There remains the alternative of the new Irish Parliament financing the operation. This it must do by means of payment in cash to the selling shareholders, for reasons which will be hereafter stated, unless it wishes to start its career by a scheme of spoliation, which would not merely rob the shareholders (who are mostly Irish), but would destroy the credit of the Irish Government. Mr. Redmond has recently acknowledged that a large number of Irish railway shareholders are good Nationalists; and it is certain that a great portion of the ordinary stock is held by Irish farmers and traders; and much of the preference and debenture stocks are also held by Irish charities, convents, diocesan trustees, and monastic institutions. These persons will expect, and justly expect, cash on a compulsory purchase, on basis of market value, or capitalisation of dividend, so as to secure the same return of interest.
Could the Irish Government borrow £50,000,000, and at what rate? To borrow at a higher rate than the present return on Irish railway capital, namely, 3.77 per cent., would be to incur a loss on working the railways, from the outset, which Irish ratepayers or taxpayers would have to make up. The net receipts, at the time of the Commission's Report, were, in round figures, £1,600,000, and thus to borrow £50,000,000, even at 4 per cent., would mean an annual loss of £300,000 a year, even if there were no sinking fund. A 10s. per cent sinking fund would increase the total annual loss to £550,000.
But, could an Irish Government Guaranteed Railway Stock be issued at 4 per cent.? Would Ireland's credit stand better than that of Hungary, whose 4 per cent. gold rentes stand at 92, or of the Argentine, which has to borrow at nearly 5 per cent.? There are grave doubts whether the large sum required would be subscribed at all, at even 4 1/4 per cent, or 4 1/2 per cent. basis. It is not likely that English investors would take up such a loan, seeing that they have consistently fought shy of Irish investments, and they are not likely to change their views upon the break up of the Union.
It may be said that the sum required could be raised in Ireland—that patriotic feeling would stimulate the operation, and the large sum of money (over £50,000,000), lying on deposit at the Irish banks may be referred to as available. Patriotism that has not financed the Irish Parliamentary Party will not be likely to finance a gigantic railway loan. Nor is the large sum appearing as banking deposits really free money available for investment. With increase of deposits, the items of loans and advances in banking accounts have also correspondingly increased, and they largely balance each other. Not only is the money deposited by one customer lent to another, and therefore already utilized, but, to a large extent well known to bankers, the deposits, i.e. the credits to particular accounts, represent money lent to the persons having these accounts, and are not, in fact, their own free balances. So also credits in the accounts of one bank, figure as debits on the balance sheet of another bank. There probably has been in recent years considerable saving in Ireland, but it is also certain that those savings have largely gone, and will continue rightly to go in improvements of farms, which the Land Acts and Land Purchase Acts have made worth improving for their possessors. Those who have not saved enough borrow, and the bank advances represent largely the capital required by farmers and traders. The deposits, therefore, are being well used, and are not dead money. Divert them to any large extent to another purpose, and there will probably be a contraction of banking credit, which Irish farming and industry will be the first to feel.
PURCHASE BY STATE PAPER.
It may be said that the nationalisation of railways could be carried out, not by a cash payment, but by a paper exchange of existing Railway Stocks into newly created Irish Government Stock, the amount of the existing net receipts being guaranteed. But, unless the Irish Government could actually borrow in cash the sum required, at a rate equal to that nominally put on the new stock, the shareholders would be robbed of a capital sum equal to the amount of the discount on the stock, i.e. the amount of the market quotation below par, or issue price. There will be sellers of the new stock from the beginning, and what the public will give for it, and not the nominal figure put upon it by the Irish Government, will be its real value. The Irish Government may issue the Railway Stock at 3-1/2 per cent., but if they could borrow the sum required only at 4-1/2 per cent., the new stock will at once find its level at about 77 instead of 100, and the capital value of Irish railways will be reduced from, say, £45,000,000 to £35,000,000, and the difference, £10,000,000, would come out of the pockets of Irish shareholders. The Irish Government would be, however, in this unpleasant dilemma, that if they issued the stock at a rate per cent, nominally higher than the present return in railway capital, namely, 3.77 per cent., the annual charge for interest would be greater than the net receipts, and so from the beginning there would be an annual loss; and the fact of this annual loss would be another factor tending to depreciate the new Railway Stock. The alternatives before an Irish Prime Minister, pressed to carry out a "Nationalisation" policy, are not enviable. He will either have to provide by taxation for the annual loss involved in taking over the railways on a fair basis, or to deprive the most thrifty and industrious classes of his fellow-countrymen of a large slice of their savings and investments. In either event, the new Government will have received a serious blow to its credit at the outset of its career.
EFFECT OF REDUCTION OF RAILWAY RATES.
There is, moreover, a special reason why such a stock, from its inception, would tend to depreciate in value; namely, that from the moment the Irish Government or their nominees became the owners, there would be almost irresistible pressure put upon them to reduce the railway rates, and generally (as indeed the Majority Report recommends) to work the railways on other than commercial lines.[99] A reduction of rates has been held out as the great resulting boon of nationalisation ever since the Irish Parliamentary Party specifically raised the question in Parliament in 1899. A 25 per cent. reduction in rates and fares (suggested by Nationalist witnesses) would involve an annual diminution of net receipts to the Government of over £1,000,000 per annum, and if the reduction were in goods rates alone, the loss would be £568,000 per annum. It would be years, if ever, before such a loss could be recouped, however the traffic was increased. Experience has shown that in recent years running expenses tend to increase nearly parallel with the gross receipts, and a large increase in gross traffic would involve enormous capital outlay for rolling stock, engines, sidings, etc. It is unnecessary to comment upon the suggestion that the railways should not be run on "commercial principles." The Irish ratepayers and taxpayers, who would have to bear the loss, would loudly call out for business management when it was too late.
It is hardly necessary to add that another result of such an operation would be to prevent the Irish Government raising the very large sum necessary for improving and standardising the light railways and for extensions, except at an unremunerative rate of interest. Even if shareholders be put off with State paper, contractors will have to be paid with cash. Moreover the creation of such a large amount of debt at the beginning of the new regime would render it difficult, if not impossible, for the Irish Government to raise sums necessary for other public works and services of a pressing character, arterial drainage, canals, education, and other objects, not to speak of migration, congestion, and land purchase. The conclusion, in fact, is inevitable, that without the security of the United Kingdom, and the market of British investors willing to lend, it is idle to think that either State purchase of railways, or any other of the boons mentioned, are reasonably possible. Mr. Erskine Childers, though a Home Ruler, does not fail to perceive, to use his own words, "that financial independence will now mean a financial sacrifice to Ireland."[100]