In Mexico, of which I shall have more to say directly, the state owns no railroads. As for Central America, Costa Rica and Honduras have some petty lines, which are worked at a loss. Guatemala had a railroad till 1904, when it was transferred to a private company. Nicaragua has also leased its lines. Colombia owns and works at a profit, all of which is said to be devoted to betterment, 24 miles of line.
In South America, Peru and Argentina own, as far as I am aware, no railroads. The Chilian government owns about 1,600 miles out of the 3,000 miles in the country. Needless to say private capital has secured the most profitable lines. The government railroad receipts hardly cover the working expenses. The Brazilian government formerly owned a considerable proportion of its railroad network of nearly 11,000 miles. Financial straits forced it some years ago to dispose of a large part to private companies, to the apparent advantage at once of the taxpayer, the shareholder and the railroad customer. About 1,800 miles of line are still operated by the government, the receipts of which, roughly speaking, do a little more than balance working expenses. But it may be broadly said that the present Brazilian policy is adverse to state ownership and in favor of the development of the railroad system by private enterprise.
THE UNITED STATES SITUATION.
The question of public ownership and operation was, however, raised very definitely in the United States only two years ago, when Mr. Bryan made a speech stating that his European experience had convinced him that it was desirable to nationalize the railroads of the United States. For many weeks after, Mr. Bryan's pronouncement was discussed in every newspaper and on every platform, from Maine to California. Practically, Mr. Bryan found no followers, and today, though he is the accepted candidate of the Democratic party for the Presidency, the subject has been tacitly shelved. To some extent this may have been due to the ludicrous impossibility, if I may say so with all respect for a possible President, of Mr. Bryan's proposals. In order, presumably, not to offend his own Democratic party, the traditional upholders of the rights of the several states, he seriously suggested that the Federal government should work the trunk lines, and the respective state governments the branches. Even if anybody knew in every case what is a trunk line and what is a branch, the result would be to create an organism about as useful for practical purposes as would be a human body in which the spinal cord was severed from the brain. Mr. Bryan's proposal was never discussed in detail: public sentiment throughout the Union was unexpectedly unanimous against it, and it is safe to say that the nationalization of the railroads of the United States is not in sight at present.
But though nationalization is nowhere in America a practical issue, everywhere in America the relations between the railroads and the state have become much closer within the last few years. Canada a few years ago consolidated its railroad laws and established a Railway Commission, to which was given very wide powers of control both over railroad construction and operation and over rates and fares for goods and passengers. Argentina has also moved in the same direction. In the United States, not only has there been the passage by the Federal Congress at Washington of the law amending the original Act to Regulate Commerce and giving much increased powers to the Interstate Commerce Commission, besides various other Acts dealing with subsidiary points, such as hours of railroad employes, but scores, if not hundreds, of Acts have been passed by the various state legislatures. With these it is quite impossible to deal in detail; many of them impose new pecuniary burdens upon the railroad companies, as, for instance, the obligation to carry passengers at the maximum rate of a penny per mile. All of them, speaking broadly, impose new obligations and new restrictions upon the railroad companies. Not a few have already been declared unconstitutional, and therefore invalid, by the law courts. And when the mills of American legal procedure shall at length have finished their exceedingly slow grinding, it is safe to prophesy that a good many more will have ceased to operate. But for all that, the net result of state and Federal legislation in the sessions of 1906 and 1907 will unquestionably be that even after the reaction and repeal, which, thanks to the Wall street panic of last year, is now in progress, the railroads of the United States will in the future be subject to much more rigid and detailed control by public authority than there has been in the past. The reign of railroad despotism, more or less benevolent, is definitely at an end; the reign of law has begun. It is only to be regretted that the quantity of the law errs as much on the side of excess as its quality on the side of deficiency.
THE MEXICAN SITUATION.
Apart from its interest as a quite startling example of how not to do it, the recent railroad legislation of the United States is only valuable as an indication of the tendency, universal in all countries, however governed, for the state to take a closer control over its railroads. Much more interesting as containing a definite political ideal, worked out in detail in a statesmanlike manner, is the recent railroad legislation of Mexico. One may be thought to be verging on paradox in suggesting that England, with seven centuries of parliamentary history, can learn something from the Republic of Mexico. But for all that I would say, with all seriousness, that I believe the relation between the state and the national railroads is one of the most difficult and important questions of modern politics, and that the one valuable and original contribution to the solution of that question which has been made in the present generation is due to the President of the Mexican Republic and his Finance Minister, Señor Limantour.
Broadly, the Mexican situation is this: The Mexican railroads were in the hands of foreign capitalists, English mainly so far as the older lines were concerned, American in respect to the newer railroads, more especially those which constituted continuations southwards of the great American railroad systems. The foreign companies, whether English or American, naturally regarded Mexico as a field for earning dividends for their shareholders. The American companies further, equally naturally, tended to regard Mexico as an annexe and dépendance of the United States. If they thought at all of the interest of Mexico in developing as an independent self-contained state, they were bound to regard it with hostility rather than with favor, and such a point of view could hardly commend itself to the statesmen at the head of the Mexican government. Yet Mexico is a poor and undeveloped country, quite unable to dispense with foreign capital; and, further, it was at least questionable whether Mexican political virtue was sufficiently firm-rooted to withstand the manifold temptations inherent in the direct management of railroads under a parliamentary régime. Under these circumstances the Mexicans have adopted the following scheme: For a comparatively small expenditure in actual cash, coupled with a not very serious obligation to guarantee the interest on necessary bond issues, the Mexican government have acquired such a holding of deferred ordinary stock in the National Railroad Company of Mexico as gives them, not, indeed, any immediate dividend on their investment, but a present control in all essentials of the policy of the company, and also prospects of considerable profit when the country shall have further developed. The organization of the company as a private commercial undertaking subsists as before. A board of directors, elected in the ordinary manner by the votes of shareholders, remains as a barrier against political or local pressure in the direction of uncommercial concessions, whether of new lines or of extended facilities or reduced rates on the old lines; but—and here is the fundamental difference between the new system and the old—whereas under the old system the final appeal was to a body of shareholders with no interest beyond their own dividend, the majority shareholder is now the Government of Mexico, with every inducement to regard the interests, both present and prospective, of the country as a whole.
IRREFRAGABLE THEORY OF PUBLIC OWNERSHIP.
Public ownership of railroads is in theory irrefragable. Railroads are a public service; it is right that they should be operated by public servants in the public interest. Unfortunately, especially in democratically organized communities, the facts have not infrequently refused to fit the theories, and the public servants have allowed, or been constrained to allow, the railroads to be run, not in the permanent interest of the community as a whole, but in the temporary interest of that portion of the community which at the moment could exert the most strenuous pressure. The Mexican system, if it succeeds in establishing itself permanently—for as yet it is only on its trial—may perhaps have avoided both Scylla and Charybdis. Faced with a powerful but local and temporary demand, the government may be able to reply that this is a matter to be dealt with on commercial lines by the board of directors. If, on the other hand, permanent national interests are involved, the government can exercise its reserve power as a shareholder, can vote the directors out of office, and so prevent the continuance of a policy which would in its judgment be prejudicial to those interests, however much it might be to the advantage of the railroad as a mere commercial concern.