Royal Railways with Uniform Rates / A proposal for amalgamation of Railways with the General Post Office and adoption of uniform fares and rates for any distance

by Whately C. Arnold

But in all these books, and in other books and articles, both for and against nationalisation, it has been assumed that if, and when, the railways are acquired by the State, the same system will obtain as now, and as obtains in the case of all the foreign countries and colonies referred to, namely, to charge according to distance and according to “what the traffic will bear,” and with the primary object of making the most profit.

With very great deference to all these distinguished writers, it appears to me that they have one and all overlooked the fundamental principles which should be acted upon by a State or a Municipality first in deciding whether or not to acquire a monopoly, and secondly, in the administration of it when acquired. These principles depend upon the fundamental difference between the objects in view, and actuating a Company or individual on the one hand and a Nation or Municipality on the other in acquiring a monopoly. In the former case the sole object is that of pecuniary gain or profit; in the latter the sole object is, or ought to be, the benefit of the community. It may be said that these are not respectively the sole objects, but only the primary objects. My reply is that in the case of the company it is the duty of the directors, as trustees for the shareholders, to so carry on the business in question as to produce the most profit, irrespective of any benefit to the community, or, indeed, to any persons other than the shareholders. Railway companies, it is true, provide the benefit of transport, and various advantages held out by the companies as inducements to use their particular lines, but these are, of course, solely offered with the view of increasing the profits. Other advantages for the comfort, safety and benefit of the public are provided under compulsion from the Government, as a condition of the grant of privileges and compulsory powers conferred upon the companies, without which the railways could not have been made. I refer to such matters as rules and regulations for the safety and benefit of the public; workmen’s trains; maximum fares and rates allowed to be charged; provision for at least one train a day at all stations, etc.

Conversely, in the case of a Nation or Municipality taking over a monopoly, it is the duty of the Government Department or Town Council to so carry on the business as to render the most efficient service, at the lowest cost consistent with efficiency, with paying for the cost of acquisition and with paying the working expenses. Advocates of nationalisation urge that profits should be applied in reduction of taxation, and suggest that this is in itself one of the benefits to be derived therefrom. Opponents always assume that national and municipal trading must be carried on with a view to profit, and some even ridicule the idea that any trading concern can be successfully carried on unless with this view and with a resulting profit. Acrimonious discussions have taken place as to whether profits which have been claimed by advocates of municipal trading to have been made by tramways, gas, water and electricity works, are only paper profits as alleged by the opponents. In Lord Avebury’s book already referred to,[8] one whole chapter, headed “Loss and Profit,” treats of the question whether municipal enterprises have been profitable or not, and he adduces many examples to prove that in most cases the alleged profits are imaginary.

It has, in fact, been the practice universally to apply profits made out of municipal trading in this Country in reduction of rates, and in foreign Countries, where railways are owned by the State, their revenues are made use of either as general revenue or, as in Prussia, for social or educational purposes, which would otherwise be provided for by direct taxation. The only instance of national trading in this Country is the General Post Office, and I think it is correct to say that the original intention when Penny Post was established was to so carry it on that working expenses only should be covered by the revenue. In practice, the gross revenue is entered with other items of revenue in the National Accounts, and the gross expenditure with other items of general and non-productive expenditure, with the result that the net profits of the Post Office, in effect, become a source of general revenue, and are therefore applied in reduction of general taxation. Until recent years this net profit has not been considerable, but last year it was as much as £5,000,000. Having regard to the continual and progressive increase in postal business, and the acquisition of the whole telephone system, there is every prospect of still further increase in net profits. What will be the result of a continuance of this practice of applying net profits of Municipal and National trading towards reduction of rates and taxes? It has not, so far, had any very serious result, simply on account of the fact that such net profits have not yet been of a very startling amount. But if these profits should increase, will not the result be the very evils which are the natural consequence of a private monopoly?

Once the principle is admitted that profits from such trading shall go in relief of taxation, the service will, and must, be worked more or less with the primary object of making as much profit as possible, with the inevitable result that the service in question will be starved for the sake of the profits. This has actually happened in the case of the Prussian State Railways, the one State Railway which has so far made the greatest net profit.

In addition to this difficulty there are others inherent in State or Municipal trading, if the principle of making profits be admitted, and if profits are actually made. In such a case the Chancellor of the Exchequer will be expected to budget for further profits, the general public will expect improvements in the service, traders will expect that the charges to them should be reduced, and the workers will expect that their wages should be increased.

This view is not a new one. It has been advocated in respect of the Post Office for many years by such well-known postal reformers as Lord Eversley (formerly Mr. Shaw Lefevre), and Sir Henniker Heaton, Bart. The latter, I believe, has several times moved resolutions in the House of Commons for the express purpose of having the postal profit applied to the use of the Post Office itself, instead of to general revenue.

It is well known that “strikes” are more likely to arise in a period of trade prosperity. It is the natural result of the workers seeing large profits made out of their industry, if they should have no benefit, by increase of wages, by sharing in such profits or otherwise. It makes but little difference to the workers that those profits go to ratepayers, instead of to shareholders, more especially as they usually inhabit houses let on weekly inclusive rentals, and are exempt from income-tax, so that they do not directly pay either rates or taxes. If, on the other hand, the profits are devoted to improving the efficiency of the service or cheapening the charges, then, not only are there no profits to excite the cupidity of various sections of the community, but the workers do, in fact, benefit by themselves and their families, as well as the whole of the public for whom the services are worked. No strike is ever successful which does not gain general public support, and even under existing conditions there is much less likelihood of strikes in the case of Civil Servants or postal or municipal employees, partly on account of the better wages paid, the certainty of continuing in employment except for misconduct, and the prospects of a pension, but still more on account of the practical certainty that public support would not be given to a strike which interferes with one of the most important of the public services.[9]

Another evil of ignoring the difference in principle of a public monopoly and a private monopoly has been the practice of applying to public monopolies the practice which all private monopolies endeavour to achieve (and properly so as their sole object is profit), namely, to put down all possible competition. If the principle I advocate, namely, that the sole object of a public monopoly is the benefit of the community, then if some improvement in the service, the subject of such monopoly, shall be invented, which is proved to be practicable, the public should have the benefit of such improvement, and, instead of a prohibition of such private enterprise every encouragement should be given to it.