European Experience in Public Ownership.—It is pointed out, in this connection, that the policy of public ownership has been widely followed in various European countries, particularly in Great Britain, France, and Germany. In Germany the railroads have been for many years owned and operated by the government. In all three countries the telegraphs are government-owned, and are operated in connection with the post-offices. The telephone service is also in public hands. Gas and electric lighting plants are to some extent owned by companies in various European cities, but the majority of them have been taken over by the municipal authorities. Even the street railways have been passing under municipal ownership. Many European cities, moreover, not only operate these various public services but conduct other municipal enterprises, such as abattoirs, bakeries, theatres, savings banks, and even pawnshops as well.[[237]]

American experience has been less extensive.

Public Ownership in America.—In the United States the policy of public ownership has not been nearly so popular. The railroads, telegraphs, and telephones are owned and operated by private companies. They were managed by the national government for a time during the war, but when the emergency ended they were returned to their owners. Among the larger cities of the United States only five or six own and operate their gas plants; about twenty have municipal ownership of electric lighting plants.[[238]] Street railway lines are owned by the city in only three or four instances; but in several other communities they are being operated by the public authorities under leases from the owners.[[239]] When one bears in mind that the total number of public utilities in the United States runs up into the thousands it will be seen that the policy of public ownership has had a relatively small and slow development on this side of the Atlantic.

Arguments for Public Ownership.—The chief arguments in favor of public ownership in the United States may be briefly set forth as follows: |1. Regulation has failed.| First, all public utilities, being natural monopolies, require a stricter measure of regulation than can ever be provided by any form of public supervision. So long as these utilities remain in private hands there will be a continual effort to evade public regulation and this effort will usually be successful because rich and powerful companies are exceedingly difficult to control under a democratic form of government. “We have tried regulation”, the advocates of public ownership say, “and it has not been satisfactory. Therefore, let us try the only other alternative, which is to buy out the companies altogether.” |2. Lower rates and better service.| Second, under public ownership the people would obtain lower rates and better service. This would be possible because the government could procure capital more cheaply than private companies and thus make a substantial saving in interest.[[240]] It would not be seeking for profits, but would strive to give service at actual cost. If the government owned all the utilities, moreover, it could buy supplies and materials in large quantities and hence at lower prices. Each street railway company now buys rails, cars, cables, coal, and so on for itself. If a state owned all the street railways within its territory, it would purchase these things on a much larger scale. |3. More just to labor.| Third, public ownership means a fairer and better treatment of the employees. Wages, as a rule, are higher in public than in private employment (assuming the same degree of training and skill); the hours of labor are not so long (since the eight-hour day is now generally recognized in public employment); and there is better protection against arbitrary dismissal. For these reasons labor organizations usually favor public ownership. |4. The effect on politics.| Fourth, the public service companies have had a detrimental influence upon American politics. They are seekers of public privileges, and in their zeal to obtain favors are under strong temptation to work in a quiet way for the election of public officials who will be friendly to them. They form a part of what Mr. Elihu Root once spoke of as the “invisible government”. Through their paid agents and lobbyists they try to influence the action of legislatures and city councils in ways which are to their own financial advantage but detrimental to the public interest. The abolition of all franchises and the direct public ownership of all utilities would remove, it is asserted, a corrupting influence from American politics. These are the chief arguments used by the advocates of public ownership.

The Arguments Against Public Ownership.—But there is much to be said on the other side. |1. More costly to the public.| First, it is claimed that public ownership, by reason of higher wages and less efficient management, would prove to be far more expensive than private enterprise, and that in the long run the increased cost would have to be paid by the people. This higher cost might take the form of higher rates for the service or it might come out of the general taxes; but it would fall on the public in either case. When the national government operated the railroads during the war it kept the freight and passenger rates low; the result was a deficit amounting to about a billion dollars, which had to be made good out of the public treasury. The taxpayers carried a burden which should have been borne by the shippers and passengers. |2. Means retention of obsolete methods.| Second, public ownership would mean poor service; the utilities would not keep up with modern methods; the public would be put to great inconvenience by reason of incompetent management. Private companies are alert, on the look-out for new economies, and always ready to adopt improved methods. The incentive to all this is their desire to make greater profits. They do not hesitate to spend money upon improvements if by so doing they can obtain more business and increase their earnings.[[241]] Remove this incentive, as is done when the government operates a public utility, and everybody takes his job easily. |3. Would not improve political conditions.| Third, municipal ownership would merely substitute the influence of organized labor for that of organized capital in politics. The nation, states, and cities would have an enormous number of officials and employees on their respective pay rolls. The employees would also be voters. They would stand solidly for whichever political party offered them better wages, fewer hours of labor, and other advantages. The interests of the public would have scant consideration in the face of organized political pressure from this huge array of government workers. Even today the city employees are an important factor in municipal politics. What would they be if their numbers were doubled or trebled? The railroad employees of the country number many hundred thousand. Count in their wives (who are also voters), their relatives and friends, the voters whom they can personally influence, and you will see that they would form no negligible factor in national politics. |4. European experience not applicable.| Fourth, although public ownership has been moderately successful in European countries where the governments are highly centralized it does not follow that it would have the same success in this country. In the United States, where government is conducted on a democratic basis, with short terms of office and strong partisan forces at work, with the spoils system still flourishing in many states and cities, public ownership would result in gross mismanagement and extravagance. If the government is to engage in business it should first put itself on a business basis. Before it undertakes to operate the railroads or the telephone service it should introduce efficiency into its own governmental functions.

Weight of the foregoing arguments.

Summary.—In balancing these various arguments, one against the other, and in comparing the relative merits of public regulation with those of public ownership, much depends upon local conditions. It cannot be said that either policy is the better one at all times, in all communities, for all utilities, and under all circumstances. Where public regulation has been satisfactory there is a good deal to be said for the policy of letting well enough alone. Where the policy of regulation has not been successful the arguments for trying the experiment of public ownership become stronger. It ought to be remarked, however, that if local conditions are such as to make regulation a failure they are not likely to make public ownership a success. A state or community which cannot hold capital under effective control is not likely to be much more successful in its dealings with a large body of public employees. No great weight should be attached to the fact that public ownership has succeeded in one city or failed in another. The success or failure of public ownership, as a policy, cannot be fairly judged from this or that adventure in it, any more than we can judge the outcome of a campaign from the winning or losing of a single skirmish. Banks sometimes fail, yet our banking system is sound. Speculators occasionally succeed, and make fortunes, but that does not prove speculation to be a profitable form of business.

So far as can be judged from the figures of profit and loss, public ownership is less economical than private management. The community which owns and operates a street railway or a lighting plant or any other public utility will not make a profit, in most cases, unless it charges higher rates than would be charged by a private company. The books may show a profit, but this is because not all expenses which ought to be charged to the plant are put down; they are saddled upon the taxpayer in some roundabout way. Public ownership cannot be justified as a matter of pennies and dimes. |The question is not one of profit and loss alone.| But profit and loss are not the only things to be considered. The question as to which plan is better for the public is much more than a question of surplus or deficit. The fair treatment of labor, the reliability of the service, the removal of sinister political influences—these should be reckoned with as well. And that is where people with different points of view fail to agree. The advisability of public ownership is an intensely practical issue which cannot be solved by appealing to any set rules or principles. It is entirely logical for one to favor public ownership of the water supply while opposing its extension to the street railway. One is closely related to the public health; the other is not. In a well-governed community, where the service rendered by a private company has proved to be unsatisfactory, the policy of public ownership may be entirely justified. This does not mean, however, that the people of boss-ridden cities, with the spoils system in full operation, should take over public services which are doing well enough under private management. Conditions, not theories, should determine which is the wise policy.

Guild Operation.—In recent years another alternative to private ownership has been put forth. It is known as guild ownership. Knowing that many people are disinclined toward public ownership because they fear that it would merely mean the mismanagement of the public services by politicians, some labor leaders have proposed that the utilities should be owned and operated by the organized employees. In brief they suggest that the government should supply the capital (receiving interest on it, of course,) and that the employees should operate the utilities through officials chosen by them, or chosen by themselves and the government jointly. The Plumb plan, put forward in 1919 as a solution of the railroad problem, was a proposal of this nature. Some advocates of guild operation believe in applying this policy not only to public utilities but to all industries.

General References