National railways: an argument for state purchase

Front matter

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BOUGHT WITH THE INCOME FROM THE

SAGE ENDOWMENT FUND

Preface

The following work offers numerous examples of State action in relation to Railways. With few exceptions the evidence in favour of the general principle of State ownership seems conclusive. The force of the argument does not rest upon single instances, but on their cumulative effect. If that principle be sound, we may hope that public opinion will adopt it, and ultimately give it effect.

The writer is indebted to some high railway authorities for suggestions, which he gratefully acknowledges.

Introduction

Importance of the Question — Original Idea of Railways as Common Roads on which the Customers should provide the Vehicles and pay Toll — Absolute Pri\'ate Ownership of Railways impossible and not compatible with Public Advantage — Rapid Increase of Railways under Private Ownership not Unalloyed Gain — Conflicting Interests of Railway Companies a cause of great Cost and Labour — Shareholders only interested in the Amount of Dividends — Boards of Directors too occupied to actively Control the Management of the Railways — Probable that a Few Persons are the Actual Rulers of the whole English Railway System — Transfer of the Railways to State Ownership would roino\e the Necessity of satisfying Shareholders, and make it only necessary to work them in the Interests of the Public, at the lowest Rates and £ji\iTig the greatest Facilities — Examples of beneficent Action on the part of the State

Chapter II. American Experience

Three Systems of Railway Management: (i) Absolute Self-Government with a view to the Interests of the Railway Company itself, as in America ; (z) Limited Self-Government with the same view, but modified iii Contents.

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by State Control in Interest of the Public, as in England ; (3) State Ownership (Wholly or in Part), controlled solely in Public Interest — The Theory that Self-interest of the Companies is most conducive to Public Benefit not confirmed by American Experience — Extravagant Grants of Land to encourage Railway Construction stimulated by Absence of Highways — Railway Competition supposed to be Beneficial to the Public — Many Companies formed that become Bankrupt — Control of the Railways acquired b}' a few Men in their own interests a Consequence of the American System — Express Companies — Free Pass System — Extravagance of Management — Suggestion of a Confederation of the Railways in their own Interest, with a measure of State Control in the Public Interest — Difficulty of Establishing such a System — Would be a Step towards State Ownership — Impossibility of effectual State Control against the Interest of the Owners — Attempts to do so by means of the Inter-State Commerce Law practically a Failure — The Competitive Railway System not favourable to the Protection of the Employes against Accidents — The Problem of Working the United States Railways upon a more Rational Basis not hopeless iz — 56

Chapter III. English Experience

System never subject to the same Extent as that of America to Abuses owing to the limited Interference of the State — Excessive Railway Construction in 1844 and 1845 — Ruin caused thereby — Great Addition to Cost of Railways caused by Opposition of Landlords and by Law Expenses — Neither Competition nor State Control would solve the Difficulty, but State Ownership only — Construction of Main Lines in Belgium by Leopold I. '

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in 1833 — Mr. Gladstone's abortive Proposal in 1844 to enable the State to acquire the Railways — Railway Companies now too Powerful to be controlled — Where Combination is possible, Competition is impossible — Evil of allowing Railway Companies to acquire the Canals — Both should be in Public Hands — Equal Mileage Rate objected to, but not on good Grounds — Supposed to prevent Railway Competition — Rights of Companies are as Carriers only, not to accommodate Rates to Circumstances of Traffic, or to discriminate in Favour of particular Localities and Persons, or offer a Bounty in Favour of Foreign Producer, and thus to control the Trade of a Country — Suggestion that Rates should be revised from time to time shown by experience of i8go and i8gi to be impossible — Right of Parliament to revise Rates reserved in every Railway Act — Extravagant Proposals of the Railway Companies in 1889 — Case against Company Ownership stronger in Ireland than in England — Wasteful Administration, High Rates, and General Inefficiency — Bad Financial Condition — State Ownership of the Railways would permit the Connexion and Extension of the Existing Lines — Proposals for short Lines to be constructed in Highlands and Islands of Scotland to foster Agriculture and Fisheries, with a State Guarantee 57 — 114

Chapter IV. Competition Or Amalgamation

Failure of Competition to protect the Public — Co-operation between the Railways better for both the Companies and the Public — Economical Anomaly that one set of persons should find Capital, and another set of persons should dictate its Reward — Arbitration by the Board of Trade or other tribunal does not solve the Problem — Loss to the Companies and to the Public by their semi-hostile

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Attitude to each other— In part Remedied by the Clearing House System, but is not so Economical and Efficient as would be a Universal Amalgamation of the Railways under one System — Extension of Railways sometimes desirable, though not Remunerative enough to tempt Private Enterprise — Illustrations from the Post Office and Telegraph Systems, and, more recently, from the Telephone System.

Note A. — The Telephone System in Belgium under Competing Private Companies and under the State contrasted 115— 139

Chapter V. The Third-class Passenger

Passenger Traffic more Important than Goods Traffic, yet more Neglected — Needless Multiplication of Trains — Trains running simultaneously to same Places — Many Trains running two-thirds empty — Traffic Increasing and Profits of lines Diminishing ■ — Neglect of remunerative Third-Class Passenger in Favour of unremunerative First-Class Passenger — Passenger Duty Heavy and unequal Burden on Railway Receipts — Increase of Third-Class Passengers and Diminution of Second- and First-Class Passengers — Improvement effected by Midland Railway in carrying Third-Class Passengers by all Trains — Nation rides Third-Class — Second-Class not Necessary as a Refuge for Ladies from Rowdyism or Overcrowding if proper Carriages were provided and proper Regulations enforced — Neglect of Companies of Passengers' Comfort — Three Classes not Necessary — Season Ticket Rates desirable for Third-Class Passengers — Unnecessary Restriction as to Hours for Workmen's Tickets — Third-Class Ordinary Fares equal to First-Class Season Ticket Rates — Action of London County Council on behalf of Cheap Fares for Suburban

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Workmen — Concessions made by Manchester, Sheffield and Lincolnshire and Metropolitan Railways — Increased Demand in consequence of Cheapness nowhere more certain than in Travelling — ■ Problem of Overcrowding in Cities closely connected with Cheap Fares — Enormous Increase of Suburbs requires Increased Railway Facilities — Doubtful if they can be supplied by Private Enterprise — Railway Fares higher in England than in European Countries.

Note B. — Analysis of Passenger Traffic on London and North-Western Railway in 1888, by R. Price Williams, C.E 140 — 178

Chapter VI. Indian Experience

Much Evidence in Favour of State Ownership under British Rule — Comparatively Small Progress of Railway Construction — India : Great Public Value of Railways in India as breaking down Caste and as a Protection against Famine — Value not to be Tested by small Financial Returns — Many constructed for Military Reasons — Principal Loss caused by Depreciation of Silver — Guarantee System unfair to State — More Economical for State to undertake the Railways itself — Sir Edward Watkin's opinion — Advantages of employing Native Labour — Opinion of Sir Juland Danvers in favour of Company Ownership — London Company control of Indian Railways practically a Nullity — Dual System of State and Company Management of Uttle Advantage to the State — Objection of Over- Centralisation avoided by Deputing Management of Railways to Local Governments as far as possible — Company Management of Indian Railways, according^ to Sir John Lawrence, shows Shortcomings quite as great as those anticipated from State Management — State Guarantee to xii Contents.

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Companies unnecessary, as State could raise Money on Terms lower than would satisfy a Company — Improvident Abandonment by State in 1870 of Right to purchase Indian Railways — Profitable Bargain made by State in 1880 in purchasing East Indian Railway — Jealousy of State Interference founded on Favouritism of select Classes by Government — Economical Objections to State Interference not applicable to such Enterprises — A Company may, in Interest of Shareholders, charge Rates injurious to Commerce, or hesitate to reduce Rates — Public Advantage best attained by charging just sufficient for Carriage to pay Expenses, a course only Possible under State Ownership— Public Works in India well and cheaply carried out by the State — Evidence of Major Conway — Salutary Extension of Local Authority — Lord Lytton's opinion on Necessity of Railway Development by State Action in India 179—212

Chapter VII. Colonial Experience

Large Proportion of Australian Railways owned and operated by the respective Colonial Governments — Sometimes created too much in Advance, with unfavourable Results — Unnecessary Alarm and Depreciation of Colonial Securities both in the Colonies and in this Country— In Victoria this was used to throw Discredit on the Railway Commissioners — Error in having different Gauges — Only Two Classes of Passenger Traffic — Results of the Railways in the different Australian Colonies — In every Instance more advantageous to the Colony than the Private Company System of this Country — The Errors to be avoided of premature Construction of Railways and their Subjection to Partisan Politicians — Ought to be managed by Commissioners with Railway Experience and Free from

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the Fluctuation of Parliamentary Control — Railways at the Cape of Good Hope also owned by its Colonial Government and the Results as Advantageous as in Australia — Railways in Ceylon and Mauritius advantageous under State Management — In Canada the Government subsidised instead of owning its Railways — Would have profited more if it had followed the preceding Examples — The Dominion Government has wisely retained its Canals, and in view of the vast Population which will some day people Canada, it should own its Railwa3's ....... 213 — 251

CHAPTER Vin.

FOREIGN EXPERIENCES.

Early Recognition on the Continent of State Ownership of the Railways, or of their ultimate Reversion — How this Subject was dealt with by Prussia, Belgium, Switzerland, Russia, France, Austria and Hungary — Advantages these two Countries derived from Reduction in Fares — State Railways not Successful in Italy, from extraneous Causes — State Railways in Denmark, Sweden, Norway, Holland, and Japan— Railways in South America not Successful, mainly due to bad -Systems of Government — Railways in Argentine, Brazil, Mexico, Uruguay, and the smaller States — Improvidence in Construction Railways at usurious Interest, and dishonest Repudiations of Contracts. Note C. — Correspondence on the Zone System of Railways in Austria and Hungary . . 252 — 305

Chapter IX

the new railway rates.

Alarm created by the Rates demanded by the Companies frpm the ist of January, 1893 — Unfortunate time to Advance Charges at a Period of General xiv Contents.

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Trade Depression— Protests by the Board of Trade and of the Agricultural and Trading Interests — Partial Withdrawal of the principal Advances, after a few Weelcs' Agitation — Probable that the Advances will be again attempted at a more favourable Opportunity — Assumption of the Companies to discriminate in their Charges beyond Cost of Service not Correct — They are Carriers only, not Legislators : Maximum Rates not a Protection if fixed above actual Rates— Nor Arbitration under the Board of Trade — Present Dividends on Railway Capital not too high, but Railway Profits would probably be greatly Increased under a Complete Organisation in the Public Interest — Present System of Charges highly complicated — Proposals to simplify and cheapen Fares and Rates — National Advantages of such Reduction — Uniform Rates only Possible under State Ownership — Loss caused at first by Reduction of Charges — Austro-Hungarian Zone System anticipated in 1869 by Mr. A. J. Williams's Work on the " Appropriation of Railways by the State " ; also by Mr. A. W. Jones and Mr. Raphael Brandon — Distance a subordinate Element in Cost of Traffic — Views of Mr. Charles Waring — Encouragement of Agricultural Industry by low Fares and cheap Feeder Lines.

Note D. — Specimens of the proposed New Rates of January ist, 1893 .... 306 — 338

Chapter X. Railway Improvement Capable Of Further Development

Unreasonable Distrust of Government Interference — Objection that Management of Railways would add to Labours of Legislature — Not Found to be the Case on the Continent— Sir Rowland Hill's Opinion in Favour of State Railways leased to Companies

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— Objections to such a Plan — Advantages of State Ownership lost thereby— Captain (Sir H. W.) Tyler's Views in Favour of State Ownership — Existing Organisation for Working Railways available — Simultaneous Purchase of all Railways not necessary — Suggested Division of Country into Five Railway Districts — Relation of Question to Welfare of Shareholders and Employes — Profits of Railways, and not Post of Construction, the fair Basis of Purchase — Mr. Moreton Frewen's Views on Advantages of State Purchase of Railways — Various Methods of effecting the Purchase — Mr. Frederick Hill's Suggestion of Purchase by means of a Fixed Annual Payment to Shareholders — Amelioration in Condition of Employes to be hoped therefrom — Powerlessness of Trades Unions or Board of Trade to prevent excessive Hours of Labour — Accidents on Railways arising therefrom — Mr. T. A. Channing's Minority Report on Subject — Large Addition to Volunteer Army from State Ownership and from Shortened Hours of Labour — Difficulty of finding Employment for Short-Service Men probably remoxed by State Ownership of Railways — Difficulty of obtaining Army Recruits lessened — Objection of Political Influence caused by increased Number of State Employes — Not borne out by Post Office Experience — Possibility that England's Commercial Progress may not continue — Consequent Necessity of not leaving one of most important Instruments of Commercial Progress in private Hands . 339 — 373

Note E. — Herbert Spencer on Railway Morals and Railway Policy.

Note F. — Area of gathering Ground covered by Railways in 1871 and i8go

Note G. — Hours of Labour of Engine Drivers and Firemen in March, 1890 — Eighty-two per Cent, of the Employes on Duty more than Twelve Hours — Excessive Overtime not existing on London and South-Western Railway — Scottish Railway Strike xvi Contents.

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caused by Men's Demand that Ten Hours should constitute a Working Day — Importance and Responsible Nature of Signalman's Duties — Low Rate of Pay.

Note H. — T. Forster Brown on Our Coal Resources at British Association Meeting, Cardiff, 1891 — Relief in Cost of Carriage of Goods on Railways necessary to compensate loss to Country from Decrease of Coal Supplies — Three Methods of Railway Purchase

Note J. — On Uniform Railway rates for distances beyond the average " lead " of the traffic 374 — 385

RAILWAYS AND THE STATE.

Chapter I. Introduction

" Committees and Commissions carefully chosen have for the last thirty years clung to one form of competition or another ; it has nevertheless become more and more evident that competition must fail to do for railways what it does for ordinary trades, and no means have been devised by which competition can be permanently maintained." ^

Few social questions have been more warmlycontested than this : — whether the State should own the railways of a country, or if not own them, to what extent it should control them. To put the question on the reverse side, how far railways should be subject only to individual enterprise and competition. The importance of the question arises from the great interests concerned. In this country the profits of 400,000 shareholders of ;^9I9,425,I2I of capital, and the welfare of an equal number of employes, are only one side of the account. The interest of every trader and passenger in Great Britain, a much larger consideration, is also involved. The railway, next to printing, has become the most important instrument of civilisation. The mechanical ingenuity that has devised and perfected this means of locomotion has not been well seconded by the wisdom which in the interests of the whole

1 Report of the Joint Committee of Lords and Commons, 1872 (page xviii.), _ _

B

Railways and the State.

community should administer it. One reason of this is that the railway has been a growth, in the earlier stages of which no one could conceive the enormous development to which it would attain, or the difficult problems to which it would give rise.

Thus, for example, the earlier railway promoters only contemplated carrying goods from station to station, the senders finding their own engines and trucks, and paying the companies toll for the use of the line. But "it was found to be a greater convenience for the company to provide these facilities. Then the railway company did not undertake the collection and delivery of the goods, but left this to the senders and receivers, who might employ their own carts or those of ordinary carriers. And so the system grew stronger and stronger. It was based on two elements — private property and competition. Few people cared to ask whether this basis for the future highways of the nation was a sound one. The laissez-faire principle, under the then popular teaching of political economy, was supposed to be adequate to every condition of social action. Considering the prevalence of this opinion, and the novelty of the new power which was revolutionising the country, it is a matter of wonder that the Government was permitted to exercise any control whatever. Fortunately, the State was sane enough not to permit promoters and those who hoped to get something out of the new Eldorado to do quite as they liked. They were bound to show some tolerable proof of the utility of their proposals, and to submit them to the sifting process of a Parliamentary Committee. It was not much, but it saved this country from the evils and excesses of countries where charters are recklessly granted . without reference to the national welfare. Meanwhile railways, though private property, became increasingly greater public necessities — in fact, superseding all other

Introduction. 3

modes of conveyance. Coaches and waggons for the most part disappeared, and busy highways became solitudes. The change was gradual, and few seemed to recognise that the most important means of public transit had fallen entirely into the hands of private owners. Yet, as Mr. Bonham justly remarks, "the shareholders of the railways are not and cannot be the owners of them in the strict sense of ownership. They cannot own a franchise empowering them to take private property, or to construct, maintain, and operate a public highway. They cannot exercise it as public agents, but its ownership remains with the State as an essential part of the power of the State ; and it is this ownership that the .State cannot part company with. The direct motive for the management of an industrial ^^ajZ-public franchise by those to whom such franchise is given, is essentially commercial and private. The corporation to which the franchise is committed has a motive for gain ; and the motive for which the franchise was given — public equal convenience — does not of itself, and cannot, run current with the motive for gain. The two are not homogeneous." ^

" What," asks Mr. Watherston, " would be said to the proposal of private companies offering to embank the rivers Thames, Mersey, and Humber, and to levy heavy tolls at their own discretion on all the shipping passing up and down these waterhighways ? "

In this country we do not care much for abstract principles, however sound. An abuse may outlast several generations, and have wonderful vitality, especially when it is more a collective than an individual evil. If a system works tolerably well, or even if it inflicts no serious evil, we listen

^ " Industrial Liberty," page i8o.

B 2 to proposals to change it for a better or more logical one with indifferent ears. So with our chance-medley railway system. It has grown with the wealth of the country, which it has helped greatly to promote, the construction has been good and substantial, the carriages have been improved, the speed quickened, rates and fares, if high, have not overpaid those who found the capital to construct them.^ Notwithstanding these admissions, had anybody been asked to devise a scheme for the establishment and management of the principal part of the passenger and goods traffic of the nation, about the last plan that would have suggested itself would be the one in actual existence. Its result is that the principal highways of this great commercial country are under the control of about 250 boards of directors. Owing, however, to amalgamations and working agreements, the greater portion is in the hands of a dozen leading railway boards. About a dozen oligarchies control the traffic of the country, and though they profess to regard the interests of the community, naturally they regard first and foremost those of their own shareholders. The result is the creation of a number of modified despotisms, well organised and therefore stronger than the whole non-organised trading and cpmmercial community. The country has been parcelled out in a rather chaotic way among a few great companies, who combined readily enough, and now two-thirds of the entire mileage of railways in England and Wales is in the hands of; six companies.^ Although amalgamation has

1 The average rate of profit on the total in 1 892 was only 4 per cent. No dividend was paid on ^62,000,000, and oh ^14,000,000 the dividend was not over i per cent.

2 " The Railway Problem," by Joseph Parsloe. {Fortnightly Review, 1886.)

Between 1846 and 1886 the London and North Western

Introduction. 5

benefited both the companies and the public, no one would have suggested that the best way of carrying on the principal national traffic of the country would be to hand it over to a few private companies.

Captain (now Sir) H. W. Tyler summed up the question of Company v. State management in a memorandum presented to the Committee of 1872. While admitting that the railway system would have progressed less rapidly than it has done under joint-stock enterprise, he thought that what was effected would have been done at much less cost, and without the sudden enrichment of some and the impoverishment of others. While the joint-stock management had been successful in many instances, it had also shown symptoms of grievous failure. " No one," he says, " who is not actually engaged in the working of railways, or in watching the details of their working, can have any idea of the unnecessary cost, labour, and obstruction to traffic which arise from the diversities of interests and of management of the various companies. . . . As they became larger, with larger mileage, greater business, and more considerable power and influences, so they became more unwieldy, more impervious to action from within or from without, and too often more difficult to move in the direction of improvement." They stand upon their legal powers, defy interference and control. While he admitted the marvellous engineering progress, and the improvements in communication, " neither the construction

increased from 379 to 1,811 miles ; the Great Western from 118 to 2,3or miles ; the North Eastern from 274 to 1,534 miles ; and the Great Eastern from 139 to 1,038 miles.

" There are 6,000 stations in the United Kingdom, and only at one-fourth of them do competing lines meet. As to 4,500 stations, there is complete monopoly, and the Companies charge what they please within their powers." (" State Purchase of Railways," Charles Waring). — Fortnightly Review, June, 1886.

nor the management of railways under the joint-stock system has been carried on without very serious drawbacks, shortcomings, and disadvantages."^

These words were uttered by one who had then 19 years' experience as a railway inspector, and could speak with almost unequalled authority.

Yet in this very report, with Sir H. W. Tyler's evidence, and a valuable memorandum he presented on the subject in behalf of State purchase, all that the Joint Committee could devote to it was 13 lines of their lengthy report, and this after the remarkable admission that so far as the evidence offered to the Committee has touched on the subject, " the only remedy suggested for it " (z. e., the political and commercial dangers from the growth of these large corporations) " is the acquisition of the railways by the Government : " yet it saw no present necessity for entering on this full and long inquiry of a great and difficult subject, etc., etc., and so the Committee proceeded to consider how they could best patch up the existing system.

In relation to the public interest the shareholders are a nullity. They are a constantly changing body, scattered over the empire. What local interest the first shareholders in a line may have had has been transferred over and over again. They of necessity leave the business to the Board, " theirs not to reason why," whether the matter of complaint be unfair charges on the trader, or under-wages or overwork imposed on the railway servant. If they entertained doubts, a fair dividend would set them at rest, in this respect faithfully following the example of most other joint-stock companies. There is the board, but what is the board ? For the most part it consists of men who have had no training in the business, who have other businesses and affairs to look after, who

1 Report, i8''2, p. 831. Appendix 4.

Introduction. 7

often sit on several other boards, and who receive a fee not tempting enough to permit them to give more than a small fragment of their time. Hence the principal duties supposed to rest in the board often devolve on the chairman and managers, who mostly could manage better without the superfluous board. It may be safely averred that some score of persons control nearly one thousand millions of capital and 20,000 miles of the most important communication of the country.^ That they manage it so well is a matter of congratulation. Often they manage not so well, but this presents no difficulty to a clever plausible chairman. It is none the less possible to conceive that the system is capable of improvement,

^ " There is an able and powerful bureaucracy of directors, secretaries, and agents. The real managers are far removed from the influence of the shareholders, and the latter are to a great extent a fluctuating, ignorant, and helpless body."— Report, 1872, p. 81.

A recent letter in the Times, referring to one railway chairman, said : " With no general manager, non-existent heads of departments, and a dummy board of directors, the railway is

practically Mr. , or, at least, that small portion of Mr.

which he is able to spare from his multifarious duties elsewhere. A proof of the exigencies of these duties is that he was frequently inaccessible to his officers for a month together, and would neither read reports nor answer letters."

Speaking of railway directors, Mr. R. W. Perks, M.P., himself the legal adviser of several railway companies, said : — "As a rule, the average English railway director knew very little about the details of his line. . . . Directors were chosen because of their Parliamentary or territorial influence, and even now some of the directorates of the English railways were crowded with titled directors, who knew little of business life and still less of the democratic requirements and rewards of the present day. No more useful reform could be effected in railway management than to compel railway directors to have a very substantial interest in the undertakings they professed to manage, and to appoint to these important posts men who could take a direct personal interest in the condition of the workpeople, and have the sense not to resent as a personal affront any reasonable complaint which the men might have to present."

through a more complete organisation on behalf of national welfare.

Assuming that the State had the ownership of the railways, under the control and assistance of expert managers, with no longer the interests of shareholders to consider, but only those of the whole British nation, the task would not be so formidable as it looks.- The object of purchase would be, as Sir H. W. Tyler stated it, to take the railways out of the hands of the companies, to work them in the interests of the public, and to contribute by the cheapest rates and fares to the utmost possible facilities of intercourse and transport. He would leave the executives of the companies unchanged, their attention being devoted not to competing with each other, but to the organisation of improvements not for the benefit of their individual lines, but for that of the general public.^ He said, " The subject is to some overwhelming. The responsibility for the safe conveyance of so many passengers, for the safe collection, transport, and delivery of so much goods and mineral traffic scattered over the whole kingdom, for the economical working of so many engine works, and works connected with the maintenance and repair of the rolling stock, and the permanent way over such a system, is almost too much for certain minds to contemplate."^ But with a staff such as the one suggested, we might almost claim the vote of the strongest opponent of State-ownership of railways. Mr. W. M. Acworth^ says — " In a country with a bureaucracy as well trained and as well organised as that of Prussia, it

1 Report, 1872, p. 833. Appendix N.