The British State Telegraphs / A Study of the Problem of a Large Body of Civil Servants in a Democracy

by Hugo Richard Meyer

But Mr. Scudamore’s predictions as to the net revenue to be obtained from the State telegraphs turned out to be appalling blunders. In only thirteen out of thirty-six years, from 1870-71 to 1905-06, did the net revenue reach Mr. Scudamore’s minimum estimate; in only two of those thirteen years did it reach the maximum estimate; and in only seven of the thirteen years did it reach the average estimate. In the period 1892-93 to 1905-06, the operating expenses aggregated $231,196,000, while the gross receipts aggregated $229,761,000. In the latter sum are included $8,552,000, the proceeds of the royalties paid the Government by the British National Telephone Company for the privilege of conducting the telephone business in competition with the State telegraphs.[60] If that sum be excluded from the postal telegraph gross revenues, as not having been earned by the telegraphs, it will be found that in the period, 1892-93 to 1905-06, the operating expenses exceeded the gross revenue by $9,987,000.

Operating Expenses under-estimated by one-half

Mr. Scudamore, in 1869, predicted that the operating expenses would be 51 per cent. to 56 per cent. of the gross revenue, in the first year of the working of the telegraphs by the Post Office; and that they would continue to be correspondingly low. In 1875, a Committee appointed by the Treasury reported that in consequence of the great extension of facilities effected since 1870, “it would be difficult for the Government to work the Telegraph Service as cheaply as did the Companies, but a reasonable expectation might be entertained that the expenses might be kept within 70 per cent. or 75 per cent. of the gross revenue. That would leave a margin sufficient to pay the interest on the debt incurred in purchasing the telegraphs.”[61] As a matter of fact, the operating expenses only once have come within the limits fixed by the Committee of 1875; and at the close of 1900-01, they had averaged 92.5 per cent.[62] Here again, the telephone royalties are included in the gross receipts.

On March 31, 1906, the capital invested in the telegraphs was $84,812,000.[63] To raise that capital, the Government had sold $54,300,000 three per cent. bonds at an average price of about 92.3;[64] and for the rest, the Government had drawn upon the current revenue raised by taxation.

Aggregate Telegraph Deficit

The net revenue earned by the telegraphs covered the interest on the bonds outstanding, in 1870-71, and in the years 1879-80 to 1883-84. On March 31, 1906, the sums annually paid by the Government by way of interest that had not been earned by the telegraphs, had aggregated $22,530,000, or 26.5 per cent. of the capital invested in the telegraphs.[65] Upon the sums invested since 1874, aggregating $34,534,000, the Government has received no interest.

Parliament Responsible for Deficits

The statement is commonly made, and widely accepted, that the financial failure of the State telegraphs is due to the excessive price paid for the plant. But that statement overlooks two facts: that since 1892-93 the telegraphs have not earned operating expenses; and that in 1880-81 the telegraphs became abundantly able to earn the interest even upon their immoderate capitalization.[66] The statement in question also overlooks the fact that the telegraphs easily could have maintained the position reached in 1880-81, had not the House of Commons taken the reins out of the hands of the successive Governments of the day. The House of Commons after 1881 fixed the wages and salaries to be paid the Government telegraph employees in accordance with the political pressure those employees were able to bring, not in accordance with the market value of the services rendered by the employees. The House of Commons also reduced the tariff on telegrams from 24 cents for 20 words, to 12 cents for 12 words. It took that course against the protests of the Government of the day, and cut deep into the margin of profit of the telegraph department.

The fact that the House of Commons after 1880-81 took the reins out of the hands of the successive Governments of the day, in no way diminished Mr. Scudamore’s responsibility for the appalling errors into which he fell when he forecast the financial outcome of the nationalization of the telegraphs. Mr. Leeman, of the Parliamentary Select Committee of 1868, expressly asked Mr. Scudamore: “You do not think there is any fear of the cost being increased by the salaries being much increased under the management of the Post Office?” Mr. Scudamore without hesitation replied in the negative, though he had just stated that in the Post Office and in all Government departments the pay of the lower grades of employees was somewhat higher than it was in commercial and industrial life.[67] Moreover, Mr. Scudamore, as one of the two chief executive officers of the Post Office, must have been aware that the Government was neither perfectly free to promote men according to their merit, and irrespective of length of service, nor free to discharge men who were comparatively inefficient and lax in the discharge of their duties. He must have known that those disabilities made it impossible for the Post Office to work as cheaply as private enterprise worked.