce from Denmark, fruit and vegetables from France, and manufactured goods from Belgium and Germany being conveyed upon the English markets at a cost of carriage that is often a half and not infrequently less than a third of what they themselves are charged to get there.

Then turning to the travelling public, we find that they have to pay fares enormously in excess of those charged on the Continent — in some cases five and six times as much. And though on some of the great northern lines they have little to complain of in the matter of comfort, accommodation, and speed, this happy state of things is by no means as general as it might be. Especially does this apply to the third-class passenger. Source of greatest profit though railway authorities freely admit him to be, yet with some managements he is apparently the subject of least regard. Open cushionless carriages with dim yellow lights are still deemed good enough for him on some of the southern systems ; and this is not the worst. Many of the Companies running into London still object to provide proper accommodation for workmen. Even those Companies who make a point of catering for the " sons of toil " do not consider that it is any scandal to have eighty passengers crowded into carriages provided for fifty.

Nor can the conditions of employment which prevail among the railway workers be deemed as nearly satisfactory. The hours are still too long and the pay too scanty, while several Companies have made themselves conspicuous by denying their workmen the right to combine.

With these broad facts before us, we may ask whether the community are likely to get the highest efficiency with the lowest charges of which the railway system is capable under the present dual system? I think not. It may be freely admitted, that under private enterprise there is probably a larger network of railways than would have been the case had their construction and development been left from the beginning to State initiative. But this must not be regarded as an entirely unmixed advantage. In the belief that effective competition was being secured by multiplied roads, when it had been killed on the individual line, schemes have been sanctioned by Parhament which would never have been entertained had the results been clearly foreseen. As Robert Stephenson told a Royal Commission, " where combination is practicable competition is impracticable," and the effect of a new raihoad being built to compete with an old system, has usually been to saddle the community with the burden of paying interest upon two capitals where one was ample for the traffic. Moreover, under the present system many districts have been neglected and remained undeveloped, because the prospect of an immediate return has not been sufficiently apparent to tempt the investment of the necessary capital.

The Railway Companies frankly admit that to-day there is practically no competition between them either in rates or fares. These are rigidly fixed by Associations of Managers, and one Company cannot reduce without the consent of the others. The Companies claim, however, that the public get the benefit of an effective competition in facilities. No doubt this is partially true in the matter of passenger accommodation upon the northern-going expresses, but upon most other lines, and almost entirely in respect of goods traffic, the phrase is more euphonious than correct. In the case of goods traffic, at least, competition in facilities means a multiplication of wastes for which the traders and the consumers have to pay. It embraces the zealous regiments of canvassers who wait upon customers, the erection of a large number of handsome warehouses in the same town which it can only be expected to partially utilize, the provision of large surplus teams of horses and drays by each Company " to meet emergencies," and the running of three or four short half-filled trains from the same place to the same place, at the same time, instead of one heavy and fully-loaded train.

INTRODUCTION 5

The leakages in this direction are simply enormous. But you must add to them the expenses of the several hundred directorates, with all their attendant paraphernalia ; the running of many passenger trains but fractionally filled by several Companies where one would suffice j the movement of nearly as many empty as full goods trains, so as to escape the demurrage charged for remaining upon a neighbour's line more than three days ; the huge expenses of promotion and Utigation. All this waste falls as an extra burden upon the customers in higher rates and larger fares.

No doubt if the process of amalgam^ion among the Companies were completed, many of these leakages would be arrested. But such a remedy from the public standpoint would be nearly as great as the disease. The present combinations of railway interests are dangerous enough, but for the whole of our 23,000 miles of railway, with its half-million shareholders, 'ts ;^i, 100,000,000 capital, its revenue of ;^ios,ooo,ooo, and its army of half-a-million workers, to be welded together into one vast legally constituted corporation, subject to the absolute dictatorship of a single Board, would indeed be to fulfil the prophecy of Sir H. W. Tyler, the chief railway inspector, that " if the State does not soon manage the railways, the railways will manage the State." ^

It is quite obvious that the community cannot look for any substantial redress of grievances — of maximum efficiency and minimum charges — under the existing order of things. For several years past the average rate of interest has been rather less than 4 per cent., which is not deemed by present public opinion as an excessive return on capital. And it may be safely assumed, that neither would directors tolerate, nor would the Railway Commission be likely to regard as "reasonable," an attempt to reduce rates to a point which would cause an immediate and sweeping reduction in this rate of interest ; and a far-sighted policy of present reductions for future recoupment by consequent increased traffic is one which is not likely to emanate spontaneously from the directorates, who shrink in alarm from doing anything which adversely affects the existing market price of shares. This is the one single direction

^ Journal of Royal Statistical Society, 1873 : debate on State Purchase of Railways.

probably in which the scattered shareholders exercise an effective control.

But in the national interests of agriculture, commerce, and industry, a substantial alteration must be made. The increasing pressure of foreign competition, and the gradual replacement of British goods and produce in both the home and neutral markets, with those of foreign make and growth, give emphasis to the pressing need. Some people may hide their nervousness by a copious indulgence in the optimism of selected statistics on the one side, while on the other we shall always have that active body of panic-stricken zealots who are prepared to seek a remedy in the reversion of the Free Trade policy. What we want is a calm and dispassionate facing of the facts. And here it is of grave significance that the two European countries — Germany and Belgium — who are most seriously menacing us in the neutral markets, and even finding a considerable lodgment in the home market, possess the two best organized systems of State railways in the world, upon which they carry goods at less than half and often a third of what the English railways charge. That this is the entire cause of their increasing ability to compete effectively with us no one would for a moment seriously contend. It is, however, a great factor — probably the greatest — and is fortunately for us one capable of remedy.

But Germany and Belgium, while they are the two countries where the system of State railways have been most completely organized and developed, are not the only countries where they have been successfully instituted. Far from it. Besides being in operation in nearly the whole of Europe, they are in use in India, in South Africa, and in our Australian Colonies, where the experience is of special significance, for this reason. The opponents of State ownership are constrained to admit its great success in certain of the Continental countries, but on the principle of —

" I du believe in Freedom's cause Ez fur away ez Payris is,"

they attempt to discount it by attributing it to the greater genius for State administration possessed by the Continental than by the Anglo-Saxon races. Now the Australian and

INTRODUCTION 7

Indian and South African systems are administered by Anglo- Saxons, and with success.

On the whole the experience of State-ownership of railways when tried side by side with private ownership — and that is the true basis of comparison — shows that charges for services are much less, the management is more economical, and there is a practical immunity from those grave ills and anomalies under which we suffer in the United Kingdom.

Chapter II

The present power of control exercised by the State over the railways of the United Kingdom is the outcome of seventy years' legislation. With no general recognition of the possible development of the railway system, and with the doctnne of laisser /aire beginning to dominate the political mind, it is scarcely a matter for surprise that Parliament left the young Railway Companies almost free from legislative restrictions. It is true that Thomas Gray, with keen prophetic vision, clearly foresaw the extent of the locomotive revolution, and urged the Government to at once take the reins of the " Iron Horse." ^ But naturally, being a prophet, he was deemed mad, and his advice, as is usual under such circumstances, was studiously ignored.^ Nor can the assumption that competition, then regarded as such an effective regulator of the ordinary commercial relations, would prove an ample means of protection to the traders from the Railway Companies be deemed as altogether unreasonable. Certainly in the light of the Free Trade philosophy the character of the first railway schemes warranted this conclusion. These were based upon the experience of functions performed by the canals and old iron roads. In other words, the railway promoters proposed only to provide a smooth permanent way, and to charge a toll for its use to either private traders or to the already established firms of carriers. The idea that they might become responsible for hauling was doubtless latent, but that they would take upon

' Observations on a General Iron Railway, by Thomas Gray. 182 1. * Our Iron Roads, by F. S. Williams, 1852, pp. 16 — 19.

themselves the manifold duties of carriers was not even dreamt of. And to this fundamental conception, of function being limited to the mere provision of permanent roadway, must we attribute the initial misfortune of handing over to private individuals those means of transit which were destined not only to supersede the ancient highway, but to become welded into the most powerful monopoly this country has seen. Facts, however, were ever more potent than theories, and circumstances quickly arose which compelled Parliament to initiate that long and tedious process of piecemeal legislation, having for its object the gradual correction of the initial error. The first Iron-railway or Tram-road Act was passed in 1801, ' authorizing the Surrey Iron Railway Company to construct a railway or tram-road for the conveyance of goods and coal between Wandsworth and Croydon. This was open to the general use of traders and carriers. Horse power was the only motive power used, and both horses and vehicles were supplied by the persons using the railway. For this use of the way the promoters were entitled to charge tolls, limited to a specific maximum rate varying from 2d. per ton for manure, to 6d. for certain classes of merchandise. This Act was followed by a number of others, and in 182 1 the Stockton and Darlington Railway Act was adopted, empowering the promoters to construct a horse tramway merely. But during the course of construction George Stephenson fully demonstrated the value of the locomotive, and in 1823 application was successfully made to Parliament for permission to use steam-engines — stationary and locomotive. By this Act the Company were authorized to charge a maximum mileage toll, "for every coach, chariot, chaise, car, gig, landau, wagon, cart, or other carriage which shall be drawn or used on the said railways or tram-roads for the conveyance of passengers or small packages or parcels."

In the case of goods traffic, the practice of the Railway Company merely providing the road partially prevailed for several years. Thus in 1838, fifteen years after the Stockton and Darlington Company took powers for the use of the steam-engines, we find that " engines belonging to difierent parties, coach proprietors and others," were running upon the Liverpool and Manchester line ; and so far was the highway system at that time from being regarded as obsolete or impracticable, that a

Select Committee of the House of Commons recommended that the right enjoyed by private persons of running their own engines and trains upon any railway should be extended to the Post-office upon special terms. The Great Western Act of 1835 also provided — " That all persons shall have free liberty to pass along and upon and to use and employ the said railway with carriages properly constructed as by this Act directed, upon payment only of such rates and tolls as shall be demanded by this said Company, not exceeding the respective rates or tolls by this Act authorized, and subject to the provision of this Act, and to the rules and regulations which shall from time to time be made by the said Company or by the said Directors, by virtue of the powers to them respectively by this Act granted."^

But the notion of every man his own train-driver was one that lent special force to the natural fear which the travelling public had of patronizing the " fire-horse," as Fanny Kemble called the locomotive. And as it was the passenger and coach parcel that paid the Companies, so it was their requirements that shaped the railway policy. Safety was the first need. So it quickly became a matter of practice for the Companies to provide haulage as well as the road, and passenger carriages as well as haulage. And the necessity in many districts combined with general economical advantages to secure the almost universal adoption of the new system.^

While, however, the road tolls had been limited to a maximum, when the Companies provided the haulage power they were permitted to charge a " locomotive toll " to be fixed at their own discretion. So also when the Railway Companies were given a discretionary power to "use and employ engines, and in carriages or wagons drawn or propelled thereby to convey upon the said railway all such passengers, cattle and other animals, goods, wares and merchandise articles, matters and things, as shall be offered to them for that purpose,"no specific restriction was at first placed by Parliament upon the charges they should make for this service of conveying. It was merely recited that they were subject to the common law of carriers, by which their charges had to be " reasonable " — which proved in practice as dangerously vague as Wellington thought the terms of the " Holy Alliance."

> Railway Rates and Traffic, by A. K; Butterworth, ch. i ' Railway Rates, by W. A. Hunter p. 7.

THE RISE OF STATE CONTROL ii

Soon after 1830 it was recognized how complete was the power of monopoly possessed by each Railway Company upon its own system. In some cases this power was only partially utilized. Thus in 1839 there were three different systems in operation ^ —

1 . The system by which the Company provided the permanent way, haulage, and part of the rolling stock, but dealt only with the carriers.

2. The system by which the Companies acted both as general carriers themselves, and dealt with other carriers on their lines.

3. And the system by which the Companies were the sole carriers, providing for collection and delivery and allowing no general carriers on their lines.

The respective merits of these systems were made the subject of Parliamentary inquiries in 1839-40. The carriers, who submitted a great deal of evidence, urged that the Railway Companies should be restricted by legislation to the hire of rolling stock to the carriers and the hauling of trains, and that they should be prohibited from dealing with the public direct. The Committee of 1839 hesitated to come to a definite decision, but the Committee of the following year pronounced in favour of the Railway Companies being permitted to perform all the duties of general carriers, although, funnily enough, the report states that "the investigation of this subject demonstrates beyond all doubt that Parliament was anxious to prevent Railway Companies from obtaining an exclusive control over the conveyance of passengers and goods along their respective lines," but, " powers were conceded to the Companies which counteracted and rendered of no avail the evident purposes of the Legislature." The alarm of the traders was great, and not unreasonably. The competition between the carriers or between the carriers and the Railway Companies over the same railway was their only guarantee against extortion, for be it remembered that, up to this time, haulage and carrying charges were quite unlimited. But now each Company became a complete monopolist within its own domain.^ Thus, with the safeguards of competition gone, new legislation was at once found necessary to protect the traders. This was provided in the Act of 1841, which defined not only the maximum road 1 Railway Kates, by W. A. Hunter, p. II. ' Butterworth.

toll, but also a maximum toll for wagons. But these maxima, as has been constantly the case since, were much more showy than useful. Fixed at a fanciful figure, much beyond what the traffic could bear, they rather served as a sword of Damocles which the Companies held above the heads of their customers to coerce them into peacefully accepting high actual rates, than as a protection against extortion.

It is worthy of note at this point, that while Pariiament left the traders to the tender mercies of the common law, to risk recovering either illegal or the surplus of unreasonable charges, they provided arbitration for the settling of disputed charges for the conveyance of mails, between the Post-Office and the Railway Companies.

Important steps in extending the sphere of State control were taken in 1840 and 1842, when the Railway Regulation Acts were passed, conferring upon the Board of Trade certain limited powers " for the due supervision of railways."

The great railway boom began in 1844, and at once served to draw pubHc attention to a form of competition hitherto little thought of. The competition between carriers upon the same line had been tried, and had practically collapsed. Now it was generally believed that the Companies could be " brought to their senses " by the construction of competing lines through the districts where they were enjoying a monopoly. Overcharged traders, with unabated faith in the sufficiency of the law of supply and demand, saw salvation in the prospective furious rivalry between two competing routes, even though this pet law had belied its early promise within the scope of the single railway system. Nor did the aggrieved traders lack eloquent and powerful supporters. The promoters of the prospective competing hues rallied to them with almost touching earnestness — if indeed they did not supply them with the formula of their contention. It is true that the heads of existing systems declared that it would be easy for the new and the old Companies to coalesce in the future, when the only effect would be that traders would have to provide interest upon two capitals instead of one. It is equally true that one or two recognized economists reiterated the same warning, clothed in the learned phrases of their profound science. But the latter were charitably smiled at, as well-intentioned but unpractical theorists, and the former were denounced as the subsidized pleaders of a threatened interest. How entirely at fault the traders were in the long run, and how fleeting and injurious was their golden remedy, we shall see later on. In the meantime (1844) a Select Committee, presided over by Mr. Gladstone, and appointed to inquire into the whole field of railway legislation, had definitely reported " that competition between Railway Companies is likely to do more injury to them than good to the public." But this declaration was not sufficient to arrest the flow of "competing" schemes, nor to deter Parliament from legalizing them with their indispensable sanction. And duplicated lines from, through, and to the same places appeared in many parts of the country.