iil3WJNA.PRArJ i ■'■', 1 ^ L ::v;:::;;:tON:DON \ rH E R Al I.WAY GAZETTE H (^ ^u-e^'^' RAILWAYS AND NATIONALISATION BY EDWIN A. PRATT, Author of Railways and their Rates, Canals and Traders, etc. riVO SHILLINGS AND SIXPENCE NET. LONDON: THE RAILWAY GAZETTE, QUEEN ANNE'S CHAMBERS, WESTMINSTER. 191 1. % •Lmct^' H£ \^ II- PREFATORY NOTE TO PRESENT EDITION. 1— ^ The considerable degree of attention which vi PREFATORY NOTE. and the facts given on pages 157-172, in reference to " A Wages Strike in Hungary," "A 'Sympathy' Strike in Holland," and " Labour v. Government in Victoria," might be commended to the attention of the British public in general and to that of railway nationalisation advocates in particular.* In regard to the railway troubles in Holland, the course of events subsequent to those men- tioned on page 165 has been especially signifi- cant. The fact that the Dutch Government had undertaken to revise the wages and labour conditions of the railway workers — following on the suppression, by means of troops, of the railway strike in Amsterdam in 1903 — led the supporters of railway nationalisation to argue that, as a logical sequence thereto, the State ought to own and operate all the railways itself. In May, 1908, the Second Chamber, by forty- six votes against thirty-nine, and after a debate extending over five sittings, rejected a resolution to the effect " that as soon as possible the measures necessary for the operation of railways * See also the Board of Trade Reports on : " Continental Railway Investigations." [Cd. 5106 and Cd. 4878.] PREFATORY NOTE. vii by the State should be prepared.'" A further Commission was, nevertheless, appointed to enquire into the alleged grievances of the rail- way workers, and this Commission, which has now presented its report (see The Times, August 2P, 191 1)' has, besides dealing with these particular matters (i) rejected by ten votes against five a resolution that State management is desirable ; and (2) accepted by eight votes against seven a resolution that management by a single company is desirable (that is, in preference to management by the two companies which now divide between them the operation of the State-owned and the company-owned lines, and are expected to compete actively the one with the other). Special attention might further be directed to the extracts given on pages 427-430 from the Report of the Royal Commission of 1865. in reference to that Act of 1844 which is so generally but so wrongly assumed to have established a basis for the Government purchase of the railways, should such a course be eventually decided upon. The material fact viii PREFATORY NOTE. to be borne in mind (although it is almost invariably ignored) is that the " terms of purchase " as laid down in the Act — namely, a sum equal to twenty-five years' purchase of the average profits for the three previous years — referred exclusively to lines constructed by virtue of Acts passed in the Session of 1844 or subsequently thereto, and not to any railways then already existing. By that time, however, the main lines of communication, to the extent of 2,320-|- miles (see pages 429-430 for full list), had already been made ; and, if the State should now decide on acquiring the railways, not one of these main lines, or indispensable sections of main lines, as operated to-day, would come within the terms and conditions laid down in the Act of 1844. Besides dealing both with the general ques- tion of railway nationalisation and with the policy, or the practicability, of applying it to British conditions, the book was further designed to show that State ownership and operation had either been a less conspicuous success in certain other countries than was often PREFATORY NOTE. ix represented or, alternatively, though applicable to the countries concerned, was not therefore suitable for adoption here ; while I further sought to maintain that, as I say on page 396, " The most practical way in which, if they are allowed, the British railway companies can work out their own salvation will be in a further resort to their policy of combinations, alliances or agreements." The last of the recommenda- tions which I ventured to offer [see page 426) was " That Parliament, traders, and the public in general should show a more sympathetic attitude towards the railways, which have clone so much to promote the national well-being ; and should assist rather than retard, exploit and nullify, a rational policy which would secure the best results that could possibly follow from rail- way nationalisation, while avoiding the risk of its many attendant evils and disadvantages." The conclusion I thus sought three years aeo to enforce has been abundantly confirmed by the Report of the Departmental Commission on Railway Agreements and Amalgamations, issued in May, 191 1. X PREFATORY NOTE. The report is, in effect, not alone a complete abandonment of the traditional State policy of compulsory railway competition, apart from due regard for strictly economic considerations, but is, also, an equally complete justification of the railway policy of combinations and working- aofreements. The Committee have come to the " unanimous conclusion that the natural lines of development of an improved and more economical railway system lie in the direction of more perfect understandings and co-operation between the various railway companies, which must frequently, although not always, be secured by formal agreements of varying scope and completeness, amounting in some cases to working unions and amalgamations " ; and they add that they have felt it their duty "to refuse to adopt any suggestions or recommendations having for their object to make such arrange- ments difficult or impossible, and any which would make them so onerous to the railway companies as to deprive them of all the economic advantages of a course of action they might be able to prove would tend towards economy and PREFATORY NOTE. xi efficiency in carrying out the objects for which they originally received their powers from Parliament." Here we seem to be offered one practical means of meeting certain of the difficulties that arise in railway operation. Another is foreshadow^ed in the undertaking- given by the Government, as part of the settle- ment of the railway strike of August, 191 1, that they will, in 191 2, bring forward legislation providing that any increase in the cost of labour due to improvement of conditions for the staff woukl be a valid justification for a reasonable o-eneral increase of charores within the le^al maxima, if challenged under the Act of 1894. The effect of this legislation will be to place the railway companies more on a level with ordinary commercial companies in passing on to the " consumer " the increased cost of pro- duction ; but, though the extension of the principle to rail transport must be regarded as inevitable, one may anticipate much controversy over the question, first, as to the proportions in which the " reasonable o-eneral increase of xii PREFATORY NOTE. charges " should be borne by traders and travellers respectively, and, next, in regard to the traders, by which classes thereof it should be borne in preference to others. Meanwhile the Socialists are preparing to take advantap-e of the recent " unrest " in the o railway world by starting an agitation in favour of railway nationalisation, the following an- nouncement being made in The Times of September i, 191 1 : — ■ " Mr. W. C. Anderson, President of the Independent Labour Party, announced yesterday that the party is beginning a campaign in favour of railway nationalisation. It is intended that every meeting arranged by the party during the next few months shall deal with some phase of the railway question, leading up to the purchase of the railway systems of this country by the State." In these circumstances there is the greater reason why the country should have the fullest opportunity of considering the whole subject in the light, not simply of theory or assumption, but of actual conditions at home and of accom- plished facts abroad. Edwin A. Pratt. Septe^nber, 1 9 1 1 . CONTENTS. CHAP. I. INTRODUCTORY II. FUNDAMENTAL PRINCIPLES III. STATE V. COMPANY OWNERSHIP IV. REASONS FOR STATE OWNERSHIP V. STATE AID TO PRIVATE COMPANIES VI. STATE RAILWAY FINANCE VII. STATE RAILWAYS AND POLITICS VIII. STATE RAILWAYS AND LABOUR IX. STATE V. COMPANY MANAGEMENT X. TRADERS AND THEIR GRIEVANCES XL CONTINENTAL TRANSPORT CONDITIONS XII. PURCHASE TERMS AND CONDITIONS XIII. THE QUESTION OF SAVINGS XIV. THE IRISH RAILWAYS XV. STATE RAILWAYS AND NATIONAL PROSPERITY XVI. BRITISH RAILWAY POSITION TO-DAY XVII. SUMMARY AND RECOMMENDATIONS APPENDIX : The Royal Commission of 1865 INDEX PAGE I 5 12 20 40 60 121 144 176 204 253 294 318 331 357 370 421 427 447 RAILWAYS AND NATIONALISATION. CHAPTER I. INTRODUCTORY. For many years past it has been usual to asso- ciate demands for the nationalisation of British railways mainly with one or other of three classes of the community : (i) Socialists, who advocate as a matter of principle that the State should control all the means of production, distribution and exchange, and seek to nationalise the rail- ways simply because such a step would be in accord with their party propaganda and repre- sent, as Mr. Bruce Glasier has said, "a begin- ning in bringing the great monopolies into the hands of the public "; (2) representatives of the Labour Party, who believe that nationalisation would lead to higher wages and shorter hours for railway workers, and tend to improve the labour position generally; and (3) certain traders, who think that, under State ownership B 3 Railways and Nationalisation. of the railways, they would secure lower rates of transport and better conditions of rail trans- port in general. The subject has also been a popular one with lecturers, debating societies, and school parliaments; but until, at least, the General Election of 1906, and, also, the railway troubles of 1907, it remained a matter of academic discussion rather than one likely to be brought within the domain of practical politics. But the question has recently entered upon a somewhat new phase, because it is clear from some recent utterances of leading members of the Government that their attention is being drawn to the relations of the State to the rail- ways, and that the possibility has been enter- tained of some fundamental changes being intro- duced in the railway position, not alone as a panacea for existing transport and economic dis- advantages, but, also, as an alternative to a policy of Protection ; though it is open to doubt whether any leanings in this connection towards a resort to railway nationalisation for the United Kingdom will still be favoured by responsible authorities when the whole subject has under- gone thorough investigation from a practical rather than from a theoretical standpoint. Then, on February 11, 1908, there was a debate in the House of Commons on a resolution, proposed by Mr. G. A. Hardy, in favour of railway nation- alisation ; while a still later development has been Introductory. 3 the formation (announced in The Times of May 22, 1908) of a Railway Nationalisation Society, " for the purpose," as the Society itself says, " of educating the public mind on the subject of State ownership;" though the circular issued leaves no room for doubt that the educating pro- cess in question is to proceed exclusively along the lines of converting the public mind to the nationalisation idea. The Society in question, I might remark in passing, seems to have politi- cians rather than traders for its god-fathers. To-day, therefore, the whole subject of railway nationalisation may be spoken of as being " in the air " to a greater extent, at least, than has been the case before; and it is certainly desirable that all the facts of the case should be set before the country in regard alike to the general prin- ciples of railway nationalisation, the results to which they have led elsewhere, and the practica- bility, or the desirability, of applying them here. It is with these particular aspects of the question I propose to deal in the chapters that follow. There is the greater reason for the attempt here made to enlighten the public mind in re- gard to railway nationalisation well in advance of any possible definite action, because political developments of the day have shown that not only are attacks on " capital " much favoured in certain quarters, but that one can no longer feel any certainty tha't even the most momentous of measures, involving grave questions of B 2 4 Railways AND Nationalisation. finance, of equity, or of national policy, will always receive adequate discussion in the House of Commons, where debates on subjects however important may, as we find, suffer mer- ciless curtailment to suit the exigencies of a Ministerial programme. Some recent prece- dents, alike in these directions and in the press- ing forward of what are, avowedly, merely the beginnings of revolutionary but immature social changes — which chance and the future are to be left to perfect — invest with greater importance than ever the discussion of national questions by the nation itself, and, also, the basing of such discussion, as regards railway nationalisation at least, on that widest possible knowledge of the many and often conflicting factors involved by which alone one can hope to form a right and well-considered judgment. Fundamental Principles. CHAPTER 11. FUNDAMENTAL PRINCIPLES. By the average person the phrase " railway nationalisation " is generally employed as though it represented a single well-established principle, which everyone would understand at once, and stood in need, therefore, of no exact definition. In effect, the phrase comprises two distinct propositions: (i) State ownership, as the result either of (a) construction or (b) purchase of rail- ways ; and (2) State operation thereof. A State can build railw^ays or acquire them; but, having done either, it may prefer to hand them over to a private company to operate. In the latter case they would still be " State-owned," but they would have to be considered from a different standpoint from railways that are both State- owned and State-operated. Thus "State-owner- ship" and " railway nationalisation " cannot be regarded as strictly synonymous terms, and although the latter phrase is (in this country) now generally assumed to include both of the 6 Railways and Nationalisation. factors in question, one must bear in mind that this is not necessarily the case. These considerations are the more important because in various countries where the principle of State-ownership of railways has been accepted (often for unavoidable reasons, as I shall show in another chapter), that of State-operation has been declined ; while in certain instances this attitude has not only quite recently been affirmed, but is even being carried still further, ■ — in direct opposition to the theories of the " railway nationalisation " party in the United Kingdom. state-ownership : company operation. The Government of the Netherlands, for ex- ample, are the actual owners of a considerable proportion of the railway mileage in Holland ; but they have divided the operation thereof be- tween two companies, — one specially formed (in 1863) for " the Exploitation of the State Rail- ways," and the other, the Holland Iron Railway Company, which owns lines of its own. A most vigorous effort has recently been made by the Liberal-Democratic Party in Holland to induce the Second Chamber of the States-General to pass a resolution expressing the view that a scheme for the operation of the State railways of the country by the Government itself, instead of by the private companies, should be prepared as soon as possible. The debate extended over Fundamental Principles. 7 five sittings, and resulted (May 26, 1908) in the motion being rejected by 46 votes to 39. In Mexico the Federal Government have, through purchases of stock, now secured control over about 7,000 miles of railway in that Re- public. But the Government have no idea of operating the lines themselves. Instead of at- tempting to do so, they have (1908) brought about the formation of a private company which, under certain conditions — and subject to the supreme control the State can exercise by reason of its holding the majority of the stock — will work the whole of the railways in question. India, again, is often pointed to by advocates of the nationalisation principle as a land where the greater part of the railways are owned by the State, and as constituting, therefore, an ex- ample for England herself to follow. But, from a Report of the Committee on Indian Railway Finance and Administration, issued in May, 1908, I find that although the State certainly does now own 22,622 miles of railway in India, it has leased 16,458 miles of this total to operat- ing companies, and itself works only 6,164 miles, namely, the North- Western Railway, 3,569 miles; Eastern Bengal, 1,271; Oudh and Rohilkhund, 1,292; Jorhat, 32. Concerning these four State-worked systems the Com- mittee say : — Large capital expenditure for development must be incurred on these lines in the near future, and 8 Railways and Nationalisation. direct working- by the State is not without its dis- advantag-es. The consistent policy of the Govern- ment of India for many years has been to arrange for the railways of India, while remaining^ State property, to be leased to companies which work them on behalf of the Government on a profit- sharings basis. There is no disposition on the part of the Government to depart from this policy, which has worked satisfactorily. We would, therefore, suggest that one or more of the State lines above mentioned might be leased to companies on the basis above described. These examples of quite recent date will suf- fice to show that the " nationalisation of rail- ways " is a phrase capable of different interpre- tations, and requires to be clearly defined before one can rightly understand what is meant there- by. For present purposes, however, it must be assumed that when advocates of " railway na- tionalisation " in the United Kingdom sing the praises of " State ownership " of railways, they mean to include therein State operation as well. In fact, it would seem to be the State operation, with its possible advantages for themselves, in which the Labour Party, at least, is mainly concerned. ACTION OF LOCAL AUTHORITIES. Subsidiary to the question as to the active inter- vention of the State in the provision or the operation of railways, there is the further con- sideration whetlier or not local authorities should Fundamental Principles. 9 assist in the same direction. In France the de- partments and communes were authorised in 1863-4 to give financial support to local lines; though, as I shall show later on, this authority was, in their case, abused rather than discreetly used. In Denmark a law passed in 1868 enacted that half the cost of the land required for rail- ways built by the State should be refunded by the county councils, who were to raise the re- quired sum by taxes imposed on fields and meadows situate within the limits of the counties through which the lines passed, and also on the inhabitants of market towns. In Norway the communes, in the case of lines owned and operated by the State, have been required to contribute to the capital cost, and to undertake all expenses connected with the acquisition of the necessary land, maintenance of fencing, etc., without receiving any direct return ; while in the case of other lines (much greater in extent than those owned by the State alone) they have not only helped to raise the capital, but are joint proprietors of the railways with the State and private individuals. In Canada the municipali- ties have given considerable financial help to the railways. In Ireland, again, there are lines having " baronial guarantees of interest on capital," any losses sustained falling upon the localities concerned. Here, therefore, in considering what is meant by the somewhat vague phrase, " railway na- lo Railways and Nationalisation. tionalisation," the further question arises as to whether the action of the State, exclusively, should be invoked, or whether the co-operation of local authorities should be included as well. DIFFERENCES IN CONDITIONS. It must still further be kept in view that, although a resort to nationalisation, in either form or both, may, for one reason or another, have been abundantly warranted in certain other (and especially " new ") countries or colonies, it does not therefore follow that the adoption of a like policy by ourselves, in our own particular circumstances and conditions, would be equally justifiable. Even, therefore, if we were con- vinced, first, of the soundness of the principles involved, and, secondly, of the absolute wisdom and efficiency with which they have been carried out elsewhere, there would still remain the prac- tical question whether they are really suitable for application to-day to the United Kingdom. Nor must advocates of the proposal omit to lay down the exact purposes which nationalisa- tion is intended by them to serve. I shall show that different countries owning and operating State railways employ them in very different ways, according to national or colonial con- ditions, whether from the financial, the economic or the fiscal standpoint; sometimes, for example, looking to them for revenue; sometimes using Fundamental Principles. ii them to develop industries at tlie cost of the tax- payer; and sometimes operating them as part of the poHtical machinery for ensuring the effi- cacy of " Protection." Once more, therefore, exact definitions are necessary; and, in pointing to all that other countries have done in the matter of railway nationalisation, would-be reformers here should say definitely which of these par- ticular countries — differing as they do so materially among themselves — they would have us take as our pattern and example. 12 Railways and Nationalisation. CHAPTER III. STATE V. COMPANY OWNERSHIP. One of the stock arguments advanced by the nationaHsation party is that private ownership of railways is to-day found in only " two or three countries," and that England, therefore, is quite behind the times in adhering to so out-of-date a system. But no one, so far as I am aware, has yet attempted to show the real extent to which the railways of the world are owned by States and companies respectively. To my own mind it has seemed desirable that some definite figures should be given on this particular aspect of the controversy, and, as the result of a considerable amount of research, correspondence and personal inquiry, I have compiled two tables, giving the said figures for (i) the United Kingdom and foreign countries, and (2) British Colonies, Possessions and Protec- torates, It has not been possible to obtain abso- lutely complete returns, and, in the case of many of the countries, no more recent statistics than those for 1905 were available. But the details I give may, I think, be regarded as approximately correct, while, <_'\cn allowing for possible addi- State v. Company Ownership. 13 tions or corrections, the excess of company- owned lines over State-owned lines, as shown in the summary at the end of the tables, is so sub- stantial that the broad results of the comparison are not likely to be materially altered. It should be noted that the figures relate to ownership, and not to actual operation, there being not only company-operation of State- owned lines, but State-operation of company- owned lines. (See foot-notes to Holland, Austria, Hungary, Mexico, Peru, China and Newfoundland.) Another important considera- tion is that the figures represent route miles, or length of line, and not length of track, one mile of line having two, three, four or more sets of metals still counting as only one mile. This method of reckoning is to the disadvantage of the United .Kingdom, where sections of railway having up to nineteen separate tracks lying side by side are to be found (see foot-note to United Kingdom), while in a large proportion of foreign countries and British Colonies, the lines, except in the immediate neighbourhood of towns, are mainly single track. The tables are as follows : — United Kingdom and Foreign Countries. Country. Railways mvNED by State. Comtanies. Miles. Miles. United Kingdom . . 23,063 (a) France 1,868 (d) 27,133 H Railways and Nationalisation. Country. German Empire : Prussia-Hesse . Alsace-Lorraine Bavaria . Saxony Wiirtemberg Baden Mecklenburg Oldenburg (c] Belgium . Holland . Kussia in Europe {c „ Asia Finland . Norway . Sweden . Denmark Switzerland Portugal Spain Italy Austria Hungary Bulgaria Servia Roumania Turkey in Europe Egypt . Greece Algeria . Tunis United States Mexico . Argentine Republic Brazil Uruguay . Chile Peru Bolivia. . Cuba Honduras China Railways owned by State. Companies. Miles. Miles. 21,130 1,197 1,067 17 3,968 715 2,019 3 1,219 ^31 1,036 19 1,092 43 505 2,514 330 1,107 {^) 992 19,726 12,657 5,216 1,885 "168 1,354 (/) 219 (g) 2,605 5,095 (/o 1,137 855 1,488 (0 1,103 540 866 8,961 8,2i6(y) 1,956 (X') 5,158 7,818 (/) 4,828 6,448 (w) 736 235 336 49 1,968 17 1,238 1,434 '83o(;/) 1,940 428 218,101 {0} 13,905 (/) 1,721 11,047 4,294 6,299 1,210 1,592 1,525 918 (^) 242 16 (r) 378 {s) 1,500 57 673 (0 3,027 (?0 State v. Company Ownership. 15 ^ Railways owned «y Country. ^^^^^^ Companies. Miles. Miles. Japan 4,572 (?') 442 Siam 356 39 Nicaragua . . . . 171 {70) Guatemala 415 (.r; Totals . . . 108,577 362,620 NOTES. (a) These figures are for 1906. The track mileage at the same date was as follows : — ist track, 23,063 miles; 2nd, 12,934; 3rd, 1,363 ; 4th, 1,091; 5th, 186; 6th, III; 7th, 47 ; 8th, 29 ; 9th, 17 ; loth, 10 ; nth, 6 ; 12th, 4 ; 13th, 3; 14th to 19th, I mile each : total length of track, 38,872 miles; length of sidings (reduced to single track), 14,032 miles; total length (including sidings), 52,902 miles. {d) Purchased by State, owing mainly to the financial embarrassment of a group of small companies which had constructed the lines. Bill passed through both Houses, 1908, for purchase of Western of P>ance railway by the State. {c) Totals for German Empire : State-owned lines, 31,430 miles ; lines owned by 76 companies (as shown by statistics issued by the Reichs-Eisenbahn-Amt), 2,469 miles, though the figures in the table account for only 2,125. One of these private lines, the Pfalzbahn, will be incorporated in the State system of Bavaria on January 1, 1909. (d) Operated by two private companies, which pay the State a rent for the use of the lines. {e) Exclusive of Finland. (/) The purely State lines have a length of 313 miles ; but the State also operates 1,041 miles of lines owned jointly by itself, communes, and private individuals. (^) The private railways in Norway have all been sub- sidised by the State, and only one of them pays a dividend on ordinary shares. (/i) Includes 1,715 miles of narrow-gauge lines. (/) Originally constructed by private companies. Pur- chased by State as result of Referendum in 1898. Other sections also to be taken over. (/) The Italian railway system was constructed partly by 1 6 Railways and Nationalisation. the Government and partly by companies, to whom conces- sions had been granted, though the State afterwards acquired possession of the chief hnes. In 1885 the administration of all the railways in Italy was left to private enterprise ; but in 1905 the State assumed administration of its own lines, and resolved on nationalisation of others. In this instance the figure 8,216 represents mileage worked by the State (June 30, 1907), viz. : Owned by State, 7,784 miles ; belonging entirely or in part to private companies or foreign adminis- trations, 318 ; lines temporarily worked by the State, 114 miles. (/') Secondary lines. Not to be nationalised. (/) Includes 2,784 miles operated by the State railways administration. Since these returns were made the Ferdi- nands-Nordbahn, 819 miles, has been added to the State system. Lines of five other.companies, with total of about 1,860 miles, are also to be acquired by the Government. (/;/) Includes 4,855 miles operated by the State railways administration. (;/) Figures for 1904. ((>) This total is for June 30, 1905, and covers "single track railway mileage." The aggregate mileage, including tracks of all kinds, for which substantially complete returns had then been received by the Interstate Commerce Com- mission, was 306,79674 miles, classified as follows : — Single track, 2i6,973"6i miles (less therefore, than the known total) ; second track, I7,056'30 miles ; third, i,6o9'63 ; fourth, i)-i5'53; yard track and sidings, 69,94r67 miles. The railway corporations included in the returns number 2,167, and of these 1,169 ^^^ classed as " operating roads." (p) Created and operated by companies. In 1907 the Federal Government who, through purchases of stock, already controlled 3,633 miles, obtained control also over the Mexican Central (2,818 miles) and various small lines, in order to check the designs of foreign financiers. Their total was thus increased to 7,585 miles, the operation of which has now been transferred to a new (Mexican) company, formed under Government auspices. (^) Figures for 1908. Though State-owned, these lines are operated by an English Company, the Peruvian Corpora tion, to whom they have been leased for a long term of years. (r) Leased to the Peruvian Government. {s) Figures for 1906. Include 304 miles owned and State v. Company Ownership. 17 operated by an English company, the Antofagasta (Chile) and Bolivia Railway Company, Ltd. (/) Imperial Railways of North China. These were begun as a private enterprise, but difficulties were experienced in the raising of capital. The scheme was then taken up and completed by Li Hung Chang as a Government under- taking ; though the system was constructed under the super- vision of British engineers, and is operated by them under Chinese control. (u) Built by foreign syndicates employing British, German, Russian, Belgian, American, Japanese, and Chinese capital. (■?/) Figures for 1908. Include 2,806 miles of companies' lines purchased by the Japanese Government under the nationalisation scheme of 1906. (w) Leased to a company for 35 per cent, of gross earnings. (x) Originally constructed by Government. Transferred to a company on their undertaking to carry out certain extensions. British Colonies, Possessions and Protectorates. Colony, &c. Canada . Newfoundland New South Wales . Victoria . South Australia Western Australia . Queensland Tasmania New Zealand . India (e) . Ceylon Cape of Good Hope Natal Orange River Colony & vaal Rhodesia. British Central Africa British East Africa . Northern Nigeria . Southern Nigeria . Railways owned by Government. Companies. Miles. Miles. . 1,877 i'i) 18,702 (d) 645 (i-) 21 . 3,281 81 • 3,380 1,892 (./) 1,605 700 . 3,114 93 462 156 . 2,407 113 • 25,990 3,989 562 • 2,987 403 797 (/) 50 fe) Trans- . • 1,685 (/o 1,440 so . . 584 23 . . 185 (/) C. i8 Railways and Nationalisation. Railways OWNED BY Colony, &c. Government Companies Miles. Miles. Gold Coast 1 68 Sierra Leone . 227 Federated Malay States 396 Straits Settlements . 15 10 Jamaica . 185 Barbadoes 25 Trinidad . 81 British Guiana 95 Mauritius 130 Cyprus . 36 Malta 8 Totals . 52,722 25,928 NOTES (r?) Figures for 1906. Total made up thus : Inter-Colonial Railway, 1,478 miles ; Prince Edward Island Railway, 261 ; Temiskaming and Northern Ontario Railway (a pro- vincial Government line), 138. {b) Miles of double track in Canada (Government and Companies' lines), 838. Railway lines, 194. (f) Leased to a company, which is to work and develop the property, bearing loss or taking profit. In 1905-6 expenditure exceeded revenue by ^26,700. \d) Including 146 miles in the Northern Territory. {e) These figures, which do not include foreign lines, are for 1907. The total length of railways open in India at the end of that year was 30,053 miles, classified as follows : State lines, 22,531 miles ; Native State lines, 3,459 miles ; assisted and unassisted companies, 3,052 miles ; guaranteed companies, 937 miles ; foreign lines, 74 miles. (/) Figures for 1906. Natal Government also own 88 miles of railway in the Orange River Colony, and (by arrangement with the Intercolonial Council) operate a further 88 miles there. ig) Owned by Natal-Zululand Railway Company, but operated by the Natal Government on a percentage basis. {h) Acquired by the Imperial Government on the occupa- tion of the new colonies. One part of the Orange Free State railways had been constructed by the previous Government State v. Company Ownership. 19 out of revenue, and was therefore taken over without payment. The lines of the Netherlands Railway Company in the Transvaal were seized by right of conquest on the occupation of the Transvaal, on the ground that the company had taken an active part in the war on behalf of the South African Republic ; but the debenture-holders were paid out by the Imperial Government. (/) Figures for 1907. Lines owned as follows: — Mashona- land Railway Company, 547 miles ; Rhodesia Railways, Limited. 884 ; Rhodes' Trust, 9. The Rhodesia Railways, Limited, also own 112 miles of line in Cape Colony, and 394 miles in the Bechuanaland Protectorate. (7) Figures for 1906. SUMMARY. COiMPANY-OWNED RAILWAYS : United Kingdom and foreign countries Colonies, Possessions, &c. State or Government- owned Foreign Countries Colonies, Possessions, etc. Excess of Company-owned over State OWNED Estimated total of world's railways* Included in above figures Mileage not accounted for ... Percentage of company-owned to world's total „ „ State-owned to world's total.. „ „ mileage not accounted for Proportion of company-owned to State-owned ... 2"4 to i * As given in the " Archiv fiir Eisenbahnwesen." C 2 Miles. 362,620 25,928 108,522 52,722 388,548 161,244 rE- 227,304 562,436 549,792 )tal ... 12,644 69-1 287 lOO'O AYS AND NATIONALISATION. CHAPTER IV. REASONS FOR STATE OWNERSHIP. I come next to the important consideration — • generally overlooked by railway nationalisation advocates — as to the reasons which have led in other countries to an adoption of the principle of State-ownership of railways, with or without State operation. We are constantly being told of what has been done elsewhere; but is there any real similarity between the conditions of these other countries and our own ? Have we ourselves been warranted in maintaining com- pany-ownership instead of doing the same as these other lands have done ? Have they, further, always resorted to State railways from a deliberate conviction that that is the better system, or have they not, rather, often been forced to adopt this expedient because, in their particular circumstances, they had no alterna- tive? GERMANY. To begin with Germany, where the railway nationalisation principle has attained its highest and most successful development, the policy oi State purchase of company-owned lines, initiated Reasons for State Ownership. 21 by Prince Bismarck, was due to various causes. Military considerations are assumed to have been paramount. Situated as Prussia was, geo- graphically, and in view of European political conditions in general, it was thought in the highest degree desirable, in the interests of that kingdom — if not also of the prospective future Empire — that there should be lines of railway which, though not necessarily remunerative from a commercial standpoint, would allow of a rapid concentration or distribution of troops; and, for the same reason, it was no less needful that the State should be able to command, also, the use of all the main lines of existing railway. There were, however, other considerations besides; and in this connection the Financial Times of P'ebruary 20, 1908, says : — Prussian railway history, which yet remains lo be written, also shows how the investor may fare at the hands of a State with designs on his property. It is generally accepted that Prussia took over its railways for military purposes, but strategic con- siderations appear to have only been indirect factors in determining the ownership of the entire system. In brief, the development of the nationalisation idea was somewhat as follows. The Government con- structed a military line, which was a success so far as its purpose was concerned. Subsequently Parlia- mentary sanction was refused to further extensions on the ground of cost. Then arose the brilliant idea that if all the existing railways were once vested in the Government, the consent of Parlia- ment to authorise additional expenditure would be Immaterial, provided that sufficient funds were 22 Railways and Nationalisation. available out of the secret reserves obtained from the operation of lines in being-. The result of this scheme was a strangling and starving- campaign under the Bismarck regime, by which traffic was diverted from the private companies, stock secretly bought on Government account, and public opinion worked up in favour of State control. These tactics naturally depreciated values, and the Government's eventual purchase was at a cheap rate. The facts here outlined are old enough to be new to the present generation, and may be commended to the notice of Home Railway stockholders. Among the further reasons for the acquisition of the entire system by the State were the following : — Prince Bismarck aimed at establishing a policy of Protection in .Prussia; but he found it would be useless for the Government to impose hostile tariffs on foreign imports if the railway com- panies then operating were able to nullify those tariffs (as they showed a tendency to do) by con- ceding exceptionally low rates on the carriage of foreign commodities from the ports to inland centres. With State ownership of the railways, the Government would be in a position to impose such high rates as they pleased on foreign im- ports, and to give correspondingly low rates for the encouragement of exports, thus com- pleting the Protection of the native producer, and converting the railways into part of the fiscal machinery of the kingdom. Certain important financial considerations pre- sented themselves to the Chancellor's mind. He Reasons for State Ownership. 2t, was experiencing difficulty, from time to time, in securing from the Prussian Parliament all the supplies he wanted for the achievement of his various schemes; but, provided he could effect the nationalisation of the railway system, and thus control, not alone the operation of the lines, but also the finances thereof, he would be ren- dered independent of Parliamentary votes to the extent at least of the net railway profits, which, after the meeting of all claims, would thus pass into the Treasury to be made use of by the Government for general State purposes. Prince Bismarck further aimed, on the con- clusion of the Franco-German War, at the creation of an Imperial system of State Railways for the whole of the German Empire, with Prussia at the head thereof. From a transport point of view there was much to be said in favour of such a scheme. But no injustice would be done to Prince Bismarck's memory if one assumed that he was further inspired by thoughts of giving greater power and prestige to Prussia. By this time various of the German States had Government railways of their own. In both Wiirtemberg and Bavaria the State had had to take over and complete certain main lines started by private companies which speedily got into financial difficulties. In Baden no capitalists could be found to build a line from Mannheim to Heidelberg, and the State was obliged to under- 24 Rait.ways \Nn Nationalisation. take the enterprise itself. In Saxony the Government offered practical encouragement to railway companies by subscribing for their shares, and guaranteeing payment of interest on capital; but when, in 1845, the construction of a line from Dresden to the Austrian frontier was found necessary, there was no prospect of such a line being built until the Government took the work in hand. In Prussia itself the dimensions of the State system, prior to complete nationali- sation there, had been swollen by the Govern- ment purchase of lines from companies which had become bankrupt, especially following on the financial crisis of 1848. In most of the German States the prevalent system was more or less "mixed"; that is to say, some lines belonged to the Government and some to private companies. But when the States in Southern Germany realised the extent of Prince Bismarck's aspirations, they proceeded to check his idea of an " Imperial " system of rail- ways — with Prussia at the head — by national- ising the lines in their own individual territories, thus rendering it impossible for the Prince — as they rather feared he might do — to buy up the companies operating in those territories, on his finding the Governments themselves indisposed to endorse his plans. In the result, independent systems of State railways are to be found to-day in Prussia and Hesse (combined), Bavaria, Saxony, Wiirtemberg, Baden and Oldenburg, Reasons for State Ownership. 25 while the Mecklenburg Friedrich-Franz Railway is also State-owned, the only lines thus far con- stituting an " Imperial " system in the German Empire being those in Alsace-Lorraine. We have here a set of conditions, leading to State ownership and operation of railways, which cannot be paralleled by any conditions past or present in the United Kingdom; and I would submit that to this extent, at least, any reasons for a change of policy on our own part must be sought elsewhere than in the example offered by Germany. BELGIUM. Instigated thereto by Leopold I., Belgium began with vState lines, and had 200 miles in operation by the year 1840. But the severity of the water competition made the railways so unremunerative that when the Governm^ent pro- posed to build still more, the Chambers refused their assent at the time, though more vState lines were built subsequently. Private com- panies were allowed to take up the work, and, although some of these failed, and had to be bought out by the Government, the successful ones showed so much energy, foresight and enterprise that the_y became powerful competitors of the State system. " Rate wars " followed, and the grave disadvantages of the dual system were abundantly manifested. But the more immediate reason for the decision, arrived at in 26 Railways and Nationalisation. 1870, that the State should acquire control over all the main routes of railway in the kingdom, was a fear (for which there seems to have been good ground) that German speculators might buy up the private lines, or, at least, get com- mand over them, and operate them to the advantage mainly of German interests — political and economic. Such a procedure might well have proved disastrous for Belgium ; and, how- ever much the actual operation of her railways by the State may be open to criticism, it is certain that, in the circumstances, their purchase by the State was abundantly justified. HOLLAND. In Holland the water competition is still more severe than in Belgium, and when, following on the recommendations of a commission appointed by him in 1836, William I. sought to induce the States General to build a line of railway from Amsterdam to Arnheim, as the first link in a chain of rail communication with Germany, they refused, and left him to start a railway company on his own account. He lost ;^ 100,000 by giving to this company a personal guarantee of payment of interest, and for many years private enterprise in railway construction had a desperate struggle for existence in Holland. In fact it became evident by i860 that vState action was essential to the provision of a network of rail- ways sufficient to safeguard Holland's economic Reasons for State Ownership. 27 interests in regard especially to her relations with neighbouring countries. Hence the crea- tion of a State system of railways alongside of a system created, and still being extended, by private enterprise; though, as already explained, the operation of the State lines was entrusted to companies instead of being undertaken by the Government themselves. The State has added to its own system by purchase from time to time; but there are still considerable sections of company-owned lines in Holland which the Government prefer not to take over. DENMARK. Private enterprise, with State guarantees of interest, started railway construction in Den- mark. But the pioneer lines paid badly, and the arrangements between the companies and the Government were such that the former became disinclined to run the risk of providing railways not likely to yield a fair return. So the earliest lines got transferred to the State, and, though the offer of State subsidies, together with State pur- chase of shares, led other companies to construct still further lines, the plan did not always work satisfactorily. More and more of the company- owned lines thus passed over to the State, which, meanwhile, had also built on its own account. Between, however, 1894 ^^^ ^905 the State system in Denmark increased only from 1,034 miles to 1,137, while the private railways 28 Railways and Nationalisation. increased from 337 miles to 855. The expan- sion, therefore, has been with the latter rather than the former, this fact being accounted for by the large subsidies which the State gives to the companies to encourage them to build lines of their own, in preference to undertaking the work on its own account. FRANCE. As shown by the table given in Chapter III., the State Railways in France comprise only 1,868 miles, while those belonging to companies have a total of 27,133 miles. In effect, the State system was originally a collection of more or less disconnected lines belonging to a group of impoverished if not actually bankrupt com- panies. Failing the possibility of making satis- factory arrangements with the great companies to take over the lines in question, it was enacted by the law of May, 187S, that the State should acquire them and operate them itself; though such decision was spoken of in the Chamber at the time as an " acte de bicnfaisance et de gene- rosite extreme," the majority of the shareholders being " small " people who had invested most of their savings in the companies in question. There were, in addition, other lines which the Government constructed themselves because the companies declined to undertake them on the ground that there was no prospect of making them pay. Reasons for State Ownership. 29 The purchase of the Western of France Rail- way, agreed to (1908) by both Chambers, has been a political move designed, in part, as a " sop " to the anti-Clerical or anti-Conservative party, whose interests the deal will advance in Nor- mandy and Brittany, where Clericalism and Con- servatism are in especially strong force. One argument advanced in support of the scheme was that the State railways system would acquire outright the St. Lazare and Montparnasse stations; "but, of course," a well-informed American friend in Paris writes to me, " what- ever have been put forward as the reasons, the real dominating reason is that the politicians, keen after 'soft-snaps,' wish to get possession of the line and run and control it." Purchase was opposed by trade associations, Chambers of Commerce, and other public bodies, and 90 per cent, of the Senate, it is said, were against it individually; but political considerations carried the day. ITALY. Of the railways in Italy the Board of Trade Return, " Railways (Foreign Countries and British Possessions)," issued 1908, says: — It must be borne in mind that at different periods of railway development in Italy huge sums have been spent in the construction of lines which were never expected to pay, but the existence of which was a political necessity, and without which the unification of the country could never have been accomplished. so Railways and Nationalisation. Under the system of concessions granted for a certain period, and not likely, as it was seen, to be renewed, the companies taking over the operation of the railways had no great interest in maintaining them in a state of complete efificiency towards the end of such period ; but operation by the State has been further hampered because the railway workers, with powers of appeal to pro- tecting deputies, refuse to submit to discipline. SWITZERLAND. The nationalisation of the Swiss railwa3's, as the result of a referendum to the people of the country, in 1897, was advocated at the time as a purely economic measure, having for its objects a less costly management, a lowering of the tariffs, an improvement in the condition of the staff, and the paying off of the capital ; though in reality (as stated in an article published in the Tribune de Geneve in May, 1908), it was the result of a political move, a message issued by the Federal Council laying down the principle that the chief railways should be acquired by the State. The movement was further strengthened, on the one hand, by the fact that it was thought undesirable that a large proportion of the railway shares should remain in the hands of foreigners; and, on the other, by an expectation on the part of Labour that its own interests would be pro- moted by State ownership and operation. To Reasons for vState Ownership. 31 the results of the adoption of this principle I shall allude in Chapter VI. JAPAN. Japan's reasons for carrying out her nationali- sation scheme of 1906 were founded in part on military and in part on economic considerations. In 1905 there were in Japan 38 private com- panies owning and operating 3,268 miles of railway, while the State owned and operated 1,461 miles. The dual system of ownership, with all its disadvantages, being thus in full force, the State resolved to take over 17 of the chief lines belonging to the companies, and, adding them to its own, operate the whole as a State system, with what success I shall show later on. MEXICO. The reasons why the Federal Government of Mexico were, as mentioned in Chapter II., led to acquire so extensive a control over the rail- ways in that Republic are explained by Mr. Charles Edward Russell in an article published in the issue of the American magazine, Cosmopolitan, for July, 1907. The railway policy of the Mexican Government has been founded on the principle of giving concessions to private companies to build and operate the rail- ways, though imposing on the said companies exceptionally severe regulations, in order, among 32 Railways and Nationalisation. other things, to safeguard the interests of traders and the public in general, and especially (as it would seem) to check the advent into Mexico of such abuses as had crept into railway operation in the United States of America. A very con- siderable network of railways was brought into existence, under these conditions, though the greater part of the capital of the different com- panies had been provided by American investors. A good deal of the stock w-as, indeed, held by certain prominent financiers, of whom Mr. Russell goes on to say : — The seven kings of our railroad system looked down to Mexico, and it found favour in their sight. They said it was a good thing, and they would push it along. They owned shares in many lines ; they were building and planning many others. .... How fine it would be if they were to combine their interests and possess all the country ! . . . . The Rock Island planned to carry its system south- ward from El Paso through Mexico to the Pacific coast, to the Isthmus of Panama, to regions beyond. It v/as a gigantic scheme and certain to have a glorious success. Maps were made out showing how Mexico would be parcelled out by the harmonious combination of the kings. The Rockefeller lines reached here, and the Harriman lines there, and the Morgan lines over yonder, and when the combination had been effected there would be nothing left for anybody else, and nothing- for the combining gentlemen to do but exploit the people and draw dividends. It was a grand conception. From time to time in the summer of 1906 the American news- papers reported its cheery progress. Everything was going well indeed ; the interests were being Reasons for State Ownership. s3 brought tog'ether, the necessary controls were being secured, and in a few months the combination would be perfected and fully launched to do the Mexicans good and run their affairs for them. But it seems that these very clever gentlemen had reckoned without another who was cleverer still, and that was Porfirio Diaz, President of the Mexican Republic. While they were elabo- rating their schemes with more or less publicity, the President had taken measures of defence in secret. In ways so carefully concealed, Mr. Russell says, that the "seven Kings" never heard of the matter, the President " had been buying stocks. Emissaries had moved noise- lessly around France, Belgium, Germany, Eng- land and the United States, picking up what they could find;" and they picked up so much that early in December, 1906, it was announced that " there would be no consolidation of the Rockefeller, Morgan and Harriman interests in Mexico because the Mexican Government held a majority of the stock in each of the railroads these gentlemen thought they owned." BRAZIL. In Brazil the company owning and operating the West of Minas Railway, one of the first con- structed there, drifted into financial difficulties, and eventually became bankrupt. They put up their lines to auction in 1903 and the Federal Government were the purchasers ; but, although D 34 Railways and Nationalisation. at present the railway is being worked by the Government, it will eventually be leased to a company. BRITISH COLONIES. In regard to British Colonies, Possessions and Protectorates, it will have been noticed from the table given under this heading in Chapter III. that the proportion of Government-owned lines is more than double that of the company-owned lines. But this fact is in no way surprising, inasmuch as in new colonies, where population and capital were originally alike limited, and railways were wanted even more for the purpose of opening up country to future settlement than for the supply of existing wants, the provision of transport facilities might well devolve upon the responsible Governments, rather than be under- taken by companies operating mainly on com- mercial lines, and in the expectation of getting a fair return, not unduly postponed, on their investments. From this point of view I consider that adop- tion of the principle of State-ownership of rail- ways may be not only abundantly warranted but practically unavoidable in Colonies and countries of the type here in question ; and, to this extent, while reserving criticism on the further material detail of State operation, I am prepared frankly to admit that sweeping assertions in respect to railway nationalisation in general should not be Reasons for vStatk Ownership. 35 made either on one side or the other, each country or Colony being, rather, regarded from the standpoint of its ov. n particular conditions and circumstances. Australia. In Australia railway construction was begun both in New South Wales and in Victoria by companies; but in each instance private enter- prise broke down (in New South Wales because the railway workers caught the gold fever and went off to the diggings), and in each Colony the Government were compelled to take over the un- completed enterprises — with this result, among others : that thenceforward it was generally con- sidered that so costly a business as the provision of railways must necessarily be left to Govern- ments, which could raise capital mure easily than companies, and need not be so anxious in regard to financial results. There was the considera- tion, again, that New South Wales, Victoria, and Queensland, especially, could not hope for full development until they had lines of railway crossing the chains of mountains that rise to heights of 3,000 or 4,000 feet a short distance from the coastal fringe, the railways being wanted to open up to settlement the plains on the other side. Pioneer work of this kind, mainlv in the interests of colonial expansion, but absolutely essential thereto, seemed to devolve much more D 2 36 Railways and Nationalisation. upon the Colonial Governments than upon either colonial or British investors, and one cannot wonder that, in the first instance, at least, it was mainly left to the former to undertake. Later on, as the Colonies advanced in population and prosperity, the financial difficulties in the way of private enterprise would have been less acute. But by that time there were political and labour considerations which, even to the extent of creating very grave abuses, favoured both State construction and State operation of the railways ; and, although the abuses have since been greatly modified, the joint principle in question has still been maintained. In the circumstances, how- ever, it is difficult to see in what way the course adopted by Australia, under conditions so very different from our own, can possibly be offered as an example for the Mother Country. INDIA. In India, again, railway construction was begun by private companies under Government guarantees of payment of interest on capital ; but for many years (as mentioned in the " Report of the Committee on Indian Railway Finance and Administration "), " the earnings of the com- panies fell short of the interest guaranteed, and the deficit was a charge on the revenues of India." If only for this reason it is not sur- prising that the Government of India should have preferred to take the railways in hand them- Reasons for State Ownership. 37 selves ; though, as already shown, they are now more than ever disposed to transfer the actual operation of them to companies, and to encour- age the latter to raise capital on their own account to facilitate further railway expansion. SOUTH AFRICA. In South Africa State ownership of the rail- ways by the Colonial Governments was brought about partly owing to the financial difficulties experienced, or likely to be experienced, by pri- vate companies (especially in carrying railway lines over vast stretches of unsettled country in order to link up the different Colonies or States), and partly because the said Governments, in the comparative absence of industries and enter- prises which could be taxed, looked to the rail- ways as a source of revenue. To illustrate the conditions of railway pioneer- ing in South Africa, I might mention that the first railway constructed there was a line only two miles in length connecting the harbour and the town of Durban. The company which built it could not, at the start, afford more than two locomotives; and when these broke down simul- taneously the officials had to resort to the ex- pedient of employing a gang of natives to push the wagons along on the rails. The financial resources of the company were, in fact, so limited that the staff occasionally had to accept, in lieu of hard cash, orders on tradesmen for groceries 38 Railways and Nationalisation. and other goods, or else await the return of the company's debt-collector with, possibly, suffi- cient funds to pay them their wages. After a time the company were able to extend their lines from a length of two miles to ten. But there- upon the Natal Government either concluded that this would be a slow process of providing the colony — to say nothing of the African Con- tinent — with railways, or, alternatively, they thought that if there were money in the enter- prise they might as well have it for colonial pur- poses. In any case, they began to construct railways on their own account, and the little line on which the natives used to push was taken over, to become the nucleus of what is now the con- siderable network of railways owned and operated by the Natal Government. Of the railwiiys in Cape Colony, Mr. J. \V. Jagger. says in the " South African Railway Magazine " for December, 1907 : — In this colony the first lines, i.e., those to Wyn- berg and Wellington, were built by private enter- prise, the Government, however, rendering some assistance by way of guarantee of interest, and, at the same time, taking sub-guarantees from the various districts, which arrangement was not satis- factory. In 1873 Government took over the lines; otherwise there is no doubt railways would not have been greatly extended in the Cape Colony for some years after that .... The railways never paid full interest until 1887, when the traflic to the gold-fields brought prospeiity. In this country we have not consciously adopted State Reasons for State Ownership. 39 ownership and management. It has been thrust upon us owhig to the want of private enterprise. Had the State not taken it up, even to-day, hundreds of miles of line now in existence would not have been built, and the development of the country could not have been pushed ahead . The State has invested thirty millions of borrowed money in our railways, and any deficiency incurred is a first charg-e on the taxpayer, whether he can meet his own obligations or not. HOME CONDITIONS. Speaking generally, and admitting the possi- bility of a few exceptions, the reasons — political, military, fiscal, economic, and more especially financial — which have led, or have even, in many instances, forced other countries to adopt the principle of State ownership, are such as would not apply to the very different conditions of the United Kingdom, where railways have not yet been converted into part of the political machinery of the land; where, in our island home, the same military considerations do not arise as on the Continent; where railways are operated independently of fiscal conditions ; where we have a teeming population, and few or no districts now requiring to be " opened up " ; and where, until certain parties in the State began to make their persistent attacks on " capital," there has been no suggestion of any difficulty on the part of private enterprise in raising all the money wanted for either the building or the adequate extension of our rail- way system. 40 Railways and Nationalisation. CHAPTER V. STATE AID TO PRIVATE COMPANIES. Without always going to the length — volun- tarily or necessarily — of building or acquiring railways in the name of the State, the Govern- ments of many different countries have rendered important assistance to private companies in order to encourage and facilitate the provision by them of lines where such Governments might otherwise have had to take upon themselves the full responsibility of creating adequate transport facilities. This practice may be regarded as an alternative to actual nationalisation, and some- times it has been only a possible, if not even a recognised, preliminary thereto; but so far has it prevailed throughout the world that there is hardly any country outside Great Britain (and exclusive of Ireland) in which, where railways have been built at all by private companies, prac- tical help in some shape or form has not been given either by the State or by the local govern- ing authorities. Here, once more, we meet with conditions which are invariably ignored by nationalisation advocates who compare British with foreign rail- ways, and seek to draw therefrom conclusions .State Aid to Private Companies. 41 unfavourable to the former. I have already briefly indicated one or two instances in which State aid has been given to railway companies abroad ; but this aspect of the question requires to be examined in somewhat greater detail. FRANCE. It is in France (hat the principle of State aid to railway companies has undergone the fullest development. In the early days of railway history the French Chambers had so little faith in the new means of transport that when, in 1838, the Government brought forward a scheme for the building and operation of seven great trunk lines by the State, they refused their assent. It was, in fact, left for Englishmen to take up the task of railway pioneering in France. Following on the refusal in question, Mr. (after- wards Sir) Edward Blount, an English banker settled in Paris, undertook to raise money in England for the construction of a line between Paris and Rouen, if the Government would grant him a concession. The Government pro- mised that, if he would raise one-third (^'600,000) of the required capital in France, and another third in England, they would give liim the concession and advance to him the re- mainder of the capital at three per cent, interest. So, with Mr. Thomas Brassey as the contractor, and a gang of British navvies as workers, the 42 Railways and Nationalisation. line was made, and, when it was ready, an Englishman was appointed as locomotive super- intendent, and fifty English drivers in the ser- vice of the London and North-Western Railway Company were, by arrangement with that com- pany, appointed to take charge of the locomo- tives. The principle of State aid, thus introduced into France, underwent a further development when, following on the financial troubles of 1839, the Government agreed with a company which had obtained a concession for a line between Paris and Orleans to guarantee payment of in- terest on its capital, four per cent, to be paid to the State in respect to any advances thus made. With a State guarantee of interest, the company naturally found it easier to induce the otherwise reluctant F'rench peasant to invest his savings in their enterprise. But, even under these conditions, railway con- struction seemed likely to be very slow in a country where many lines were required, and in 1842 a law was passed to facilitate the construc- tion of nine main lines of railway in France under the following conditions : — The State was to acquire the necessary land, level the ground and execute all earthworks, build bridges and stations, etc., while the companies were to lay down the permanent way, provide rolling stock, and operate the lines for the term of their con- cession, at the end of which period the railways State Aid to Private companies. 43 would revert to the State, the rolling stock, etc., provided by the companies being taken over at a valuation. There was a further financial crisis in 1847, when the Government again came to the help of the companies, and conferred on them additional advantages, even annulling vari- ous obligations which were pressing somewhat heavily upon them. In view of the controversies of to-day, the fact may be recalled that the Republican Government of 1847 seriously considered the question of ac- quiring all the railways then existing in France, and working them as a State system ; but the project was abandoned in favour of a continuance of private enterprise, supplemented by increased State aid. This, indeed, was given on such a scale that of the ;^"6o,ooo,ooo expended on the lines down to the end of 185 1 the State had itself contributed two-fifths. Following on the amalgamation policy of 1852-7, the six great companies which then came into existence were required by the Government to undertake, without subvention or guarantee of interest, the construction of 1,500 miles of secondary lines. Grave financial troubles re- sulted from their attempts to raise the money in order to comply with this require- ment (railway shares depreciating rapidly, owing to the prospect of ^'160,000,000 of new railway stock being issued in the course of a few years), and in 1859 the Government agreed with 44 Railways and Nationalisation. the companies to guarantee payment of interest in respect to these new lines, the sums paid to be, as before, advances only, bearing interest at four per cent. Subsequently very large sums were paid over to different companies in accord- ance with the guarantee in question. Even State guarantee of interest, however, was not found sufficient to lead to the provision of all the lines desired, and the Government then resorted to the expedient of making direct sub- ventions in respect to local branches which the companies did not care to touch on any other terms. In this way the Government, prior to 1863, made a contribution of over ;^9,ooo,ooo to the cost of building these particular lines, independently of the guarantee of interest on others. Still more Government grants followed, and departments and communes, also, were authorised to contribute from a quarter to half the necessary capital for building secondary lines in their districts, — a power of which they availed themselves with so much zeal and so little dis- cretion that there was brought into existence a considerable number of lines which seemed un- likely to be able to earn enough to cover even their working expenses. It was mainly a group of these lines that the Government had to take over, in 1878, and convert into a State system of railways. In 1879 the Government, adopting what is known as the " Freycinet programme, " resolved State Aid to Private Companies. 45 upon the construction, at a cost of ;^ 140,000,000, of some 180 new lines; but they soon found they had undertaken too much, and it was now their turn to seek the help of the companies. Hence the conventions of 1883, under which, among other things, the companies assumed fresh ob- ligations in return for a considerable extension of the " guarantee of interest " principle. Altogether, the amount expended by succes- sive French Governments on the construction, completion, or purchase of railway lines has been no less than ^192,000,000, of which sum only ;[^7,ooo,ooo is to be put to the account of the Chemin de Fer de I'Etat, the remainder being in respect to lines conceded to and op- erated by private companies. In addition, there was still owing to the State, at the end of 1907, a sum of ^48,000,000, of which ;^34, 000,000 was on account of advances made, and ;^i4, 000,000 for unpaid interest on advances, under the State guarantees to the companies. Another interesting fact which might be men- tioned in connection with the French railways is that under a law passed in November, 1897, departments, municipalities and Chambers of Commerce are authorised to raise loans " for the purpose of constructing, altering, or improving any public railway station or stopping place," the amounts thus advanced being repaid, at fixed intervals within a period of not exceeding fifty years, by means of extra charges imposed on 46 Railways and Nationalisation. passenger and goods traffic moving in or out of such station, a special account thereof being kept in the books of the railway administration con- cerned. This law applies alike to State and company-owned lines, and has already been taken advantage of in the case of A^arious railway stations, including those at La Rochelle, Nantes and Tonnay-Charente, Nice, Bourg and Manthes. In England not only do local authorities refrain from offering any assistance to railway companies in the building or improvement of their stations, but any material alterations made are at once taken advantage of as an excuse for raising the assessment, even though the al- terations may be solely in the public interests, and not bring any extra return whatever to the railwav company. This fact has, in some in- stances, led to railway companies having to decline to carry out station improvements they would otherwise willingly have made. Under the French practice it would have been possible for the local authorities or for the Lon- don Chamber of Commerce to raise a loan and advance money to the London, Brighton and South Coast Railway Company towards the expenditure of considerably over ;^ 1,000,000 by that company on the reconstruction of their Vic- toria Station, and on the street widenings and public improvements connected therewith, the loan being repaid out of extra fares and charges which the company would be authorised to State Aid to Private Companies. 47 impose on passenger and goods traffic going into or coming out of the station. Under the British practice the company themselves pay the very substantial costs incurred, and get no contribu- tion from the local authorities even in respect to the widening of a portion of Buckingham Palace Road and the approaches to and the roads over the Eccleston and Elizabeth bridges, although if these improvements had been carried out under a County Council tramway scheme the cost would have fallen in part upon the local rates. GUARANTEE OF INTEREST. The principle of a State guarantee of railway companies' interest is one that has been adopted in various other countries besides France. It helped to smooth the path of several German rail- way companies before the advent of nationalisa- tion. It was resorted to by the Belgian Govern- ment when some of the pioneer railway com- panies there got into financial difficulties. It en- couraged private companies in Denmark to per- severe in their efforts. In Brazil the Govern- ment, in granting concessions to private com- panies, originally guaranteed a percentage — generally from five to seven per cent. — on a fixed capital outlay; but in that Republic the system was, as stated in the Board of Trade Return, " Railways (Foreign Countries and British Pos- sessions)." " not found on the whole to work 48 Railways and Nationalisation. satisfactorily, for though some of the lines did so well as to make no call on the Government guarantee, many were constructed with the ap- parent intention of living upon it entirely." DENMARK. The early railway companies in Denmark re- ceived State aid in various forms. In some instances the Government guaranteed interest at the rate of four per cent. ; in others they sub- scribed to the share capital. The latter pro- cedure subsequently led to a system under which the State gave the companies a fixed amount, generally ;^95o a mile, with the right to take over the lines under certain conditions; though this arrangement was not found to work well, and the State eventually bought up several of the lines which had been so constructed. LUXEMBURG. In Luxemburg the companies constructing secondary and cantonal (local) railways have re- ceived from the State (by way of practical en- couragement and assistance) mining concessions according to the importance and extent of the lines. One company, which has built 117 miles of railway, has had successively about 1,494 acres of mining concessions; another, providing 25 miles, was given 350 acres of such conces- sions; and still another, whose line is 27 miles State Aid to Private Companies. 49 long, was awarded 380 acres. In the case of the Northern Hne (the Guillaume-Luxembourg), the concession for which was given in i to included a subsidy to the company of $25,000,000; a grant of 25,000,000 acres of land (of which 7,000,000 acres were afterwards taken back at $1.50 per acre); and the transfer to the company when completed of the 700 miles of line included in sections already under construc- tion. NEWFOUNDLAND. Newfoundland is mainly indebted for her rail- way system to the late Sir Robert Gillespie Reid, a Scotsman who, after doing much im- portant work in the building of railway bridges in the United States and Canada, proceeded to Newfoundland, and secured a contract to con- struct and operate for 10 years a trans-insular rail- road and telegraph system, in return for a grant of 5,000 acres of land, in alternate sections, for each mile of railway built. The line was completed to the extent of 600 miles in 1897. In the fol- lowing year he made a further contract with the Government to operate all trunk and branch lines in the island for 50 years, paying $1,000,000 for the reversion of the whole at the end of that period, and receiving additional land conces- sions amounting to about 5,500,000 acres. Under a subsequent agreement the colony was given the option of recovering the railway sys- tem at the end of the 50 years by paying back the $1,000,000 with interest and a further sum for betterments. Mr. Reid, who died in June, 54 Railways and Nationalisation. 1908, was known as one of the largest land- owners in the world. UNITED states. Pioneer railway companies in the United States of America got assistance in the form of land grants, supplemented in some instances by direct financial aid. Mr. J. M. Trout says in his book on "The Railways of Canada" that the Pacific Railways Company had grants of public lands amounting altogether to 35,000,000 acres, in addition to which the United States Government issued $63,616,000 in six per cent, currency bonds in aid of the undertaking. The Northern Pacific Company had the right to take alternate sections to the total extent of over 74,000 square miles. Very large grants of land were also made by the United States Congress to the different States in order that these, in turn, could effect a free transfer of them to the railway companies, whose finances, also, they materially assisted by direct contributions, by guarantees of interest (Alabama, for instance, guaranteed eight per cent, interest on one of her railways to the amount of $16,000 per mile of completed and equipped railway), or in other ways. The com- panies were aided, also, by being exempted from taxation for a certain term of years, and by being allowed to construct the initial lines in the most primitive fashion, with a view to supplying im- mediate wants, the understanding being that State Aid to Private Companies. 55 betterments would follow as the traffic grew and the companies had more money. In 1870 it M^as estimated that public bonds to the extent of $185,000,000 and grants of 215,000,000 acres of land had been given to various railroad corporations up to that time by the United States Government and municipali- ties. In later years, and especially in the neighbour- hood of large cities, American railway com- panies have had to pay heavily for the land they wanted for new lines or widenings. But the practical assistance given in the earlier days was of enormous advantage both in pro- moting the work of railway construction and in allowing of economical operation ; and these fac- tors in the situation have a distinct bearing on present-day transport conditions in the United States. experiences of BRITISH RAILWAYS. I have selected these examples from countries of various types, in different parts of the world, in order to illustrate the kind of help which States in general have either found it necessary,. or thought it desirable, to extend to private com- panies undertaking the responsible and costly work of railway construction. When, from this survey, we pass on to ask what successive British Governments have done to render financial or other practical assistance to private companies 56 Railways and Nationalisation. in the construction and operation of railways in Great Britain (as distinct from Ireland) the reply is — Nothing whatever ! There has been no guarantee of interest; there have been no loans, subsidies, bonuses, or free grants of land for railway purposes, by either Imperial or local authorities; there has not even been any lighten- ing of the railway burdens and requirements in directions in which sympathetic help and en- couragement could have been given without either encroaching on the public funds or making any pretence of generosity. In Great Britain the State stood passively by whilst land-owners raised endless difficulties in the way of railway construction and practised the most shameless extortion on railway com- panies, from whom the uttermost farthing was wrung before they could get the land on which their lines were to be built. The State has sanctioned and encouraged a system of Parlia- mentary procedure, in regard to the granting of railway companies' powers, so costly that a competent authority once estimated the ex- penditure on this account alone at an average of ;^4,ooo per mile of line actually constructed. The vState enforces on the companies principles of railway construction based on absolute com- pleteness from the start — principles excellent for the public, but much more costly than the system adopted in countries where economy has been allowed at first, with betterment to follow. The Statf An-) TO Private Companies. 57 vState has fostered a competition, and has im- posed restrictions, regulations and conditions in regard to safety appliances, hours of labour, un- remunerative workmen's trains, etc., which, how- ever justifiable — should that always have been really the case — have added materially to the working expenses. The State, also, itself levies on the railways ;6350jOOo a year for passenger tax, and ;^2,ooo,ooo a year for Income Tax, and tolerates the policy followed by those local authorities throughout the land to whom the railways have long been a milch cow for the purposes of local taxation, the sum total of such taxation imposed on the railway companies of the United Kingdom being now close on ;^5,ooo,ooo a year. State Control of Rates and Charges. Not only, therefore, has there been no State aid to railway companies in Great Britain, as in other countries, but our own State policy has led to the financial obligations devolving on railway companies being greater than they should be, and greater far than the corresponding obliga- tions resting on railway companies elsewhere. The enormous expenditure thus involved could be met only by the rates, fares and charges to be paid by users of railways built under these particular conditions. Yet even here the State has thought it imderstood the intricacies of rail transportation better than the railwav experts, 58 Railways and Nationalisation. and, while showing little regard for investors who have found the money for building and operating the lines, thus saving the State from the trouble and financial complications that a system of Government railways might have in- volved, has aimed at keeping these rates, fares and charges down to the lowest possible pro- portions. To this end there have been Acts of Parlia- ment, commissions, joint committees, and departmental committees without end. Traders throughout the land have been encouraged to send in every conceivable complaint, however trivial; the railway companies, besides incurring serious dislocation of their business in attending inquiries and meeting such complaints, have been involved in an expenditure which, in the aggregate, might have allowed of the reduction of not a few of the rates complained of ; and asser- tions by traders having votes have carried far greater weight with politicians in office — and desirous of staying there — than the protests and explanations of companies with no votes at all. The whole position is supremely illogical. To the average person, who views the matter with- out prejudice, it must appear that the railway companies have sinned less than they have been sinned against, and that State and people must accept some, at least, of the responsibility for present-day developments of past policy. Admitting that certain of these developments State Aid to Private Companies. 59 are not only open to criticism but capable of reform, it may still be argued that a complete transfer of the railways of the United Kingdom to the State, with all the consequences such transfer would involve, should not be undertaken without the most absolute proof of the need and the desirability of so revolutionarv a change. 6o Raiiavays axd Nationalisation , CHAPTER VI. STATE RAILWAY FINANCE. When the advocates of State ownership at- tempt to deal with the financial results of nationalised railways, they have a twofold argu- ment which, from their particular points of view, may be applied satisfactorily to either profits or losses. Should the raihvays in question show, or claim, a profit, it is said, " See what an advantage it is to the State to control all that money instead of allowing it to go into the pockets of private speculators." Should there be no profit, or a loss, their plea is, " Railwavs ought to be run in the interests of the com- munitv, and not with anv idea of making a profit at all."" As a rule, however, the said advocates do endeavuur to show^ that State operation of a unified railway system is more economical, and leads to better financial results, than the com- pany operation of different lines. Lord Brassey, for example, in speaking on railway nationalisation at the Autumn meeting of the Association of Chambers of Commerce in Sep- tember, 1907, said : " In Germany and Russia, State Railway Finance. 6i in Belgium, and more recently in Italy, railways have become the property of the State. The requirements of the public are fully considered ; the results to the Exchequer have been satis- factory." Sir John Gorst, when advocating nationalisation in his Liverpool speech on March 7, 1908, is reported to have spoken of "the great surpluses of the German, Belgian, Swiss, and Australian State railways as proof of the financial success of national ownership;" and Mr. Chiozza Money, M.P., and others havei. had much to say to the same effect. I propose, by looking into the results of State railways in general, to let the reader judge whether or not their financial success really has been so great as the nationalisation party assume. The usual way of showing a " profit " on the operation of a State railway is to set down the gross receipts and working expenditure for the year, and to represent as " profit " the difference between the former and the latter, without making any allow"ance for payment of interest on capital expenditure, etc.; although, when the fixed charges are added to the figures, the balance may at once be turned into a deficit. There is also a disposition to ignore other in- convenient items; to mix up the railway accounts with the national or colonial debt; and to manipulate the figures generally in such a way as to give an impression that the financial posi- tion of the State lines may be regarded with 62 Railways and Nationalisation. complete satisfaction. Examples alike of these tendencies and of unremunerative working of Government-owned lines, whether with or with- out an unduly favourable presentation of the accounts, are especially afforded by the railways of Australasia. NEW SOUTH wales. In his " Wealth and Progress of New South Wales," for 1894, ^^^' ^' A. Coghlan said con- cerning the railways of that Colony : — The cost of the lines opened for traflfic on June 30, 1895, was ;£,'36, 61 1,366. Of this amount ;^^903,565 has been provided out of the Consolidated Revenue of the Colony, and debentures to the amount of ;£^i,266,i46 have been finally paid off. The so- called reduction of the railway debt is purely im- aginary, seeing that the bulk of debentures retired were renewed out of fresh loans, and the sum paid from revenue to redeem loans was not furnished by railway profits. The same authority, in his "Statistical iVccount of Australia and New Zealand, 1903-4," said : — In establishing the financial results of the working of the lines, it is the practice of the railway autho- rities to compare the net returns with the nominal rate of interest payable on the railway loans out- standing, ignoring the fact that many loans were floated below par, and that the nominal is not the actual rate of interest. A true comparison, of course, is afforded by taking the rate of interest payable on the actual sum obtained by the State State Railway Finance. 63 for its outstanding loans .... The rate of return on capital represents the interest on the gross cost of lines. In some cases the nominal amount of out- standing debentures is less than the actual expen- diture, owing to the fact that some loans have been redeemed ; but as the redemption has been effected by means of fresh loans charged to general service, or by payments from the general revenue, and not out of railway earnings, no allowance on this account can reasonably be claimed. Then in the report of the New South Wales Government railways and tramways for the year ending June 30, 1905, " the result of the year's working " in regard to the railways was given thus : — Earnings... " ... ... ... ... ^3,684,016 Expenditure 3,192,147 Balance after paying working expenses ^"1,491,869 To tlie casual observer this looked as if the said balance represented profit. But on refer- ring to the " general remarks "in the report one hnds that the interest due on the capital invested, calculated at 3'582 per cent., amounted to ^^1,526,948, or ;^35,o79 in excess of the above- mentioned balance, which thus represented a deficit. One also learns, from the same " general remarks," that on the recommendation of a Special Committee appointed by the Govern- ment a sum of ^600,000 advanced by the Government about twenty-five years ago for the purchase of material and general stores had been 64 Railways and Nationalisation. added to the capital account " for the first time," while the committee further recom- mended that a sum of ;6456,639 (^""434, 184 for railways and ^22,455 for tramways), having been defrayed from the Consolidated Revenue, and therefore not a debit against the State, should he regarded as " non-interest bearing capital." It was found possible to claim a real surplus for 1905-6, for which year, accordingly, the figures were set forth thus : — Earnings ^4,234,791 Less expenditure ... ...^2,308,384 „ interest on capital ... 1,541,427 3,849,811 Surplus ^384,980 In the Chief Railway Commissioner's report for 1906-7 the surplus, after payment of interest on capital, is given as ^610,955. The same report shows that ;^5o8,70i of the total amount expended on construction and equipment of rail- ways had been " paid from the Consolidated Revenue," and, it is added, " no interest is pay- able thereon." Between a " balance after paying working ex- penses " and an actual "surplus" there is, of course, a very material difference; but while, in the former case, the " interest on capital " is not mentioned in the summary, or until the " general remarks" are reached, there is no longer any State Railway Finance. 65 reluctance to give due prominence to so sub- stantial an item when a real surplus can at last be shown. It is further obvious that the con- trollers of a Colonial Government railway have an advantage over a private company in being able both to use public money for twenty-five years without having to regard it as " capital," and to get from the Consolidated Revenue, as "capital," substantial sums which are not to bear any interest. Nor must one ignore the fact that there are in New South Wales a score or so of un remunera- tive lines on which, as the Chief Railway Com- missioner's reports show, the losses in the four years, 1903-1906, after providing for working ex- penses and interest, amounted to ;6i'393'974- For an example of independent Australian (opinion I turn to the PastoroUsts' Review (Mel- bourne) for October 15, 1907, where I find the following remarks in reference to a proposal for the establishment of a Government line of steamers, the chief argument advanced in sup- port of such project having been the alleged success of the Colonial railways: — - The fact is that not a sing^le Government has made a success of its railways. They have always really been bankrupt, and get deeper and deeper into the mire every year, besides which in some of the States they are years behind the times. If the lines were run by private companies with no general taxpayer to draw upon, they would have been wound up years ago. The fact is that enormous F 66 Railways and Nationalisation. sums have been procured from the general taxpay.i to make g"ood the deficits extending over many years, and to purchase railway material. These have never been debited to the railway accounts as they should have been, and would be in any business undertaking. Take the New South Wales railways, alone, for example. Their accumulated deficit is over ;^25, 000,000 already, and this sum gets larger every year. The railways would be hopelessly in- solvent if it were not for the taxpayer keeping them solvent every year. . . . Government undertakings never paid interest on cost yet, nor will they ever do so. They only exist on subsidies from the tax- payers. VICTORIA. When, on February 16, 1907, delivering a speech in which he made an exhaustive review of his own administration, Mr. Bent, Premier for Victoria, said concerning the railways of the Colony : *' We have practically ^'40,000,000 loan money employed in the railways, and a few years ago we were losing ;^'i,ooo a day on them, and the rolling stock had got almost to danger point." He took credit for the later improve- ments, and for reductions in freights conceded in 1906; yet even the surpluses of the last few years would seem to be due to special advantages available in the case of a Government-owned Colonial railway, though impracticable in that of company-owned railways in the old world, while if, in addition to the surpluses now being claimed, one takes into account previous deficits. State Railway Finance. 67 the tinancial results as a whole are shown in a very unsatisfactory light. The deficits admitted in 1901-2 and 1902-3, after payment of working expenses, special ex- penditures, and interest charges, were ;^' 197, 227 and ;6'365,254 respectively. (I shall refer later on to the earlier results.) Since then the sur- pluses claimed, after making the same allow- ances, have been : ;^5i9 in 1903-4; ;^649 in 1904-5; ^'198,965 in 1905-6; and /:279,i32 in 1906-7. But the report of the Railway Com- missioners for the last-mentioned financial year further mentions that the " amount provided out of Consolidated Revenue for the construction, equipment, stores, etc., of the railways, and on w'hich no interest is charged," stood on the 30th June, 1907, at ^'3,849,939, an increase during this year of /'9i,959, made up as folk)ws : Amount expended under Surplus Revenue Acts and debited to simdry works of construction, t^tc, /,'74,58o; amount expended under appro- priations and votes, and debited to sundry works of construction, etc., ;6i7j379- It is obvious that if interest had been allowed for in respect to these items, the financial results of the year's operations w^ould appear in a very different liglit from that in which they are presented. Then the working expenses of the Victorian railways are lightened by the omission from them of any allowance in respect to pensions and F 2 • 68 Railways and Nationalisation. gratuities. Tiius the Commissioners' report for 1 c)o6-7 says : — The amounts paid in pensions and gratuities, which are not included in the working expenses, were ;^'94,926 and ;£^i 5,955 respectively, a total of ;£3"iio,88i, as compared with ;^92,994 and ;^6,643 respectively, a total of ^99,637, in the previous year. Another material point to bear in mind is that under " An Act to further amend the law relating- to the Victorian railways," passed in 1896, it was enacted (Section 14) that — In the following cases (that is to say) : — (a) Where Parliament makes any alteration in the law which occasions any increase of expenditure by the Commissioner or any decrease of the railway's revenue; or (b) Where Parliament or the Governor in Council directs the Commissioner to carry out any system or matter of policy which occasions or results in any increase of expenditure by the Commissioner, or any decrease of the railway's revenue; or (c) Where Parliament authorises the execution of any new line of railway which when vested in the Commissioner does not pro- duce suflicient revenue to cover the in- terest on its cost of construction, and the expense of its maintenance — the annual amount of the increase of expenditure or decrease of revenue or of the loss resulting from such new line of railway shall be from time to time notified in writing by the Commissioner to the Com- missioners of Audit, and if certified by them, shall vState Railway Finance. 69 be provided by Parliament in the annual Appropria- tion Act and paid to the Commissioner. In the report of the Railway Commissioners for 1905-6 it was stated that the amounts received from the State Treasury under vSection 14 of the Act of i8g6, and included in the gross re- venue, were : For decrease in the revenue due to the carriage at reduced rates of agricultural pro- ducts, ^41,787; of Victorian coal, ^5,676; on account of enhanced cost of Victorian coals pur- chased during the year owing to a direction of the Governor-in-Council fixing the prices to be paid, ^5»i35- The Commissioners recommended, however, that in view of the improved position and pros- pects of the railways, the allowance to be pro- vided by Parliament for the carriage of agricul- tural produce at reduced rates should, in the ensuing year, be reduced to one-half of what was actually being paid, or one quarter of the amount that might be asked for under the Act of 1896. This further reduction was made in 1906-7, the Parliamentary allowance on the item in question being, for that year, ;^25,ooo. The Commissioners then announced that, owing to the continued improvement in the railway revenue, no further payments on account of the carriage of agricultural produce would be applied for from the Treasury ; which I take to mean that whilst agricultural products are still being car- ried at unremunerative rates, the railways are 70 Railways and Nationalisation. now able to bear the loss themselves, without asking Parliament for a subsidy from the general finances of the Colony. In making their announcement, however, in their report for 1906-7, the Railway Commissioners added : — The reductions which have been made durino- the last five years in these payments [i.e., payments from the Treasury], tog-ether with the reductions made during- that period in the rates on agricultural produce, represent on this account alone a decrease in the net revenue of, approximately, ;^ioo,ooo per annum. The State Treasury allowance to the railways in 1906-7 for decrease in the revenue due to the carriage of Victorian coal at reduced rates was ^7,404 ; while in the same year the amount which the Treasury re-imbursed to the railways in re- spect to the enhanced cost of Victorian coal for locomotive purposes owing to a direction of the Governor-in-Council fixing the price to be paid for such coal was ^3,893. The amount of money either actually wasted or, presumably, proposed, at some time or other, to be wasted in Victoria on the building of un- necessary lines is shown by a table given in the report for 1906-7 under the heading of " Capital expenditure incurred in respect of lines now closed for traffic, and surveys of lines, not con- structed, on which interest is charged against the railways." Seven lines, one learns, of a total length of 46 miles, and constructed at an State Railway Finance. 71 approximate capital cost of /^,i,8'j,^2j[, have been closed for traffic, two of these (including one 15 miles long) being lines which had been dis- mantled, 'ilie approximate cost of lines sur- veyed but not constructed is given as /'3 16,461. The following remarks made by the Victorian Railway Commissioners in their report for 1905-6 as to the disposal of the surplus for that year throw a further light on the financial condi- tions under which Government railways may be operated : — It is to be regretted that the revenue of the rail- ways for the year in excess of the working- expenses and interest charges has not been made available to entirely liquidate the extraordinary liabilities appearing in our balance-sheet, amounting- at 30th June, 1906, to ;^:i92,762. We respectfully submit and strongly recommend that the surplus revx'nue of the railways, that is, tlie revenue in excess of the working expenses and in- terest charges in full on the Railway Debt of tlu; State, should be devoted First — To the liquidation of liabilities chargeable to revenue, thus eliminating from the balance-shcf:'.- such objectionable items as " Deficiency in Rolli.;g Stock, ;^'i54,4i3," and " Expenditure on Renewals of way and works, and replacement of rolling- stock temporarily charged to capital, remaining to l;e repaid out of revenue ;^^38,349. " Second — Towards providing the funds requiriid for such additions and improvements of existitig^ lines and for additional rolling stock as may Le sanctioned by Parliament, thus to that extent obviating the borrowing of additional money by the State for such purposes, thereby increasing the debt of the State. 72 Railways and Nationalisation. Third — Towards building- up a revenue reserve fund, so that in a year or in years during- which, by reason of unfavourable seasons or other causes, the net revenue of the railways is not sufficient to pay in full the interest charges on the Railway Debt of the State, the deficiency may be made good out of this Reserve Fund instead of out of the Consoli- dated Revenue, as in the past. The net result of the operation of the Vic- torian railways is thus described in an article on " The Failure of State-Owned Railways," which appeared in the Melbourne publication, Liberty and Progress, for February 25, 1908 : — The Victorian deficit to date is, as far as can l:e ascertained from the very imperfect accounts pub- lished before the present Commissioners took office, ^^7,758,152; and, though in the last four years the Commissioners have paid surpluses amounting to ;^'478,866 into the Treasury, yet as they have not charged themselves with the pensions paid during those four years to employes and officers of the department, which amount to ;^4i3,7io, that surplus is reduced at a stroke to ;^65,i56. More- over, 1,986 persons are now ranked as being en- titled to pensions or compensation, and the list, which last year entailed a charge of ;;/5"i 10,881, con- tinually increases. Indeed, since 1889 it has grown from ;£^8i,284 to ;^i 10,881, an increase of ;^29,597. In a later issue (that for April 25, 1908) the same periodical, quoting from the Victorian Railway Commissioners' " General comparative statement for 15 years, from July i, 1892, to June 30, 1907," shows that the total dead loss on the Victorian railways was not ;^7,758,i52, as previously stated, but ;^ii,504,9o6. vStatr Railway Finance. 73 QllEENSLAND. The figures just quoted in regard to Victoria suggest how inadequate annual reports are for the purpose of affording a comprehensive survey of a Colonial railway's finances as a whole. In dealing, therefore, with the Government rail- ways in Queensland, I think it better to turn at once to such a comprehensive survey of them as I find in Liberty and Progress for March 25, 1 908 , Nothing, apparently, should be easier, that journal remarks, than to find out the revenue of the Queensland railways and the return they make upon the capital invested, inasmuch as the Commissioner of Railways issues an annual report which is full of information. But his details do nut agree with the still fuller and more explicit account given by the Registrar- General in " Annual Statistics of Queensland," while further divergencies are found in an "Ofificial Year Book," edited by Mr. Hughes, of the Statistician's Department, and another by Mr. Thornhill Weedon, who also holds official rank as a statistician. " None of these," says the writer of the article, " agree with the others, nor does Mr. Coghlan's examination agree with any of them. None of them covers the entire ground except the Registrar-General, who annually accounts for every sixpence of the receipts and expenditure of the State, and he 74 Railways and Nationalisation. frankly acknowledges the manner in which the earlier accounts were what might be called 'cooked,' though 'favourably presented' is, perhaps, the politer term." As an example of this tendency it is shown that in the ofificial return of working expenses in 1868 it was not thought necessary to include under this head the salaries of the Railway Com- missioner, of the engineer, or of their respective staffs. Another important factor in the situation is that when Queensland decided to have her rail- ways her population was very small, her credit was low, and the investment was not popular with financiers. In the result all those of her railways that were constructed before 1872 were made with money which had cost over 6 per cent. Construction began in 1865, and the result of the first five years' working was a loss of ^'403,266, without taking into account the omitted salaries. For the ten years from 1870 to 1879 the figures of the various conflicting official reports leave no room for doubt that there was a loss of ^'1,376,606. In the decade 1880-89 the loss amounted to ;{,'2,4i8,658, making a total loss to that date of ^'4, 198,530. For the period 1890-99 the shortage was ^3,284,057, raising the total deficit to ;^7,482,587. The writer of the article concludes : — The end of the century i^axe little liope of im- provement. The official Year-Book tersely says the State Railway Finance. 75 total capital cost to the year 1900 was ;^2 1,495, 916. The Registrar-General, however, appears to have adopted the lower figures of the Commissioner, who, in his last Report, treats a sum of ;^^i,4i8,784 tis being a suspense account. The total expended, acording to the Commisioner, is ;^2 1,839,081 on opened lines, and ;£j'8i6,439 on unopened lines, making- together ;^^22,725,520. But the total amount charged against the railways in the state- ment of the public debt is /i"24, 144,305, and that is the sum on which the State pays interest. The magnitude of the amount, the imperfection of ihe accounts in earlier years, and the general desire to minimise, as far as possible, the disastrous results of governmental arrangement of an enterprise left in older countries to commercial people who under- stand it, may be inferred from the fact that no two accounts agree, and also from the silence of the experts as to the actual yearly burden. The net earnings and net losses are given only in percen- tage, excepting by the Registrar-General, and there is a difference of ;^i,6i8,542 between his estimate of the total cost to the year 1900 and that of the official Year-Book. Mr. Coghlan, agreeing with neither, gives a third estimate, putting the cost at ;^205,468 less than that named by the Registrar- General, from whose office he must, presumablv. have obtained his information. The seven years, 1900-1906, added ^2,532,874 to the previous deficit, thus increasing it to a total of ;^io,oi5,46i. These figures, however, it is explained, are only approximate, the lowest official return being accepted, even when it leaves large sums to the so-called "suspense account " of close on ,^1,500,000, " The net result," the writer pertinently says, " is that up- 76 Railways and Nationalisation. wards of ten millions has been lost in a vain attempt to manage a business in which, from first to last, little more than twice that sum has been involved." Further examination of the Queensland ac- counts shows that in only three out of the 45 years over which they extend has the balance available for payment of interest and all other purposes, after covering working expenses, amounted to over 4 per cent.; in seven years it has been between 3 per cent, and 4 per cent.; in ten it has ranged between i per cent, and 2 per cent.; and in six it has been less than I per cent. SOUTH AUSTRALIA. Thanks to what is described as a " splendid season " in the year ending June 30, 1906, the South Australian railways, on which the capital outlay has been ^{^13, 610,520, were able to show " working results " for that year as follows : — Earnin-s £h349,^(>S Expenditure x^764,385 Interest on Loans ... ... 474,955 1,239,340 Surplus /i 10,425 " Such surplus revenue should, in future," .says the Railway Commissioner in his report to the Government, "be carried to a reserve ac- count to meet deficiencies in unprofitable years and replacements as found necessary." State Railway Finance. 77 But one finds once move how misleading it may be to judge of a Colonial railway on the basis of a single recent report without reference to what has gone before. Turning to the merci- less critic in Liberty and Progress, I read :• — The South Australian lines, since their beg^innin^, cost in working- expenditure ;£^i7,8o3,o7g, and in interest on the sum invested in them ;£'i2,85i, 507, a total of ;2^30,654,586. Their g-ross receipts for the entire time have been ^^29, 144, 150, so that the net loss has been ^1,510,436. To this must be added the loss on the Northern Territory lines, which from their beginning- to June 30 last amounted to ;^939,76o. Consequently, without counting- anything- for the depreciation of the plant, which certainly cannot now be worth the ;^i4,904,686 expended upon it, the total loss to South Australia is nearly two and a half millions — ^2,450,196. TASMANIA. Concerning the Tasmanian railways, the Mel- bourne journal reproduces balance-sheets for the years 1886, i8g6, and IQ06, and says : — The pith of the matter is that Tasmania has expended ;^3,927,7i4 in the construction of rail- ways which may or may not now be worth their prime cost. In thirty years these railways have earned a gross income of ;£^3,678,047, at a cost of ;^2,892,886, leaving- the comparatively trivi'il balance of ^^785,161 to set ag-ainst the enormous interest charge of ;^'3,i 12,599, ^"d saddling- her with a net loss of ;^2,327,438. For 1905 the net loss on the Tasmanian rail- 78 Railways and Nationalisation. wiiys, after allowing for interest on capital, was /'75,6i2, and in 1906 it stood at ^79,676. WESTERN AUSTRALIA. The one colony in Australia which is able to show a net profit on its Government railways, not only for the past few years, but on the whole operation, is Western Australia, where the net return on total earnings from the start, in 1879, to present date, after allowing for w'orking expenses and interest, has been £431,692. But the Western Australian railways have points of interest which are especially instructive in showing the basis on which a Government- owned system may be operated, and the special purposes it may be expected to serve, apart from affording facilities for transport. The Commissioner of Railways in the Colony, Mr. William J. George, appears to be strongly prejudiced in favour of the idea that, even when a railway is owned by a Government, it should be operated in accordance with the ordinary principles of commercial finance, and apart alto- gether from questions of sentiment. The Colonial Government are free from such pre- judices, with the result that there have been differences of opinion between themselves and the Railway Commissioner on the subject, more especially, of coal and water. The Government are anxious to develop the State Raii/\vay Finance. 79 Collie coal industry in Western Australia, and to this end they want to have a preference given to Collie coal for locomotive purposes on the Government railways. The railway officials, on the other hand, declare that the coal from New- castle, New South Wales, not only produces much better results than the Collie coal, but, though costing more to buy, is cheaper to use over a considerable portion of the system because of a saving in haulage. The chief me- chanical engineer reported in 1905 that " the working expenses of the Department through using Collie coal at places where Newcastle was the cheaper were increased by ;^'29,ioo"; while, taking what he calls the "equitable value" of the Collie coal for actual locomotive purposes, and comparing this with the contract price which the Government persist in paying, the Railway Commissioner calculates, in his report for 1906, that an annual bonus or subsidy of /,' 16,250 is paid to the Collie coal industry through the expenses of the Railway Depart- ment. The matter has been placed exhaustively before the Government, and the representations made as to the inferior quality of the Collie coal compared with that from Newcastle have been fully confirmed by scientific tests ; but the Government have decided that, " as a matter of policy " — that is to say, in the interests of the Colonial coal fields — the course hitherto adopted must continue. 8o Railways and Nationalisation. On the subject of water, the Railway Com- missioner says, in his 1906 report : — The Railway Department has purchas^.d 65,536,000 g-allons of water from the Goldfields Water Supply Administration, and has paid 6s. 3d. per 1,000. On every calculation that can he em- ployed the " equitable value " of this water to this department should be not more than 3s. per i,oco gallons — a price which is actually quoted to many small consumers. The actual payment included in the accounts submitted with this report amounts to ;£^2o,48o. At the " equitable value " named above this payment would be ;^9,830, and the difference, ;^io,65o, represents a credit to the Goldfields Water Supply Administration which may be considered as a bonus to the Scheme at the expense of the Railway Department. We revert here to the question of principle as to whether, when a Government-owned railway is, in the interests of State or Colonial policy, compelled to operate on non-commercial and un- remunerative lines, the losses it thus incurs should or should not be made good out of the general finances. I have shown that this has been provided for in the case of Victoria; but in Western Australia the burden falls on the rail- way itself, and it is to the credit of the Railway Commissioner there that, in the circumstances, he can show such good results as he does. But this commendablv outspoken oflicial says, in his report for 1906: — If the working- railways have (1) to pay more for both coal and water than it is considered is the State Railway Finance. 8i value equivalent ; (2) the freight rates reduced con- siderably ; (3) not to take advantag'c of the wages rates as laid down in the award of the Arbitration Court; (4) to pay an ever-increasing- interest bill — ;^348,467 for 1905 — 6, as against ^.2^2,8gi for 1901 — 1902 ; (5) the running of spur lines for the development of agriculture, but which for some time can scarcely be expected to return revenue in excess of the expenditure, and so must become, for a time at any rate, a charge on the more developed branches of the railway system, and tend to increase the ratio of working costs ; it is quite evident that a surplus cannot be long maintained. Still another suggestive item given in the same report, and further bearing on financial results, is the following : — Payments under the Workers' Compensation Act are being heavily felt by the Department. During the year no less than ;^4,596 7s. 8d. was paid to employes injured, or to the representatives of em- ployes killed during the course of their employment, and ;^2o6 15s. iid. in legal expenses connected therewith, the total expenses amounting to ;^4,8o3 3s. 7d. The operation of the Act is so very comprehensive that the sum paid greatly exceeds what would be due under the Employers' Liability Act. That is to say, payment is not confined to compensating em- ployes for injury done by defect of the Department's machinery or other negligence, but the Act requires that even where the injury is due to the neglect or default of the employe, unless absolute proof of wilful and serious misconduct can be advanced, pay- ment must be made. The effect is that employes are provided with a free insurance of ;^400 in case of death, and up to :i£.^oo in case of disablement. a 82 Railways and Nationalisation. nkw zealand. The position of the railways in New Zealand was described in somewhat glowing terms before the Viceregal Commission on Irish Railways by the Premier of the Colony, Sir Joseph Ward, and other witnesses ; but there is another side of the story, and this is very well brought out in some trenchant criticisms on " New Zealand Railway Finance " by Professor James Edward Le Rossignol, contributed by him to an American publication, Moody's Magazine, for August, 1907. Sir Joseph Ward said in his evidence:-— " Our rates are fixed on the basis of a return of about 3 J per cent." But Professor Le Rossignol shows that this return of 2^ per cent, is merely the difference between total earn- ings and total expenditure for the year, and leaves out of account any payment of interest on the railway debt. He quotes as follows from Sir Joseph Ward's Railway Statement for 1906 : — The results may be summarised thus : — Year 1906. Year 1905. Total earnings ... ^2,349,704 ... ^2,209,231 Total expenditure ... 1,621,239 ... 1,492,900 ^728,465 i:7i6,33i The net revenue, ;^72S,465, is equal to a return of 3'24 per cent, upon the capital invested in the open Statf-: Railway Finance. 83 lines, and 302 per cent, on the capital of ;^24,092,o85 invested in opened and unopened lines. On this Professor Le Rossignol remarks : — The Railway Statement, which few people read, does not state that the interest on the railway debt, estimated at the averag"e rate of 3*75 per cent., amounted to ;^^903,453, so that the so-called " net profit on working- " of ;^728,465, when applied to the payment of interest, becomes a net loss of ;^i 74,988, as compared with a deficit of ;£'i46,307 for the previous year. For the year 1906-7, 1 may here state, the difference between gross revenue and working expenses, called " profit on working," was ;^8i2,ii8; but, allowing the same amount of interest on the railway debt as before, namely, ;^903,453, the so-called profit once more becomes a deficit, of ;^9i,335, making a total deficit for the three years of ^41 2,63c). The Board of Trade return already referred to says in reference to the New Zealand rail- ways : " No capital charges have been repaid out of revenue. The capital cost of the rail- ways forms part of the National Debt of the Colony, and the whole of the profits accruing from the w-orking of the railways of the Colony are paid into the Consolidated Revenue." From this it would appear that the item of interest on capital expenditure is conveniently omitted from the railway accounts altogether. Professor Le Rossignol admits that from the New Zealand standpoint cheap transit is pre- G 2 84 Railways and Nationalisation. ferred to revenue, and he quotes Mr. Henrv G. Ell as having said, in a recent debate in the House: "I do not regard with alarm the fact that the railways are not paying interest by some ^200,000 a year." The Professor suggests, however, that while cheap transit is, doubtless, highly beneficial to a community, " it does not seem unreasonable to demand that the users of the railways should pay at least the cost of the service. To ask the tax-payers, as such, to make up a railway deficit is," he rightly points out, " to ask many people who do not enjoy the benefits of railway transporation to pay for those who do, and is a direct encouragement to extravagance and inefficiency in the public service." In addition to the very considerable net loss that has been sustained on the operation of the Aus- tralasian State railways as a whole, there must be reckoned the absence of that substantial sum in rates and taxes which would have been con- tributed to the Colonial finances had the railways been in the hands of private companies. In his book on " The Labour Movement in Austra- lasia," Mr. Victor S. Clark estimates the further loss thus sustained at ;^8oo,ooo a year. capp: colony. How difficult it is to arrive at definite con- clusions as to the financial results of the Govern- State Railway Finance. 85 nient railways at the Cape is shown by the following remarks which I iind in the third report of a Commission appointed in 1904 by the Governor of Cape Colony to inquire into and report upon the public service there : — No intelligible balance-sheet or profit-and-loss account appears in any of the annual reports that deal with the railway, and it would puzzle anyone but a skilled accountant to collect the necessary information from the published sources. It is true that the general manager's report gives in detail the cost of each line, and the revenue and expenditure under a variety of heads for each line and system ; but the materials are not brought together in a form which readily shows whether or not the railway, as a whole, is a paying concern — whether, in other words, it would pay a dividend if it were the pro- perty of a private company. The available figures, moreover, require to be reconciled and modified . . . before they can be made the basis of any satis- factory calculation. Criticising, from this point of view, the general manager's report for 1903, the Com- missioners show that, allowing for various items in respect to interest and outstanding charges, which they think should have been included, the loss on working in that year may be taken to be approximately ^'271,052, instead of only ;{^i40,669, as calculated by the general manager; and similarly the profit on working in 1902 would be only ;6'5 13,079, instead of ^'632,516. They think that the general revenue is fairly entitled, as " revenue re-imbursements," to in- 86 Railways and Nationalisation. terest on the railway floating debt, which is at present about ^5,000,000; and they also mention the fact that " while the charges incurred in raising railway loans (including the discount on loans) have since 1883 been debited as part of the cost of construction of railways, no charge has ever been made previous to 1904-5 for com- mission on the payment of interest or repayment of capital ; and no pensions, or contributions from the general revenue to pension funds, have ever been charged to the railways. On the other hand, the railway service has never been credited with premiums on loans, etc. It is obvious there- fore," the Commissioners add, " that, in order to ascertain the exact financial position of the railway at the present moment an elaborate investigation into the accounts would be necessary." The Commissioners further make some remarks on the subject of unremunerative ser- vices which throw light on the causes that may lead to Government-owned railways, largely in- fluenced by political considerations, showing such poor results as they do. The report says on this point : — In considering' the working of the railway from the financial aspect, the Commission has be«?n gravely impressed by the extent to which the expen- diture is swollen by causes which are, more or less, outside the control of the railway management. Several lines are worked at a considerable loss, and without apparently any prospect of ever making a SiAFE Railway Finance. , 87 fair return on the capital invested in their construc- tion. Between Cape Town and Simonstown several thousands per annum are expended by the Depart- ment in the employment of a staff whose numbers could be greatly reduced if the passeng-er traffic was under greater control and a system of single exits and entrances introduced at the stations. Another example of what the Commission has in view is the class of coal used on certain sections of the railway. A loss estimated by the chief storekeeper at not less than ;^30,ooo per annum is borne by the Depart- ment owing to the use of Indwe coal, in place of Welsh, at East London, and the use of Colonial coal at other centres entails a loss which would largely enhance the above estimate. Again, certain classes of traffic are carried at rates which entail a considerable annual loss to the Department. In addition to these matters, and involving a greater loss than anything hitherto related, is the fact that the railway is confessedly overmanned in most of its branches. It is difficult to estimate with any accuracy the extent of the financial burden thus borne by the Department, for it is not merely con- fined to the loss entailed in the employment of men for whom no remunerative labour can be found (though this loss in itself is very considerable, and is estimated by the assistant general manager to amount to the sum of ;^'ioo,ooo per annum), but many other considerations are involved, since c-n excess of staff over the legitimate requirements of the Department must inevitably tend to a waste in materials, inefficiency in work, slackness in discip- line, and general habits of extravagance. Later on in their report the Commissioners refer to the construction of unprofitable lines, and say : — The Commission considers that the information 88 Railways and Nationalisation. laid before Parliament in connection with schemes for new lines has in the past been often quite inade- quate, and that Parliament has frequently been moved to sanction such schemes without a clear appreciation of the burden that will thus be thrown on the taxpayer. On the subject of unnecessary clerical labour the Commissioners state : — There seems to be, in the Railway Department, the same tendency to duplicate clerical work which the Commission condemned in its report on the Public Works Department. Between the chief officers stationed at headquarters something like 80,000 communications passed during- the year 1904, and many of these might have been avoided by personal communications between the officers concerned. It is no doubt necessary and desirable to place on record for future reference matters of importance, but the number of useless letters that are written to each other by clerks in the same department calls for severe curtailment. The system of correspond- ence generally seems to be unwieldy ; in one case which incidentally came before the Commission no less than fifty-eight communications (on five separate tiles) were written in connection with the raising of a wooden partition in a booking-office, a work which cost about ;^'io. Reference to the 1906 report of the general manager of the Cape Colony Government railways shows that, deducting merely total ex- penditure from total earnings for the year, the accounts certainly yield, on the whole, a good credit balance; but against this must be put interest due to the Treasury on capital expendi- ture, and the full amount of capital entitled to State Railway Finance. 89 such interest in igo6 was ^'30,642,000. On deducting these interest charges, the operation of very few of the various sections leaves a balance, and the final outcome is a substantial deficit. In 1906, of the three main lines, only one — the Midland (400 miles) — made a profit on working, viz., ;^'ii2,i34. The loss on the two others, the Western (800 miles) and the Eastern (288) was ^75,334, leaving a net main-line profit of X'36,800. Of the twenty-two branch lines (1,414 miles) on which main-lines rates are charged, only two made profits, amounting to ^'4,405, the remaining twenty having losses, which came altogether to ^^356, 305 ; while five branch lines (278 miles) on which special branch- line rates are charged, made losses to the extent of ;{,'27,424. The total net loss on the whole system in 1906 was thus ^'342,524, as against one of ^'104,581 in 1905, and ji'56'j,o8o in 1904. In his report for 1905 the general manager referred to the decrease in the deficit for that year, as compared with 1904, and stated that, while there was a reduction of 2*34 per cent, in the revenue for the year there was also one of i7'28 per cent, in the expenditure; and he added : — It is hardly necessary to say that retrenchment is an unpleasant undertaking ; but in order to place the railways on a sound commercial footing", and inspire public conlidcnce in further railway develop- ment, it became absolutely necessary to show that, 90 Railways and Nationalisation. by abandoning- the policy of " waiting- for better times," it was possible to make our railways con- tribute largely towards the payment of working expenses and interest on the large capital already invested. NATAL. I have already, in Chapter IV., made some references to the origin of the Natal Government railways. To the facts there mentioned I may add that the construction of these railways was attended by great engineering difficulties. From the sea level at Durban to Charlestown, on the Transvaal frontier, a distance of 307 miles, the line takes the form of a switchback. It rises to various successive heights, ranging from 2,000 to 5,520 feet, the aggregate ascent in the distance mentioned being equal to nearly 2J miles of a vertical elevation. Up to a few years ago the greatest weight the heaviest locomotives then employed in Natal could haul up the steepest in- clines in the direction of the Transvaal was 137 tons gross, or 80 tons net paying traffic. There was also a tendency to assume that, because the cost of construction was to be defrayed out of the Colonial funds, everything should be perfect from the start, the policy of the railway pioneers in the United States being discarded in Natal even in the case of purely agricultural lines opening up virgin land to what were then extremely limited markets. Conditions such as these ha\e naturally State Railway Finance. 91 affected not only the cost of constructon, which works out at an average of ;£i$,2g6 per mile, but also the earning powers of the lines. In igo6 the net surplus of earnings over working expenses, betterments, interest, and sinking fund charges (all, in the case of this Colony, clearly shown and allowed for in the accounts), was ,^62,368, as compared with ^295,147 in 1905, and ;^i7,5i5 in 1904. These net returns on a capital expenditure of ,^13,536,000 are not especially brilliant, and the fluctuations in the yield are a matter of some concern in a Colony which is the more disposed to look to the Government railways as a material source of revenue because of the difficulties experienced in inducing the Colonial Parliament to face what has been described as " the distasteful expedient of adequate taxation." It is, however, an essential characteristic of the Natal as of the other Government railways in South Africa that their rates are arranged on a strictly preferential basis. There are, in fact, two distinct types of rates — special rates for Colonial products and class rates for imports, all being fixed on a mileage principle. The "South Afri- can produce rates," as they are called, are so low that they are admittedly non-productive. They do not even cover working expenses. Im- ports, on the other hand, pay rates which are generally twice, and sometimes three times higher; and it is the receipts from this source 92 Railways and Nationalisation. that are expected not only to enable the Govern- ment lines to pay their way, but, also, to con- tribute more or less to the Colonial exchequer. From the latter point of view, the railway rates on imports form part of the fiscal policy of each Colony, supplementing the direct charges already levied by the customs at the ports. So far does this system prevail that at the annual meeting of the Durban Chamber of Commerce in March, ICJ08, the chairman, Mr. Henderson, in speaking of the Colonial finances said : — " The unsatis- factory feature of the position was the serious falling otf in the import trade, which was, after all, the mainstay of their financial prosperity. It was from this trade that the Customs, har- bours, and railways derived the bulk of their revenue and profit. It was this trade which " (among other things) " even enabled their coun- try brethren to maintain their roads and bridges and branch lines of railway." THE CENTRAL SOUTH AFRICAN RAILWAYS. The system known as the Central South African Railways comprises the railways of the Transvaal and the Orange Free State, taken over and operated as Government lines, under the supreme control of the High Commissioner for South Africa, as one result of the Transvaal War. Their organisation and administration have been made the subject of very careful in- State Railway Finance. 93 quiry by a Commission appointed by the High Commissioner, and the report of this Commis- sion, dated Johannesburg, March 14, 1908, gives some interesting facts as to the financial basis on which the hnes are worked. It says, on this particular point : — Besides finding- a sufficient sum to meet the estimated depreciation of the railway assets, the administration, apart from other burdens, is also providing- a sinking fund of one per cent, upon its capital liabilities, which represent the portion of the guaranteed loan of ;^35,ooo,ooo that has been expended in the acquisition and construction of the railways. This provision is practically sufficient to pay off the whole of the capital liabilities in some- thing between forty and fifty years. The Govern- ment's policy in redeeming^ its capital liabilities is not a question before the Commission, nor, indeed, is it an open question at all, in view of the terms of the Guaranteed Loan Ordinance of 1903 ; but, as a theoretical proposition, the Commission do not think it correct that the railways should contribute to such repayments. They know of no other railway which thus provides for the redemption of its whole capital; and, from a railway point of view, the wiser course would be to utilise the sum of ;^i 88,694 "ow allotted annually for redemption purposes in reducing rates or in providing better facilities of transport. They recognise, however, that any recom- mendation upon the point must be of an academic nature ; as a matter of fact the railway profits are at present used to relieve the revenues of the two Colonies of the whole charges on account of the interest and the sinking fund for the entire loan, and not only for that fraction of it which represents railway capital expenditure ; nor is there, pending unification or federation of the South African 94 Railways and Nationalisation. Colonies, any practical prospect of relieving- the railways from their extraordinary burden, still less of releasing them from the discharge of those liabili- ties which more properly belong to them. Never- theless, if the day comes when it is no longer neces- sary to utilise the railway system as an instrument of taxation, the chang^e should certainly be made. The railways should be emancipated from the burden of the loan, and should be free to work out their development on commercial lines. CANADA. The financial results of the Intercolonial Rail- way in Canada, which has been vested in and is controlled by the Dominion Government, are set out as follows in the Board of Trade Return, " Railways (P'oreign Countries and Posses- sions) " : — 1904-5. 1905-6. Miles in operation ... ... i,4i4'67 ... i,444'92 Earnings i;i,394,39i •■• ^^i, 571,232 Working- expenses .£i,749,037 ... i'l, 55^,505 Net loss (-) or profit ( + ) ... -^364,84 5 +£12,^27 It will be seen that no allowance whatever is made here for interest on capital expenditure, the sum total of which amounted on June 30, 1906, to ^16,699,000. Yet those of the colonists who do not trouble to look into the accounts are led to believe that in 1905-6 the lines actually yielded a " profit " of ;^' 12, 700. In an article published in the Toronto Mail and Empire, in 1907, criticising the Inter- State Railway Finance. 95 colonial Railway, it was asserted that, while revenue was duly credited to the railway, rails, locomotives and cars were paid for by the Do- minion ; and, also, that while not one cent had been devoted to the payment of interest upon the investment, the system had nevertheless made a loss in four years of ;^8oo,ooo. Whereas, again, the operation of each mile of the Canadian Pacific costs 68 per cent, of its earnings per mile, and the Grand Trunk a fraction less, the opera- tion of each mile of the Intercolonial costs 125 per cent, of the earnings per mile. As regards political influences the same authority said : — " The entire railway is treated as patronage, and every politician on the right side is entitled to milk it." Then the Montreal Gazette, in commenting in its issue of May 27, 1907, on certain reports concerning railway frauds in Russia, gave a list of various scandals of a similar nature in the Dominion, declaring that every job alleged against the Russian Autocracy had been paral- leled in Canada. " First," it said — ■ There is the awful example of the Intercolonial Railway, probably as to construction the most costly single track system in North America, serving- a good traffic-bearing country, with little or no com- petition during much of the year, and in connection with much of its length no competition at all; but so mishandled that one of its managers, giving up his job in disgust, said it was run like a comic opera. Some years it does not earn enough to pay the 96 Railways and Nationalisation. cost of operation and maintenance, and every year it needs a grant of one, two, three or four million dollars out of the Treasury to keep it in condition to do at a loss the business that conies to it. When land is to be boug-ht for the road, somebody who knows what is intended obtains possession of it, and turns it over to the Government at 40, 50 and 100 per cent, advance. This is established by the records of Parliament and the Courts of the land. INDIA. As already explained (page 7), the Government of India prefer to leave their State-owned railways to be operated, as far as possible, by private companies, and in 1906-7, according to the re- port of the Committee on Indian Railway Finance and Administration, " the real net profit to the vState, after meeting all charges properly attributable to revenue," was upwards of ;^3,ooo,ooo. So far, therefore, as actual finan- cial results are concerned, it cannot be suggested that the Government railways of India are other- wise than a success. But the Committee further say : — The justification of the programme system is that the Government, although it allocates to railways in each year the full amount that it expects to be able to provide consistently with financial prudence, is, nevertheless, unable in any year to provide funds for all the expenditure that would be profitable and advantageous. . . . Notwithstanding the large expenditure incurred since 1900 in increasing the facilities for traffic on State Railway Finance. 97 open lines, the commercial and railway witnesses were practically unanimous in their opinion that in the years 1906 and 1907 the railways failed to deal satisfactorily with the traffic offering, and we are satisfied that this was the case. The chief com- plaint has been regarding the inadequacy of the supply of rolling- stock ; but the necessity for improving- the lines by the addition of crossing- stations, sidings, etc., in order to fit them for the employment of additional stock has also been repre- sented as pressing. . . . There is wide scope for the construction of new lines We are convinced that there will be fruitful fields for large reproductive expenditure on railways in the country for many years to come. . . But at the same time we recognise the financial diflfi- culties that may be experienced when the Govern- ment commits itself to new and expensive schemes on a large scale. So the Committee recommend that, in addition to the supply of increased funds for railway purposes by the Government, the working com- panies should not only have more of the State lines transferred to them, but should be encour- aged to raise money for railway purposes by the issue of guaranteed debenture stock and share capital, with a share of surplus profits, as '* a useful alternative to direct borrowing by the Government." These various considerations detract somewhat from the satisfaction with which a " real net profit " of ;^3, 000,000 a year might otherwise be regarded ; and they show, also, that even a State may think it desirable to seek the assist- H qS Rah, ways and Nationalisation. ance of private enterprise, not alone in operating its lines, but also in raising the capital required for general railway purposes. BELGIUM. The financial position of the State railways in Belgium has long been the subject of misappre- hension because of the unsatisfactory, if not the wholly misleading, nature of the accounts, the main purpose of which seemed to be to conceal the real facts from the Belgian people, and lead them to assume that the State system was really in a most flourishing condition. Advocates of naticjnalisation in England have also readily adopted this view without any attempt at inde- pendent inquir}', and they have pointed to Belgium as affording an example of State wisdom, foresight, and enterprise which we should not hesitate to follow. The actual posi- tion of the lines, however, is now being more clearly understood. Ministers and politicians are rising in Belgium who insist on the old fictions and concealments being abandoned, and to-day it is the critics rather than the supporters of railway nationalisation theories who will turn to Belgium for arguments in support of their contentions. From the report of the Belgian Minister of Railways for igo6, I find that if the balances shown during the period of operation are alone State Railway Finance. gg taken into account, there is a total of ^1,768,720 to the good. Rut, in makino^ up these balances, no allowance has been made for interest to the Treasur\- for larf^e sums advanced to the State railways in years of deficit, and the report con- siders that when the Treasury acts as banker to the State railway, interest on borrowed money should be allowed as in the case of a com- mercial company borrowing from a private banker. Taking these items into account, the report shows that the net result, instead of a balance of /'i, 700, 000, has been a deficit of ;^2,87i,ooo. The report concludes by sug- gesting that Belgium is evidently still far from realising the fiction that the State railways, by reason of their large yield, are " the milch cow of the Treasury." The story is carried further bv the report made by M. Hubert, representing the Central Section, on the Railway Budget for igoS. He therein calls, as he says, "the very serious attention " of the Chamber to the actual results of operation as shown for igo7 and estimated for igo8. The Budget demanded for the State railways a vote ^'87g,ooo in excess of that for the previous year (when it was ^6,500,000), and M. Hubert says, " This is the greatest increase in expenses we have ever had to record." Already, he states, the proportion of total expenditure to net re- ceipts has increased from 60*03 in 1904 to 62'6o in Tgo5, 64"o7 in igo6, and, approximatelv, to H 2 loo Railways and Nationalisation. 6871 in 1907. With the increase in expenditure proposed by the new Budget, there is, he finds, no indication of any stop in this ascending scale. While, in fact, the Budget contained supple- mentary estimates for ;^'920,ooo, it provided for an estimated increase in the receipts amounting to only ;^640,ooo. It is also admitted that thf net revenue in the past from the railways taken over by the Government has been lower than the estimated profits. M. Hubert continues : " We have here a Very grave situation, for if a change is not brought about we shall find ourselves in this position : either we shall have to cover by taxation a deficit more and more serious in a public service, or we shall have to raise the rates, a procedure which, in the actual situation, might be dangerous for industry, and, consequently, for the working classes." AUSTRIA. In Austria the State owns 5,000 miles of rail- way, and operates 2,700 miles of companies' lines. Of these it is now acquiring 1,860 miles, thus adding ^1,500,000 to the annual charge for interest. The State had already spent ;^ 1 12,000,000 on its railways, but although the official accounts show " net profits on working " of ^2,289,000 in 1904, and ^2,976,000 in 1905, the Board of Trade return says : — No allowance is made in the above statement of Static Railway Finance. ioi expenditure for the repayment of capital. As, how- ever, the rate of interest paid by the State on the loans raised for railway purposes is much higher than the rate of profit earned, the net profit has always to be supplemented by a large sum provided by the Budget. The estimates for 1907 were : — Amount payable by State for interest, ) amortisation, &c., on capital for , ;^5,494,556 State railways ... ... ... ) Less profit on working^... ... ... 2,827,132 Estimated deficit to be provided by) i- r r ^ .^. .u. «.,^„«. ^ /, 2,667,424 the Budget RUSSIA. Russn has been exceptiijnally unfortunate, from a financial point of view, in the operation of her State railways. In Europe she has 19 different lines, with a total length of 19,113 miles, and of these only nine showed, in 1902 (the last year for which full figures are available), a net profit after allowing for charges in respect to interest and sinking fund, the net loss for the year being ;^753,o59. On five separate lines in Asia the Government made losses amounting to ;^"2,736,725, the total loss in 1902 on the entire State system in Europe and Asia (excluding, however, Finland, the figures for which are not included in the Board of Trade return) being thus no less than ^3,489,784. DENMARK. Denmark has definitely laid down the prin- 102 Railways and Nationalisation. ciple that her State lines must pay their way, and not be a burden on the taxpayers; but they are not to be operated in order to produce revenue for the Government " at the expense of users of the lines." Fares, rates, and charges are fixed on this basis, with the further stipula- tion, under a law passed in 1903, that, from any •balance left after meeting working expenses and standing charges, bonuses shall be paid to members of the staff, who thus have an incentive to operate the lines with a due regard to effici- enry and economy. The accounts for IQ06-7 shew : — Receipts ^2,182,514 Expenditure ... i?733j324 Balance ^449,190 Interest on capital expenditure ) /• r,. Bonuses to staff ... ^63,147 SWITZERLAND. Concerning the Swiss railways, the Board of Irade return says : — The financial results of the purchase of the rail- ways are described as satisfactory. Till the present time the revenue has been suflicient (i) to cover working" expenses; (2) to pay inteiest on the pur- chase money ; and (3) to pay for sinking fund on the debt incurred on the purchase. This, presumably, is the official view. The unoflicial criticism in the Tribune dc (icnhcH' — State Railway b'lNANci:. 103 to which I have already referred (page 30) in giving" the reasons for the nationalisation of the lines — shows that since the State took over pos- session and operation the working day of the railway staff has been reduced from twelve hours to eleven; salaries and wages have gone up; more or longer holidays have been given ; a con- siderable addition has been made to the number of ofificials — and there was an increase in the working expenses by 35 per cent, between 1903 and 1907, while the receipts increased in the same period by only 2S per cent. ITALY. Of the Italian State railways the Board of Trade Return, already mentioned, says that the net profits (;^'2,030,824) paid into the Treasury for the year 1906-7 represent " rather less than 1 per cent, on the capital sum of ;^226,254,ooo expended on the construction of the lines and purchase of rolling stock." (See, however, in this connection the reference to the Italian rail- ways on page 29.) SERVIA. The receipts on the Servian State lines failed to meet the interest on the railway debt by ;^'92,300 in 1903, ;^57,20o in 1904, and ^92,700 in IVJ05. 104 Railways and Nationalisation. honduras. Honduras has a Government railway, for the building of which loans to the nominal amount of ;^6, 000,000 were issued in London and Paris between 1867 and 1870; but even now not more than 57 miles have been completed. "It is impossible," says the Board of Trade Return, " to estimate the amount of money squandered on the construction of this railway." brazil. In regard to the State railways in Brazil, the Return says : — It is only during- the last fev/ years that the Central Railway [1,004 niiles] has shown any profit at all, and that profit is so out of proportion to the cost of construction it may be inferred that no portion of the cost has been repaid. CHILE. The receipts in igo6 from the State railways in Chile failed to cover the expenditure by ;^i77,258. In his report on the trade of Chile fnr 1907, the British Consul-General at Val- paraiso says : — The railways owned by the Government of Chile g-ive no profit ; in fact, they have latterly been worked at a loss. It may be strange that this should be so, seeing- that the trunk system runs State Railway Finance. 105 through splendid country that produces largely and promises to become much more fertile in future years. For there can be little doubt that, run on business lines, the railways could be made to pay, with properly trained officials, a revision of tariffs, and a greatly improved service. . . . The most important part of the broad gauge State railways is that between Valparaiso and Santiago, a distance of 116 miles. All merchandise imported for Santiago is landed at Valparaiso. Of these 116 miles of 5 ft. 6 in. gauge, only 8^ miles, from Valparaiso to El Salto, has a double line. The congestion of traffic at this point would be entirely relieved were this track doubled for the entire distance, and [this] would obviate the neces- sity of great expenditure on harbour works, such as are proposed. . . . The main line ... is suflering from inattention. Neither ballast nor sleepers have been renewed, and great damage has in consequence been done to the rails, and many accidents have resulted. The rolling stock is equally imperfect. Large numbers of German engines have failed to come up to expectations, and heavy steel wagons from Belgium have shown up in a surprising manner the weakness of the older wooden wagons. The Consul-General's comments on the failure of the State lines to produce a profit are the more striking because the company-owned lines in Chile are fairly successful. Comparing the two systems, the Mining Journal declares that the position of the State lines affords ** the most palpable evidence of incompetent management and careless administration, and the inevitable consequence of political influence." io6 Railways and Nationalisation. JAPAN. The Railway Nationalisation Law carried in Japan in 1906 involved the purchase by the State of 17 lines of railway at a cost of about ;^'5o,ooo,ooo, and has been a material factor in the financial problems which have recently been engaging the very grave consideration of Japanese statesmen. The payment of the /,'50,ooo,ooo is found to be only part of the trouble. Those who inspired the scheme did not stop to consider that in addition to buying the existing lines, for the price mentioned, the State would require to spend a large sum of money alike on their betterment and on the provision of new lines, some of which are very much needed. In regard to the new lines, at least, the Govern- ment find a difificulty in raising funds, and so we get this curious result : that within two years of the apparent triumph of nationalisation ideas in japan, the Government have been proposing to revert to private enterprise, in order to secure the provision of additional transport facilities. It is even contemplated that the new lines shall not onlv be worked by electricity, but, in some instances, run parallel to the Government " steam " lines in order to " supplement " them — presumably, to render unnecessary a heavy ex- penditure on their widening or improvement. Actual results are further indicated by the fol- low ing ('\lract from the report on the trade of State Railway Finance. 107 Japan for the year 1907, by Mr. E. F. Crowe, commercial attache to his Majesty's Embassy, Tokio : — The nationalisation of the railways of Japan was completed in 1907. The last of the seventeen prin- cipal private railways which were to be acquired by the vState was taken over in October, so that it is now possible to obtain some idea of the working of the railways under the new system. Throughout the year there have been bitter complaints both in the native and foreign press about the railway service. One of the principal motives of the nationalisation of private railways was to remove the impediments and correct the confusion arising out of multiple ownership and divided administra- tion. The critics, however, complain that the number of accidents has increased, that the delays in the transportation of goods are still excessive, and that on some lines unpunctuality is the rule and not the exception as it was in the days prior to nationalisation. Mr. Crowe refers to a report issued by the Imperial Government Railway Bureau dealing with some of these complaints. It accounts for the shortcomings on such grounds as " not yet time to bring into force all the suggested im- provements " ; " rains and floods " ; and " move- ment of troops during manoeuvres " ; and pleads, as extenuating circumstances, certain reductions in rates and fares; whereon Mr. Crowe re- marks : — From the above figures it will be seen that the nationalisation has in some wa3's been successful, but the country as a whole seems to have expected more. mS Railways and Nationalisation. PRUSSIA. The country in the world which claims the best financial return on the operation of her State railways is Prussia, although the results even there are not really so great as the average na- tionalisation advocate represents. It has been said often enough in print or in public in this country that the Prussian vState railways show a " profit " of about ^30,000,000 a year. Mr. L. G. Chiozza Money, M.P., for example, in an article published in May, 1908, sought to show how, under State administration, " profit arose unsought " on the railways in Prussia, and pro- ceeded : — Thus, in 1904, while the receipts were _:^."78,6r)3,33o, the expenses were only ;^47, 553,497, showing a net profit of ;^3i,i09,833, or 7'i9 per cent, on the capital employed. In 1905 the figures were even better. The receipts came to ;£?85,02i,6i2, while the expenses amounted to _A5i,54i,8o2, showing- a net profit of ^^33, 479,810, or 754 per cent, on the capital employed. A full translation which has been prepared of the " Accounts of the Railway Administration " gives Mr. Money's itenhs thus : — Year. Receipts. Expenditure. Balance. 1904 ... ^78,588,970 ... ^48,487,696 ... ^30,101,274 1905 ... .^"84,933,970 ... i:52,53o,49o ... i;32,403,48o The variations in the two sets of figures are, however, a matter of detail. The essential point is thai Mr. Money falls into the common error Statk Railway Finance. 109 of regarding the difference between receipts and expenditure as " net profit," witiiout making any allowance whatever for interest on capital debt and other standing charges. The accounts themselves are given in the official report in such abundance, though with such lack of clearness, that they perplex the mind rather than present the financial situation of the State lines in a way that can be readily understood. The statement of accounts men- tioned above comprises nineteen distinct columns of figures, going back year by year to 1882; but it will suffice to look at the items for 1905. Taking the balance of receipts over expendi- ture in that year as ;^32,403,48o, there is deducted a sum of ^5,332,598 " for interest on the railway capital debt." This leaves (column 8) a net balance of ;^'27, 070,882. Then column 10 says that " According to Sec. 4 of the Act of 27th March, 1882, the original capital debt is to be written off by taking from this net balance (column 8) to the extent of f per cent, on the capital debt," which stood at the end of 11J05 at ;^' 146,422,353. The item given under this heading for 1905 is ^^3, 182,941, and column 1 1 shows that " the net balance (column 8) after writing off this f per cent, for sinking fund (column 10)" is ;^23,887,94i . But the remaining columns proceed to allocate the " net balance " shown in column 8 with- iio Railways and Nationalisation. out regard to the apparent subtraction therefrom of the sinking fund item of ^,'3, 182,000 shown in column 10. The allocation of the said " net balance" is given in these later columns as follows : — According to sect. 4, sub-sect. 3, No. i, of the Act of 27th March, 1882, for the gradual extinction of railway debts taken over by the State pre- vious to T879, ^"d also contracted since then ... ... ... ... ^115,441 For the reimbursement of general State expenditure ... ^23,205,049 For the formation or completion of a reserve fund to be used for railway administrative purposes ... ... Extraordinary Sinking Fund for State debts or for redemption of sanc- tioned loans ... ... ^1,487,402 For the formation or completion of an equalisation fund for the railway administration ... ... ... ^2,262,990 Total £27,070,1 However all these figures are to be explained, one fact which may, I think, be regarded as certain is that the item of ;^23, 205,049 is the amount which the Prussian Government secured from the railways in 1905 for general State pur- poses (" zur Deckung anderweiter etatsmassiger Staatsausgaben "). How this net gain for the Treasury was expended there is nothing in the accounts to show; but the item in question, though substantially less than the " net profit " spoken of by Mr. Money, is certainly, in itself, a substantial contribution to the State funds. State Railway Finance. i i i Mr. Money is, however, again hopelessly wrong in suggesting that the " profit " from the Prussian State railways comes " unsought." I will not now stop to go into details; but my own inquiries into the operation of the Prussian State railways have led me to the conviction that thev are designed to serve three main inte- rests, stated in the following order : the raising of revenue as the first and most important object of all ; political, commercial and fiscal con« siderations second; and the welfare of the indi- vidual trader as a very bad third. One must further remember that if the rail- ways in Germanv were owned by companies instead of by the States, a considerably greater sum would be raised in the way of taxation. In Prussia the local taxes paid bv the State railways amount to only ;^75o,ooo a year, whereas our own railways — having approximately the same length — contribute nearly ;^\5, 000,000 a year. If the Prussian State railways adminis- tration paid local taxation on the same basis as the railway companies in the United Kingdom, the net profits shown would have to be reduced proportionately. As it is, the taxation which the Prussian State Railways avoid falls upon the ordinary taxpayer, who must set that item, among others, against his possibly lower rates for rail haulage. Admitting, however, on the basis of the figures given, that, from the standpoint of financial 112 Railways and Nationalisation. results, the State railways of Prussia are a brilliant set-off to those of State railways — or the majority thereof — in other parts of the world, there still remains the consideration whether the Prussian Government have or have not been unduly anxious to keep up to a high figure the net railway returns coming into their treasury, with the result that they have refrained in the past from incurring all the capital expenditure necessary to enable the State railway system to meet adequately the growing needs of the trading community. In other words, have they, for the sake of immediate profits, neglected necessary developments in the interests of the future? If so, then the fact should not be ignored by those who would nationalise the rail- ways of the United Kingdom in order that the State — that is to say, the Government of the day — may have the disposal of the "profits" thereof for old age pensions, or any other pur- pose that may appear to them desirable. When the Prussian Government proposed to assume control of the railways of that kingdom, the representatives of commerce and industry wanted an assurance that the sur- plus from operation would be used for the lowering of the rates, for effective mainten- ance and development of the system, and for other such purposes, rather than for revenue purposes. The assurance was duly given, but in i8q() the Minister of Finance (Von Miguel) called vStatk Railway Finance. 113 attention to the amount which could be devoted from the railway balance to general State pur- poses, and said : — We do not care about the Increase in receipts ; we only look at the net profit ; and therefore we have every reason to deal carefully with the treasure we possess in our railways, and cannot afford to allow any decrease throug"h a reduction in rates or an increase in expenditure. Replying to tliose who criticised this policy, the same authority said :-- You talk about surplus. There is no surplus. It is all absorbed in permanent expenses. If these f/rofits are not used for general purposes it will mean increasing the taxes by more than lOO per cent., and that is wanted by nobody. You had better leave us our treasure. This one will have cheaper fares ; another will have better carriages and more room ; a third will have new lines, even though they should be unremunerative. This one, again, wants better and finer stations; that one im- provement of the road ; another lower rates . In all this lies a danger to the State, — at least, there would be if the Government were not strong enough to oppose, occasionally, the desires of those interested .... I assume that we Prussians will always have as strong an administration. So the Government kept their treasure, prac- tised economy, lowered rates mainly when it .served purposes of State so to do, and saw the amount available from the railway revenue for general State purposes increase on the " leaps and hounds " principle year by year. Mean- I 114 Rah. WAYS and Nationalisation. while, what was ihr position in regard to the hnes themselves? Ten years ago the British Consul at Diissel- dorf, Mr. T. R. Mulvany, in a report to the Foreign Office on the " Coal Industry in the Rhenish-Westphalian Provinces," wrote that the requirements of the Prussian State railways in respect to rolling stock had been much neglected; and he dealt, also, with the urgent need for the reconstruction of the permanent way, saying that associations of engineers had repeatedly drawn the attention of the State railway authorities to the fact that the rails in use were not able to stajid the strain of the much heavier loads and the accelerated traflic of that day, the result being that, as he said, " were it not for the discipline and good management of traffic officials, the number of accidents would be far more alarming than they are." Mr. Mulvany further made the following remarks, which are especially signifi- cant in the light of subsequent events : — • Many years ago a man wlio was an authority on iiidustrial and railway matters, foreseeing the de- velopment of which the country was capable, advo- cated the laying- down, at least on through-going routes, of four lines of rails- two for goods and two for passengers — so that the fast and slow traffic might be kept separate and distinct. Of course, the adoption of this system, under the greatly in- creased value of land, buildings, and building sites, would now involve the expenditure of a much larg-er amount of capital than would have been at the time n(M'essarv ; hut unless t-anals are constructed to State Railway Finance. 115 iclieve llie railways of tlie lica\ icr jioi'tioii of the i^oods IralTic, it must doubtless sooner or later be done. For a time the Prussian Government hoped that their policy of improving river navigation and building fresh canals would render unneces- sary the very heavy expenditure on railway betterment that otherwise seemed to be inevit- able, and that railway companies in the United Kingdom or the United States would probably have undertaken as a matter of course. But the inadequacy of the State lines remained, so that in a report on " Agriculture in the Rhenish Province," which Mr. Mulvany's successor at DUsseldorf, Dr. F. P. Koenig, presented to the Foreign Office in 1906, one reads : — It is a matter of fact that the German State rail- ways are no long^er able to cope with the increasing- amount of goods transport, and that something will have to be done to alleviate the pressure on the railroads, especially so on those of the \\ estphalian coal and iron districts, and on those of the Rhenish province, great industrial centres. The grievances in Cjuestion were due, not alone to an insulHciency f)r railwav lines, but, also, to a chronic shortage of railway trucks. Turning once more to oflicial atithority, I read in the Report to the Foreign Office on the " Trade of the Consular District of Frankfort " for igo6, by Mr. Oppenheimer, British Consul - General there : — For years there have been complaints concerning I 2 iiT) Railways and Nationalisation. the insufficient number of trucks at the disposal of the commerce of the land, and more especially of the coal industry ; and this scarcity at times be- comes (especially in the autumn, when there is an increased demand for coals) a real calamity. This scarcity not only compels the mines to reduce the output, but also affects the workmen by forcing them at times to work in intermittent shifts only. Industry at large complains that in consequence of this scarcity it is put to great inconvenience because the delivery of coal has ceased to be punctual. The scarcity of coal and coke trucks was particularly acute last autumn [igo6]. The highest figure for the Ruhr district was reached in the month of November, when, of the wagons needed, i2'2 per cent, failed (against 6*9 per cent, in 1905) ; in the Upper Silesian district the record was reached in October, when i3'6 per cent, failed (against 10 per cent, in 1905). . . . Quite recently the railway administrations have been approached by the leading mines and the coal syndicate for permission to allow the construction of private trucks of 20 tons each to facilitate the carriage from mines to foundries generally. The Chamber of Commerce of Mannheim, which is the most important river port in the South of Germany, complained that the scarcity of rolling stock was unprecedented. During the month of September there was an average scarcity amounting to 288 per cent, of covered wagons, and 36 per cent, of open wagons ; during the last week of Sep- tember the figures amounted even to 36*5 per cent, and 40 per cent, respectively. Comparing recent State railway balances with the wagon shortages for the same years (as given in Mr. Oppenheimer's report), one gets the fol- lowing significant table : — vStati: Railway Finance. 117 Balance of Prussian State Railway Shortage of Wagons on Prussian State Railway System. Year. Surplus Available for General State Purposes. ^ Number. 1896 9,086, 1 76 36,109 1897 10,0 t 3,235 91,950 1898 I 1,723,676 43,391 1899 13,140,980 67,553 1900 14,500,980 31,900 I9OI 16,01 1,667 346 1902 i6,7o*=!,578 1,192 1903 18,151,912 16,456 1904 21,065,147 38,350 In i<)()5 the available balance went up to the figure already stated -;{,'23, 205,049, and in igo6 it rose still further, to ;^"26,043,922. How the wagon shortage on the vState railways stood in the same years in different coal districts is shown by the following figures, taken from Mr. Oppen- heimer's report : — Coal District. Co.\L Wagon Shortage. 1905. 1906. Ruhr .Saar ... Upper Silesia Aachen Brown Coal 157,871 14,473 73,774 3,046 9,275 175,081 16,286 54,503 3,494 10,350 Totals 258,439 259,714 In the result we have the eventuality foreseen ii8 Railways and Nationalisation. so long ago by Mr. Mulvany's " authority on industrial matters " : that is to say, the Prussian Government find themselves compelled, at last, to expend on their State railways a sum far in excess of what would have been necessary had they provided for inevitable future developments at a time when land and building sites were of less value, instead of devoting their efforts mainly to securing a maximum of possible rail- way profits for the State treasury. In March, 1908, the Prussian Parliament approved a rail- way programme which will involve an expendi- ture of no less than ^21,700,000. This amount is to be spent on the building of new main, branch or narrow gauge lines; the provision of second, third, and fourth tracks for existing lines; the general betterment of various sections; the supply of additional rolling stock, and other purposes. The criticism that the extensions, at least, would have been less costly had provision been made for them in the past is undoubtedly just ; and it is strengthened by this further con- sideration : that the sum thus required by the Prussian Government for railway purposes was included in a loan, floated in April, 1908, for which they then found it necessary to pay 4 per cent. I would suggest that the very fact of a scheme of railway betterment, involving an outlay of /'21, 700, 000, being now brought forward by the Prussian Government, fully substantiates the State Railway Finance. i 19 complaints as to undue economy in the past, and shows, too, what may happen when a Govern- ment learns to look upon railway operation as an important source of revenue, independently of Parliamentary votes. Railway nationalisation may get rid of the assumed disadvantage of private companies operating lines in the interests of dividends; but if, for this, it should substitute a Government still more keen, and still more un- yielding, in operating the railways as a revenue- producing machine, any possible benefit to the community would certainly not be without its drawbacks. WOULD NATIONALISATION PAY? Looking at the whole matter from no higher standpoint than that of a purely business pro- position, the general experience of other coun- tries, apart from Prussia (allowing, however, for the attendant drawbacks experienced there), does not suggest that a financial gain to the commu- nity through the nationalisation of raihvays in the United Kingdom is to be regarded as a matter of course. Granting, freely, that in certain of the countries and colonies passed under review the State may have felt obliged to undertake either the provision or the control of the rail- ways, and that in the case of our own colonies, especially, great benefits have resulted from the opening up of new country to settlement, there is still no proof that State management, as I20 Railways and Nationalisation. a whole, is more efficient, more economical, and more business-like than company manage- ment; neither, looking at the general results, is there any ground for concluding therefrom that State operation here would lead to such striking monetary benefit for the nation as might compensate for that disturbance with the finances of the country which nationalisation would inevitably involve. State Railways and Politics. 121 CHAPTER VII. STATE RAILWAYS AND POLITICS. Apart from those practical questions of vState raihvav finance which I have already discussed, the question of railway nationalisation gives rise to serious considerations of policy in regard to the possible introduction of political influences which may operate to the disadvantage alike of the railways themselves, of the national or colonial Parliament, and of the public interests in general. Experience has shown that these influences may develop more especially in the following directions : — (i) Electoral pressure on railway ministers with a view to secure the con- struction of what are known as " political " lines, designed to serve the particular interests of in- dividuals or of specially favoured localities, or, alternatively, to provide employment for elec- tors; (2) the creation of a large body of State servants who might seek to induce their repre- sentatives to use their influence in Parliament to secure for them exceptionally favourable con- ditions of labour, at the expense, if necessary, of the general community ; (3) the development 122 Railways and Nationalisation. of a tendency among- politicians of all parties to promise these advantages as a means of securing the support of the employe-electors, even when the latter refrained from bringing pressure to bear on them in the directions stated; (4) the possibility of the time and attention of Parlia- ment being unduly taken up by discussions on the grievances of traders or of railway servants which, though concerning rri,atters of detail or discipline that should properly be left with the railway managers, could not be avoided by the Government in power for fear of the political consequences to themselves; and (5) the bringing of electoral pressure to bear on a Government to force them either to concede non-remunera- tive rates to certain industries or to refuse con- cessions to certain competing districts. Political influences of these and other kinds have been brought to bear on the building or the operation of Government railways alike in British colonies and in foreign countries, and it is, to a certain extent, because of the possibilities of abuse of the system afforded by State ownership and State operation that these principles have been, and still are, regarded with so much favour in certain cjuarters. AUSTRALIA. Such abuse was certainly notorious enough in the early days of the Australian railways. I have referred, on page 70, to certain lines in State Railways and Politics. 123 Victoria which had been either closed or dis- mantled because of the cost of working and the insignificance of the revenue. In effect these represent a t3qie of railway constructed becaiLse the Railway Ministers were unable to resist the pressure either of certain political supporters to whom, personally, such lines would be useful, though they were not required by the com- munity; or, possibly, of electors who wished to be employed to lay down the lines, and were not likely to be averse to further employment if asked to p-'U them up again a few years later. Owing, again, to like influences, the railway staffs be- came unnecessarily large, and the members thereof got liberal pay for doing " the Govern- ment stroke " during a generously-restricted number of hours. The financial results to the railways were de- plorable. The working expenses rose 50 per cent., while the receipts remained about the same; repairs and the betterment of lines and rolling stock were neglected in order that money might be saved to meet the outlay on wages and unremunerative branches; while the undue inter- ference of politicians rendered impossible the proper administration of the lines. It was sought to overcome these various diffi- culties by the appointment of Railway Commis- sioners, who were (theoretically) to have almost unlimited powers of management and control. Victoria set the example in 1883, and South 124 Railways and Nationalisation. Australia, Queensland and New vSouth Wales subsequently adopted a like policy. At first these Railway Commissioners were able to make their influence felt in checking the abuses which had crept in ; but the Parliaments which voted the necessary supplies controlled the situation, and the pressure of the politicians, though exer- cised less openly than before, still made itself felt to such an extent that some of the Commis- sioners found their position hopeless, and gave up an apparently futile struggle against superior forces. To show that the pressure of the politicians continued, notwithstanding the appointment of the Railway Commissioners, I may allude to what happened in New South Wales in 1902, or 14 years after Sir Henry Parkes had, bv adopt- ing the policy in question, sought to check the abuses due to the subjection of railway manage- ment to political influences. The Labour party, who then held the balance of power in the Colonial Parliament, secured the passing of an Act which forced the Railway Commissioners to make concessions to the " running " staff at an estimated cost of ;^6o,ooo a year, the most im- portant of the new regulations being that the men were to work eight hours a day instead of nine. On the other hand, they considered that ^6,000 a year was too much to divide between the three Railway Commissioners, although these gentlemen were discharging duties which Statr Railways and Politics. 125 here fall more or less upon the boards of directors and the chief executive officers of the railways. They desired to economise in this respect by dispensinfj^ with the services of the Commissioners and having, instead, a general manager at the lowest possible salary, more money being thus made available for the wages of the " running staff," in whose welfare the Labour party were mainly concerned. This, however, will be found to be the invariable attitude when " Labour " gets a controlling or even an influential voice in the management of publicly-owned enterprises. From the point of view of the average labour representative the re- sponsible officers are always paid too much and the rank and file too little. As further illustrating the conditions which may exist in regard to colonial railway operation under a regime of Government control, I would refer tc an inquiry held in Victoria in igoi by a Select Committee on the Management of the Railway Department (Appointments and Promotions). The department, it seems, had been invested with power to make permanent appointments to the Railway Service, but, " through lack of per- ception or neglect " (as the vSelect Committee reported) in making application for a sufficient number of permanent employes, so-called " tem- porary " employes had been put on by the higher officials in the various branches to such an extent that these " supernumeraries " represented, in 126 Railways and Nationalisation. i()Oi, no less than 34 per cent, of the staff^ — ,vOo7 out of a total of 11,956. The Committee found that " in making these appointments official patronage was freely exercised, the officials responsible being, apparently, influenced in their choice by personal or other considera- tions." There was an ofiicial register of appli- cants, but the officer in charge of it admitted to the Committee that " his list was practically a farce, and that supernumeraries were appointed irrespective of it." Under the Act dealing with such appointments no person was to be employed as a supernimierary for a longer period than six months in any one year; but the Committee say :^ This provision is frequently set at defiance. Many supernumeraries who come within the cate- gory of those prohibited by the Act from being" employed for more than six months have been kept continually employed for years, their retention apparently being", in most instances, the outcome ol personal favouritism. Some of these, among them the sons and relatives of oflRcials, applied and were appointed as supernumerary repairers, and were entered In the staff register as such, but were immediately g-iven clerical work to perform. After years of constant employment as supernumeraries, when applications for permanent appointments were invited, these men applied and were permanently appointed as repairers, but have ever since been eng-ag'ed at clerical duties. Many of the super- numeraries have, by reason of their continuous employment for ten or twelve years, virtually become permanent employes. State Railways and Politics. 127 The Committee further say in their report:- — Rcg-arding- the medical examination to test the colour-sense and visual etBciency of candidates and employes, your Committee is surprised to find that the experts and the higher officials are not more in accord in their determination of what degree of efficiency is essential to the safety of the g-eneral public. In numerous instances the certificates of the medical g-entlemen have been over-ridden by the opinions of officers in the various branches of the Department. Employes performing- duties of great responsibility have been allowed what is called a practical vision test by the Department, and kept in their positions despite the fact that they were pre- viously unconditionally rejected by the medical men. Cases are on record where engine-drivers rejected by doctors for defective vision have been employed until even the so-called practical test was beyond their ability to pass. One can scarcely conceive the possibility of conditions such as these coming into existence in the case of any company-owned railway in the United Kingdom. It may be pleaded that they have since been reformed in Victoria and in tlie other colonies where they may have de- veloped. But the fact that they should have been found at all does not confirm the suggestion as to the superiority of Government over company management. Even to-day there are politicians in Australia who seek to gain the favour of electors by advo- cating extensions of the railways regardless of any considerations, either of railway policy or of that colonial credit for which the railways 128 Railways and Nationalisation. constitute the chief asset. In the recent elections in Queensland, as told by the Australian corre- spondent of the Economist, in the issue of that journal for April ii, 1908, one political leader advocated the construction of a number of rail- way branches, the cost of which would be very great, while another leader, not to be outbidden bv his rival, promised to support many more. NEW ZEALAND. Reverting to Professor Le Rossignol's com- ments on the position of the Government railways in New Zealand, it is significant to find that he considers their "financial failure" (as he calls it) to be largely due to political influences. This American authority says : — Politics have had altogether too much to do with the construction of roads, the appointment and pro- motion of officials, the frequency of service, the fixing- of rates, and the departmental administration in general. Railways have frequently heen built for the sake of securing votes rather than traffic, and business has been so often subordinated to politics that it is no wonder that the net returns are political rather than financial in their character. He thinks, however, that even now, under effi- cient management, the system could be made to pay. " It is," he suggests, " altogether probable that a private company could so operate the roads as to pay interest on the capital cost, taxes on its property, and moderate but increasing dividends State Rah, ways and Politics. 1^9 on its stock, and, at the same time, reduce rather than increase the charges for passengers and freight. From a mere financial point of view," he adds, " it would pay the Government to sell the railways to a private corporation, which, like the railway companies of the United States, would do much to develop the varied resources of the country." CAPR COLONY. Dealing with the subject of " The Nationalisa- tion of Railways " from the point of view of his experiences on the Cape Government railways, on which he has been engaged for some years, Mr. W^illiam Ben Edwards said, in the course of an article published in The Nineteenth Century for March, 1908: — • As the combined railways of the country would form one of the greatest spending and earning (lovernment departments in the world, it is obvious that the head of the department would have to be a Cabinet Minister, with a seat in the House ol Commons, and answerable to the House for all the. details of the business over which he presided. He would at all times be liable to be questioned on any and every trivial matter connected with the railways, and, if he failed to satisfy his inquirer, the latter could move the adjournment of the House to discuss the matter, provided he received the support of forty other members. . . . The author can remember a case at the Cape when the Minister for Crown Lands and Public Works was questioned about the overcrowding of a compartment in which his inter- rogator had travelled to Cape Town. In another case K 130 Railways and Nationalisation. a member asked the Minister why he had not been allowed to pass a barrier at the terminus to see someone off when he had no ticket. The ordinary Parliamentary procedure at the Cape may be briefly described as follows : Suppose notice of a question was given to-night, the Minister at once communicated with the General Manager of Railways, who, the first thing in the morning, would transmit the wording of the question to the head of the sub-department concerned, say to the engineer-in-chief, who would at once telegraph for particulars from his local subordinate on the spot, commencing his inquiry "Parliamentary." The local officer would reply with the necessary informa- tion as quickl}' as possible, which would be sent on to the Minister, who would, perhaps, to-morrow night rise in his place in the House and answer his inquirer in the words of the message sent by the local official away up the country. It should be understood that at the commencement of each Session all chief district officers received strict in- structions that any message commencing " Parlia- mentary " was to have precedence of all ordinary business except the safety of the trains and public. It is also evident that the whole of the legislative niachinery would be liable to be upset by a defeat of the Government on a railway question. Would the country be prepared to pass through a Cabinet crisis, or even a general election, because a branch line to some almost unknown spot was rejected? — and this would only be the logical result if the Government failed to carry their measure. The Cape Government in 1890 went out of power on being refused money for branch lines. To this I may add that in 1907 the Governor of Cape Colony appointed a Commission to enquire into the question of railway management and Statk Railways and Politics. 131 the construction of new railways, and tiiis Com- mission, in its report (which recommended the establishment of a Railway Board to advise the Minister of Railways in all important matters of policy) said : — It is impressed with the necessity of removing, as far as possible, the management of the railways fiom the influence of party politics without, at the same time, lessening the legitimate right of control which must be exercised by Parliament as the repre- sentative of the taxpayers. NATAL . The colonv of Natal has its " political " lines, these having been built to serve the interests of certain agricultural communities in localities where there could be little or no hope of working expenses being covered under ordinary con- ditions. On the other hand, the existence of these verv lines was of invaluable strategic ad- vantage in the eventful period of the Boer War, from 1899 to 1902; they were of a still more marked benefit during the native rebellion of 1906; and thev also conferred an incal- culable advantage, not onlv on Xatal, but on South Africa in general, in 1907, bv allowing of the rapid manipulation and quick distribution of troops from the branch line termini at the time of the threatened rising in Zululand. In these respects, therefore, the building of the lines in question has, in this in- K 2 132 Railways and Nationalisation. stance, been abundantly justified by unforeseen results. Another fact, not to be ignored, is that South African legislators have a personal reason for preferring Government to private ownership of railways, inasmuch as, on being elected, each of them receives a free pass entitling him to travel over the Government lines, not onl)- in his own colony, but in all the other British colonies in South Africa as well. Such pass is available during the full period of his membership, whether the " House " to which he belongs is in session or not. Should the member be a busi- ness or professional man, requiring to go pretty frequently between, say, Durban and Pretoria — a journey of 511 miles, for which an ordinary first-class return ticket costs ;^'8 8s. yd., and a second-class return ;£6 3s. 4d. — the privilege of being able to travel as a Parliamentary "dead- head " whenever he pleases must be a valuable perquisite; though the general manager of the Natal railways, in his report for 1906, bewails the fact that the issue of so many free annual passes involves a " heavy loss of revenue " to the rail- way department. CENTRAL SOl'TII Al'KirAN RAILWAYS. The Commission appointed in 1907 to inquire into the organisation and administration of the Central South African Railways (Transvaal and Orange Free State) spoke very emphatically of Stati': Railways and Politics. 133 the dangers that might result from the exercise of undue pohtical influence in the operation of the lines. They said on this subject : — Tfie Commission have been impressed by the earnest warning which has been addressed to them by several witnesses and informants against the danger of allowing political influences to intrude upon questions of railway construction and manage- ment. Such influences may affect both matters of domestic and matters of foreign policy. In the former case they may have such consequences as the construction of unrcmunerative lines, or granting of un remunerative rates, or local purchase of supplies w ithout sufficient justification ; or even the employ- ment of unnecessary hands, or payment of unneces- sarily high salaries or wages, or appointment of un- suitable officers. Other colonies in South Africa and elsewhere have experienced some or all of these e\ ils. . . . From such consequences the Central South African Railways have fortunately been free, and it is most important that their freedom should continue. In this view the arrangement made by Lord Milner, which placed their administration in the control of a body not responsible at first hand to the popular electorate, was happily devised. A joint administration, such as the Rail- way Committee has been, has the great advantage that it minimises, so far as may be, the mischief of political interference. Whatever changes are made in future, the Commission would not welcome any step which would render such interference easier. There is the question, again, as to how far a Government-owned railway should be concerned in the general policy of the State or Colony in 134 Railways and Nationalisation. wliich it operates. On this the Commission said : — The remaining aspect of the question, which con- cerns what may be called the foreign policy of the railways, is of even greater importance. In this respect the Central South African railways share a disability common to all the railways in South Africa, which, from the days of their construction, have been the pivot of South African inter-colonial politics, and arc likely to remain so until some definite steps towards their amalgamation are taken. So long as this state of things lasts, it is obvious that the larger questions of railway policy must be determined by the Colonial Governments and Parlia- ments which have so vital an interest in the issues of which the railways are one battlefield. But the unhappy results which have ensued, particularly in the matter of the through rates from the ports, are notorious throughout South Africa. The railways are neither run as a commercial concern nor allowed to play their legitimate part in promoting the de- \'elopment of the country. ... As matters now stand, not only does the financial equilibrium of the respective colonies depend largely on their railway revenue, and consequently on their power of at- tracting and holding as large a share as possible of the total South African traffic, but there is a tendency to make an illegitimate use of the railways for the purpose of creating trade and manufactures in violation of the spirit of the existing Customs Union. There can be no doubt that in an undertaking of such magnitude as a large railway it is unsound to attempt to combine diplomatic and executive func- tions. . . . They do not feel sure that any satis- fcictorv solution can be found, short of the amal- State Railways and Politics. 135 gamation of all South African railways, and their extraction from the slough of poHtics once for all. BRAZIL. A well-recognised form of political corruption in Brazil, in the days when railways were more extensively owned by the State, was the employ- ment of a considerable number of extra workers on the Government lines prior to or pending a General Election. BELGIUM. The extent to which political influences are brought to bear on the operation of the Belgian State railways is fully shown by the translation of M. Marcel Peschaud's articles in the Revue Politique et Parlementaire which I have given in my book on " State Railways." Here it may sulBce to mention that M. Peschaud quoted the following remarks made by M. Hubert so far back as 1889 : — Every instant some member rises, demanding im- provements in the service, the creation of new stations, the arranging of more stoppages, or the concession of tariffs of greater advantage to in- dustries in which he is interested. Then, for im- proving the position of the officers, officials, and labourers, notwithstanding the sums already ex- pended under this head, what complaints and de- mands are not put forward. Here we have an evil inherent to exploitation by the States : money that belongs to everybody belongs to nobody. 136 Railways and Nationalisation. In 1904, M. Peschaud further stated, the Bel- gian Minister of Railways said that the sum total of the expenditure involved in carrying out the amendments proposed by a single deputy would be ;6'90,40o; and in 1905 he further calcu- lated that the amount concerned in the amend- ments proposed for improving the position of the personnel represented an increase in the salaries and wages paid of 40 per cent. Added to this, the grievances of the railway servants are made the subject of almost intermin- able debates, while Parliamentary candidates openly bid for the votes of the railway electors by promising them better conditions and assuring them they have nothing to hope for in this respect " from the other side." i GERMANY. There is much less suggestion of the exercise of political pressure by railway men or their Par- liamentary friends in Prussia, partly because the Government are in a much stronger position than is the case in lielgium or in the British colonies, and partly because the working classes, as a whole, have but a very slight representation in the Prussian Diet. Yet Social Democrats in the Imperial Diet do not hesitate to bring forward the grievances of their comrades on the vState railways, alleging that the hours of service are too long and that State Railways and Politics. 137 accidents are the result. When, however, these representations were once more advanced early in 1908, the President of the Railway Bureau, Dr. Schulz, showed that the larger number of accidents occurred early in the day, when the men were fresh, and not later on wiien they might be supposed to be fatigued. In Baden a Social Democrat was discharged from the service of the State railways on his be- ing elected a member of the city council, and pro- tests were raised in the Parliament there by the Social Democrats ; though the dismisal was de- fended by the Prime Minister on the ground that the Social Democratic party regards strikes as one of the most important means of obtaining its ends, and the State railway authorities could not run any risk of interruption of so important a public service. On the other hand, there has been a consider- able tendency in Germany to bring political pressure to bear on the Government to prevent the concession to one set of traders, or to one particular district, of lower rates or advantages that might possibly operate to the disadvantage of other traders ur other districts. AAHiereas a railwav company need consider only the people served by its own lines, a Minister controlling a network of State railways extending over the whole country must balance as far as he can the interests of one locality against those of another; and, where there is conflict between these 138 Railways and Nationalisation. different interests, he may be forced to withhold or to withdraw otherwise desirable concessions, for fear of possibly undesirable political conse- quences. As I have already dealt with this branch of the subject in the chapter on " The Railways of Germany " in my book on " Rail- ways and their Rates," I will here do no more than refer to the example, given on page 261 of that book, showing how the Governments of vSaxony, Baden and Wiirtemberg, by threatening- Prussia with the opposition of their representa- tives in the Reichstag and the Bundesrath to the Imperial Bill authorising a commercial treaty with Russia, compelled the Prussian Govern- ment to cancel certain reductions of grain rates which placed the traders in the three States in question at a disadvantage. FRANCE. Much of the trouble experienced with the rail- ways in France has been due to the fact that deputies, }ielding to the pressure of their con- stituents, themselves brought pressure to bear on successive Ministries to construct or effect the construction of small lines which may have been of local convenience, but were doomed to be financial failures owing to the insufficiency of the traffic. It was mainly through inducing the great companies either to build or to take over lines of this description that the French State Railways and Politics. 139 Government had to enter into, with them, those financial compHcations that came within the range of " guarantee of interest." As regards vState servants in France a law passed in 1884 forbade State employes to form trades unions; and even so thorough-going a Radical as M. Clemenceau has persisted, in spite of all protests, in his refusal to allow them to become members of the Confederation du Travail, and has spoken most vigorously in defence of the position he has thus taken up. The main diffi- culty felt by successive Ministers in France, in the way of modifying the law, is the drawing of the line between the right to form a trade union and the right to strike. HOLLAND. Fear of possible political disadvantages was one of the reasons why, in May, 1908, the Second Chamber of the States-General in Holland re- jected (after five days' debate) a resolution in favour of a scheme for the operation of the State railways there by the Government them- selves, instead of by a private company as at present. Dealing with this point in an article on the subject which, following on a visit to Holland, I contributed to the Railway Ne%vs of June 6, 1908, I wrote : — If, it was argued, the Government of a small country like Holland, owning and operating all its cwn railways, had to negotiate on questions of 140 Railways and Nationalisation. through traffic with the Government of a powerful neighbour, also owning- its own railways, there would be much more risk of delicate diplomatic situations arising than if such negotiations were carried on by private companies. One member, Mr. Plate (late president of the Rotterdam Chamber of Commerce), mentioned, without going into details, that Belgium had been obliged to make certain concessions to Germany in railway matters from what were obviously political considerations. It was held, also, that domestic as well as inter- national politics might be involved. The Social- Democrats had shown a special interest in the pos- sibility of getting better wages and conditions for the railway workers ; but the more cautious members did not like the prospect of 30,000 railwaymcn being directly employed by the State, especially as the Dutch railways could not give higher wages than at present, and still pay their way. Fears were, again, very frankly expressed that there would be a repetition in Holland of the conditions experienced in Belgium, where, it was pointed out. Deputies bid for the votes of railway electors by promising them increased pay or other advantages, and compromise the railway situation by trying to force the Govern- ment to carry out the promises thus made. In other directions there have already been ten- dencies to introduce political or social considerations into railway working in Holland. A certain member of the Second Chamber actually induced the responsible Minister to compel the Holland Railway Company to stop the Paris-Amsterdam express at Haarlem, because he would then be enabled to reach his home by dinner time after the sittings of the Chamber ; and the express has been locally known by his name ever since. When, therefore, in the course of the debate, a Social-Democrat member, Mr. Schaper, said, " Why do you fear political inter- ference with the railways ? We have already got State Railways and Politics. 141 the Hugenholtz express. What could be worse than that?" there was a roar of laughter in the House. In another instance, the Minister himself tried to induce the Holland Company to put on a new and confessedly non-remunerative train so that the children in a certain district could get to school in time ; but, as he would not either guarantee the company against loss, or allow them to withdraw another train instead, they declined, on this occasion, to comply with his wishes. VIEWS OF A DUTCH AUTHORITY. In a conversation I had with the late president of the Rotterdam Chamber of Commerce during my visit to Holland, Mr. Plate made some obser- vations so thoroughly to the point that I venture to reproduce them. He said : — There is no system which in itself is absolutely perfect, but there is more to be said against the operation of railways by the State than in its favour. Much depends on national wants and conditions, and, also, on the mutual relations of Government and Parliament. In Prussia you have a strong Government and a weak Parliament. In Holland we have general elections every four years, so that there might be a continuous change in rail- way policy, the more so as even the details of railway operation would — in our country — be made subjects of Parliamentary debate. In England the general elections are less frequent, and the railway policy might be more permanent ; but you still have a Parliament which is much stronger than the one in Prussia. In the one case, therefore, the Govern- ment can control the railways as they please, Parliament having little or nothing to say ; whereas both in Holland and in England Parliament would have everything to say, and would readily 142 Railways and Nationalisation. impose its will on the Government. I remember that an ex-Prussian Minister, who took part in the negotiations for the purchase of the railways there by the State, once said to me : " That Prussia should have taken over her railways was quite right; but the adoption of a like policy in your country — that's another matter. State railways are only possible where you have a strong Government, or where Parliament does not want to interfere, and the opera- tion can be carried on without Parliament being consulted." In Holland there would be two strong arguments against State operation : (i) From the moment the Government themselves undertook to work the railways attempts would certainly be made to bring influence to bear on Parliament in order to secure increases of wages for the employes. It would not be merely a question of the Labour Party doing this out of sympathy with their friends outside. Members of all parties would think it desirable to secure the electoral support of a large body of Government v.'orkers. (2) Under a system of State operation, people living in outlying districts — in the North ot Holland, for instance — where the passenger traffic is small, would demand of the Government that they should have a larger number of trains, and be placed more on a footing of equality with the residents in central districts, where the traflfic is large. In each of these two instances you would get Parliamentary Interference and an increase in working expenses. Then it is easier for a private company than it is for a Government to put the right man in the right place in the operation of a railway system. If a private company thinks fit to pay a good salary in order to secure the services of an exceptionally cap- able man, it can do so. On a State railway It might, in these circumstances, be necessary to get a Parliamentary vote, and you would find there were State Railways and Politics. 14-5 members who, though keenly alive to the need of good pay for the ordinary workers, would resent the giving of a substantial amount to the occupant even of a highly responsible post. A railway company, again, in making an appoint- ment, is in a position to consider efficiency only ; while a Railway Minister will be expected, in making his appointments, to satisfy his political sup- porters and not to offend his political opponents. He may thus be influenced by personal considerations, and by a desire to be regarded as impartial, rather than by the question of efficiency alone. One must remember, also, that both private com- panies and Governments make mistakes in their choice of men. But whereas a private company can easily get rid of, or transfer to another post, a person found to be not the right man for the place, it is much more difficult for a Government to make a change which may involve questions and unpleasant debates in Parliament. So the tendency would be for an inefficient, though not absolutely incompetent. State official to remain in his post, when once ap- pointed, and the service might suffer in consequence. Besides the certainty of wages questions being raised in Parliament, there would be the prospect of railway men's grievances being frequently brought forward for discussion. In Holland petitions from public servants with complaints to make are already freely presented and debated on at considerable length. What would be the position when we had 30,000 more State servants, as railway workers? is it not likely, also, that heads of departments would hesitate to discharge undesirable men if they had to run the risk of all the unpleasantness which Parliamentary intervention might involve? Do you not think the whole tendency of such conditions would be to weaken the discipline which ought especially to be maintained in the operation of so important an undertaking as a railway? T44 Railways and Nationalisation. CHAPTER VlJl. STATR RAILWAYS AND LABOUR. " We most emphatically express the opinion," declared a resolution passed, with only two dis- sentients, at the Middlesbroug|i Congress of the Amalgamated Society of Railway Servants in October, 1907, " that State ownership is the only practical solution that will confer permanent benefit upon railway workers and all other sec- tions of the community." Labour's point of view on the nationalisation controversy is essentially one of self-interest. The words, " and all other sections of the com- munity," were probably added to the foregoing resolution for the sake of appearances ; but the very slight regard that was shown for the in- terests of these other sections in the threats of a railway strike in the United Kingdom in the autumn of 1907, as well as in railway troubles elsewhere, strengthens the impression that the one great attraction which vState ownership has for the railway man who believes in it is the possibility of his getting from the State shorter hours and higher pay. Provided that he could secure these results, the other sections of the State Railways and Labour. 145 coninuinity would have to take their chance, and even, it may be, suffer in order that he may gain. Sir John Gorst has assured railway men that, with State ownership, shorter hours and higher pay would accrue to them ; and it would certainly be contrary to all precedent if, on the advent of nationalisation, the railway men did not bring to bear on the Government all the pressure they could, political or industrial, in order to secure the fulfilment of their aspirations. But, unless the cost is to fall on the community, any really material betterment of the railway men's posi- tion under State ownership and operation would be dependent mainly on the possibility of effect- ing the much-talked-of economies. These, ac- cording to the nationalisers, are to be secured mainly through abolishing the railway directors, getting rid of duplicate railway services, etc. But any saving on the fees of the former would probably go to paying the staff of State officials taking over the duties of supervision, and would not, probably, be available for the ordinary rank and file; and any substantial reduction in the number of trains run would mean that fewer men would be wanted, so that many of the present staff, instead of having their conditions im- proved, would have to join the unemployed. decreased staffs. During the debate on the resolution from which I have already quoted the unpleasant 146 Railways and Nationalisation. prospect of a decrease, under nationalisation, in the number of railway men employed was pointed out by Mr. Richard Bell, M.P., general secre- tary of the Amalgamated Society of Railway Servants. Amid cries of " Question ! " he said : — - He had listened to the speeches, and it was with pleasure he recognised how ready and anxious and willing every one of the speakers was to make sacrifices in the interest of the public benefit. But what he wished to say was just by way of re- cording the fact that, when the time for the nationalisation of railways came, many thousands of rail way men would have to suffer. . . . There was no question about it. There was a quantity of surplus labour now which would be increased if all competition were done away with and the railways were put under one company or one body. They must not forget the fact. CLERICAL staffs. One of the stock arguments of the nationalisers is that, with a single State system the services of " about 3,000 clerks "in the Clearing House could be dispensed with, and economies secured in this direction. " All this labour," says one writer on the subject, " is pure waste, necessi- tated by competition." Incidentally he does not stop to consider that this competition has been deliberately fostered by successive Governments, supported by public opinion, since the earliest period of railway history. Be that as it may, it seems to be thought that the salaries of about State Rah. ways and Labour. 147 .^,000 clerks would be useful for increasing the wages of drivers, firemen, platelayers and others. Perhaps so. But it would also mean the throw- ing of another 3,000 persons on the unemployed list. While, however, manual workers are ready enough to demand that every possible considera- tion must be shown for their own interests, they are apt to ignore any right to equal consideration on the part of clerks, accountants, bookkeepers and others who may also have a pardonable desire to live, and move, and have their being. Ri:-ABS()RPTION IN OTHER INDUSTRIES. When giving an address on the nationalisation of British railways at the Wardle Free Library in January, 1908, the Rev. H. V. Mills, of Kendal, said, " If the railways were nationalised, 40,000 men would be rendered temporarily idle; but such an impetus would be given to trade in other directions that employment w^ould soon be found for them." Mr. Mills' assurance would probably not be regarded by the 40,000 men as particularly reas- suring. It is the same sort of argument that so- called " temperance " reformers use when advocating the wiping out of the liquor industry. Unfortunately, industrial revolutions are not recovered from quite so easily. There is the personal difficulty in the way of men brought up L 2 148 Railways and Nationalisation. to one particular class of work adaptin^^ them- selves readily to another; and there is the com- mercial difficulty in the absorption of unem- ployed persons by industries already fully sup- plied with men, and not likely, in the case in point, to undergo further expansion simply be- cause the State had acquired the railways under conditions w^hich must, in themselves, have a considerable effect on the money market. In the end railway men would see brought about in the railway world an industrial upset from which few of them could hope to gain, and many would be certain to lose. NUMBER OF RAILWAY WORKERS. A return issued by the Board of Trade shows that the total number of railway servants, in all grades, at the end of 1907, was 621,341, classified as follows : — Enginedrivers & mo- Stationmasters 8,688 tor men ... 28,141 *Porters 56,402 Firemen 25,714 Policemen... 2,127 Goods guards and *Engine cleaners ... 21,458 brakesmen 16,786 *Carmen and van- Passenger guards ... 8,474 guards, etc. 24,256 Signalmen 28,658 *Carriage cleaners Pointsmen 745 and e.Kaminers ... 10,720 Shunters 13,158 Men and women Permanent way men 67,184 clerks 58,503 Permanent way in- Boy and girl clerks spectors I, '45 (under 18) 10,672 Other inspectors ... 8,084 ^Labourers ... 59,812 Ticket collectors and *Mechanics&artisans 93,797 examiners 4,163 ■^Miscellaneous 33,083 * Including persons under eighteen years of age. vStatr Railways and T.aboir. 149 THE LABOUR VOTE AND INTEREST. Even if all the railway men now employed were kept on, and whether they secured any in- crease in wages and decrease in hours or not, some very material changes might have to be brought about in their general position. As employes of the State they would have to be regarded fnjm a different standpoint from that of emploves of commercial companies. 1 have shown in an earlier chapter the sort of political pressure which railwaymen in other countries have, under State ownership, brought to bear on their Governments in order to pro- mote their own advantage. It is too much to assume that there is no probability of similar dif^culties arising here. What the position is already was shown in some remarks made by F.ord Joicey on the occasion of the annual meet- ing of the Newcastle Chamber of Commerce in May, 1908, when he is reported to have said, in regard to railway nationalisation : — He should always oppose such proposals, for Government control would be neither as economical nor as effective as private enterprise. A great danger would also lie in political power given by such nationalisation, a matter in which they had an object-lesson in dockyard members, whose aim seemed to be the betterment of their constituents at the expense of the nation. I50 Railways and Nattonalisation. THE EXAMPLE OF THE POST OFFICE SERVANTS. The possibilities of the situation have been further indicated by the action from time to time of the organised forces of Post Office servants. The Spectator stated the position in this respect very clearly in its issue of July ii, 1908, when it said concerning the Post Office employes : — These men possess a powerful organisation, which is admittedly devoted to the sole purpose ol improving- the financial position of the postal servants at the expense of the taxpayer. With this object in view, the organisation brings pressure to bear at every contested election, and Members of Parliament are induced to make promises which (-an only be redeemed at the cost of the Exchequer, solely to obtain the votes of a body of men who are indifferent to ordinary political issues. Already many politicians are gravely regretting that the House of Commons did not support Mr. Gladstone and Mr. Disraeli when they had the foresight to join in proposing that Civil servants should be dis- franchised. It is impossible to contemplate with- out the gravest alarm the prospect of a vast new body of State employes directing their votes on the same cynically selfish principles as actuate the postal servants. How the organised pressure here spoken of operates in actual practice was shown in the Hou.se of Commons on July 16, 1908, when, after the Postmaster-General had made his annual statement — in the course of which he sliowed that the advances in the rates of pay, 1(t lucel the recommendations of the Hobhoust" State f\AH.^v.\^■s and f>ABorR. 151 Committee, would result in an ultimate increase of ^"1,000,000 a year in the cost of working — one member after another rose to bring forward complaints from Post Office servants, mainly in his particular constituency, six hours of the sitting being thus taken up, apart from the time the Postmaster-General had occupied with his opening statement. Mr. Stuart (Sunderland) spoke of it as "a remarkable debate," and it is certainly doubtful if Al. Peschaud could find anything more remarkable in the records even of the Belgian Chamber in regard to the State railway servants of that country. The Post- master-General himself raised a mild protest, for in winding up the debate he asked the members " to look at the scheme as a whole, and not to think so much about constituents as about the service generally." The Globe of July 17, 1908, was in no way too severe in its comments on so deplorable an exhibition when it said : — • It is high time that this form of log--rolling and axe-grinding- should cease. It is as derogatory to Parliament as it is damaging to the public service that members of the House of Commons should per- mit themselves to become mere delegates and mouthpieces of certain sections of their con- stitutents who happen to be highly org^anised bodies, able and prepared to visit their displeasure upon a recalcitrant member at the next election. There can be no question that the votes of Post Office servants at the polls in 1906 were largely cast against the late Government because they had not seen their way, in the interests of economical 152 Railways and Nationalisation. administration, to sanction all the demands made upon them. This suited Mr. Buxton's party very well then, and they profited by it, but now that he is Postmaster-General he finds even his com- placency must have its limits, if the profits from the postal service are not to be reduced to a vanishing point in obedience to the clamorous demands of Radical members pressed very largely in support of their own election interests. railway men as state servants. But the question which really concerns me here is : — Looking at the example offered by the Post Office servants and the influence they can bring to bear on M.P.'s in furthering their own purely personal advantages, what would be the position when we had a body of over 600,000 State railway .servants, including a very large proportion of electors, able to exercise alike on individual members, on Ministers, and on Par- liament itself a degree of pressure probably far in excess even of that of the Post Office .servants themselves ? Under our present .system of representative government, the railway electons — especially in what are known as railway towns^ — would be able alike to return more men of their own class as M.P.'s; to influence candidates or members anxious to secure or retain their support; and, either through them or in other wa3'S, to exercise considerable influence on a British Government doinc" 'fll '* can to ]:)lease the electorate and make State Railways and Labour. 15,^ its own position secure. The strength of the rail- way men's position in having the right to elect, or, at least, to vote for their employers, would also be increased by the weakness of the Govern- ment in having to depend for their continuance in power on the favour of Parliament — a position not recognised in Prussia, a country whose State railway system is always held up to us as an example to follow. Such possibilities as those here indicated would be, indeed, a source of danger to the in- terests of the nation, and it would become a matter for very serious consideration whether a resort to nationalisation would not have to be accompanied by some change in our electoral system, or, at least, by some interference with the degree of freedom with which railway men in the United Kingdom can, under existing con- ditions, take part in political questions. VIEWS OF MR. WINSTON CHURCHILL. As bearing on this point I would recall the fact that in January, 1907, Mr. Richard Bell wrote to Mr. Winston Churchill, who was then Colonial Under-Secretary, expressing the ap- prehension of members of the Amalgamated Society of Railway Servants on account of a circular issued by Lord Selborne to the Government railway workers in the Transvaal, prohibiting them from participating actively in 154 Railways and NATiONALisATioisr. electioneering, or from standing as candidates for the Legislature. In his reply to this com- munication Mr. Churchill said : — It is very natural, and, in my opinion, very proper, that British railway men should watch with vigilance over the interests of their comrades in similar employment in South Africa. There is, how- ever, no ground for anxiety. It must be remembered, hrst of all, that the Trans- vaal railways — unlike British railways — are owned and worked by the Government, and that those who are employed upon them are not the servants of private companies but of the State. It has long- been held undesirable that regular Government ser- vants should conspicuously take sides in party politics, and, in consequence, the railway servants in both the neighbouring self-governing colonies of Natal and the Cape are expressly forbidden to do so. Indeed, the circular which Lord Selborne has issued makes rules which are less stringent than those en- forced in these two colonies ; for whereas in the Cape and in Natal Government railway servants are not allowed to join any political association, they will, in the Transvaal, under the circular, be allowed not only to do so, but even to sign requisitions to candi- dates. It is only prominent political activities that are denied them so long as they continue as Govern- ment servants to draw Government pay ; and I think that such a restriction is at least as much in their own interests as in those of the public service generally. Wherever State servants take an active part in the warfare of political parties there is always the danger that triumphant political parties will try to job their own supporters into positions of profit and trust and to exclude their opponents. Such a system has b((n found everywhere to be fatal to good govern- iiK-nt, and we should certainly not be justified in Statf Railways and I.aboi'r. 155 doing anything- to introduce it into those new colonies for whose fair start we are responsible. Granting that there is "no ground for anxiety " on the part of British railway men at present, the question is whether the conditions referred to by Mr. Winston Churchill, no\v President of the Board of Trade, would not arise when the employes of the railway com- panies became " regular Government servants," and whether precautionary measures of the type in question would not be as excusable, if not as necessary, here as iMr. Churchill shows them to be in South Africa. tradk-unionism and strikes. There are other directions, besides, in which the liberties of railway men might have to be curtailed on their becoming State servants. In referring, at Liverpool, to the railway con- troversies in the autumn of 1907, Sir John Gorst said, " Nothing but the energetic interference of Mr. Lloyd-George prevented a national railway strike because the railway directors were so foolish as to attempt to run a tilt against trade unions." Are we to assume from this that if the policy of nationalisation which Sir John Gorst recommends were carried out, the Government would themselves refrain from any such attempt, and would give to railway men's trade unions, on their threatening (o strike, all the " recognition " 156 Railways and Nationalisation. and power of intervention and control they wanted ? I will not stay here to discuss the certainly debatable point whether the policy of bluff and intimidation adopted by the Amalgamated vSociety of Railway Servants in their 1907 cam- paign would really have led to a strike of grave proportions, had it not been for the intervention of the Board of Trade, as Sir John Gorst quite gratuitously assumes. But let us take it, for the sake of argument, that the position was precisely as Sir John describes. We get then the fact that, whereas the President of the Board of Trade was able to intervene between the railway companies and a dissatisfied section of their servants, there would have been no one in a corresponding official, but independent, position able to inter- vene had such a dispute arisen on British rail- ways owned and operated by the State. The Government, as one of the parties concerned, could not have assumed the role of arbitrator or mutual friend; and although, it is understood, the railway companies themselves were fully pre- pared, in IQ07, to risk the threats of an extremely problematical strike, and to meet any possible contingencies, rather than make the surrender demanded of them, it is very doubtful if the Government, having regard to the exigencies of the political situation, would have been equally firm had the railways been State-owned and Slatr-oprrated. In any case, it is most undesir- State Rail ways and Labolr, 157 able that the Government of the country should have to run the risk of drifting- into so anomalous a position. To illustrate the situation in which Govern- ments and the community may alike find them- selves placed on the occurrence of an actual strike of railway men, I would offer three typical examples, drawn from Hungarv, Holland and Australia respectively. a wages strike in HUNGARY. The State railways in Hungary have a per- sonnel of about 60,000 officials and employes, and among these there existed in the early part of 1904 considerable dissatisfaction on the subject of salaries and wages, the discontented including not only drivers, firemen, platelayers, etc., but stationmasters, telegraphists and others. The Government brought forward a measure for in- creases to a total of about ^100,000 a year; but tile prime movers in the agitation declared that for the lower ranks this amount would allow of an advance of only about eighteen shillings a year, and the offer must, they said, be rejected. They summoned a meeting of railway men to be held in Buda-Pesth, and, on the authorities pro- hibiting the gathering, a strike was threatened by the two chief leaders, stationmasters near the capital. These two were suspended, and on the evening of April 19 they retaliated by de- 158 Railways and Nationalisation. daring a strike of all State railway employes in Hungary. The order thus given met with an instant and widespread response. The telegraphists circu- lated the command, and then went home. From that moment, wherever news of the declaration of war was received signalmen left their boxes, en- gine drivers and firemen — mostly at midnight — - got down from the locomotives of trains which had not yet reached their destination, the other grades left off work, and hundreds of passengers found themselves stranded at wayside stations, with no chance either of getting further that night or of communicating with anxious relatives and friends. The disregard of public interests was absolute, and this, too, although the railway men in the State service had, on appointment, taken an oath not to absent themselves from work without permission, while, under Article 480 of the Criminal Code, they were liable to three years' imprisonment for leaving the service with- out giving notice. The only trains allowed to pass on the 19th were the up and the down Orient Express. When the driver of one goods train approaching Buda-Pesth showed an inclination to proceed in spite of the strikers, several hundred of them lay down on the rails, and declared that the train could only pass over their bodies. Thereupon the driver gave way. On the 20th a few trains were run \\ith the help of some retired railway State Railways and Labour. 159 veterans and others; and on the 21st the Prime Minister said in ParHament : — It is a pity that our sense of humanity is against meting out due punishment to those who were un- faithful to their oaths and to their duties, or, at least, to the ringleaders, who are well-salaried men, and ought to have known better; but we have adopted the principle of full pardon for all, provided the strike is immediately ended. In order to facili- tate this we have allowed a meeting of men to take place to-day at Buda-Pesth, and shall allow the formation of a union of State railway men, with as many branches as they like to have. Should legiti- mate objections then be raised against the Bill now before the House, they will be duly considered. But the men must not think that we are forced to give way. We can resume traffic without them, and we have thousands willing to fill the places of those misguided men. The negotiations thus opened broke dov^n on the 23rd, when the strikers presented an ultima- tum declaring that their full demands as to pay and conditions — involving an increase in the working expenses of ;^440,ooo a year — must be conceded within 24 hours. The strikers evidently regarded themselves as masters of the situation, and there seemed to be some reason for their im- pression. Not even milk and meat trains could get through, and the price of provisions in Buda- Pesth had already increased by from 25 to 50 per cent. Valuable racehorses had been left to themselves "somewhere down the line"; 300 wagons loaded with meat for export remained at i6o Railways and Nationalisation. Belgrade, unable to get away, while passive de- veloped into active resistance when malicious damage was done to such an extent, in certain districts, in the way of tearing up lines, cutting telegraph wires, and rendering instruments un- workable, that, according to the director of the State railways, it would take six weeks to do the necessary repairs. The fact should be mentioned, also, that throughout the dispute the strikers re- ceived direct encouragement from the sympathe- tic attitude of the Opposition parties in Parlia- ment, and especially of the Clericals. In Hungary, however, the Army forces include a " Railway Regiment " of about 2,000 men, and on April 23 and 24 travellers in Hungary saw military officers in uniform acting as station- masters, and soldiers in uniform doing the work of engine drivers, guards, pointsmen, telegraph- ists and even porters. The Government, too, were able to play a master stroke which brought the whole trouble to a somewhat dramatic close. In the " camp " which had been formed by the strikers there were a large number of reservists who had joined the railway service after leaving the Army, and the Government threw a bomb- shell among them in the form of an Army Order calling up all these reservists, so as to compel them to perform under a military regime the work thev would not do as civilians. Disobedience to such a summons constituted an offence against military discipline punishable with imprisonment State Railways and Labour. i6i up to 10 years; and violent resistance to superiors engaged in carrying out the Order would be an offence punishable with — death, by shooting! So those of the strikers who were reservists had no chance left; and when, as the Army Order was read to them, they saw their camp entirely surrounded by military and police, they did not want to resist, or even to disobey. They returned at once to their duties, the camp was broken up, and on the 25th the railway strike was practically at an end ; though the Socialists tried for some days longer to foment a general strike of all industries throughout Hungary in revenge for the Army Order, which, they declared, " trampled on the freedom of the workmen." British railwav men will see from the story here briefly told that State ownership does not necessarily mean satisfactory conditions for the workers, while there is a suggestion that " all grades " really were affected in the troubles in question, considering that even stationmasters played the role of ringleaders. British traders and travellers, in turn, will see that a railway strike may just as readily occur under State as under company ownership. They can also speculate on what would happen in the event of such a strike as the one in Hungary being de- clared under conditions of State ownership of railways in the United Kingdom, where the final expedient so successfully resorted to by the Hungarian Government would not be possible. 1 62 Railways and Nationalisation. Would our own Government at least form a "Railway Regiment" in connection with British State railways? This is done not only in Hungary but in France, where (although the proportion of State-owned to company-owned lines is so small) a certain section of the State system is operated exclusively by a constant succession of military officers and soldiers, who thus acquire a practical knowledge of railway working, and to-day represent, in the aggregate, a considerable force of railway reservists avail- able in case of need. A " sympathy strike " IN HOLLAND. The strike of railway men in Amsterdam in January, 1903, causing an entire suspension of the railway trafiic there for one day, was due, not to any persi^nal grievance of the railway employes themselves, but to their " sympathy " for another body of men, namely, the dock labourers. The latter had already gone out on strike, and, finding that their places were being filled up by outsiders, they made overtures to the Railway Employes Union to help them. Thereupon this Union approached the managing directors of the Dutch Railway Company and called upon them not to convey by train any goods which had been handled in the port of Amsterdam by non-union labour. The Com- pany for the Exploitation of the State Railways State Railways and Laroir. 16;, were also concerned in the matter. The two companies approached the Minister of Com- merce at The Hacrue, and pointed out to him that compliance on their part with the demands of the men's leaders would involve a breach of one of the main conditions of their own agreement with the Government, namel}', that the com- panies were bound to accept goods for transport by whomsoever offered. They therefore asked the Minister whether, if they surrendered to the men, and thus avoided a possible dislocation in the railway service, he would free them from responsibility for default of their agreement. The Minister replied that he was unable so to do, and that, inasmuch as they were private com- panies, they would have to accept full responsi- bility for whatever they did. At first, therefore, the companies refused to give way to the men, who, carrying out their threat, struck work in Amsterdam on January 30, and were joined by the large body of municipal workers employed on the various enterprises owned by the city. The companies then said to the Government, " If you will strengthen our hands with police and troops, we will attempt to go on." But there were not sufficient troops at once available; the merchants and traders began to give notice that the}' should hold the com- panies responsible for all delays in delivery, and, in the result, the companies surrendered to the strikers on the 31st, agreeing to boycott the M 2 164 Railways and Natioxai.isation. traders who had had the temerity to employ non- union labour. The Government realised the gravity of the position thus brought about, and in the follow- ing April they introduced into the Second Chamfjer of the States General an Anti-Strike Bill which, among other things, made it un- lawful for anv railway employe' so to act towards another as to interfere with the working of the lines, and provided for the punishment of rail- way men going out on strike. The main pur- pose of the measure, as explained by Dr. Loeff, Minister of Justice, was " to separate evilly-dis- posed workers from the lo3^al section, in order to prevent the recurrence of strike agitations based on Anarchist movements." The introduction of the Bill led the body knov/n as " The CcMiimittee of Defence " to pro- claim a general strike throughout Holland, not alone of railway men, but of workers in all trades and industries. The bakers, especially, were called on to show their *' sympathy " with the railway men, just as the latter had already given a proof of their sympathy with the dock labourers ; the diamond workers did respond, and so did some of the gas workers. On the other hand the power of the strikers to interfere with the railway operation was now" decreased by the fact that all the railway stations were occupied by troops, while sufficient of the rail- way men remained loval to allow of a restricted State Railways and Labour. 165 service of trains being run, though every train carried a mihtary escort, by way of precaution. The Second Chamber passed the Anti-Strike Bill on April 9. It then went through the First Chamber and became law within two days ; but the railway men had, in the meantime, aban- doned their own strike and the Defence Com- mittee their general strike. As a set-off to the very stringent enactments of the measure, the Government undertook to revise the wages and labour conditions of the railway workers, com- plaints in relation thereto having been made in connection with the second series of troubles. But a still further event which happened — and one that is especially noteworthy in view of what 1 have already said concerning the strike in Hungary — was that during the debate on the Anti-Strike Bill, the Second Chamber authorised the Government to establish, in connection with the Army, a Railway Brigade which would be able to operate the railways in the event of any further strikes occurring. LABOUR V. GOVERNMENT L\ VICTORLK Wages and general conditions of employment had no direct concern with the strike of rail- way servants that occurred at Melbourne, Victoria, in May, 1903. The event was, rather, a struggle for supremacy waged against the Go- vernment, through the instrumentality of the 1 66 Railways and Nationalisation. railway employes, with the design of enabling organised labour to become the dominating factor in Victorian politics. It was, in part, a case where State servants were made use of for pro- moting what the Premier, Mr. Irvine, described as "a long-meditated revolt against established authority," and the issue of which, in his opinion, concerned " not only Victoria but every other country." The political organisation of labour in Victoria had been steadily proceeding for some years prior to 1903, as, indeed, had been the case in other Australian colonies besides. At the same time the public services were becoming more and more overmanned, each succeeding Ministry, as it came into power, having to distri- bute jobs among crowds of supporters expec- tant of rewards for services rendered. The public expenditure was cidvancing rapidly, and it began to look as if the railways, especially, were to be operated in the interests far less of the colonists than of the actual or prospective railway workers. Attempts were made in Victoria to secure a more economical system of operation, but they were frustrated by the organ- ised forces of the railway men, who, in turn, had the powerful supjjort both of the Labour Mem- bers in the colonial Parliament and of the " Mel- bourne Trades Hall," a federation of the labour unions of the colony with which the railway- men's societies were in close alliance. Not only State Railways and Labour. 167 were all attempts at retrenchment in railway- operation frustrated, but the railway men, with their influential backers, sought practically to fix their own conditions of service. There was, also, the danger that if the association betw'een the Trades Hall and the railwaymen's unions continued, the latter might be called upon (as, I have shown, actually happened in Holland) to take part in some dispute with which they had no direct concern. The aims of the Trades Hall itself were avowedly as much political as they were economic, and the whole position consti- tuted a source of no little danger to the political and economic interests of the colony. In the result the Railway Minister informed the railway men that, while he did not object to their having unions of their own, they must sever their connection with the Trades Hall. They refused, and thereupon the Prime Minister assumed the lead, and gave notice that unless the four railway unions affiliated with the Trades Hall withdrew therefrom on or before the 12th of May, the whole of their executive officers would be suspended. At the same time he sum- moned the State Parliament to meet to deal with the threatened emergency. The men replied, on May 8, that unless by five o'clock that day the Premier withdrew his demand, the engine drivers and firemen would go on strike at mid- night. The Premier did not withdraw, and the strike began at the hour stated. [68 Railways and Nationalisation. To fight the battle thus proclaimed the railway unions had /,70>