There remains still to be considered the other of the two objections above stated as liable to be raised against the proposed interpretation of the proprietary contract—the objection, namely, that it would be a serious hindrance to railway enterprise. After what has already been said, it is scarcely needful to reply, that the hindrance would be no greater than is natural and healthful—no greater than is requisite to hold in check the private interests at variance with public ones. This notion that railway enterprise will not go on with due activity without artificial incentives—that bills for local extensions “rather need encouragement,” as the Committee say, is nothing but a remnant of protectionism. The motive which has hitherto led to the formation of all independent railway companies—the search of capitalists for good investments—may safely be left to form others as fast as local requirements become great enough to promise fair returns—as fast, that is, as local requirements {104} should be satisfied. This would be manifest enough without illustration; but there are facts proving it.
Already we have incidentally referred to the circumstance, that it has of late become common for landowners, merchants, and others locally interested, to get up railways for their own accommodation, which they do not expect to pay satisfactory dividends; and in which they are yet content to invest considerable sums, under the belief that the indirect profits accruing to them from increased facilities of traffic, will outbalance the direct loss. To so great an extent is this policy being carried that, as stated to the Select Committee, “in Yorkshire and Northumberland, where branch lines are being made through mere agricultural districts, the landowners are giving their land for the purpose, and taking shares.” With such examples before us, it cannot rationally be doubted that there will always be capital forthcoming for making local lines as soon as the sum of the calculated benefits, direct and indirect, justifies its expenditure.
“But,” it will be urged, “a branch that would be unremunerative as an independent property, is often remunerative to the company which has made it, in virtue of the traffic it brings to the trunk line. Though yielding meagre returns on its own capital, yet, by increasing the returns on the capital of the trunk line, it compensates, or more than compensates. Were the existing company, however, forbidden to extend its undertaking, such a branch would not be made; and injury would result.” This is all true, with the exception of the last assertion, that such a branch would not be made. Though in its corporate capacity the company owning the trunk line would be unable to execute a work of this nature, there would be nothing to prevent individual shareholders in the trunk line from uniting to execute it; and were the prospects as favourable as is assumed, this course, being manifestly advantageous to individual shareholders, would be pursued by many of them. If, acting in concert with others similarly {105} circumstanced, the owner of £10,000 worth of stock in the trunk line, could aid the carrying out of a proposed feeder promising to return only 2 per cent. on its cost, by taking shares to the extent of £1000, it would answer his purpose to do this, providing the extra traffic it brought would raise the trunk-line dividend by one-fourth per cent. Thus, under a limited proprietary contract, companies would still, as now, foster extensions where they were wanted: the only difference being that, in the absence of guaranteed dividends, due caution would be shown; and the poorer shareholders would not, as at present, be sacrificed to the richer.
In brief, our position is, that whenever, by the efforts of all parties to be advantaged—local landowners, manufacturers, merchants, trunk-line shareholders, &c., the capital for an extension can be raised—whenever it becomes clear to all such, that their indirect profits plus their direct profits will make the investment a paying one; the fact is proof that the line is wanted. On the contrary, whenever the prospective gains to those interested are insufficient to induce them to undertake it, the fact is proof that the line is not wanted so much as other things are wanted, and therefore ought not to be made. Instead, then, of the principle we advocate being objectionable as a check to railway enterprise, one of its merits is, that by destroying the artificial incentives to such enterprise, it would confine it within normal limits.
A perusal of the evidence given before the Select Committee will show that it has sundry other merits, which we have space only to indicate.
It is estimated by Mr. Laing—and Mr. Stephenson, while declining to commit himself to the estimate, “does not believe he has overstated it,”—that out of the £280,000,000 already raised for the construction of our railways, £70,000,000 has been needlessly spent in contests, in duplicate lines, in “the multiplication of an immense number of schemes prosecuted at an almost reckless {106} expense;” and Mr. Stephenson believes that this sum is “a very inadequate representative of the actual loss in point of convenience, economy, and other circumstances connected with traffic, which the public has sustained by reason of parliamentary carelessness in legislating for railways.” Under an equitable interpretation of the proprietary contract, the greater part of this would have been avoided.
The competition between rival companies in extension and branch-making, which has already done vast injury, and the effects of which, if not stopped, will, in the opinion of Mr. Stephenson, be such that “property now paying 5 1⁄2 per cent. will in ten years be worth only 3 per cent., and that on twenty-one millions of money”—this competition could never have existed in its intense and deleterious form under the limiting principle we advocate.
Prompted by jealousy and antagonism, our companies have obtained powers for 2000 miles of railway which they have never made. The millions thus squandered in surveys and parliamentary contests—“food for lawyers and engineers”—would nearly all have been saved, had each supplementary line been obtainable only by an independent body of proprietors with no one to shield them from the penalties of reckless scheming.
It is admitted that the branches and feeders constructed from competitive motives have not been laid out in the best directions for the public. To defeat, or retaliate upon, opponents, having been one of the ends—often the chief end—in making them, routes have been chosen especially calculated to effect this end; and the local traffic has in consequence been ill provided for. Had these branches and feeders, however, been left to the enterprise of their respective districts, aided by such other enterprise as they could attract, the reverse would have been the fact; seeing that on the average, in these smaller cases as in the greater ones, the routes which most accommodate the public must be the routes most profitable to projectors.
Were the illegitimate competition in extension-making {107} done away, there would remain between companies just that normal competition which is advantageous to all. It is not true, as is alleged, that there cannot exist between railways a competition analogous to that which exists between traders. The evidence of Mr. Saunders, the secretary of the Great Western Company, proves the contrary. He shows that where the Great Western and the North Western railways communicate with the same towns, as at Birmingham and Oxford, each has tacitly adopted the fare which the other was charging; and that while there is thus no competition in fares, there is competition in speed and accommodation. The results are, that each takes that portion of the traffic which, in virtue of its position and local circumstances, naturally falls to its share; that each stimulates the other to give the greatest advantages it can afford; and that each keeps the other in order by threatening to take away its natural share of the traffic if, by ill-behaviour or inefficiency, it counterbalances the special advantages it offers. Now, this is just the form which competition eventually assumes between traders. After it has been ascertained by underselling what is the lowest remunerative price at which any commodity can be sold, the general results are, that that becomes the established price; that each trader is content to supply those only who, from proximity or other causes, naturally come to him; and that only when he treats his customers ill, need he fear that they will inconvenience themselves by going elsewhere for their goods.