Public Ownership of Public Utilities
Publication:
The Empire Club of Canada Addresses (Toronto, Canada), 1 Feb 1906, p. 143-154


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White, John Z., Speaker
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Text
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Speeches
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Increasingly heated controversy over the question of public ownership of public utilities. Arguments for and against. The issue as applied to the railroads. What's wrong with asking a railroader about railroads: the question not one of railroads, but of government. The railroad as a public function. The fundamental principle that supports the claim that railroads are public utilities. The physical necessity of trade across the nation that distinguishes the public function of railroads, just as the right of highway has always been a matter of public law. Private management tending toward economy in management; but with the resulting profit going to who? A look at the economics of the issue, with illustrative examples, figures, and comparisons with other countries. The argument that public ownership would so increase the number of public employees that the political supremacy of the party in power would be perpetuated. Socialism as public ownership of private utilities. Ways in which private utilities are naturally open to free competition. A method by which the anxiety of those who fear socialism may be allayed, provided the so-called conservatives will undertake a vigorous corrective policy; a method which involved genuine public regulation. A caution against people in Canada as well as in the United States not hoping for too much from the public ownership of public utilities. Demanding freedom from all monopoly. The history of all countries where public ownership has been tried without curtailing the landlord's power showing no relief to the industrial masses. Private taxation as the cause of all industrial troubles. Public taxation of private monopoly as the remedy.
Date of Original:
1 Feb 1906
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English
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PUBLIC OWNERSHIP OF PUBLIC UTILITIES.
Address by Mr. John Z. White, of Chicago, before the Empire Club of Canada, on Thursday, February 1st, 1906.

Mr. Chairman and Gentlemen;

Controversy over the question of public ownership of public utilities is becoming more and more heated. Those who oppose public ownership insist that it is nothing more or less than a decided step toward socialism-in fact, that public ownership is socialism. Those who favour public ownership argue that this is the only measure whereby individualism can be maintained; that private ownership of these utilities is steadily crushing independent industries. Where opinion is so widely separated it is probably needless to say that there is plenty of room for argument. Argument, however, is not common in dealing with public questions. Declamation is easier.

It is claimed by advocates of public ownership that the railroad is a public function. This claim is scouted by others as only the expression of a theory and a demand is made for something practical. Barely stopping to note that a theory is but an explanation, the other side retorts that outside of the United States about two-thirds of the railroads in the world are publicly owned. But this fact has little effect on the average American. He is confident that his way is the best way. He is as sure of this as a voodooist is of the efficacy of charms.

Besides, all the railway experts so declare, and they know. Of course, they know. When we wish to learn about groceries, we ask grocers; when we wish to learn about stocks, we ask brokers. And so, if we want to know about railroads, we should, of course, ask railroaders. Looks reasonable, doesn't it? What is wrong with this idea? Simply this. The question is not of 143 railroads, but of government. Work it out. As I have suggested, the railroad is a public function. Now apply the rule to that idea. When we would learn about government, we seek governors; and who may these be? There is an oldfashioned, maybe obsolete, notion to the effect that the people rule-that they are in very truth governors. And what say the people? Why, the people are not of one mind-are divided. Hence the arguments. And these are made to the people. For the people, not any particular set of experts, nor all sets, but the whole people, are to deal with and settle this question.

One thing is beyond dispute. If private ownership is the better plan, we in the United States are now getting its full benefit-the best possible. Strange as it may seem, however, not even Populists and Democrats, but prominent Republicanseven the President-are insisting that something must be done. Imagine! Something must be done to relieve the best possible condition! Curious, isn't it? Yes, something must be done. The question of public ownership of public utilities is up, and full and fair discussion will sooner or later compel an equitable settlement. What fundamental principle supports the claim that railroads are public utilities? Simply this that each individual has a natural right of highway. That is to say, in order to live we must produce food, clothing and shelter. We desire and have a right to produce these in the most economical way known. The basic law in economics is that "man seeks to gratify his desires with the least exertion," which is but a recognition in human nature of the physical fact that all forces flow along the line of least resistance. This desire to produce in the most economical way leads to subdivision of labour. That is, one man or a group of men produces one form of wealth, while another man or another group produces another form. Then they trade portions of their products. This process of trading gives rise to a certain

physical necessity-namely, a path or highway.

Men produce wheat in Dakota. Other men produce cotton in Mississippi. They wish to trade; they have a natural right to trade. To trade they must cross the land. Other men wish to produce corn and other varieties of wealth in localities between Dakota and Mississippi. These also have a desire and a right to trade. Is it not perfectly clear that the establishment of the necessary paths, or highways, will lead to conflict if left to individuals ? Will not one man wish to make a path where another will wish to grow corn? Right here a distinction should be noted: Each individual has a right to cross the land-a right of highway. So, also, each has a right to the use of air. In the latter case, however, each can use the air without interfering with his neighbour, but in the case of the highway this is physically impossible. It is this physical condition that compels a community to act as a unit in establishing highways. And when a community acts as a unit the majority must rule. It not only can rule, but it musteither positively or negatively. If the minority rule is it not because the majority refrains from exercising its-power?

This physical necessity distinguishes the public function. Therefore has the right of highway always been a matter of public law. The community--the publicmust act. Even our present railroad systems rest on this communal or public action. The right-of-way is the public thing-the common right. It is therefore asserted by advocates of public ownership that when any public body grants a right-of-way to a group of individuals it thereby gives to this group a power that properly inheres in the whole people. Further, that the power of the whole people is sovereign, and that therefore such a grant is a partial abdication of sovereignty.

An argument so simple, and seemingly so conclusive, would undoubtedly result in public administration of public utilities were it not for the fact that a wrong disposition of social 'forces, while injurious to the community as a whole, is financially beneficial to a few who control by virtue of mistaken law. A generation or two ago wolves were numerous in northern Illinois. Some localities began to give bounties for their destruction, and almost immediately some of the farmers began breeding wolves. It paid better than breeding hogs. Many things can be done through legislative stimulus; even wolf culture is thereby possible-graft culture as well. Because of this private profit we find all manner of reasons advanced against the policy of public ownership of public utilities. First it is claimed that public operation is wasteful; that private profit is the only incentive that will insure careful and economical management. There is just truth in this contention. Private management does tend toward economy in management. But who gets the resulting profit?

If a given service can be produced under private management at a cost of 10, while under public management the cost is 12, but is rendered to the people at cost by public producers, and at a profit of 50 percent by private producers, or an expense to buyers of 15, which is the greater economy? Or, if public producers make the same charge, namely, 15, will not the profit of 3 inure to the people instead of being a private bargain? It would seem that all that can be fairly claimed on behalf of the economy of private management of public utilities may be freely granted without loss to the argument for public ownership.

But the practical man is never content with argument. He wants facts. Well, facts can be furnished to him in great abundance. For instance, Hugk H. Lusk of Australia tells us this: In proportion to population that country has nearly six times as many miles of telegraph lines as any other country in the world, excepting New Zealand. It has one telegraph station for every 1,300 people. In the United States we have one for every 3,000. Australia sends two and one-half messages per year per inhabitant. We send one. Our rates are from two to three times higher than those of Australia. The Australian lines make three per cent. above cost of operation and maintenance. The rate of profit would hardly satisfy Mr. Gould. The post-office and telegraph is administered by the public as one system, and in small places the postmaster and operator is the same person. Of 6,000 post-offices, 3,000 are telegraph stations. And with it all the population of Australia is only about one-twentieth that of the United States.

United States Consul Charles N. Daniels reported on public ownership of the water system at Sheffield, England. Charges had been reduced 25 per cent. All expenses were met, including sinking fund, and a good profit secured. Profit in 1887 was $29,058; in 1904, $361,231. Improvements in plant and reduction in cost to consumers had been made by the city, and yet gross and net revenues had increased under the despised public ownership system. In 1904 the city began furnishing water for free public baths, and for other purposes, by which the expenses of the health department were reduced $13,140.

United States Consul Hamm, Hull, England, reports that the private telephone company charged nearly $50 per year for telephone service to a private family. The public establishment renders like services for a little less than $25, thereby forcing the private company to do likewise. A curious fact is that the private company is under contract to render as cheap service in all cities, as in any, for unlimited service. If American officers knew how -to bargain as well as the British we might fare better--or if we were a little more careful in selecting public officers. Gas is also under public management in Hull; also water; also electric lighting; also street cars. In each department a profit is shown, with the following low prices to consumers: Street car fare, two cents; exclusive telephone service in private house less than $25 per year; in business office, $30 per year; gas, 48 cents per thousand feet. Consul Hamm says the object is not to make profit, but to furnish citizens with the service. That policy may have its advantages. In Glasgow, street cars were placed in possession of the public in July, 1894. Fares have been reduced 30 to 40 per cent. Drivers and conductors were required to work 12 and 14 hours a day. Under public management they work ten hours. Meanwhile the concern is making money for the city, after meeting all obligations.

Dr. Hugo R. Meyer, Lecturer on Political Economy at Harvard, tries to counteract the influence of the facts of public ownership in Glasgow, and to this end makes comparisons between conditions in the United States and Britain. That is not a fair comparison. The true method is to compare Glasgow under private management with Glasgow under public management. He makes much of the fact that some car fares in Glasgow are six cents, but fails to tell us that 18 percent of total receipts is from one cent fares, and 67 percent of total receipts is from two cent fares. He tells us the average length of ride in Boston is estimated to be between three and four miles. But how the estimate is arrived at he leaves us to guess. It seems to be assumed merely from the fact that in some of our cities street car lines are longer than in Glasgow. Railroad lines in the United States are also longer than in Great Britain, yet Prof. Emory R. Johnson quotes Dr. Weyl, of the University of Pennsylvania, to show among other things that the Briton travels 244 miles to the American's 209. He takes three and a half trips to the American's single one. Dr. Meyer tells us that it is as easy to earn two cents in the United States as to earn one in Glasgow, as if the ease or difficulty with which we earn should determine to what extent we shall be robbed.

Gas in Glasgow was $1.14 per thousand before public ownership. It is 54 cents now. Water was 14 pence per thousand gallons; now it is six pence. We are told that in Manchester for a morning or evening street car ride workmen are charged two cents without regard to distance; that Huddersfield has public ownership of water, gas and electric plants and street cars, while rates are much lower than any in this country; that a Belgian workman living 42 miles from his place of employment can buy a ticket good to go and come six times a 'week for 57 cents; that in Berlin like tickets on suburban lines, some of them running ten miles into the country, are sold for 17 cents a week; that in the same city a yearly ticket, good for an average ride of five miles in and out as often as you please on any train, is sold for $4.50; that as far back as 1894 Russia reduced passenger rates to three-fourths of a cent per mile for distances under 106 miles, and for 2,000 miles the fare was $6; that this paid so well a farther reduction was made; that in Victoria publicly owned railroads earned enough revenue to pay all the Federal taxes. In 1903 the Municipal Year Book of Great Britain showed that 56 cities give a profit of over $5,000,000 on municipal lighting, which under our management would have gone into private pockets, with undoubtedly as much if not twice as much more. The average fare on railroads in Switzerland is 1.55 cents, in France 1.21 cents, in Germany 1.1 cents, in Austria-Hungary 1 cent, in Belgium 0.88 cent, in the United States 2 cents. It would be more here but for deadheads.

Such figures as we are permitted to examine by the kindly owners of the United States reveal a worse condition than that of Europe. Ex-Governor Larrabee of Iowa places the average cost of railroad construction at $25,000 per mile, and the * water in the capitalization at $38,000 per mile. C. Wood Davis says many lines have been built for $8,000 to $15,000 per mile; that the Kansas Midland cost $10,200 and was capitalized at $53,024 per mile; that the Superintendent of the St. Louis & Iron Mountain Railroad swore before the Arkansas State Board of Assessors that he could duplicate that road for $11,000 per mile, but it was capitalized at five times that sum. Poor's Annual gives the U.S. railroad capitalization for 1890 at $63,600 per mile, and says it was 50 per cent. water. This leaves cost a trifle over $30,000 per mile; but the estimate evidently was not intended to be exact: Floyd W. Mundy says the New York, Ontario and Western has 480 miles of track, while the Chesapeake and Ohio has 1,500 miles. The earnings for 1901 were about $10,000 per mile on each road, but the capital stock on each road was about the same in spite of the difference in length. The railway capitalization for 1903 is given by the Inter-State Commerce Commission at $63,r86 per mile. The Chairman of the Inter-State Commerce Commission, speaking to the Senate Committee, said

"It costs about one-fourth of what the wheat sells for to get it to the sea-board market. The freight on a train of 40 cars, with 20 tons to the car, making 1,200 tons, from Chicago to New York, at 20 cents a hundred, would be $4,800, yet the bare cost of hauling that train is not much over 50 cents a mile. That is, a train which earns nearly $5,000 is moved at an expense of about $500."

The large capitalization is primarily for the purpose of concealing as far as possible the unreasonably large profits, although it often serves other ends, especially in stockjobbing schemes, and indirectly aids in the advance of rates. Passenger rates vary from two to four cents per mile. In Europe first-class fare is three cents, and is paid by the aristocracy, the fools and the Americans. Second-class is one and one-half to two cents, and is used by the well-to-do middle class people. Third-class varies from one-half to one cent a mile, and accommodates more than two-thirds of the passenger traffic. In the United States the rich pay little or nothing; ordinary people who travel much, pay two cents-the "mileage" rate; the poor and others who travel but little (the third-class in Europe, which travels at one cent or less), pay three cents or more. This result, of course, flows from the fact that we have no classes in our democratic republic, where every man is the perfect equal of his fellow before the law! An oil refiner writes under date of October 4th, i899, that he "manufactures 35,000 barrels of oil per month. Seventy percent is marketed in Europe, and go per cent. of that in countries where the railroads are controlled by the Governments. We have no difficulty in competing with the Standard Oil Company in those countries." He further says that he is a "believer in government ownership of the transportation lines of this country." Now can we help inclining to agree with his view, when we remember that all honest men have always been opposed to interference with the highway-even by Dick Turpin.

But it is objected that public ownership would so increase the number of public employes that the political supremacy of the party in power would be perpetuated. Is there anyone so innocent as not to know that these corporations are in politics now, are in fact the dominating influence in both parties-both before and after elections, and that their influence is exerted secretly? If railroads are great forces, and, therefore, to be feared, shall we not be safer if they appear in the political arena openly? Will it not be much safer to have a Government manager who can be called to account than an irresponsible one who might carelessly remark: "The people be damned?" When railroads go into liquidation, is it not our practice to place them in the hands of receivers, and has not such management been found to be as honest and efficient as that of the men appointed by the railroad corporations? Grant all that may be claimed as to the dangers of public ownership of public utilities, and private ownership is many-fold more dangerous. "It is socialism anyway," cry monopoly beneficiaries. No, it is not? Socialism is public ownership of private utilities.

Private utilities are those utilities that are naturally open to free competition. Lines of business that rest on a right of way do not fall within this definition. As I have already mentioned, the right of way is the common right. It is controlled by law, necessarily. We have developed a practice of abdicating this power, and thereby have placed in private hands what amounts to a power to tax. There is yet to be shown a group of men long in power who have not used such authority to enrich themselves by oppressing others. At present the railroads can destroy or stimulate any industry in any particular locality. If the public of the United States owned the roads, how would the iced-car trick of the beef trust work? Where would be the leverage of the oil monopoly? Who would get the passes? Should we not save the whole cost of railroad solicitors which C. Wood Davis places at $20,000,000 per year? By using shortest routes we could save $25,000,000; by consolidating depots and staffs, $20,000,000; by refusing passes, $30,000,000; by dispensing with useless officers, $33,000,000. By earning, instead of appropriating, the money of the people we could avoid killing one passenger in every 2,267,000 carried, while Germany kills one in 10,000,000; we could avoid injuring one in 170,41, while Germany injures one in 1,700,000. In ten years we killed over 66,000. As to employees, we injure one in every 28, and kill one in 447.

There is, however, a method by which the anxiety of those who fear socialism may be allayed, provided the so-called conservatives will undertake a vigorous corrective policy. This method involves genuine public regulation. Since the beginning of the agitation for the Inter-.State Commerce Commission in the Republic we have had nothing but failure from any and all attempts at regulation, and it is now frequently said that the roads are stronger than the Government. In a sense this statement is true, as President Roosevelt is likely to discover. But why is it true? The vulgar notion is that the monopoly companies corruptly influence elections and both Legislative and judicial bodies. There is a large amount of truth in this same vulgar notion. But a much more potent cause for the failure of regulative measures, and one which influential advocates of regulation studiously ignore, is the doctrine laid down in the Dartmouth College case, by no less an individual than John Marshall, while Chief Justice--of the Supreme Court of the United States. As was entirely fitting, Daniel Webster appeared as counsel. In that case, without right or authority, but by usurpation, Marshall held a corporation franchise to be a contract, acrid,' therefore, under the protection of the clause in the Constitution regarding the inviolability of contractual obligations: This is the doctrine which makes regulation so difficult. It is contrary to all precedent. Contrary to all reason. It was, and is, pure usurpation. If our people want regulation, instead of public ownership, they must get rid of that doctrine.

If those who oppose public ownership on the ground that it is socialism, should substitute public regulation they would first be obliged to abrogate, in the United States, the John Marshall doctrine. Unless this can be done we must be swept forward in the rising tide of public ownership sentiment. The condition of trade and labour calls for redress. The advantage of modern productive power is secured to those holding legal privileges. Industry-both capital and labour-is despoiled. But the essential remedy is simple. Restore liberty to all men. We seek not property, but freedom to earn and keep what we earn. The spoliation of industry is increasing with even greater ratio than the power to produce. All available land is owned. Therefore the normal safety valve of our industrial population is closed. So long as there be available lands open for settlement, so long is abject poverty impossible. But with this avenue of escape shut off, beware.

. Finally, people in Canada as well as the United States must not hope too much from the public ownership of public utilities. If railroads are placed in the hands of the public the farmer will be able to ship his produce more cheaply. The same is true of the manufacturer, and of all other producers. What, then? As the farmer makes more profit the value of his land will rise. As the manufacturer increases his profits, his site for business becomes more desirable, and, therefore, more valuable. The same is true of all kinds of producers. It follows, then, that as we find relief from monopoly charges lay- public utility corporations, we shall be met by increasing monopoly charges by land owners. What we save from the clutches of railroads we shall lose to the rapacity of earth owners. Shall we, therefore, vote public ownership hopeless? By no means. We will declare that land owners are no more entitled to un earned wealth than are railroad companies. Tax no industry. Tax the value of land alone. We demand freedom from all monopoly.

The history of all countries where public ownership has been tried, without curtailing the landlord's power, shows no relief to the industrial masses. In Glasgow we find an increasingly emphatic demand that the British Parliament give to the city permission to tax land values. We find the demand indorsed by scores of other municipalities in Scotland and England. Public ownership makes the truth very clear. If we add all the earnings of public utility corporations together, we have a sum not much over one-half of the amount we pay in taxes, although the Governments do not get all that we pay. Some one does. The total values of the country are probably not less than $100,000,000,000. Subtract from this amount all public utility values and commodity and building values, and look carefully at the remainder -and name it.

Private taxation is the cause of all industrial troubles. Public taxation of private monopoly is the remedy. Judge Grosscup, of the United States District Court at Chicago, says we must, in that country, recast and regenerate the Republic's corporation policy. He thinks the general Government should undertake this task. Has the general Government's course thus far been such as to inspire confidence? It looks very much as though that same general Government, as it appears in the guise of the Supreme Court, might be the cause of our difficulties. Still, the judge makes a splendid presentation of the cause of private property, giving as his text: "In the beginning the Creator so conditioned mankind, that always underneath him would be the earth, always about him the air, always above him the sky. On this, as a dowry, he started us." But the judge did not enlighten us as to who has taken possession of the dowry. Nor did he explain how it may be recovered. Yet this is the question that all must face-in Canada as well as with us. Here is the task for "big hearts and big brains," and it is a task that big brains have heretofore been much more agile in dodging than courageous in meeting. What shall it profit us if we gain all public utilities and lose the whole world?

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Public Ownership of Public Utilities


Increasingly heated controversy over the question of public ownership of public utilities. Arguments for and against. The issue as applied to the railroads. What's wrong with asking a railroader about railroads: the question not one of railroads, but of government. The railroad as a public function. The fundamental principle that supports the claim that railroads are public utilities. The physical necessity of trade across the nation that distinguishes the public function of railroads, just as the right of highway has always been a matter of public law. Private management tending toward economy in management; but with the resulting profit going to who? A look at the economics of the issue, with illustrative examples, figures, and comparisons with other countries. The argument that public ownership would so increase the number of public employees that the political supremacy of the party in power would be perpetuated. Socialism as public ownership of private utilities. Ways in which private utilities are naturally open to free competition. A method by which the anxiety of those who fear socialism may be allayed, provided the so-called conservatives will undertake a vigorous corrective policy; a method which involved genuine public regulation. A caution against people in Canada as well as in the United States not hoping for too much from the public ownership of public utilities. Demanding freedom from all monopoly. The history of all countries where public ownership has been tried without curtailing the landlord's power showing no relief to the industrial masses. Private taxation as the cause of all industrial troubles. Public taxation of private monopoly as the remedy.