Many of the complaints against railway rates as excessive are really, when analyzed, complaints of undue preference. They are based on comparisons with other rates, and, in nearly every case, it is the factor of competition which lies at the root of the difficulty. This is the natural result of our mixed system of competition and control. In principle all would admit that there should be equal treatment on railways. But what is and what ought to be equality are questions in regard to which there is much room for difference of opinion.
To what extent does the law really require equality? The Railway and Canal Traffic Act, 1888, enacts in substance that a railway company shall not make any difference in the treatment of traders which shall amount to an undue preference. It permits the grouping of places situated at various places from any point of destination or departure of merchandise, provided that the distances shall not be unreasonable, and that the rates charged and the places grouped together shall not be so grouped as to create an undue preference. Now, in this legislation there is no definite or tangible principle. The Legislature has not really made up its mind how traders should be treated. It simply says that any preference given to one trader over another shall not be undue, but the interpretation of the word undue is left open. The prohibition of undue preference only applies to the actions of one company on its own railway, and, therefore, covers but a small part of the matter. A trader desiring to have his goods sent to some market which is prejudiced by the competition of goods carried to the same market from some other place by some other railway which, for some reason or other, good or bad, gives better treatment to its customers—a prejudice far more likely to happen, in fact, than one arising from differences in treatment on the same railway—is not protected or assisted by any legislation.
The question may be asked whether national railways would or could cure this somewhat indefinite position?
If railways were nationalized, would it not be necessary, and would it be practicable to settle the principles to be applied in treating different districts in competition with one another? At present there are no principles if the districts are served by different railways. If one railway serves two districts, the law provides that such railway shall not mete out unequal treatment so as to constitute undue preference, whatever that may mean, but if these two competing districts are served by different railways, the law shrinks from any interference.
Now, in practically every case the favorable treatment complained of, due or undue, as the case may be, is forced upon the railway company by competition in some shape or other. It may be competition of other carriers by sea or by land, or it may be the necessity for enabling one district to compete with another less favorably situated. Such consideration for the commercial needs of districts in relatively advantageous positions is permitted and encouraged when it is afforded by different railways, though rendered difficult when one railway serves the competing districts. What would State railways do? If the law of undue preference now operative within the limits of particular railway systems became, by reason of State ownership, applicable to all railways, there would be a stupendous disturbance of existing trading conditions. Instead of State purchase diminishing the complaints of undue preference, it would be the signal for the commencement of fierce conflicts between districts. It would be necessary to face the question whether and to what extent geographical advantage of position should be recognized in fixing railway rates. The centers of production and consumption in England have been fixed away back in commercial history, and from a railway point of view these have largely to be taken as facts beyond control. Facilities for reaching the populous centers of consumption are of vital importance to producers and importers. Would State railways be compelled by the pressure of interested landowners and others to fix rates for agricultural produce and manufactured articles and for import and export trade rigidly in proportion to distance?
It is probable that a bitter controversy would arise on the question, and discontent with the railway arrangements which have gradually, and with very general approval, been established in England, instead of being lessened, would be greatly extended if we embarked on the experiment of State ownership.
Would the management of railways by Government officials be, on the whole, better than management by the officers of private corporations working for profit?
That is the question which lies at the root of the subject which we are discussing. So far as I am concerned, I have no inclination to jibe at the management of those enterprises which are conducted by the State and municipal bodies. I do not think that the postal services would be better managed if they were under private control, probably not so well. Municipal tramways show the weakness of public management, chiefly in the tendency towards fixing charges at figures which sacrifice the interests of ratepayers to the interests of the working classes who possess votes, but who generally occupy houses in respect of which they do not directly pay rates. That there would be very grave risks in substituting State management for commercial management of railways must, I think, be generally admitted.
But some of the principal arguments against municipal trading do not seem to me to apply to the working of railways by the State. Of course, the objection of those who think that no public authority should become directly responsible for the management of any commercial undertaking is as valid against State working of railways as against municipal working of tramways, or municipal supply of electricity for light and power. In both cases there is a restriction of the field of private enterprise, and that is enough for the out-and-out Individualist. He is convinced, on general grounds, that all commercial undertakings should be left exclusively to private enterprise. But those who are not prepared to settle such matters on any general theory, and who prefer to weigh the advantages and disadvantages in each case, see that many of the reasons against municipal trading cannot fairly be urged against the national ownership of railways. Municipal trading is indefensible because it unfairly competes with private traders. Competition in commerce must be fair competition on equal terms, otherwise it fails to secure any of the economic advantages which do undoubtedly flow from the free competition of private traders. A commercial undertaking must be worked for a commercial profit. A municipality raises money on public credit, and thus gains an advantage over every private competitor. It also fixes scales of charges and rates of wages without reference, or, at all events, without exclusive reference, to considerations of profit, and thus makes it impossible for any competing trader to earn a legitimate commercial profit. And to make it possible to do this it uses the power of taxation, and levies rates on the competing traders themselves, so that the municipal business can be carried on without the commercial profit which the private trader must earn in order to live. No one can say that this is fair competition.
Then municipal bodies are, from their composition, unsuitable for carrying on commercial business. Their organization cannot be adapted to commercial management. The individuals who serve on these bodies have neither the time nor, as a collective body, the capacity for managing the business on which they embark with efficiency and success. The difference in results due to the difference between good and bad management is paid for out of the rates.