A more important class of undertakings in which the State's industrial advantage lies in its superiority to the temptations of self-interest, is that of industries which naturally assume something of the character of a monopoly, and in which self-interest lacks both the check on its rapacity, and the spur to its activity supplied by effective competition. It is true of more things than railways that when combination is possible, competition is impossible, and the growth of syndicates, trusts and pooling arrangements at the present day has led to considerable agitation for State interference, especially in the case of commodities like salt and coal, which are necessaries of life. Our experience of these things is as yet limited, but so far as it has gone it seems to show that the public dangers dreaded from them are apt to be exaggerated. The combinations fear to raise the price to the public so high as to provoke competition, and in most cases in America have not raised it at all, drawing their advantage rather from the reduction in expense of management, and the saving of capital; and the State would not be likely to manage industries producing for the markets any better than, or even so well as, the more keenly interested board of private directors. But if the balance of evidence seems against public management in this class of monopolies, it stands, I think, decidedly in favour of public management in another and not unimportant class. The gas and water supply of towns is a monopoly, and though the point is not undisputed, it appears to answer better on the whole in public than in private hands, because the management has no interest to serve except the interest of the public. Experience has not been everywhere the same, but usually it has been that under municipal control the quality of the gas has been improved and the price reduced. But this is municipal management of course, not State management, and the difference is material, inasmuch as municipal management, in the case of gas and water supply, is the management of the production of things of general consumption under the direct control of the very people who consume them, so that it is constantly exposed to effective public criticism, perhaps as good a substitute as things admit of for the eye of the master. The natural defect of public management is so mitigated by this circumstance, that probably of all forms of public management, municipal management is the best, and when applied to branches of production that tend to become monopolies at any rate, it answers well. The question is entirely different with proposals that are sometimes made for converting into municipal monopolies branches of production—such, for example, as the bread supply of the community—which are carried on by individual management under effective competition. To do as well as joint-stock management uncontrolled by competition is one thing; to do as well as individual management subject to competition is another; and so long as public management replaces nothing but the former class of enterprises, which are in any case a sort of natural monopolies, it will never contract the vast field of individual enterprise to any very serious extent.
When we pass from municipal monopolies to State monopolies, the problem becomes more grave. The two largest current proposals of this kind are those of land nationalization and railway nationalization. The former proposal, though much more noisily advocated than the other, has incomparably the weaker case. For apart altogether from the mischief of making every rent settlement a political question, and looking at the matter merely in its economic aspect, land, of all things, is that which is least suited for centralized administration, and yields its best results under the minute concentrated supervision of individual and occupying ownership. The magic of property is now a proverbial phrase; it is truer of land than anything else, and it merely means that for land interested administration is everything, comprehensive administration nothing, that the zeal of the resident owner to improve his own land knows no limit, whereas the obstructive forces of routine and official inertia have nowhere more power to blight than in land management. In Adam Smith's time, as he mentions in the "Wealth of Nations," the Crown lands were everywhere the least productive lands in their respective countries, and the experience is the same still. It is so even in Prussia, in spite of its economical and skilled bureaucracy. Professor Roscher says it is a common remark in Germany that Crown lands sell for a greater number of years' purchase than other lands, because they are known to be less improved, and are therefore expected to yield better results to the energy of the purchaser, and he quotes official figures for 1857, showing that the domain land of Prussia had not risen in value so much as the other land in the country. Great expectations are often entertained from the unearned increment, though there is not likely to be much of that in agricultural land for years to come; but what is a much more important consideration for the community is the earned increment, and under State management the earned increment would infallibly decline. Of course, this does not exclude the necessity of strict State control, so far as required by justice, humanity, and the growth and comfort of the general community. Under land nationalization here I have not considered schemes which do not give the State any real ownership in the land more than it at present enjoys, or, at any rate, place no real management of the land in its hands. The rival schemes of Mr. A. R. Wallace and Mr. Henry George are really only more or less objectionable methods of increasing the land-tax.
The question of a State railway is not so easily determined. There are certainly few branches of business where unity of administration is more advantageous, or where the public would benefit more from affairs being conducted from the public point of view of developing the greatest amount of gross traffic, instead of from the private point of view of making the greatest amount of net profit. A railway differs from other enterprises, because it affects all others very seriously for good or ill; it may for the sake of more profit give preferences that are hurtful to industrial development, or deny facilities that are essential to it. A private company may find it more profitable to carry a less quantity at a high rate than a greater quantity at a low, and it cannot be expected to run a line that does not pay, though the general community might benefit greatly more by the increase of traffic which the line creates than covers the loss incurred by running it. Now it is impossible to exaggerate the importance of having a public work like a railway, which can help or hinder every trade in the land, conducted from a public point of view instead of a private, and the present discussion in this country on rates and fares points to the desirability of changes to which private companies are not likely to resort of their own accord, nor the railway commission to be able to compel them. But, on the other hand, it is equally impossible to exaggerate the risks of the undertaking. The post office, with its capital of £80,000, is a plaything to the railways with their capital of £800,000,000, and their revenue little short of that of the State itself. The operations are of a most varied nature, and only some of them could be exposed to effective criticism. The mere transaction of purchase excites in many minds a not unreasonable fear. If Government made a bad bargain with the telegraph companies, it would be sure to make a worse with the railway companies, who are fifty times more powerful; and besides, it would very likely have to borrow its money at a higher figure, for though it could borrow two millions at 3 per cent., it could not therefore borrow eight hundred millions, for the simple reason that the number of people who want 3 per cent. is limited, most holders of stock preferring investments which, though more risky, offer a prospect of more gain. If in trying to balance these weighty pros and equally weighty cons one turns to the experience of State railways, he will find that as yet it affords few very sure or decisive data, because it varies in the different countries and times, and has been very differently interpreted.
Of the Continental State railways, those of Belgium and Germany are usually counted the most favourable examples. But Mr. Hadley, in his excellent work on Railway Transportation, shows that the State lines of Belgium were conducted in an extremely slovenly, perfunctory way until 1853, when private lines began to increase and compete with them, and that though the low rates which this competition was the means of introducing still remain after the private lines have been largely bought out, there has been, on the other hand, latterly a decline in the profits of the State system, an increasing tendency to slackness and inertia in the management, and growing complaints of creating posts to reward political services, and manipulating accounts to suit Government exigencies. In Germany the rates are certainly low and the management economical, but complaints are made that less is done for the encouragement of the national resources, and unprofitable traffic is more severely declined than by the private railways. On the whole, probably the best State railway system is that of Victoria; charging low rates, self-supporting, offering every encouragement to industrial development; and the opinion of England will probably be largely determined by further observation of that experiment.
The sister colony of New Zealand has made a successful experiment in another department of industrial enterprise, life insurance, for which Government management indeed is highly adapted, because, in the first place, it is a business in which absolute security is of the last consequence, and there is no security like Government guarantee; and in the second, it is a business in which the calculations of the whole administration are virtually matters of mechanical routine. The Government office was only opened in 1871, under the influence of a widespread distrust of private offices, caused by recent bankruptcies, and it now transacts one-third of the life insurance business of the colony; it has probably tended to encourage life insurance, for while there are only 26 policies per 1000 of population in the United Kingdom, there are 80 per 1000 in New Zealand, and its management is much cheaper than that of any other insurance company in the colony, except the Australian United. The proportion of expenses to revenue in the Australian United is 13.66 per cent., in the Government Office 17.23, and in none of the other companies (whose gross business, however, is much smaller) is it under 43.02.
Adam Smith thought there were only four branches of enterprise which were fitted to be profitably conducted by a joint-stock company. We have seen in our day almost every branch of industry conducted by such companies, and an idea is often expressed that whatever a joint-stock company can do, Government can do at least quite as well, because the defect of both is the same. The defect is the same, but Government has it in larger measure. Joint-stock management is certainly much less productive in most industries than private management. The Report of the Massachusetts Labour Bureau for 1878 contains some curious statistics on the subject. There were then in the Commonwealth of Massachusetts, 10,395 private manufacturing establishments, employing in all 166,588 persons, and 520 joint-stock manufacturing establishments, employing 101,337 persons, and the private establishments, while they paid a much higher average rate of wages than the joint-stock, produced at the same time not far from twice as much for the capital invested. The average wages per head in the private establishments was 474.37 dollars a year, and in the joint-stock was 383.47 dollars a year; while the produce per dollar of capital was 2.58 dollars' worth in the private, and 1.37 dollars' worth in the joint-stock, and though part of this difference is attributed to the circumstance that private manufacturers sometimes hire their factories and companies do not, the substance of it is believed to be due to the inferiority of the joint-stock management. Anyhow, that circumstance could have no influence in producing the very marked difference in the wages given by the two classes of enterprise, and the higher wages would not, and could not, be given unless the production was higher. If all the industries of the country, then, were put under joint-stock management, the result would be (1) a general reduction in the amount produced, and (2) a consequent reduction in the general remuneration of the working classes, and the general level of natural comfort; and the result would be still worse under universal Government management. One of the labourer's greatest interests is efficient management, and if he suffers from the replacement of individual employers by joint-stock companies, he would suffer much more by the replacement of both by the State, excepting only in those few departments of business for which the State happens to possess peculiar advantages and aptitude.
V. State Socialism and Popular Right.
The limits of the legitimate intervention of the public authority with respect to the moral development of the community are prescribed by a different rule from those with respect to its material development. Efficiency is still, indeed, a governing consideration, for perhaps more measures for popular improvement fail from sheer ineffectuality than from any other reason. The history of social reform is strewn thick with these dead-letter measures. There is a cry and a lamentation, and a feeling that something must be done; and an Act of Parliament is passed containing injunctions which no Act of Parliament can enforce, or which address themselves to mere accidental circumstances, and leave the real causes of the evil entirely unaffected. And there would be no impropriety in describing impracticable or ill-directed legislation of this kind as being socialistic, for, besides the old association of socialism with impracticable schemes, impracticable legislation is always unjust legislation, and unjust legislation for behoof of the labouring class is essentially socialistic. Every State interference necessarily involves a certain restriction of the liberty or other general rights of some class of persons; and although this restriction would be perfectly justifiable if it actually secured the prior or more urgent right of another and perhaps much more numerous class of persons, it is injustice, and nothing but injustice, when it merely hurts the former class without doing any good to the latter. It may hurt both classes even—well-meaning meddling often does; but what I desire to bring out here is that labour legislation, which may have been entirely just and free from socialism in its intention, may be unjust and full of socialism in its result. We may therefore, without any fault, include under the head of State socialism that common sort of proposal which, without urging any wrong claim, merely asks the State to do the wrong thing—to do either something it cannot do at all, or something that will not answer the purpose intended. It is socialistic not because it is impracticable, but because it is unjust.
Since well-meant legislation may thus become urgent, and therefore socialistic for want of result, it is plain that the efficiency of the intervention is a very important consideration in determining the State's duty with respect to popular rights. But the primary consideration here is the extent of the moral claim which the individual, by reason of his weakness, has upon the resources of society, and it is upon that consideration that the division of conflicting political theories on the subject turns. All the several theories are agreed that the enlargement of popular rights, when the enlargement is required by a just popular claim, is entirely within the proper and natural province of the State; where they differ, and differ seriously, is partly in their views of the justice of particular elements in the popular claim of the time being, but more especially in their whole conception of the nature and extent of the popular claim in general. There are still some persons to be found contending that there are no such things as natural rights, and there are plenty who cannot hear the words without a sensation of alarm. But it is now generally admitted, even by those who adopt the narrowest political theories, that legal rights are merely the ratification of moral rights already existing, and that the creation of new legal rights for securing the just aspirations of ill-protected classes of the people belongs to the ordinary daily duties of all civil government. Mr. Spencer very readily admits that some of the latest constituted rights in this country—the new seamen's right of the Merchant Shipping Act, and the new women's right of the Married Women's Property Act—are perfectly justifiable for the prevention in the one case of seamen being fraudulently betrayed into unseaworthy ships, and in the other of women being robbed of their own personal earnings. But then the new rights which he would most condemn—the right to public assistance, the right to education, the right to a habitable dwelling, the right to a fair rent—are quite as susceptible of justification on the ground of natural justice as either the right to a seaworthy ship or the right to one's own earnings. Mr. Spencer's theory errs by unduly contracting men's natural claim. They have a right to more than equal freedom; they have a right, to use Smith's phrase, to an undeformed and unmutilated humanity, to that original basis of human dignity which it is the business of organized society to defend for its weaker members against the assaults of fortune as well as the assaults of men. That is what I have called, for the sake of distinction, the English theory of social politics. On the other hand, socialism unduly extends this claim. The right to fair wages is one thing; the State could not realize it, but it at least represents no unjust aspiration; but the right to an equal dividend of the national income, claimed by utopian socialists, including Mr. Bellamy at the present day, and the right to the full produce of labour claimed by the revolutionary socialists, and meaning, as explained by them, the right to the entire product of labour and capital together, are really rights to unfair wages, and the whole objection to them is that they are at variance with social justice. If we keep these distinctions in view, we shall be able to discriminate between interventions of authority which are innocent, and interventions which are tainted with State socialism. Take an illustration or two, 1st, of interventions for settling the claims of the poor in society in general, and 2nd, of interventions for adjusting the differences between one class and another, between employer and labourer, between landlord and tenant, and the like.
1. Under the first head, the most important question is the question of public assistance. Prince Bismarck created a considerable European sensation when he first announced his new social policy in 1884, by declaring in favour of the three claims of labour, which have been so commonly regarded as the very alpha and omega of social revolution—the right to existence for the infirm, the right to labour for the able-bodied, and the right to superannuation for the aged. "Give the labourer," he said, "the right to labour when he is able-bodied; give him the right to relief when he is sick; give him the right to maintenance when he is old; and if you do so—if you do not shrink from the sacrifice, and do not cry out about State socialism whenever the State does anything for the labourer in the way of Christian charity—then I believe you will destroy the charm of the Wyden (i.e., Social Democratic) programme." These three rights are really two, the right of relief when one is sick and of maintenance when one is old being only different phases of the right to existence. Now the right to existence and the right to labour are in themselves both perfectly just claims, but the construction Prince Bismarck gave them passed decidedly over into State socialism.