Germany tried private railways for 25 years, and Austria tried them over a quarter of a century, and they have tried the two methods side by side ever since the public system was organized. In New Zealand, also, and Australia the two systems have been tried side by side. And in every one of these countries where they have thoroughly tried both systems the conclusion by an overwhelming consensus of opinion is that public railways serve the public interests best, and also make lower rates and serve the people at less total cost. Switzerland, after a careful study of both systems in various parts of the world, came to the same conclusion, and her people voted 2 to 1 to transfer the railways to public ownership and operation. All this is very strong evidence, and if we turn from the tangled web of an international comparison of averages and look at the principles and causes at work in the case, it will be clear that public ownership tends to lower rates as well as to conserve the higher wealth.
In the same country and under similar conditions otherwise than in respect to ownership and control, public ownership tends as a rule to make lower rates than private ownership. This tendency results from the fundamental difference of aim between the two systems. Private monopoly aims at dividends for stockholders; public ownership aims at service for all. A normal public institution aims at the public good, while a normal private monopoly aims at private profit. It serves public interest also, but such service is incidental, and not the primary purpose. It serves the public interest so long as it runs along in the same direction and is linked with private profit, but when the public interest departs from or runs counter to the interests owning or controlling the system, the public interests are subordinated.
The conflict between public and private interest is specially strong in the matter of rates. The rate-level that yields the greatest profit is much higher than the rate-level that affords the greatest service, or the greatest service without deficit; and since private monopoly aims at profit it seeks the higher rate-level. Public ownership aims at service, not at profit, and therefore gravitates to the lower rate-level, where traffic and service are greater.[[419]]
There need be no hesitation, therefore, on economic grounds about pressing toward the dominance of public interest, either in the form of regulation, or, when political conditions justify it, in the more complete form of public ownership. And this dominance of public interest is the only thing that can eliminate unjust discrimination and establish an impartial railway service.
The State railways of Germany, Austria, Switzerland, Belgium, Denmark, and the Anglo-Saxon republics of South Africa and Australasia are absolutely free from unjust discrimination. There are no complaints or suspicions on that score. Shippers know to a certainty that their rivals are paying the same charges that they are. Even the most strenuous opponents of public railways do not accuse them of favoritism. The railways privately operated in Holland, Denmark, Sweden and Norway, are also free from discrimination. Thorough public control, natural honesty, and lack of overwhelming temptation have combined to produce a pure administration. In Prussia, the Government, strong as it was, did not succeed in preventing discrimination on the private railways. President A. T. Hadley, of Yale, says: “Where the system of granting special rates becomes deeply rooted a great many are given without any principle at all, through the caprice or favoritism of the railroad companies and their agents.” The revelations made before the Hepburn Committee, as to the practice of railroads in the matter of secret rates were simply appalling. This is the most indefensible part of the whole system of railroad management. It is characteristic that Bismarck, who always chose his fighting ground with skill, made this a main base of operations in his contest against private railroad policy in Prussia. The Prussian Cabinet in the argument for the nationalization of the railways submitted to the Parliament in 1879 made the following statement:
“The principles of the publicity of the rates and the equal treatment of all shippers which are embodied in the railroad legislation of all countries, are liable, as experience has shown, to be circumvented on account of the competing interests of the railroads, and also by individual interests which have influence with the managements. The granting of these secret advantages in transportation in the most diversified ways to individual shippers, and in particular the so-called rebate system, is the most injurious misuse of the powers granted to railroad corporations. It renders government control of rates impossible, makes the competition between the different lines, as well as that of the shippers dependent on them, dishonorable and unfair, carries corruption among the railroad employés, and leads more and more to the subordination of the railroad management to the special interests of certain powerful cliques. It is the duty of the government to oppose this evil, to uphold the principle of the equal treatment of all shippers, and to enforce the legislative regulations on this subject. The importance of this problem is only equalled by the difficulty of its solution.”
The problem was not solved till the railways were nationalized, and then discrimination disappeared completely. I was not able to find a shipper in Germany nor anywhere in Europe who knew, or had heard or had even a suspicion, of the granting of any rebate or concession of any kind by the German roads. Many of them did not stop with negative statements but asserted positively that concessions could not be obtained. The nearest I came in my search for a German fraud was the discovery of an English-Italian fraud on the German roads. Leading business men in Italy told me that while they could get no concessions from the German roads directly, they could do it indirectly on transcontinental shipments by means of a trick of the English traffic managers. They made their bargains with the English manager, and he would pay a fictitious claim for damages in transit, and then write the German office that he paid so much for damages to the goods and that as it was not known in what part of the journey the goods were injured the German system must stand its part of the loss. They have to resort to fraud to get a discount on the German railways. The principal motives to discrimination are absent and the dangers to the guilty official are very great. His employers, the railway management, and the Government back of it, are unalterably opposed to the granting of unjust favors to any shipper. If a traffic man should depart from the path of impartiality the public examiners would be certain to find it out, and the traffic man would lose his job. The railway management is in the closest touch with the people through the local and national councils representing commercial bodies, labor, manufacturing, agricultural, and other industrial interests. The law requires the railway managers to consult these representative councils, and their recommendations as to rates, time-tables, and other matters of public interest are carefully considered and acted upon so far as reasonably possible.
In France the first railway manager I asked about secret discriminations said: “There is no such thing in France. The criminal law is very severe and it would mean imprisonment. There were complaints of favoritism a dozen years ago, but there have been none in recent years.” Other railway men told me substantially the same thing. But very different ideas were expressed by representatives of shipping interests and others. Here are some of their statements: “The railroads hold manufacturers and merchants at their mercy. They favor the great, and put the burdens on the little fellows. The tariffs are full of special rates, and 80 or 85 percent of these special rates are made simply for some favored merchant or manufacturer. The minister can reject or approve a tariff as a whole, but has no detailed power over one bad rate. If he retires a tariff the old one comes into effect. It is true that complaints are not made. What is the use? The danger is too great. Where is the merchant who dare undertake a campaign against the great companies?” I was assured that the statement of M. Cawes, vol. iv, p. 136, of the “Cours d’Économique politique,” was still true: “The benefit of reduced tariffs is accorded upon secret approaches and solicitations; the companies dispense at their will industrial prosperity and ruin.” The discrimination between localities is very great, owing largely to the way in which the railways are laid out. And “the companies defeat the national protective tariff by letting foreign goods ride more cheaply than French goods.” For example, American wheat from Havre to Paris pays 18 francs per ton, while French wheat from Ferte-Bernard to Paris, 37 miles less distance, pays 20 francs a ton. If the nation desires to favor the importation of foreign products, well and good, but it is a curious state of things for the Government to adopt a protective policy and then permit private railways to reverse, overrule, and nullify that policy.
We have already had occasion to throw a side light on English railroad methods in describing the way in which Italian rebaters use the elasticity of the English railway system to get fictitious damages. I had to go to Italy to find the true character of the English railway conscience. The railway men in England won’t tell. And nobody else, who will tell, knows. Yet the English traffic man, though willing to pay fake damage claims on proper occasions, is innocent of “flying tariffs,” terminal railway abuses, systematic underbilling, classification jugglery, and other preferential paraphernalia that belong to an up-to-date railway system over here. The last case of personal discrimination in rates that caused any stir was tried about 6 years ago and the preference was so small that one of our trust magnates, used to looking at large concessions, would not have been able to find it without a microscope. Nevertheless a considerable number of complaints (more than a hundred a year on the average) came before the Board of Trade and the Railway Commissioners under the traffic acts of 1888 and 1894. The Secretary of the Board of Trade tells me that these complaints relate chiefly to “high rates, poor facilities, and discriminations.” About half the complaints charge excessive rates which amount in most cases, on the face of the complaint, to discrimination between places or commodities. A large number of complaints concern higher charges for short hauls than for longer hauls on the same line, and another large group allege disproportionate charges or higher rates for shorter distances as compared with the rates on other lines. A fourth group, containing about 25 percent of all the cases, includes complaints of delay, overcharges, refusal of facilities or privileges accorded others, personal preferences in rates, etc. For example the London and Northwestern charged the complainant 12 cents a ton up to 20 miles for hauling coal, while charging the complainant’s competitors only 9 cents. Preferential treatment was alleged in the rates given to rival shipping companies for the conveyance of goods from Hull to places in Yorkshire. A coal shipper complained that the Midland Railway had for many years made a practice of allowing a rebate of 6 cents a ton to large dealers, and that in the lists of rates furnished the complainant no mention was made of this rebate or allowance, though other rebates were mentioned. The Midland replied that the system had been in operation since 1889, when the company gave notice as required by law, in the public rate-books, that they would allow a rebate to traders whose annual tonnage exceeded 25,000 tons.
The English law does not object to the paying of a commission on a large amount of traffic provided the same discount is given to all shippers who attain the stated volume of business, but a higher commission to one big shipper than to another big shipper is vigorously repressed. A case of this kind was decided by the Railroad Commission in 1901. The court found that the Midland Railway had given Rickett, Smith & Company, coal dealers, a preference of ¼ of one percent in rebates on their annual traffic account, and it enjoined the railway and allowed damages to the complaining shippers. Some 75 suits were entered by different shippers for this one cause. In the same report 28 cases are listed relating to discrimination in brewery traffic, and 16 other applications for injunctions against undue preference in respect to facilities, rates on coke, brick, flour and grain, and other commodities to certain shippers or particular places, and one request from the Inverness Chamber of Commerce for an order enjoining the railways from selling season tickets to big shippers (with a traffic worth $1,200 to $5,000 or more a year) at lower rates than they will sell them to ordinary passengers. This last application was dismissed by the court. England does not object to premiums on volume, provided all shippers of equal size receive the same treatment. That’s the principle the Trusts believe in; if vigorously worked the principle is a powerful trust builder.