In the Railway and Canal Traffic Bill (1886) was also embodied a proposal to the effect that any person who was of opinion that a company was charging an unfair or unreasonable rate might make a complaint to the Board of Trade, who were to be entitled to call on the company for an explanation and to appoint one of their officers, or a competent person, to communicate with the company and the complainant, and to endeavour to settle the difference amicably between the parties. The Board of Trade were from time to time to submit to Parliament reports of the complaints so made, the results of their proceedings, and such observations as they should think fit. The effect of this provision would have been startling. Even where a rate was within a company’s powers—although undue preference was not alleged—at the instance of a trader desirous of obtaining a reduced rate which had been refused by a company and believing that either his own circumstances or those of other traders entitled him to communicate with the Board of Trade, the railway company would be called upon to prove to the Board of Trade that the claim of the trader ought not to be granted. It would be, in effect, litigation made easy and cheap, whether the complaint was good or bad. The President, Vice-President, Secretary, or Assistant-Secretary of the Board of Trade could not spare the time necessary to master the numerous difficult questions and details as to the rates.[97] Notwithstanding the great ability with which that department is conducted, these officials could not deal with such questions in the same way or within the same time as the traders and the representatives of the companies are able. The companies would probably be burthened with correspondence and discussions on matters already fully gone into in negotiation. The discussion would be necessarily carried on through subordinates or nominees of the Board of Trade, who, it is not presumptuous to say, would be neither interested in, nor specially trained to deal with, such questions. Suppose that the representatives of the Board of Trade and the railway companies disagreed as to the necessity or reasonableness of a reduction in rates, the former would have no authority to compel the companies to comply with their views. Would not the result probably be a cry that Parliamentary powers should be conferred on the Board of Trade to enforce their conclusions? Such a policy would in the end place the railway companies of the country, whose capital has entirely been raised by private enterprise, in a worse position than the railway companies in Holland where the State has done so much for them, or in France, where it has guaranteed the dividends.
When we are invited to place in the hands of a tribunal the control of the rates, it is expedient to note the difficulties which the Railway Commissioners seem to have felt in dealing with the various questions raised before them, and the manner in which they have dealt with them.
In determining under the Traffic Act questions of alleged undue preference, they have been obliged to express their opinion on the reasonableness of particular rates. As to the legal correctness of their decisions, nothing need here be said; for the present purpose it may be assumed that they are open to no legal exception, and we fully recognise the ability and care which they manifest. Only their economical effects are here considered. There would be no difficulty in showing that they have acted upon principles, so far as they have acted upon any, which have not merely not been sanctioned, but have been condemned, by every Royal Commission or Select Committee which has inquired into the subject, and by almost every economist of eminence. On the part of the Commissioners there have been—not unnaturally—some waverings in opinion. But on the whole, they appear to have attempted to frame rates according to cost of service; and they appear not to admit that the existence of competition is a reason for varying them. Now, in the first place they apply—it may be added, necessarily apply—the cost of service principle in an imperfect fashion. They deal only with undue preference in regard to the same or very similar articles. They do not say, what consistent adherence to the theory would compel them to say, that a ton of coals and a ton of tin ingots must be carried at much the same rate; they are bound by the existing classification, which forbids this. Occasionally their decisions are indeed curiously inconsistent in many respects, as was probably inevitable, where they were called upon to face the commercial results which would have followed a too rigid adherence to some of the principles by which they felt themselves bound.[98] In the case of the Nitshill and Lesmahagow Coal Company v. Caledonian Railway Company,[99] the defendant company claimed to charge more for carrying cannel coal, which, it was alleged, cost 38s. a ton, than they charged for carrying splint, which cost 15s. 6d. On the principle on which the classifications in most special Acts were framed, this would be reasonable; the more valuable article could bear more, and ought to pay more. But the Railway Commissioners decided differently. “As the quality of coal does not affect the cost of carriage to the railway company,” they said, “we are of opinion that the two kinds of coal ought to receive the same treatment.” If this principle had been carried out since the beginning of railways, if rates had been settled without regard to the value of merchandise, the prosperity of many districts and industries would never have been developed. In the second place, the cost of carriage is, inevitably, sometimes guessed at rather than calculated. We have already stated the nice calculations which must be entered into in order to determine the exact cost of carriage; calculations in which it is practically impossible to attain accuracy. Many elements in cost, the Commissioners cannot accurately measure; the data do not exist. In the third place, the effect of their later decisions is to exclude, practically, if not theoretically, competition from the considerations to be taken into account. This is, not only for the reasons already stated, contrary to sound commercial principles; it is contrary to the language of the early decisions of the Court of Common Pleas, which distinctly recognised competition as rightly taken into account in fixing rates. In Garton v. Bristol & Exeter Railway Co. (1 N. & M. 1859, p. 218), for example, the Court of Common Pleas decided, among other reasons against the validity of a certain charge, because, in the words of Byles, J., “it is not shown that it is rendered necessary for the purpose of meeting and overcoming competition”.[100] The early judgments of the Railway Commissioners themselves recognised the right to take into account the existence of competition. In Foreman v. Great Eastern Railway Co., decided in 1875 (2 N. & M. 202), the point in dispute was the validity of a scale of charges for the carriage of coal from Peterborough to Norwich and Great Yarmouth and intermediate stations. The Great Eastern Company were alleged to give an undue preference to coal consigned to such stations, as compared with the carriage of sea-borne coal from Great Yarmouth to Norwich and the stations between it and Peterborough. The Commissioners observed: “Nor does the Traffic Act prevent a railway company from having special rates of charges to a terminus to which traffic can be carried by other routes, or other modes of carriage with which theirs is in competition,” a dictum inconsistent with the view “that cost of service is the necessary measure of rates.” In a case decided the same year, Thompson v. London and North Western Railway Co., 2 N. & M. (1875) 115, the Commissioners speak dubiously. They observe with respect to the argument that “the Traffic Act prohibits only undue advantages, and that an advantage given by a railway company to obtain traffic for which it competes with another railway company is not undue” (p. 120). “Such a proposition cannot, in our opinion, be laid down unreservedly. It may be true in certain circumstances; it would not be so in others, and what degree of favour can be lawfully shown to some person to the prejudice of others under the pressure of competition can only be decided in any case that arises by reference to its special circumstances.”[101] In still later judgments there is a faint recognition of the fact that the existence of competition ought to be taken into account; e.g., in Richardson v. Midland Railway Company, decided in 1881 (4 N. and M. 1) the Commissioners say: “The difference (between the Burton and Newark rates) or part of it, may possibly be required by the route from the same district, not being the same all the way to the two places, and by the separate portions of line passed over being more costly to work or construct in the one case than in the other; or, again, may be required by a competition for the conveyance of the particular traffic between the two termini, existing in one case but not in the other. They proceed to speak of “due allowance for such causes of difference,” which implies that allowance must be made for both of such causes. But in the Broughton Coal Company’s case (4 N. and M. p. 191, 1883) the Commissioners use somewhat different language. They observe that “if goods of the same kind are carried to the same destination over the same railway for distances that are not the same, and the gross charge from the intermediate distance is as great as from the more distant one, there is a preference of one traffic over the other within the meaning of the Traffic Act of 1854; and that it is not sufficient to rebut this presumption to show that the charge for the longer distance has been reduced to meet a competition from another route.” Lately the Commissioners have, to say the least, lost sight of the element of competition in determining rates; and in all the applications to them, there is no clear instance in which they have found the circumstances in which it ought, in their opinion, to operate.
Among the multifarious complaints against railway companies is one to the effect that companies, instead of competing with and underbidding each other, combine to charge equal rates. This is an illustration of the curious inconsistencies of some of those who criticise the working of railways. Such a practice would be, as will be seen in the next chapter, opposed to the ideas of others who urge that rates should be based on scientific and uniform principles. Such competition, too, would inevitably lead to valid grounds for complaints, in the opinion of others, of undue preference in contravention of the Railway and Canal Traffic Act of 1854. The fact is, the practice has been tried and abandoned. In the days of road carriers, competition in quoting low rates generally ended in the submission or ruin of one of the parties. Here, and in the United States, experience shews that all such competition on the part of railways must end in combination. However severe the contest may be, and however great the losses in carrying it on, each of the railways continues to exist; they do not disappear like private traders engaged in a disastrous war of competition; and in the end they come to terms. In thus acting, they only do what is done in other industries. In the principal trades of the country are associations which arrange the prices of their products. Colliery proprietors, for example, agree as to the price of coal. Although the hardware merchants seldom vary their price lists, they agree from time to time as to the rate of discount to be allowed. The steel rail manufacturers of Germany, Belgium, England, and Scotland, had recently an arrangement regulating, if not the proportion to be produced by each country and district, the price at which rails were to be sold.
SECTION XVI.
RAILWAY AMALGAMATION.
We now come to a class of criticisms and proposals wholly different from those which have hitherto been considered. In the report by Sir Bernhard Samuelson (page 22) is a recommendation that railway companies should either amalgamate, or make agreements between themselves, for the division of the receipts from competitive traffic, so as to reduce the working expenses.[102] Probably for the first time has this suggestion come from such a quarter. Manifestly it is beginning to be understood that undue competition between railways is injurious to the companies without being beneficial to the public, and that, in the interests of both, it should be moderated.
Hitherto, the public and Parliament have looked with jealousy on arrangements between railway companies intended to lessen the waste caused by undue competition. The statements so often put forward by companies that the expenditure of capital in the construction and working of unnecessary competing lines is not beneficial to the public, have been disregarded. Any scheme which professed to meet “public requirements,” and promised multiplication of trains and the carriage of railway traffic at a high rate of speed, has met with favour in and out of Parliament.
Whether the particular line could only be worked at undue cost, or could yield a proper or, indeed, any return upon the capital to be expended, has rarely been considered. The Legislature has fostered new schemes, and has favoured competition, not economy; it has not recognised how much interested the public were in the prudent expenditure of capital on railways. Had the reports prepared under the guidance of Lord Dalhousie, in order that railways might be constructed according to a definite plan, been acted upon, or had he been able to carry out here his ideas as to railway extension, as he did in India, the rapid growth of railways might have been retarded.[103] But, undoubtedly, the want of any plan has entailed the outlay of a much larger amount of capital than would otherwise have been required. Upon this excess, interest, if it can be earned, is paid; a fact not to be overlooked by those who now desire that the companies should reduce their rates. Such errors are repeated. Even in recent years Parliamentary Committees have authorised on the most trifling grounds new competing lines. True, they expressed no opinion as to the success of such schemes. But it must have been known that, if the capital were subscribed, it must come from people who were under the impression that only schemes of substantial value would be authorised by Parliament.
Of the many schemes of this description, two or three illustrations may be given. Within the last 13 years, authority was obtained to construct a local line for the accommodation of a sparsely inhabited agricultural district. In this form it was favoured by the companies in whose district it was. The prospect of a return on the capital, however, was so small that comparatively little money could be raised. A scheme was, therefore, got up for obtaining Parliamentary powers to extend the line on the plea that it would thus become a through competitive line connecting two important existing systems; a scheme which quite ignored the fact that the two systems had already a means of communication, which it was their interest and desire to develop to the utmost against any hostile scheme. A large portion of the capital was procured on the faith of statements contained in carefully framed prospectuses, for the issue of which the financiers were paid £60,000. A considerable portion of the capital came from persons residing in remote parts of the country. Some money was borrowed for a time at the rate of 16 per cent. per annum. Although about £1,200,000 in cash and paper has been expended, the receipts do not cover the working expenses, including the rent of stations and expenses of junctions; the line must be imperfectly worked; and of course not a farthing of interest or dividend can be paid on any portion of the capital.