FOOTNOTES:
[E] A partial list of the articles in each class in 1807 which are still in the same class, as shown by Official Classifications Nos. 16 and 32, is given in Appendix A to Mr. McCain's pamphlet. There were approximately 3,000 various articles bearing the same classification or rating in 1908 as in 1898.
[F] Appendix C occupies pages 89 to 95 of Mr. McCain's pamphlet.
[G] Appendix D occupies pages 96 to 101 of McCain's pamphlet.
[H] Details from which the table was derived are given in Appendix E to Mr. McCain's pamphlet, pp. 102-106.
[THE RAILROADS AND PUBLIC APPROVAL]
By Edward P. Ripley
, President Atchison, Topeka and Santa Fe Railway Company.
Address delivered at the annual dinner of the Railway Business Association, New York, November 10, 1909.
Circumstances over which I had no control caused me to be born with a distinct inability to think consecutively, or talk coherently, in a standing position and before an audience.
Seated on the small of my back with my feet on the desk I sometimes think I am thinking, but when I get before an audience I am like the little steamer plying on the Sangamon River that had a 10-foot boiler and a 12-foot whistle—when she whistled she stopped. But my weakness, or rather one of my weaknesses, is susceptibility to flattery, and when one of your officers represented in honeyed phrase the importance of your organization and of this meeting, and laid particular stress upon the importance of my saying something, I weakly yielded. I know the result will be disappointment, but the responsibility is only partly mine, and you know we railroad men get so little flattery that when properly administered the result is intoxicating.
Also, let me state in extenuation of the crime I am about to commit that the subject was not my own selection, but was chosen for me. My natural disposition in discussing railroads and the public is to growl, while, if I understand your officers' wishes, I am here expected to "purr."
But while a better man might have been selected to say it, there is much to be said as to the railroads and public opinion.
In this country the people rule—and in the long run that system, that method or that personality that does not meet the approbation of the public can not succeed. True, the public is often fooled; true, it "gets on the wrong feet," as often perhaps as on the right; true, it has to be guided, controlled, and at times abruptly stopped by those authorities which it has selected for that purpose; yet the fact remains that the government of the people, that Congress, the legislatures and even the courts are keenly alive to public sentiment and anxious not to stray far from the line of public opinion.
Our forefathers recognized the danger that the majority would not necessarily be right, but might often be wrong, and sought to provide safeguards for the rights of the minority. But these safeguards are obviously growing less efficient; obviously growing weaker; obviously more sensitive to the public clamor which for the moment stands for public opinion, and when all safeguards have been exhausted it is to public opinion that we must look at last.
There are two things about which the public is most critical—one is the management of the newspaper, the other the management of the railroad. In his heart the average citizen believes that he could operate either his daily newspaper or the railroad passing through his town much better than it is being operated; he would perhaps hesitate to announce this opinion, but his attitude is coldly critical, and it is to be remembered that the railroad is all out of doors—all out in the weather, everything about it exposed to the limelight and visible to anybody's naked eye. There is no human activity the operation of which is attended with so much publicity. All our earnings and expenses are published; all our charges and all our methods the subject of regulation, intelligent or otherwise.
Many years ago Mr. W. K. Vanderbilt, journeying to Chicago, was met on the outskirts of the city by an enterprising reporter for a daily paper, who boarded the train and forced himself into the presence of Mr. Vanderbilt and his party, and demanded news on behalf of "the public." Probably Mr. Vanderbilt, resenting the intrusion, said something uncomplimentary to the reporter and possibly to the "public" he claimed to represent, and the next issue of that paper quoted him in scare headlines as using the phrase, "The public be damned." Mr. Vanderbilt subsequently denied having said it, but whether he did or not and whatever may have been his provocation, the phrase has for nearly forty years been used as indicative of the railway man's attitude toward his patrons.
Many years ago also the late George B. Blanchard, being on the witness stand at Albany, was asked what was the correct basis for making freight rates, and replied, "What the traffic will bear"—a most excellent answer, but a most unfortunate one—for it has passed into history as meaning "all the traffic will bear," which is a very different thing.
Such things as these, distorted as they have been, conspired to inflame public opinion, but that is not all.
It is the custom and privilege of men past middle age to be reminiscent and I ask your indulgence for a very brief history of the events that have led us to our present status. My railroad experience began about forty years ago and the railroad business was then much like any other business—it had its price list as did the merchant; but, like the merchant, it had its discounts for large shippers and for special conditions, and the discounts were irregular and various. The larger shippers demanded concessions as a right, and the principle was generally admitted. Naturally the result was favoritism, not because the railroads desired especially to favor one as against another, but because in the nature of things secret rates could not well be given to everybody.
Nobody regarded these secret rates as criminal or objectionable. But as time passed and these discriminations became more frequent and greater there arose a demand from the less favored portion of the shipping community for legislation forbidding the discrimination and providing for like opportunity for all. This was strenuously opposed by the favored shippers and by those railroad men who believed the railroad to be purely a private institution and not amenable to law as to its charges. It was common enough to hear it seriously argued that the larger shipper was entitled to the lower rate—this view was held by many shippers and, I believe, by most railroad managers. They argued that the business was like any other business—that each interest must look out for itself, and that competition between the roads would prevent rates from ever being too high.
For myself I may say that I realized from an early period that discrimination as to rates was unjust and at no time objected to laws forbidding it.
The interstate commerce law was passed in 1887. It was crude in its provisions and was the result of compromises between radicals and conservatives; it sought both to foster competition and to abolish it, and in that respect remains still contradictory and impossible.
Upon the passage of the law, that which had been looked upon as perfectly proper and as the working of natural competitive forces became illegal and criminal. The railroads generally accepted the law and made an honest effort to observe it—the mercantile community did not—indeed, they openly defied it, soliciting rebates unblushingly and threatening with the loss of their tonnage those roads who would not succumb. The Interstate Commission, new to its duties, contented itself with comparatively unimportant decisions and practically did nothing to help those railroads who desired honestly to carry out the provisions of the law; and, as a result, within a year of the passage of the law it was quite generally disregarded. A few railroad men were fined, a few shippers convicted—and almost immediately pardoned—and the law fell into disrepute, a condition disgraceful alike to the government, the shippers and the railroads and especially distasteful to the latter, but exactly what was to be expected.
The result was the passage of the so-called Elkins bill, and later the Hepburn bill, which, while amateurish and in many ways vicious, have effectually stopped the rebate system—a result for which we may all be thankful.
In all the controversies that have led up to this almost complete control of railroad earnings and railroad policies by governmental agencies, the railroads have, as a rule, acted in active opposition. They have not been unanimous—some of us were willing to accept it long before it became a fact, but the majority could see nothing in it but disaster—it is too early to say which was right—perhaps an earlier acceptance of control would have made the control more lenient; perhaps its earlier acceptance would, on the other hand, have bound the chains more tightly. But the fact remains that while the basic principle of absolute equality as to rates has been accepted by the railroads gladly and in all good faith, and they have also accepted the principle of government regulation, the scars of the conflict remain and a large section of the public still suspects and misjudges us. It is true, of course, that in the rapid development of our business and in the exigencies of a most exacting profession there have been abuses and lapses, but I am here to maintain that the standards of fair dealing and commercial honesty in our business have been as high as in any other, and I appeal to you who sit around this table to say if it be not so.
But whatever sins may be laid at our door, however much we may have once believed that ours was a private business to be controlled exclusively by its owners, however much we have resented or still resent the interference of the public as manifested in the various governing bodies, it is, after all, the public that is master and we must all recognize it. It is, however, still our privilege to exercise our right as citizens and members of the body politic to use our efforts to guide it. Acknowledging as we must that the public is all-powerful, the question is, How may we satisfy our masters and thus mitigate our woes and preserve our properties?
First. We must realize, as I think we all do (after a series of very hard knocks), that the railroads are not strictly private property, but subject to regulation by the public through its regularly constituted authorities—that the Government may reduce our earnings and increase our expenses has been sufficiently proved.
Second. To meet this situation we must endeavor to get in touch with public opinion. Perhaps you will smile when I say that for years I have read every article on railroad matters in each of the papers published along our ten thousand miles of road—not an easy task for a busy man—but while I have waded through much chaff I am sure it has resulted in some reforms.
Third. The avoidance of action seriously counter to public opinion, except for compelling reasons.
Fourth. The disposition to explain these reasons through officers and employes of all grades. Generally, the loudest criticisms come from those who are not anxious to know the truth.
Fifth. Efforts to improve service in many cases without hope of reward and for the deliberate purpose of winning public approval, such as better stations, improved heating and lighting devices, better equipment, better terminal facilities, separation of grades, etc.—all with due regard to the rights of those whose money we are spending.
As we do all these things, meet us half way. Encourage the habit of not rushing into abuse. Try to consider the facts and the difficulties—this is for the public interest as well as ours. Oppose unnecessary and restrictive legislation and give us a chance.
Most of our railroads are mere imitations of what a railroad should be, and what it must be to keep abreast of the country—yet even the poorest serves a useful purpose and can not be spared. An eminent authority has said that five thousand millions of dollars would be required to supply the transportation needs of the next decade, and I do not believe it is an over-estimate. Can private capital be found to that amount unless "public sentiment" is willing to assure it of return? A portion of the public is clamoring for facilities involving great additions to expenses; another portion for limitation of earnings; will the investor consent to accept the risks while strictly limited as to his return? Since the public may do as it will with us and since we are necessary to the public, we may properly call attention to the fact that railway investments already pay less than any other line, and to ask what is to be done—really, it is quite as much the public's affair as ours.
Is it certain that the mixture of private ownership and public regulation which is now prevalent will succeed? Is it not contrary to all rules of political economy and to all the teachings of history? Starting as a purely private industry it has been appropriated in part and other parts are apparently to follow. Granting whatever may be claimed for the advantages of regulation by government, do not equity and ordinary commercial decency require that such close restriction and supervision should be accompanied by some guaranty of return?
I have endeavored to sketch briefly what should be the attitude of the railway man as a railway man toward the public. I am sure I voice the sentiment of all managing railroad officers when I say that our great desire is to please the public and to give it the best possible service for the least possible compensation consistent with reason. Discriminations have long since passed away and nobody is better pleased than the railroad man that it is so. There is no desire to escape either responsibility or regulation. We desire to accord only justice and we ask in return only justice. May I now, as a citizen, appeal to the railway employe, to the members of this Association, and to all other good citizens, to resist to the utmost of their powers the encroachment of government on private rights?
Mr. Elbert Hubbard, of East Aurora, N. Y., recently remarked that "when God sent a current of common sense through the universe most of the reformers wore rubber boots and stood on glass." Our troubles are with this class—well-meaning men who have zeal without knowledge and enthusiasm without sanity; these we may not reach, but the great mass of the solid and substantial citizenship may perhaps be induced to stop and consider whither we are drifting and whether this greatest of all the country's industries is being fairly treated.
[RAILROADS AND THE PUBLIC]
By Hon. John C. Spooner.
From the address delivered at the annual dinner of the Railway Business Association, New York, November 10, 1909.
The topic which has been assigned to me is brief, but very large: "Railroads and the Public." It suggests nothing of humor, but everything of gravity and involves considerations which affect the prosperity of our whole people. The railroads, often berated in legislatures and in congresses as leechlike and piratical, are, after all, vital to the happiness of our people and to the progress of our industries and commerce. The people are apt to forget that they have been the greatest factors—I say the greatest factors—in the development of our resources and the enlargement of our commerce, both in times of war and in times of peace. If one would stop to think of what would have happened if, during the war for the preservation of the Union, we had been without railroads, ready and willing to serve the government upon its demand and at prices fixed by it, how long would the war have continued? And what might not have been its result? They carried troops from the North to the places of rendezvous in the fields; they enabled the government to transfer quickly from the East to the West, or the West to the East, as emergency demanded, troops essential to successful military operations. They carried munitions of war, they carried the mail to our soldiers, they carried food and raiment to those who were fighting under our flag.
And in time of peace, what would this country have been without the railroads? The railroad has been the advance courier of progress, of settlement, of production, of commerce. It is absolutely, and has been, indispensable to the government, to the commerce and to the happiness and comfort of our people. Its mission is not performed or fulfilled. Considered solely with reference to construction, there are new fields to be penetrated by them. Today men of courage and men of means are building railways with characteristic American energy in far off Alaska, to bring the gold mines and the coal mines and the timber and the unknown resources of that distant territory into the markets of the United States. If there is one instrumentality which above another has been a factor, appreciable by all thoughtful men, in making this country what it is, it is the railroad. And the railroad has kept abreast with the demands of commerce. Every device which ingenuity or invention has presented has been promptly adopted by the railway companies of the country. They have kept abreast of invention and improvement, until today the railway system of the United States is the most luxurious, the safest, the best managed railway system under the bending sky.
The first thing that would occur to one from this toast, the railroads being first mentioned, is what do the railroad companies owe to the public? That is easily defined. They owe it to the public to furnish safe roadbeds and equipment; they owe it to the public to furnish prompt service; they owe it to the public to treat all men, with obvious limitations, passengers and shippers under the same circumstances, equally and without unjust discrimination, and they owe to the public the duty of, as far as it is possible, so maintaining their roads and their equipment as to be able to meet in a fair way all the demands of commerce and traffic at reasonable rates. That excludes the rebate which never had any justification in logic or in fair play. I think those who hated it most were those who felt obliged to adopt it. When one railway company gave rebates it is quite manifest that the competitor was obliged to, or go out of business. And I believe that railway companies of the United States were glad, and their officers were glad, when it was made a penal offense for railway companies to give rebates. I think a railway company owes to the public to be careful in the selection of its employes; they should be capable, of course, and they should not only be capable, but they should be courteous and polite. To sum it up, you would say that what the railway in the enlarged sense—which includes details—owes to the public is just and fair treatment.
What does the public owe to the railway companies? Precisely, as I view it, the same thing, just and fair treatment. Only that and nothing more. Everybody knows that the railway companies of the United States—I won't put it that way—that the railway system of the United States never could have been created without the utilization of corporate entities. Partnerships never could have concentrated the capital necessary to that end. Only corporations could have achieved it. That was true in the past and it always will be true. Now, why is the railway company different from other corporations, most other corporations? One trouble with the general public is that they don't seem to understand—and they are not perhaps to be chided for it—their relation to the railway company. They think, and they are told, they have been told it in Congress, and they have been told it where one would least have expected it, that railway corporations are public corporations, and they have been taught to believe that their power over public corporations was supreme, which is not far from the truth; but the railway corporation is not a public corporation. The Supreme Court has many times decided that a railway company is a private corporation, that its property is private property, under the protection and safeguards of the Constitution of the United States against the public as well as against individuals who attack it. Then, wherein lies the difference between a private corporation engaged in manufacture and a railway corporation? Right here: A railway corporation can not construct its railway without being clothed with a power which is not given to the usual private corporation, a power which inheres in the sovereignty of the state, the ultimate power of the people delegated to the railway corporations and very few others, and that is the power to take your land without your will at a price fixed not by you but by a jury. Why? Because it is for the public use, and private interest and private sentiment can not be permitted to obstruct the interest of the state, and therefore the property of a railway company while it is private property is, as the Supreme Court of the United States has said, affected with the public interest.
A railway company serves the public, that is what it is organized to do. Those who apply for the corporate franchises do not apply for an altruistic purpose. They wish it because they think they can make profit out of it, and that is legitimate, but the state grants it for the public use. And so it comes about that the state has the power to regulate it. Mark what I say, to regulate it, to prevent it from exacting extortionate rates from the people; to prevent it from putting upon the people abuses in its management, but that does not mean that the state may take its property. That does not mean that the state may take its management out of the hands of its owners. It means simply that the state may protect the public from any abdication by it or violation by it of its duty as a common carrier, and this principle is too often forgotten.
In these days regulation has apparently achieved a wider field for operation, and is deemed to be broad enough to regulate not only the property and the management of the property, but the management of everybody connected with it. That won't do. Why, I see it is stated in the report of your Business Association that commissions which have been organized by the states and the Commission organized under the act of Congress, have come to stay. Of course they have come—we know that, and we know another thing, that whenever a governmental commission comes, it stays. The commissions in the states, most of the states—God knows I wish I could say all the states, but I can not truthfully—have subserved a useful purpose. The state lays down the rule and the commission administers the law. There is one thing about a commission in the regulation under the law of railway carriers which places it in respect of proprietary, fairness and fitness for that function, far above Congress or any other legislative body, and that is this: That they have time to listen, to investigate, to get at the truth, which a legislative body does not have time to do in the very nature of things. I do not know, but I think nothing added more to the reputation of Governor Charles E. Hughes, of New York, than the fact that he refused to sign a bill, but vetoed it, reducing the rates which railway companies might charge, upon the ground that there had been no investigation which enabled fair judgment as to what was fair treatment to the railway corporations.
I was in public life a good many years and I am a firm believer in the sober second thought of the American people, for it represents the average judgment of every class of our people; but they get wrong, they get wrong about men, and they get wrong about policies and measures. They are subject, en masse, as men are individually, to moments of passion and excitement, and they know it. As Mr. Webster said, and as the Supreme Court of the United States has said, the fundamental object of a constitution adopted by the people is that they may protect themselves against themselves in moments of excitement and passion. And the American people will always give heed to the popular translation of the phrase, "Due process of law," that is, hear before you strike.
Now the Commission, the Interstate Commerce Commission, was intended by the Congress which created it to be an absolutely independent body. It was to report to the Congress, it was not to be subject to the command of either House of Congress, or of the Executive of the United States. It was intended to be a quasi-judicial body. I know all of its members, and I do not depreciate to the slightest extent the services which it has rendered. The only criticism I would have of it, and that does not arise from its membership, but it is inherent in the system, is that it is never satisfied with the powers it has got. It is as insatiable as death for power. It has been proposed that they shall have the power to regulate the issue of stocks and bonds by railway corporations created by the states, that is, if the state which creates the railway company authorizes it, desiring it to utilize its privileges for the construction of a new railroad, to issue stock, or issue bonds, that it shall not be permitted to do that thing until the act of the legislature and the approval of the governor shall have been supplemented by the approval of the Interstate Commerce Commission. Now I am getting along in years, and I am a little old-fashioned, and I have not yet been able to satisfy myself that where one government creates a stock corporation, another government shall regulate the amount of its capital stock and its bonded indebtedness.
I have seen it proposed lately that the Commission should have the power to fix a rate, and that that rate should be final until a final judgment setting it aside was reached. What becomes of the constitution under such a law as that? A railway company, as I have said, owns its property. It renders a compulsory service to the public over its own property, with its own equipment, with its own employes, and at its own risk, and is entitled to a fair compensation, based upon the fair value of the property which it devotes to the public convenience, and the Supreme Court has held that that property can not be taken—because the use of property is the property—can not be taken for the public use without just compensation, and if the state, the legislature, or the Congress may authorize a commission to fix a rate as reasonable and fair, beyond which the railway company may not charge for services it renders, and require it to observe that rate until the final adjudication as to whether the rate is reasonable or not, and after the lapse of months it is decided that it was unreasonable, how can the railway company recover the great sum in unreasonable rates which it had lost? It is a taking of a private property for a public use without just compensation, and I deny the constitutional power of Congress to do that thing. I admit the power, and the exercise of it to the fullest extent to so far regulate railway corporations as to secure to the public a faithful discharge of all their duties to the public at reasonable rates, and under fair regulations; beyond that I believe that the owners of the property ought to be permitted to manage the property.
The business of railway management has become one of the learned professions. It calls for some of the brightest intellects in the country. It calls for the exercise of powers which, if devoted to the law or to finance or to any other business, would place those who exercise it among those at the head. It is one of infinite complication, and it is not to be supposed that railway commissions can manage railway properties as well as the men who have been trained from boyhood to that business. I have never questioned that the Interstate Commerce Commission, the Commission in Wisconsin, and other commissions, earnestly set out to do the just and fair thing, but the trouble with this whole question is, and has been through many a year, that it gets too often into politics. I do not believe myself that questions of business ever ought to find their way into the political platform of the party, any more than I believe that the relations of the employer to the employe, whatever the business may be, ought to become the football of party politics.
This Association was born out of a happy inspiration. I think these troublesome problems are approaching solution. The railway companies must obey the law. The people ought to see to it that the law which the railway corporations are obliged to obey is a just law, and that is to be ascertained only on painstaking inquiry, and not through the speeches of enthusiastic orators or on the floors of Congress. It has got to be at times that where there was no other issue upon which a political contest could be fought out, the easy, obvious and last resort was "let us go for the railroads," or, as a Governor of Minnesota once expressed it, "Let's shake the railroads over hell." The truth is that the interest of the railroads is the interest of the people. The railroad company is dependent upon the people for its life and its sustenance, and the people are no less dependent upon the railway company, and between the two there should be even-handed justice. They should be dealt with calmly, and legislation should only follow deliberation and investigation, and a law once enacted should be impersonally enforced, not enforced against some and left to fall into innocuous desuetude as to others.
[RAILROAD PROBLEMS OF TODAY]
By J. B. Thayer,
Vice-President Pennsylvania Railroad Company.
Address delivered before the Traffic Club of New York, Saturday Evening, February 16, 1909.
Problems—both many and varied—have always confronted the railway manager. Particular problems come to the front from time to time that tax all of our resources. They differ with different periods of our history. Today one of the most serious depends more for its solution upon our lawmaking bodies, both State and national, than upon the railroad men, and for the present, at least, we must feel like the old Arkansas darky, who said he was "in the hands of an all-wise and unscrupulous Providence."
In the early days of railroads the chief problem was that of construction and equipment; later, when more railroads had been built than there was traffic to feed, there came the traffic problem, and all the abuses which followed in its train. These, in turn, led to the legislative problem accompanied by the Interstate Commerce Law of 1887, and through the '90s all sorts of problems—including bankruptcy for many. Now, within the past few years has come the great problem of enlargement—the construction period again, but in a different shape. Not experimental, for we had learned how to build and how to equip; not the building so much into new country, but to take care of the traffic which was overflowing our rails.
Events of the past year have proved the absolute necessity for almost all the large railroads in this country to enlarge their trackage, their terminals, and their equipment; and yet, here again, when in considering where to obtain the necessary funds for such purposes,—which must, of course, come from the public,—the railroad managers find themselves confronted with great difficulties. This, of course, is largely due to the tremendous demands for capital, in the development that is going on in all parts of the world, but it is increased, at the moment, by the natural timidity of capital to invest its funds in railroad securities, in view of the violent attacks that are being made against corporations through Congress and the State legislatures.
POPULAR HOSTILITY TO THE RAILROADS.
This brings us, then, to our greatest and most perplexing problem—that of how to restore a state of reciprocal understanding and fairness between the carriers and the public. Many railroad officials believe that so deep-seated is the apparent hostility of the people that the management of the railways will be taken practically out of the hands of their owners, and that great disasters are to follow. I do not share this view, principally for the reason that whatever may have been the faults in the past, the methods and practices of railroad management are now based upon a decent regard for their public responsibilities. Sooner or later the people will recognize this—as I believe they are already beginning to do. But by no means can we minimize the actual situation of today. It is, indeed, a time of great anxiety to all those entrusted with railroad management, and who have the interests of their country at heart as well.
With the old rebates and secret discriminations things of the past, with all kinds of business in a most prosperous condition, we all know that within the past three years, suddenly, out of an almost cloudless sky, there has burst forth upon the railroads of this country a torrent of the most bitter and violent attacks—by political orators upon the stump; in magazines and newspapers; in Congress and State legislatures. It is fair to say, I think, that this onslaught had its origin in the agitation of 1904 for changes in the Interstate Commerce law. It was based upon a misunderstanding of existing railroad conditions and the position of the railroad in regard to the points at issue, which I shall presently explain.
Following the agitation surrounding the passage of the rate bill has come a swarm of bills in Congress and State legislatures, which, if they become laws, and are enforced, will prove disastrous to the railroads, and, equally so, to the public at large. The question is, What is to be done to prevent it? The old method of influence has been abandoned, and, I hope, forever. Has it left us unequipped to meet the issue? To answer this question let us get a perspective.
RAILROADS NOT BLAMELESS.
We must not imagine, to begin with, that we are entirely blameless. We are in some respects only realizing the wages of past sins. We have done many of "those things which we ought not to have done," and we have left undone many of "those things we ought to have done." Most of the evils date back many years and many of them might have been prevented had the government done its duty and enforced the law. Yet even in most recent years we can find some mistakes with which to concern ourselves. It is not strange that many men who have suffered loss through delays in their traffic, or in their personal transportation, or who saw themselves deprived of profitable business because they could not secure cars, should have become exasperated and, not having time to properly analyze the difficulty, thought that the railroads were lacking in foresight and management.
But let us go back a few years. It is a great mistake to hold the railroads responsible for such practices as rebating in those days, when it would have been impossible to throw a stone in a commercial community without hitting somebody who was taking rebates and wanting more. Many men are today running for office on anti-railroad platforms who if you were to say "Rebates" would duck their heads very much as David Harum said his Newport friends would do if he called out "Low bridge!" That rebates were wrong nobody questions, but to pillory a man today for accepting rebates at that time is a farce.
Many persons believe that the so-called discriminations, resulting in the secret arrangements, were largely influenced by the desire upon the part of railroad officials to favor one man against another, but no thoughtful man who has at all studied the problem believes this. Rebates and other forms of discrimination,—whatever may have been the result in specific instances,—had their origin mainly in the competition between carriers for the traffic. Incidentally, in transacting railroad business through secret arrangements, as became the custom in that period, there were many cases of discrimination in favor of the strong and against the weak.
There was a strong feeling upon the part of many men, both in and out of railway service, that the larger shipper, under the ordinary rules of business, was entitled to a lower rate, and they could not conceive the real principle which should govern the making of railroad rates,—which, however, has come clearly to be realized since that time. The railroad systems, generally, were not more anxious to pay rebates than they were to pay higher prices for their supplies, and simply pursued the course of their competitors because, otherwise, they saw nothing but loss and probable bankruptcy staring them in the face. The railroads were forbidden by law to meet and make formal agreements for the maintenance of rates, and by another law were required to compete. We all thought that the old plan was competition.
Had the Government, through its Interstate Commerce Commission, vigorously undertaken to enforce the law—passing if necessary, long before it did, the Elkins Act—I think we should have seen a correction of these abuses long before the reform came; but, as a matter of fact, neither the Government authorities nor many of those managing the railroads had yet reached a clear conception of the significance of the abuses which existed and of the proper legal method of uprooting those evils.
GETTING AWAY FROM OLD ABUSES.
Upon the resumption of business activity, in 1898 and 1899, and, later, following the passage of the Elkins Act, the opportunity was presented,—and in general accepted by the railroads,—to get away from the old methods. While since then there have been some cases of violation of the law, in the matter of secret arrangements, yet I think that, at least within the last four or five years, it is safe to say that they have been of small importance, and perhaps, in many of the cases—while a technical violation of the law—were actually not discriminations. I say this advisedly, so far as the eastern situation is concerned, because I know that the Pennsylvania Railroad Company has not paid a rebate for years, and it is fair to believe that as that company held its traffic,—in fact, largely increased it,—without the necessity for such arrangements, its competitors must have to a large extent pursued the same policy.
But not alone in reference to freight rates was there more or less complicity in evil between the people and the railroads, but let me ask you to consider, for a moment, the question of free transportation, or passes,—whether political or business. It is only within the last year or two that the public conscience has been awakened on this subject. It is true, the railroads have been abused for several years by those who did not enjoy such favors, but is the railroad more responsible for the conditions that existed than the Government of the people, either in the National Congress or in the State legislatures, and how could it be expected that the legislators in one State could feel that they were doing very wrong in accepting passes, when the legislators of another State enjoyed them by law of the State? How could members of Congress be criticised for accepting such privileges, or the railroads for extending them, when the Presidents of the United States and member of their cabinets, and other important officers of the Government not only accepted them, but practically exacted them, and, further, expected that private cars and private trains should be furnished without charge? Upon one occasion within the past two years I called upon the Interstate Commerce Commission to ask its assistance in eliminating the pass abuse, and was very frankly told that it could make no move, nor take any interest in the subject, in view of the fact that important public officials including Senators and the members of Congress felt that it was not improper for them to accept them. Out of this situation grew a large part of the pass abuse, because, following the national government and the legislatures, the large men of business felt that they could properly accept similar privileges.
Therefore, I repeat, that while there were great abuses—especially during the period referred to—embittering a large portion of people, yet the railroads were no more responsible than the people themselves; and yet, without doubt it was during this period that the foundation was laid for the feeling of the present day.
RAILWAYS WELCOME JUST REGULATION.
But, as I stated, we were forced to bear the brunt of our past sins—and more—in the campaign for increasing the powers of the Interstate Commerce Commission. Do not misunderstand me. Many thoughtful railroad men believed always, in the value, both to the railroads and the public, of an interstate law, and, further, considered it wise to strengthen the power of the Commission. The distinction, however, between what railroad men did and did not believe in, is very clear. We felt and we feel now that the government is perfectly justified in regulating railroad practices to the extent of preventing discriminations. Indeed, the government should act as a sort of policeman to see to it that the weak and the helpless are protected. If reasonably administered, the railroads need the law. But the government should not have the right to interfere with the proper play of the natural commercial forces of the nation. The great distinction between police and commercial powers should never be lost sight of.
The danger does not lie in the provisions of the new national law. There is no substantial difference between its provisions and those of the old law, except in respect to the powers of the Commission. There was no necessity for the new law, so far as the prevention of the old abuse of secret rates and discrimination was concerned. The operation of this law does not involve any material change in traffic operations of the railroads; the only danger is as to how the Commission may exercise their power in influencing reductions in rates, but even in that respect the railroads have the right of appeal to the courts. It is from various other bills being presented in Congress in which the immediate danger lies, showing possible interference by the national government with the operation of railroads, with respect to the hours of labor of its employes, systems of signals, and other methods of operation, which should properly be left to the railroads themselves. This threatened interference of the federal government is having a powerful and dangerous influence upon the legislatures of the various states, who apparently are—in a slang term—"Seeing Congress and going them five or six better"—in the bills for reduction of state rates, both passenger and freight; for increase in taxation, and all sorts of measures which tend to reduce the earnings and increase the expenses, and hamper and delay the actual development necessary.
It was unfortunate that in the agitation and discussion following the President's recommendations, until the present law was finally adopted, there was a total misunderstanding upon the part of the public at large as to this attitude of the railroads. It was most unfortunate in that campaign that the principal point of contest upon the part of the railroads was lost sight of—and that is—the objection upon their part not to reasonable amendments to the law, and not—if the people wanted it—to some increase of power to the Commission, but to the attempt to make a commission of five or seven men—in many respects a political body—the final arbiters as to the rates and fares of the railroads.
DIFFICULTIES UNDER THE PRESENT LAW.
Yet even with the new law on the statute books, our traffic problems are still with us. We are forbidden by law to make formal agreements as to rates, yet it is universally recognized that in order to secure an equitable adjustment of rates, it is absolutely necessary that the traffic managers of the railroads shall confer frequently. It is well known that such conferences are held and must be held to prevent discriminations, yet no definite agreements can be made.
The present law stipulates that there shall be no discrimination by railroads against persons or communities. Right here, however, the railroads are face to face with a problem all their own, which is a very serious one, and that is: How shall a particular railroad prevent discrimination against a community on its own line by some other railroad seeking to specially favor a community on its line? Is it not absolutely essential that there should be both an understanding and a virtual agreement on the part of the two railroads concerned for the purpose of protecting both communities?
Cases of dispute between railroads as to proper rate adjustments have, indeed, been referred to Interstate Commerce Commissioners as arbitrators and their findings have been observed. This shows how absolutely vital to all business is the necessity for that co-operation which can only be secured by agreement and conference between all interested parties. The President of the United States recognized the necessity for this fact in his last annual message and recommended that some legislation be passed which would permit agreements between railroads as to rates.
We are thus in the presence of this ridiculous situation; that on the one hand we are being threatened with prosecution by the Government for violation of the Sherman Act in respect to methods which on the other hand the President of the United States and the Interstate Commerce Commissioners agree must be followed in order to properly discharge our responsibility to the public—in other words, we are "between the devil and the deep sea," or we are damned if we do, or we are damned if we don't.
So much for the moment, for our national problem. As to State regulation: while not believing—now that we have a national law—that it is necessary or desirable for the public to establish state commissions and special railroad laws, at the same time, if the people desire such commissions, we have no right to look upon such a demand as "anarchistic," but we feel that the working of such commissions will be unsatisfactory to the business interests.
CONFIDENCE AND JUSTICE NEEDED.
These are but a few of our problems and difficulties. While I do not wish to minimize the dangers of the present situation, while I recognize that it is now to some extent, by adding to the timidity of investors, retarding our ability to secure funds necessary to make extensions and buy equipment required for the ever-increasing traffic of the country, and if continued will make it impossible, yet I am firmly of the opinion that the good sense of the people will prevail and the unjust attacks cease. Confidence of investors both here and abroad is needed to furnish funds, and, if this is seriously shaken, the prosperity of the railroads, which are the keystone of the arch of business, will be destroyed.
To avoid these dangers a regime of confidence and fairness on the part of the public toward the railroads must be restored, and to accomplish this we must place our case, as it were, before the legislators and the people and make clear our difficulties and the complications which beset us. Few, after all, understand the railroad problem, and we have not made it plain to the people, either because it was the fashion not to do so, or because we could not realize that things simple to us were not understood by the public. We must not stop at one statement, but discourse upon and elucidate every subject which the public misunderstands.
Let us be frank and take the public into our confidence as fully as is consistent with the proper conduct of our business. Let us approach the subject with the feeling that the railroads are not absolutely perfect, that we have to some extent brought this condition of affairs upon ourselves, and that we should govern ourselves in the future accordingly. Let us undertake to go frankly before the people and present the actual facts in connection with our affairs.
THE PENNSYLVANIA AS AN ILLUSTRATION.
Let me illustrate: The Pennsylvania Legislature is in session. Numerous bills have been presented, of a most radical nature. It is our purpose to appear before every committee that will hear us, and tell our side of the story. I doubt very much if the average legislator—and certainly not the average citizen—understands whom he is injuring in unjust acts towards the railroads. Take our company, for example. It is not a small group of rich capitalists; it is not Mr. McCrea and myself and a few others; the Pennsylvania Railroad is owned by more than 50,000 people, 30 per cent of whom live in Pennsylvania. Forty-seven per cent of our shareholders are women; and in many cases the dividend is their only source of income. Then there are thousands of bondholders; beyond them are nearly 100,000 employes in the State of Pennsylvania dependent upon the prosperity of the Pennsylvania Railroad for their livelihood.
Therefore, by the usual computation, it is safe to say that approximately half a million people—men, women and children—are actually dependent upon the welfare of this company in the State of Pennsylvania alone.
Upon the Pennsylvania Railroad's prosperity depends the prosperity of the other lines in its system, and including the employes of these lines, there are 200,000 men, who, with their families, constitute an army of a million or more. Behind them, again, are the thousands of men, with their families, who produce the coal and other materials which the railroads use. Anything that cripples the railroads injures every one of these people.
When we make these and other facts plain, I cannot but feel that no injustice will be done. In the meantime, let us keep our minds well balanced, and not allow ourselves to believe that chaos is coming; let us meet the issue fairly and squarely and frankly. While, therefore, necessary for the present, at least, to suspend many improvements, let us keep our courage, trusting to the ultimate good sense of the lawmakers and the people for that sympathy and support to which we feel that we are entitled.
[THE RELATION OF RAILROADS TO THE STATE.]
By W. M. Acworth, M. A.
Delivered before the British Association at Dublin, Ireland, September 2, 1908.
I propose to treat the subject in two aspects; first, the history in outline of the relations between railroads and the state in different countries, and, second, the question of the factors which are of primary importance in any consideration of the matter.
Ever since the year 1830, when the dramatic success of the Liverpool & Manchester Railway first revealed to a generation less accustomed than our own to revolutionary advances in material efficiency the startling improvements in transport that railroads were about to effect, theorists have discussed the question whether state or private ownership of railroads be in the abstract the more desirable. But it is safe to say that in no country has the practical question, "Shall the state own or not own the railroads?" been decided on abstract considerations. The dominant considerations have always been the historical, political and economic position of the particular country at the time when the question came up in concrete shape for decision.
BELGIUM.
The Belgian railroads have belonged to the state from the outset, because they were constructed just after Belgium separated from Holland, and (the available private capital being in Holland and not in Belgium) King Leopold and his Ministers felt that, if the railroads were in private hands, that would mean in Dutch hands, and the newly acquired independence of Belgium would be thereby jeopardized. Within the last few years this history has repeated itself, and the fact that the bulk of the Swiss railroad capital was held in France and Germany was one main reason, if not the main reason, which induced the Swiss people to nationalize their railroads.
GERMANY.
In Germany 70 years ago the smaller states were regarded as the personal property of their respective Sovereigns, almost as definitely as Sutherlandshire is the property of the Duke of Sutherland. And it was therefore as natural that the Dukes of Oldenburg or Mecklenburg should make railroads for the development of their estates as that the Duke of Sutherland should build a railroad in Sutherland.
AUSTRALASIA.
Take, again, Australasia. In that region the whole of the railroads, with negligible exceptions, now belong to the different state governments, and the public sentiment that railroads ought to be public property is today so strong that it is impossible to imagine any serious development of private lines. But at the outset the traditional English preference for private enterprise was just as strong there as it was at home, and it was only the fact that the whole of the available private capital was absorbed in the development of the gold fields and that, therefore, if railroads were to be built at all, public credit must be pledged and English capital must be obtained, that caused the state to go into the railroad business.
ITALY.
Take, once more, the case of Italy. In the days when Italy was only a geographical expression, the various Italian states experimented with railroad management of all sorts and kinds. When, after 1870, Italy was unified, it was necessary to adopt a national railroad policy, and the Italian government instituted an inquiry whose exhaustiveness has not since been approached. The force of circumstances has indeed already compelled the government to acquire the ownership of the railroads, but the Commission reported that it was not desirable that the government should work them. The railroads were accordingly leased for a period of 60 years, running from 1884, to three operating companies, and it was provided that the leases might be broken at the end of the 20th or the 40th year. From the very outset a condition of things developed which had not been contemplated when the leases were granted, and for which the leases made no provision. Constant disputes took place between the government and their lessees. Capital for extensions and improvements was urgently needed; neither party was bound to find it; and agreement for finding it on terms mutually acceptable was impossible of attainment. In the end the government has been forced to cut the knot, to break the lease at the end of the first 20 years' period, and for the last two years the Italian government has operated its own railroads. But it is safe to say that an a priori preference for state management over private management played but scant part in the ultimate decision.
GENERAL INCREASE OF STATE CONTROL.
It is impossible to review, even in the merest outline, the railroad history of all the countries in the world, but the instances already given will serve to illustrate my proposition that the position in each country depends not on abstract considerations, but on the practical facts of the local situation. Yet one cannot look round the world and fail to recognize that the connection between the railroads and the state is everywhere becoming more intimate year by year. Whatever have been the causes, the fact remains that Italy and Switzerland have converted their railroads from private to public. In Germany the few remaining private lines are becoming still fewer. In Belgium the process is practically completed. In Austria it is moving steadily in the same direction; four-fifths of the total mileage is now operated by the state. In Russia the story would have been the same, had it not been for the war with Japan. Even in France, whose railroads have a very definite local and national history of their own, an act for the purchase of the Western Railway by the state was passed last year by the Chamber of Deputies, and has now, after much contention, been passed by the Senate within the last few weeks. But it is not without interest to note that, though a majority both of deputies and of senators supported the bill, the representatives of the district served by the company were by a large majority opposed to it, while the commercial community of the whole of France, as represented by the Chambers of Commerce, were almost unanimously hostile.[I] So far as can be seen at present, the purchase of the Western Railway by the state is not likely to be made a precedent for the general nationalization of the French railroads. Still, the broad fact remains that a series of railroad maps of the continent of Europe, constructed at intervals of ten years, would undoubtedly show an ever-increasing proportion of state lines, and that the last of the series would exhibit the private lines as very far below the state lines both in extent and in volume of traffic.
A word ought to be said of Holland, not only because Holland is a country with free institutions like our own, but because the railroad position of Holland is unique. The railroads of that country were built partly by the state and partly by private enterprise, but the working has always been wholly in private hands. Some ten years ago, however, the Dutch government bought up the private lines and rearranged the whole system. The main lines of the country are now leased to two operating companies, so organized that each company has access to every important town, and railroad competition is now practically ubiquitous throughout Holland. So far there are no signs that the Dutch people are otherwise than satisfied with their system. Now compare this with France. The French government, though it has hitherto, except on the comparatively unimportant state railroads in the southwest of the country, stood aloof from the actual operation, has always kept entire control of railroad construction and of the allocation of new lines between the several companies. And the French government has proceeded on a principle diametrically opposed to the Dutch principle. In France railroad competition has, as far as possible, been definitely excluded, and the various systems have been made to meet, not, as in Holland, at the great towns, but at the points where the competitive traffic was, as near as might be, a negligible quantity. Now that questions of competition and combination are to the fore in England, and seem likely to give very practical occupation to Parliament in the session of 1909, the precedents on both sides are perhaps not without interest.
AMERICA.
When we turn from the continent of Europe to the continent of America the position of affairs is startlingly dissimilar. The railroads of America far surpass in length those of the continent of Europe, while in capital expenditure they are equal. State ownership and operation of railroads on the continent of America is as much the exception as it is the rule in Europe. In Canada there is one comparatively important state railroad, the Intercolonial, about 1,500 miles in length. Though its earnings are quite considerable—about £20 per mile per week—it barely pays working expenses. I may add that in all the voluminous literature of the subject I have never seen this line cited as an example of the benefits of state management. There is another small line, in Prince Edward Island, which is worked at a loss; and a third, the Temiskaming & Northern Ontario Railway, owned not by the Dominion but by the Provincial government, which is too new to afford any ground for conclusions.
The Federal government of the United States has never owned a railroad, though some of the individual states did own, and in some cases also work, railroads in very early days. They all burnt their fingers badly. But the story is so old a one that it would be unreasonable to found any argument on it today.
In Mexico, of which I shall have more to say directly, the state owns no railroads. As for Central America, Costa Rica and Honduras have some petty lines, which are worked at a loss. Guatemala had a railroad till 1904, when it was transferred to a private company. Nicaragua has also leased its lines. Colombia owns and works at a profit, all of which is said to be devoted to betterment, 24 miles of line.
In South America, Peru and Argentina own, as far as I am aware, no railroads. The Chilian government owns about 1,600 miles out of the 3,000 miles in the country. Needless to say private capital has secured the most profitable lines. The government railroad receipts hardly cover the working expenses. The Brazilian government formerly owned a considerable proportion of its railroad network of nearly 11,000 miles. Financial straits forced it some years ago to dispose of a large part to private companies, to the apparent advantage at once of the taxpayer, the shareholder and the railroad customer. About 1,800 miles of line are still operated by the government, the receipts of which, roughly speaking, do a little more than balance working expenses. But it may be broadly said that the present Brazilian policy is adverse to state ownership and in favor of the development of the railroad system by private enterprise.
THE UNITED STATES SITUATION.
The question of public ownership and operation was, however, raised very definitely in the United States only two years ago, when Mr. Bryan made a speech stating that his European experience had convinced him that it was desirable to nationalize the railroads of the United States. For many weeks after, Mr. Bryan's pronouncement was discussed in every newspaper and on every platform, from Maine to California. Practically, Mr. Bryan found no followers, and today, though he is the accepted candidate of the Democratic party for the Presidency, the subject has been tacitly shelved. To some extent this may have been due to the ludicrous impossibility, if I may say so with all respect for a possible President, of Mr. Bryan's proposals. In order, presumably, not to offend his own Democratic party, the traditional upholders of the rights of the several states, he seriously suggested that the Federal government should work the trunk lines, and the respective state governments the branches. Even if anybody knew in every case what is a trunk line and what is a branch, the result would be to create an organism about as useful for practical purposes as would be a human body in which the spinal cord was severed from the brain. Mr. Bryan's proposal was never discussed in detail: public sentiment throughout the Union was unexpectedly unanimous against it, and it is safe to say that the nationalization of the railroads of the United States is not in sight at present.
But though nationalization is nowhere in America a practical issue, everywhere in America the relations between the railroads and the state have become much closer within the last few years. Canada a few years ago consolidated its railroad laws and established a Railway Commission, to which was given very wide powers of control both over railroad construction and operation and over rates and fares for goods and passengers. Argentina has also moved in the same direction. In the United States, not only has there been the passage by the Federal Congress at Washington of the law amending the original Act to Regulate Commerce and giving much increased powers to the Interstate Commerce Commission, besides various other Acts dealing with subsidiary points, such as hours of railroad employes, but scores, if not hundreds, of Acts have been passed by the various state legislatures. With these it is quite impossible to deal in detail; many of them impose new pecuniary burdens upon the railroad companies, as, for instance, the obligation to carry passengers at the maximum rate of a penny per mile. All of them, speaking broadly, impose new obligations and new restrictions upon the railroad companies. Not a few have already been declared unconstitutional, and therefore invalid, by the law courts. And when the mills of American legal procedure shall at length have finished their exceedingly slow grinding, it is safe to prophesy that a good many more will have ceased to operate. But for all that, the net result of state and Federal legislation in the sessions of 1906 and 1907 will unquestionably be that even after the reaction and repeal, which, thanks to the Wall street panic of last year, is now in progress, the railroads of the United States will in the future be subject to much more rigid and detailed control by public authority than there has been in the past. The reign of railroad despotism, more or less benevolent, is definitely at an end; the reign of law has begun. It is only to be regretted that the quantity of the law errs as much on the side of excess as its quality on the side of deficiency.
THE MEXICAN SITUATION.
Apart from its interest as a quite startling example of how not to do it, the recent railroad legislation of the United States is only valuable as an indication of the tendency, universal in all countries, however governed, for the state to take a closer control over its railroads. Much more interesting as containing a definite political ideal, worked out in detail in a statesmanlike manner, is the recent railroad legislation of Mexico. One may be thought to be verging on paradox in suggesting that England, with seven centuries of parliamentary history, can learn something from the Republic of Mexico. But for all that I would say, with all seriousness, that I believe the relation between the state and the national railroads is one of the most difficult and important questions of modern politics, and that the one valuable and original contribution to the solution of that question which has been made in the present generation is due to the President of the Mexican Republic and his Finance Minister, Señor Limantour.
Broadly, the Mexican situation is this: The Mexican railroads were in the hands of foreign capitalists, English mainly so far as the older lines were concerned, American in respect to the newer railroads, more especially those which constituted continuations southwards of the great American railroad systems. The foreign companies, whether English or American, naturally regarded Mexico as a field for earning dividends for their shareholders. The American companies further, equally naturally, tended to regard Mexico as an annexe and dépendance of the United States. If they thought at all of the interest of Mexico in developing as an independent self-contained state, they were bound to regard it with hostility rather than with favor, and such a point of view could hardly commend itself to the statesmen at the head of the Mexican government. Yet Mexico is a poor and undeveloped country, quite unable to dispense with foreign capital; and, further, it was at least questionable whether Mexican political virtue was sufficiently firm-rooted to withstand the manifold temptations inherent in the direct management of railroads under a parliamentary régime. Under these circumstances the Mexicans have adopted the following scheme: For a comparatively small expenditure in actual cash, coupled with a not very serious obligation to guarantee the interest on necessary bond issues, the Mexican government have acquired such a holding of deferred ordinary stock in the National Railroad Company of Mexico as gives them, not, indeed, any immediate dividend on their investment, but a present control in all essentials of the policy of the company, and also prospects of considerable profit when the country shall have further developed. The organization of the company as a private commercial undertaking subsists as before. A board of directors, elected in the ordinary manner by the votes of shareholders, remains as a barrier against political or local pressure in the direction of uncommercial concessions, whether of new lines or of extended facilities or reduced rates on the old lines; but—and here is the fundamental difference between the new system and the old—whereas under the old system the final appeal was to a body of shareholders with no interest beyond their own dividend, the majority shareholder is now the Government of Mexico, with every inducement to regard the interests, both present and prospective, of the country as a whole.
IRREFRAGABLE THEORY OF PUBLIC OWNERSHIP.
Public ownership of railroads is in theory irrefragable. Railroads are a public service; it is right that they should be operated by public servants in the public interest. Unfortunately, especially in democratically organized communities, the facts have not infrequently refused to fit the theories, and the public servants have allowed, or been constrained to allow, the railroads to be run, not in the permanent interest of the community as a whole, but in the temporary interest of that portion of the community which at the moment could exert the most strenuous pressure. The Mexican system, if it succeeds in establishing itself permanently—for as yet it is only on its trial—may perhaps have avoided both Scylla and Charybdis. Faced with a powerful but local and temporary demand, the government may be able to reply that this is a matter to be dealt with on commercial lines by the board of directors. If, on the other hand, permanent national interests are involved, the government can exercise its reserve power as a shareholder, can vote the directors out of office, and so prevent the continuance of a policy which would in its judgment be prejudicial to those interests, however much it might be to the advantage of the railroad as a mere commercial concern.
STATE CONTROL OR OWNERSHIP.
The history whose outline I have now very briefly sketched shows, I think, that whereas there is everywhere a tendency towards further state control, the tendency towards absolute state-ownership and state-operation is far from being equally universal. I shall have a word to say presently as to the reasons why America shows no signs of intention to follow the example of continental Europe. Meanwhile it is well to notice that American experience proves also the extreme difficulty of finding satisfactory methods of control. Sir Henry Tyler said some five-and-thirty years ago in England, in words that have often been quoted since, "If the state can't control the railroads, the railroads will control the state"; and President Roosevelt has again and again in the last few years insisted on the same point. "The American people," he said in effect, "must work out a satisfactory method of controlling these great organizations. If left uncontrolled, there will be such abuses and such consequent popular indignation that state-ownership will become inevitable, and state-ownership is alien to American ideas, and might cause very serious political dangers."
Perhaps some of my hearers may remember Macaulay's graphic description of the passion that was aroused by Charles James Fox's proposed India Bill; it was described as a Bill for giving in perpetuity to the Whigs, whether in or out of office, the whole patronage of the Indian government. The objection felt by American statesmen to handing over their railroads to the National government—for I think it may be taken for granted that if they were nationalized it would have to be wholly under Federal management, and that the separate states could take no part in the matter—is in principle the same. There are something like a million and a half men employed on the railroads of the United States, say roughly 7 or 8 per cent. of the voters. Americans feel that rival political parties might bid against each other for the support of so vast and homogeneous a body of voters; that the amount of patronage placed at the disposal of the executive government for the time being would be enormous; and that the general interests of the nation might be sacrificed by politicians anxious to placate—to use their own term—particular local and sectional interests. How far this fear, which is undoubtedly very prevalent in the states, is justified by the history of state railroads in other countries is a question exceedingly difficult to answer. Dealing with state railroads in the lump, it is easy to point to some against which the charge would be conspicuously untrue. To take the most important state railroad organization in the world, the Prussian system, no one, I think, can fairly deny that it has been operated—in intention at least, if not always in result—for the greatest good of the greatest number. But then Prussia is Prussia, with a government in effect autocratic, with a civil service with strong esprit de corps and permeated with old traditions, leading them to regard themselves as the servants of the king rather than as candidates for popular favor. An American statesman, Charles Francis Adams, wrote as follows more than 30 years ago: "In applying results drawn from the experience of one country to problems which present themselves in another, the difference of social and political habit and education should ever be borne in mind. Because in the countries of continental Europe the state can and does hold close relations, amounting even to ownership, with the railroads, it does not follow that the same course could be successfully pursued in England or in America. The former nations are by political habit administrative, the latter are parliamentary. In other words, France and Germany are essentially executive in their governmental systems, while England and America are legislative. Now the executive may design, construct or operate a railroad; the legislative never can. A country therefore with a weak or unstable executive, or a crude and imperfect civil service, should accept with caution results achieved under a government of bureaus. Nevertheless, though conclusions cannot be adopted in the gross, there may be in them much good food for reflection."
CONTROL BY DEMOCRACY, OR OWNERSHIP BY AUTOCRACY.
I am inclined to think that the effect of the evidence is that the further a government departs from autocracy and develops in the direction of democracy, the less successful it is likely to be in the direct management of railroads. Belgium is far from being a pure democracy; but compared with Prussia it is democratic, and compared with Prussia its railroad management is certainly inferior. Popular opinion in Belgium seems at present to be exceedingly hostile to the railroad administration; official documents assert that, while the service to the public is bad, the staff are scandalously underpaid, and yet that the railroads are actually not paying their way. There was, it is true, till recently an accumulated surplus of profits carried in the railroad accounts, but the official figures have been recently revised, and the surplus is shown to be non-existent.
The Swiss experiment is too new to justify any very positive conclusions being drawn from it; but this much is clear: the state has had to pay for the acquisition of the private lines sums very much larger than were put forward in the original estimate; the surplus profits that were counted on have not been obtained in practice; the economies that were expected to result from unification have not been realized; the expenditure for salaries and wages has increased very largely; and so far from there being a profit to the Federal government, the official statement of the railroad administration is that, unless the utmost care is exercised in the future, the railroad receipts will not cover the railroad expenditure.
The Italian experiment is still newer. It would not be fair to say that it proves anything against state management; but I do not think that the most fervid Etatist would claim that, either on the ground of efficiency or on the ground of economy, it has so far furnished any argument in favor of that policy.
If we wish to study the state management of railroads by pure democracies of Anglo-Saxon type, we must go to our own Colonies. My own impressions, formed after considerable study of the subject and having had the advantage of talking with not a few of the men who have made the history, I hesitate to give. It is easy to find partisan statements on both sides; for example, in a recent article in the Nineteenth Century, entitled "The Pure Politics Campaign in Canada," I find the following quotation from the Montreal Gazette—a paper of high standing—dated May 27, 1907: "Every job alleged against the Russian autocracy has been paralleled in kind in Canada. First, there is the awful example of the Intercolonial Railway, probably as to construction the most costly single-track system in North America, serving a good traffic-bearing country, with little or no competition during much of the year, and in connection with much of its length no competition at all, but so mishandled that one of its managers, giving up his job in disgust, said it was run like a comic opera. Some years it does not earn enough to pay the cost of operation and maintenance (I may interpolate that its gross earnings per mile are equal to those of an average United States railroad), and every year it needs a grant of one, two, three or four million dollars out of the Treasury to keep it in condition to do at a loss the business that comes to it. When land is to be bought for the road, somebody who knows what is intended obtains possession of it, and turns it over to the government at 40, 50 and 100 per cent advance. This is established by the records of Parliament and of the courts of the land."
AFRICAN CAPE GOVERNMENT RAILROADS.
Probably no one outside the somewhat heated air of Canadian politics is likely to believe this damning accusation quite implicitly; but even if there were not a word of truth in it—and that the management of the Intercolonial Railway is, for whatever cause, bad, appears, I think, clearly from the public figures—it is bad enough that such charges should be publicly made and apparently believed. Let me quote now from a document of a very different type referring to a colony very far distant from Canada: "A memorandum relative to Railroad Organization, prepared at the request of the Railroad Commissioners of the Cape Government Railways, by Sir Thomas R. Price, formerly general manager of those railroads, and now general manager of the Central South Africa (i. e., Transvaal and Orange River) Railways, dated Johannesburg, February 22, 1907."
"The drawbacks in the management of the railroads in the Cape that call for removal arise from the extent to which, and the manner in which, the authority of Parliament is exercised. They are twofold in their character, viz.:
"(1) The practice of public authorities, influential persons, and others bent on securing concessions or other advantages which the general manager has either refused in the conscientious exercise of his functions, or is not likely to grant, making representation to the Commissioner (as the ministerial head of the Government), supplemented by such pressure, political influence, or other means as are considered perfectly legitimate in their way, and are best calculated to attain the end applicants have in view.
"(Many members of Parliament act similarly in the interests of the districts, constituents, or railroad employes in whom they happen to be interested. It is by no means unknown for the requests in both classes of cases to coincide somewhat with a critical division in Parliament—present or in prospect—or otherwise something has occurred which is regarded as irritating to the public or embarrassing to the Government, and the desire to minimize the effect by some conciliatory act is not unnatural.)
"(2) The extent to which the fictitious, and often transitory, importance which a community or district manages to acquire obscures (under the guise of the Colony's welfare) the consideration of the railroad and general interest in the Colony as a whole."
(During the earlier period of my railroad service in the Cape Colony few things impressed me more, coming as I had from a railroad conducted on strictly business lines, than the extent to which the conduct of railroad affairs was influenced by certain conditions. Nor was this impression lessened afterwards when, in the course of a conversation on the matter, Sir Charles Elliott mentioned to me that he had more than once told a late railway commissioner, "The Government is powerful, but [mentioning the town and authority] is more powerful still.")
"I do not regard it as open to doubt that the Colony as a whole has suffered severely in consequence, the inland portions of the Colony particularly so; and that the need for a remedy is pressing if the railroads are to be conducted as a business concern for the benefit of the Colony.
"The necessity for the railroads and their administration being removed from such an atmosphere, and treated as a most valuable means of benefiting the Colony as a whole, while not neglecting the interests of a district (but not subordinating the welfare of the whole Colony thereto), is pressing. That there should be an authority to refer to in case of real necessity, where the decision or action of the general manager is not regarded as being in the public interests, is also clear. But it is equally manifest that the Commissioner or the Government of the day, with political or party consideration always in view, is not the proper court of reference.
"There can be little doubt that in the Cape Colony political considerations have influenced the adoption of new lines and their construction—many, if not most of them of an unprofitable character—without sufficient inquiry or information, often with scanty particulars, and possibly contrary to the advice of the officer afterwards entrusted with the construction and working of the line.
"A material change is imperatively necessary in this respect, if only to insure the solvency of the Colony."
VICTORIAN (AUSTRALIA) RAILROADS.
It is sometimes conceded that improper exercise of political influence may be a real danger where railroads are managed under a parliamentary régime by a Minister directly responsible to Parliament; but that difficulty, it is said, can be got over by the appointment of an independent Commission entirely outside the political arena. History does not altogether justify the contention. The last report of the Victorian State Railways gives a list of seven branches, with an aggregate length of 46 miles, constructed under the Commissioner régime at a cost of £387,000, which are now closed for traffic and abandoned because the gross receipts failed even to cover the out-of-pocket working expenses. It is not alleged, nor is it a fact, that those lines were constructed in consequence of any error of judgment on the part of the Commissioners. But in truth it is inherently impossible to use a Commission to protect a community against itself. In theory a Commission might be a despot perfectly benevolent and perfectly intelligent; in that case, however, it can hardly be said that the nation manages its own railroads. But of course any such idea is practically impossible, because despots, however benevolent and intelligent, cannot be made to fit into the framework of an Anglo-Saxon constitution. In practical life the Railway Commission must be responsible to someone, and that someone can only be a member of the political government of the day.
COMPETITION HAS CEASED TO REGULATE.
I have indicated what in America, where the subject is much more carefully considered than here, is regarded as a great obstacle to a state-railroad system; but I have pointed out also that it is quite possible that statesmen fully alive to the dangers may yet find themselves constrained to risk them unless some satisfactory method of controlling private railroad enterprise can be found. I do not think it can be considered that this has been done in England at the present time. In the main we have relied on the force of competition to secure for us reasonable service at not unreasonable rates; and as I still cherish a long-formed belief that English railroads are on the whole among the best, if not actually the best, in the world, I am far from saying that competition has not done its work well. But competition is an instrument that is at this moment breaking in our hands. Within quite a few years the South Eastern Railway was united with the Chatham; the Great Southern has obtained a monopoly over a large part of Ireland; in Scotland the Caledonian and the North British, the Highland and the Great North have in very great measure ceased to compete. If the present proposals for the working union of the Great Eastern, the Great Northern and the Great Central go through, competition in the East of England will be absolutely non-existent from the Channel to the Tweed. And one can hardly suppose that matters will stop there. In fact, since this address was in type a comprehensive scheme of arrangement for a long term of years between the London & North Western and the Midland has been announced. We must, I think, assume that competition, which has done good work for the public in its day, is practically ceasing to have any real operation in regulating English railroads.
HOW SHALL GOVERNMENT REGULATE?
For regulation, therefore, we must fall back on government; but how shall a government exercise its functions? Regulation may be legislative, judicial, executive, or, as usually happens in practice, a combination of all three. But we may notice that, as Mr. Adams points out, in Anglo-Saxon countries it is the Legislature and the Judicature that are predominant; whereas in a country like France, which though a democracy is bureaucratically organized, it is executive regulation that is most important. Now, the capacity of the Legislature to regulate is strictly limited; it can lay down general rules; it can, so to speak, provide a framework, but it cannot decide ad hoc how to fit into that framework the innumerable questions that come up for practical decision day by day.
The capacity of the law courts to regulate is even more strictly limited. For not only is it confined within the precise limits of the jurisdiction expressly conferred upon it by the Legislature, but further, by the necessity of the case, a court of law can only decide the particular case brought before it; a hundred other cases, equally important in principle, and perhaps more important in practice, may never be brought before it at all. Even if the court had decided all the principles, it has no machinery to secure their application to any other case than the one particular case on which judgment was given. There was a case decided 30 years ago by our Railroad Commission, the principle of which, had it been generally applied throughout the country, would have revolutionized the whole carrying business of Great Britain. It has not been so applied, to the great advantage, in my judgment, of English trade. Further, the great bulk of the cases which make up the practical work of a railroad: "What is a reasonable rate, having regard to all the circumstances, present and prospective, of the case? Would it be reasonable to run a new train or to take off an old one? Would it be reasonable to open a new station, to extend the area of free cartage, and the like?"—all these are questions of discretion, of commercial instinct. They can only be answered with a "Probably on the whole," not with a categorical "Yes" or "No," and they are absolutely unsuitable for determination by the positive methods of the law court with its precisely defined issues, its sworn evidence, and its rigorous exclusion of what, while the lawyer describes it as irrelevant, is often precisely the class of consideration which would determine one way or other the decision of the practical man of business.
It seems to me, therefore, that both in England and in America we must expect to see in the near future a considerable development of executive government control over railroads.
This is not the place to discuss in detail the form that control should take, but one or two general observations seem worth making. The leading example of executive control is France; in that country the system is worked out with all the French neatness and all the French logic. But it is impossible to imagine the French principle being transplanted here. For one thing, the whole French railroad finance rests upon the guarantee of the government. The French government pays, or at least is liable to pay, the piper, and has, therefore, the right to call the tune. The English government has not paid and does not propose to pay, and its claim to call the tune is therefore much less. Morally the French government has a right—so far at least as the railroad shareholders are concerned—to call on a French company to carry workmen at a loss; morally, in my judgment at least, the English government has no such right. But there is a further objection to the French system; the officers of the French companies have on their own responsibility to form their own decisions, and then the officers of the French government have, also on their own responsibility, to decide whether the decision of the company's officer shall be allowed to take effect or not. The company's officer has the most knowledge and the most interest in deciding rightly, but the government official has the supreme power. The system has worked—largely, I think, because the principal officers of the companies have been trained as government servants in one or other of the great Engineering Corps, des Mines or des Ponts et Chaussées. But it is vicious in principle, and in any case would not bear transplanting.
What we need is a system under which the responsibility rests, as at present, with a single man (let us call him the general manager), and he does what he on the whole decides to be best, subject however to this: that if he does what no reasonable man could do, or refuses to do what any reasonable man would do, there shall be a power behind to restrain, or, as the case may be, to compel him. And that power may, I think, safely be simply the Minister—let us call him the President of the Board of Trade. For, be it observed, the question for him is not the exceedingly difficult and complicated question, "What is best to be done?" but the quite simple question, "Is the decision come to which I am asked to reverse so obviously wrong that no reasonable man could honestly make it?"
And even this comparatively simple question the President would not be expected to decide unaided. He will need competent advisory bodies. Railroad history shows two such bodies that have been eminently successful—the Prussian State Railway Councils and the Massachusetts Railroad Commission. Wholly unlike in most respects, they are yet alike in this: their proceedings are public, their conclusions are published, and those conclusions have no mandatory force whatever. And it is to these causes that, in my judgment, their success, which is undeniable, is mainly due. Let me describe both bodies a little more at length.
There are in Prussia a number (about ten I think) of District Railway Councils, and there is also one National Council; they consist of a certain number of representative traders, manufacturers, agriculturists, and the like, together with a certain number of government nominees; and the railroad officials concerned take part in their proceedings, but without votes. The Councils meet three or four times a year, their agenda paper is prepared and circulated in advance, and all proposed changes of general interest, whether in rates or in service, are brought before them, from the railroad side or the public side, as the case may be. The decision of the Council is then available for information of the Minister and his subordinates, but as has been said, it binds nobody.
The Massachusetts Railroad Commission is a body of three persons, usually one lawyer, one engineer and one man of business, appointed for a term of years by the Governor of the state. Originally the powers of this Commission were confined to the expression of opinion. If a trade, or a locality, or indeed a single individual, thought he was being treated badly by a Massachusetts railroad, he could complain to the Commission; his complaint was heard in public; the answer of the railroad company was made there and then; and thereupon the Commissioners expressed their reasoned opinion. The system has existed now for more than 30 years, and it is safe to say that, with negligible exceptions, if the Commission expresses the opinion that the railroad is in the right, the applicant accepts it; if the Commission says that the applicant has a real grievance, the railroad promptly redresses it on the lines which the Commission's opinion has indicated. The success of the Commission in gaining the confidence of both sides has been so great that of late years its powers have been extended, and it has been given, for example, authority to control the issue of new capital and the construction of new lines. But on the question with which we are specially concerned here, the conduct of existing railroad companies as public servants, it can still do nothing but express an opinion; and it may be added that the Commission itself has more than once objected to any extension of that power.
Mr. Adams, from whom I have already quoted, was the first Chairman of the Commission. He has described their position as resting "on the one great social feature which distinguishes modern civilization from any other of which we have a record, the eventual supremacy of an enlightened public opinion." That public opinion is supreme in this country, few would be found to deny; that public opinion in railroad matters is enlightened, few would care to assert. But given the enlightened public opinion, one can hardly doubt that it will secure not merely eventual but immediate supremacy. In truth, as Bagehot once pointed out, a great company is of necessity timorous in confronting public opinion. It is so large that it must have many enemies, and its business is so extended that it offers innumerable marks to shoot at. It is much more likely to make, for the sake of peace, concessions that ought not to be made than it is to resist a demand that reasonable men with no personal interest in the matter publicly declare to be such as ought rightly to be conceded.
To sum up in a sentence the lesson which I think the history we have been considering conveys, it is this: Closer connection than has hitherto existed between the state and its railroads has got to come, both in this country and in the United States. Hitherto in Anglo-Saxon democracies neither state ownership nor state control has been over-successful. The best success has been obtained by relying for control, not on the constable, but on the eventual supremacy of an enlightened public opinion. Nearly 20 years ago, in the pages of the Economic Journal, I appealed to English economists to give us a serious study of what the Americans call the transportation problem in its broad economic and political aspects. Since then half-a-dozen partisan works have appeared on the subject, not one of them in my judgment worth the paper on which it is printed; but not a single serious work by a trained economist. And yet such a work is today needed more than ever. Let me once more appeal to some of our younger men to come forward, stop the gap, and enlighten public opinion.